When you really can retire, can you really retire?

When did you start seriously planning for retirement? Was it your first year on the job? Did you wait until your agency offered one of those seminars for the 50-plus crowd? Or is that something you are going to get around to next week? Or will it be one of your 2020 New Years Resolutions, along with exercising more and watching less TV?

Have you thought about where you will live in retirement? Have you checked out states with no sales or income taxes? How much will your income drop? When will you need to tap your Thrift Savings Plan account to make ends meet? Will you need it to fill in the gap between salary vs. annuity? Or is it something you hope to leave, in whole or part, for the kids? For many under the Civil Service Retirement System (CSRS) program, with its more generous annuity, money in the TSP is icing on the cake. For a majority of people under Federal Employees Retirement System (FERS), now the majority of all working feds, the TSP is an essential part of the package which includes the government annuity, Social Security and the TSP.

When in doubt, ask Tammy Flanagan. Many feel she wrote the book on federal retirement planning. She was a long-time fed and now operates her own fee-for-service business. Best of all, she’s our guest today at 10a.m. EDT on our Your Turn radio show. The show is archived on our home page so if you can’t catch it live on our website or on 1500 AM in the D.C. area, you can always listen later and pass it along to a friend or coworker.

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Here’s the lead in Tammy wrote to introduce the show:

“Why do many federal employees have a difficult time knowing if they can afford to retire?

There are three parts to FERS which means feds have to understand decisions that can impact the value of Social Security, FERS retirement benefits and withdrawal options of the TSP. That’s a lot to understand.

They don’t know how much these benefits will be taxed: FERS has a small tax-free component, and is otherwise taxed as ordinary income (IRS Publication 721). Retirees file a W-4P for federal withholding and they can generally set up state tax withholding after their claim is adjudicated by the Office of Personnel Management.

The TSP is 100% taxed as ordinary income unless it is coming from qualified Roth contributions, in which case it is tax-free. Federal tax withholding can be elected, but not state tax.

Social Security is tax-free for many Americans, but not for most federal retirees. If your combined income is more than $34,000 for an individual return or $44,000 for a joint return, you will pay tax on 85% of the benefit for ordinary income tax. If you’re already getting benefits and then later decide to start withholding, you’ll need to submit a voluntary withholding request, also known as Internal Revenue Service Form W-4V. You’ll have the option of diverting 7%, 10%, 12% or 22% of your monthly benefits toward your income tax bill. You can also use the form to change your withholding rate or stop the withholding.

Your combined income is your adjusted gross income, plus nontaxable interest and one-half of your Social Security benefits.

On the state tax level it depends whether your benefits will be taxes. Some states tax all of the benefits, some exempt federal retirement from state tax, some states don’t have a state income tax and some states tax FERS but not SSA.”

State Tax Roundup

Whether you stay in your current residence or move to another state often depends on family proximity, weather, housing prices and, very definitely, taxes. Some places may be much better, offering you a better lifestyle and more money to enjoy it. Checkout this excellent state tax guide provided by NARFE, which represents both active duty feds and retirees.

Nearly Useless Factoid

By Alazar Moges

You have probably looked at more restaurant menus in your life than you could count. But a lot of psychological strategy has gone into how those menus are put together. One of the most common being the purposeful avoidance of using the dollar sign. Restaurants want to minimize the thought you put into spending money and avoiding “$” is one of the easiest tricks they use to do that.

Source: Mental Floss

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