Helping to Maximize the Civil Service Retirement System (CSRS) Benefits

Transcription

1 Helping to Maximize the Civil Service Retirement System (CSRS) Benefits Michael Nakashima Financial Planner & Chartered Federal Employee Benefits Consultant

2 Disclaimer Michael Nakashima is a financial planner that works almost exclusively with federal employees and their spouses. The information contained in this presentation has been researched on the websites of the Office of Personnel Management ( the Thrift Savings Plan ( and through the other related sources. The Federal Government does not favor, endorse, or recommend any commercial company, supplier, product, Innovate Financial, Inc., or Michael Nakashima. Michael Nakashima is an Investment Advisor Representatives offering securities and investment advisory services through Transamerica Financial Advisors, Inc. (TFA) Member FINRA & SIPC and Registered Investment Advisor. Non-securities products or services are not offered through TFA. TFA and its representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advise. Clients and other interested parties must consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here. Transamerica Financial Advisors, inc. is not responsible for the validity, completeness, or accuracy of any information provided in this presentation. TFA and Innovate Financial, Inc. are not affiliated.

3 Agenda for Today s Meeting 1. Creating a Blueprint for Retirement. For a great tool for deciding what you want to do in retirement visit our website and download John Hancock s Future Planner Workbook: 2. Utilizing and understanding your Pension, The Survivor Benefit, and how to calculate your benefits. 3. The Benefits of Investing in the Thrift Savings Plan, Diversification, Rebalancing and the New Roth Option. We will also discuss the Thrift Savings Plan in retirement. (Accumulation and Distribution). 4. The Pros and Cons of Federal Employee Group Life Insurance. 5. Long Term Care Insurance Who needs it? What protection does it offer? How do I choose a policy? The Fed LTCI Program and Partnership Approved policies. 6. Federal Employee Health Benefits: The Flexible Spending Account, High Deductible vs Comprehensive, and the Government Contribution. 7. Question and Answers

4 About the Speaker Mike Nakashima lives in Minneapolis with his wife, Kelly, and their three children: Adilyn (age 5), Emma (4) and Teddy (1). He is originally from Dubuque, IA and is a graduate of the University of Iowa. Mike has been in financial services since In 2006 he obtained his Chartered Federal Employee Benefits Consultant designation and opened his own company, Innovate Financial, Inc.. He is an Independent Financial Planner through Transamerica Financial Advisors, an Investment Advisory Representative (IAR), and a Chartered Federal Employee Benefits Consultant (ChFEBC). He has worked for TD Ameritrade, Jackson National Life, Transamerica Financial Advisors, J.A. Counter & Associates, and is owner of Innovate Financial, Inc. Michael Nakashima is a registered representative and investment advisor representative offering securities and investment advice through Transamerica Financial Advisors, Inc., a registered Broker/Dealer and investment advisor, Member FINRA. Contact Information Innovate Financial, Inc. Attn: Mike Nakashima 6701 Penn Ave. Ste 200 Richfield, MN Ph: (612) Toll Free: (866) Fax: (612) mnakashima@tfamail.com Website

5 Steps to Create Your Blueprint for Retirement 1. Decide what you want to do in retirement. 2. Check all your beneficiary forms! 3. As you get closer to retirement make budget estimates of how much you will need to live comfortably. 4. Add up all sources of retirement income (pension, social security, etc) 5. Establish whether you will carry a mortgage into retirement and how this affects your budget. 6. Estimate the value of your savings and investments at retirement and establish whether or not it is enough to provide twenty to forty years of income.

6 Beneficiary Forms 1. Last Paycheck 2. Pension Contributions 3. Federal Employee Group Life (FEGLI) 4. Thrift Savings Plan 5. Private Life Insurance 6. Private IRA s 7. Same for Spouse

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8 Updating Beneficiary Forms 1. Go to 1. Click on Forms 1. SF 2808 Designation of Beneficiary Civil Service Retirement System 2. SF 2823 Designation of Beneficiary Federal Employee Group Life Insurance Program. 1. Go to 1. Click on Forms and Publications 1. TSP-3 Designation of Beneficiary 2. Non-Federal Accounts: contact providers and inquire about changing beneficiaries.

9 The CSRS Pension Benefit Utilizing and Understanding Your CSRS/CSRS Offset Pension and the Survivor Benefits

10 Retirement Eligibility for CSRS & CSRS Offset Full Pension Age 55 with 30 Years of Service Age 60 with 20 Years of Service Age 62 with 5 Years of Service Source:

11 The Best Time for CSRS to Retire Retire on the 1 st, 2 nd or 3 rd Day of the Month and your pension is calculated the next day. - Save up your annual leave because you will get a lump-sum payout of the Annual Leave. - Sick leave adds to your pension. Source:

12 Creditable Service I highly recommend that you go online to your payroll system and download your Estimate of your Retirement Benefits. - Check and see if you record of service looks accurate. - You can also find estimates of your pension benefit Part-Time - Full Credit Prior to April 7, 1986 for eligibility and pension calculation. - Full Credit on or after April 7, 1986 for eligibility. The pension will be actuarially prorated (reduced) for this part time service. Leave without Pay: Up to 6 Months or less in a calendar year. Workers Compensation (if FERS returns to work) Refunded FERS Contributions can now be repaid if you left service, took a FERS Pension refund of contributions, and subsequently came back to work for the government. If you were in the military for a period of time, and are not retired military, you should contact HR about putting in a deposit to apply your military record to your total years of federal service.

13 CSRS Early Out Rules In the case of an CSRS Early Out the following rules apply: - There is a reduction of 2% for each year under age 55. The reduction is prorated at 1/6 of 1% for each full month under age Example: CSRS Employee that is 53.5 years old accepts an early out. Reduction on pension will be 3% and the reduction is permanent.

14 Sick Leave Adds to the Pension CSRS Pension maxes out at 80% when CSRS has 41 Years and 11 Months of Service. Adding CSRS Sick Leave to Pension is the only way to increase pension beyond 80% of High 3 Pay Source:

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16 CSRS Pension Deductions 7.0% of Pay goes into CSRS Pension CSRS Offset Covered by both Social Security and CSRS 7.0% divided between Social Security tax (6.2%) and CSRS Offset Pension (0.8%) Source:

17 Defined Benefit Plan The CSRS and CSRS Offset Pensions are Defined Benefit Plans because the retired federal employee will receive a specific dollar amount based on salary history (High 3 Average) and Years and Months of Service. Source:

18 CSRS/CSRS Offset Pension Reductions CSRS/CSRS Offset put 7% into their pensions and/or social security. Most people plan on living on less in retirement. Your pension will not have this 7% Deduction. If you are putting 15% into your TSP, and 7% into your pension/social security, you are living on 78% of your Gross Income Medicare is an additional 1.45% that you pay while working and not in retirement (from your pension).

19 Calculating the CSRS Pension Formula 1.5% x Hi-3 Average x First 5 Years = A 1.75% x Hi-3 Average x Next 5 Years = B 2.0% x Hi-3 x Rest of Years = C A + B + C = CSRS Pension + Example Hi-3 Average: $50,000 Years of Service: x $50,000 x 5 = $ x $50,000 x 5 = $ x $50,000 x 20 = $20,000 = CSRS Pension: $28,250 Source:

20 Calculating the CSRS Offset Pension Formula 1.5% x Hi-3 x First 5 Years = A 1.75% x Hi-3 x Next 5 Years = B 2.0% x Hi-3 x Rest of Years = C + Example Hi-3 Average: $50,000 Years of Service: x $50,000 x 5 = $ x $50,000 x 5 = $ x $50,000 x 20 = $20,000 A + B + C = CSRS Pension Note: CSRS Offset will calculate their pensions as if they are regular CSRS. However, there CSRS Pension will be reduced. See formula on next slide for CSRS Pension Reduction. = CSRS Offset Pension: $28,250 Minus All or Portion of Social Security Benefit (see next slide) Source:

21 CSRS Offset Pension Continued To compute how much your CSRS Offset Pension will be offset by your Social Security Benefit use the following formula Take the LESSER of Your Social Security Benefit Credited after 12/31/1983 OR Take the Total Years of CSRS Offset Service and divide it by 40. Multiply that amount by your Social Security Benefit Example Age 62 Social Security Benefit: $14,400 CSRS Pension: $28,250 Social Security Benefit Earned under CSRS Offset Years (after 12/31/1983): $10,800 OR 26 Years of CSRS Offset Service Divided by 40 = 0.65 x $14,400 = $9360 CSRS Offset Pension = $28,250 - $9360 = $18,890 OPM Pays: $18,890 Social Security Pays: $14,400 Total: $33,290

22 CSRS Cost of Living Adjustments Take effect December 1 st of each year. Based on Consumer Price Index change. Retirees receive 1/12 of the COLA for each month on the payroll to December 1 st.

23 CSRS Survivor Benefit While Employed Pension calculated as though the employee retired on date of death. Spouse entitled to the Greater of: 55% of Earned Annuity on Date of Death OR 40% of Average Salary Source:

24 Pension Survivor Options CSRS/CSRS Offset Options 55% of Full Pension 55% of (you decide what portion of your pension) 0% of Pension (No FEHB for Spouse Post Fed s Death) Considerations In order to leave your spouse on the Federal Employee Health Benefits (FEHB) you must leave them a survivor option. Your spouse needs to approve and sign for reduced pension options. You will make the survivor option decision when you fill out the retirement paperwork three to six months before you retire. Source:

25 Crucial Information About Your Federal Employee Health Benefits! The Federal Government pays approximately 71% of your Health Insurance premiums both prior to and post retirement (even more for USPS while employed). The fed will continue to do this for your spouse ONLY if you provide him/her with a Survivor Pension. If you leave him/her a 0% Survivor Pension and predecease your spouse he/she will not be allowed to continue the Federal Employee Health Benefits. Additionally, you need to be on the FEHB five years prior to retirement to carry it into retirement.

26 Form SF-2801 Application for Immediate Retirement Source:

27 CSRS/CSRS Offset Pension Survivor Costs Full Survivor Option (55% of Full Pension to Surviving Spouse) Always take 2.5% x $3600 = $90 Full Pension - $3600 = A x 10% = B $90 + B = Full Survivor Cost The Pension, Survivor Pension and Survivor Pension Cost increase each year with COLA s!! Example Full Pension: $28, % x $3600 = $90 $28,250 - $3600 = $24,650 x 10% = $2465 $90 + $2465 = $2555 Survivor Cost Annually with COLA s Gross Annual Pension: $28,250 After Survivor Cost: $25,695 Survivor Pension Year One: $15,538 (55% of Full Pension) Source:

28 CSRS/CSRS Offset Reduced Survivor Pension Costs Reduced Survivor Option (55% of Lesser Base Pension to Surviving Spouse) CSRS decides to leave spouse less than Full Survivor Option Always take 2.5% x $3600 = $90 (Lesser Base - $3600 = A x 10% = B $90 + B = Reduced Survivor Cost The Pension, Survivor Pension and Survivor Pension Cost increase each year with COLA s!! Example Full Pension: $28,250 CSRS Decides to leave 55% of $15, % x $3600 = $90 $15,000 - $3600 = $11,400 x 10% = $1140 $90 + $1140 = $1230 Survivor Cost Annually with COLA s Gross Annual Pension: $28,250 After Survivor Cost: $27,020 Survivor Pension Year One: 55% of $15,000 or $8250 Source:

29 Increasing Full Survivor Pension Cost for CSRS with 30 Years of Service and a $50,000 High-3 Average

30 Increasing Cost for CSRS Full Survivor Pension 30 Yrs Age 60 $50k Hi-3 Average

31 Your spouse can lose the pension survivor benefits If the fed s surviving spouse remarries before age 55 the pension stops! -Exception : if married to a federal employee for 30 years or more, may marry before age 55 with no loss of survivor benefits. -If subsequent marriage terminates, benefits may be restored to surviving spouse. Source:

32 CSRS Disability Benefit Definition: No longer able to perform in one s position and not qualified for any other position in locale at same grade/pay. - Different than Social Security Definition. - May be able to hold some other job in private sector at no more than 80% of your Federal Employee Pay. - Covered under life and health insurance if insured under the group insurance for the past 5 years or during all service prior to disability if employed less than 5 years.

33 Disability Benefit After 5 Years of Federal Creditable Service: - Entitled to higher of: Earned annuity based on Hi-3 Average Salary and years/months of service as of separation date. 40% of average salary.

34 Need information about your Pension Benefits? 1. Go to and find the Forms Section. 2. Complete SF for: Retirement Counseling Purposes To receive a record of Creditable Service 3. Form SF is found in the Application for Immediate Retirement (Form SF-2801, page 17 of 21 )

35 Form SF Source:

36 Questions and Answers About CSRS and CSRS Offset Pensions

37 Social Security for CSRS/CSRS Offset Employees The Windfall Elimination Provision (WEP) - Effects CSRS & CSRS Offset The Government Pension Offset (GPO) - Effects CSRS Only Spousal Social Security Benefits Disclaimer: the information contained on the following slides is for informational use only and is generic in nature. Congress can change the Social Security rules at any time. Please consult an expert in Social Security and your Social Security Office to get your most accurate information.

38 Your Social Security Statement The only place to get a current Social Security Statement is at The Social Security Administration is no longer mailing them out. It s important that you understand the spousal benefit options if you are currently married, divorced or widowed and you and your spouse (or ex-spouse) qualify for Social Security benefits on your own respective work records.

39 The Social Security Website ( To download your statement click on Print/Save Your Full Statement.

40 Social Security Eligibility Eligibility for Social Security benefit Must be fully insured Must have earned 40 quarters/credits Must meet age requirement Must be at least age 62 Civil Service Retirement System (CSRS) Employees have to contend with the following rules: Government Pension Offset Windfall Elimination Provision The benefits outlined on your Social Security Statement may be incorrect!

41 Social Security Full Retirement Age Birth Year Full Benefits At Birth Year Full Benefits At 1937 or Earlier months months months months months months months months months months 1960 & After 67

42 The Windfall Elimination Provision (WEP) Effects CSRS, CSRS Offset and FERS Transferees. Must have 30 Years of Substantial Earnings and 40 Credits Under Social Security to avoid WEP. Worst case scenario for CSRS and CSRS Offset would be 40% of your Age 62 Social Security Benefit To Calculate WEP go to You must have your CSRS Pension amount to calculate how the WEP will affect your Social Security Benefit. If you are a CSRS and receive a Social Security Statement annually that says you qualify for benefits it is very likely that the social security benefit they are stating you will receive is incorrect. You can also schedule an appointment with your local Social Security office to review your benefits.

43 The Government Pension Offset 1. CSRS may not be able to receive 50% of their living spouse s or 100% of their deceased spouse s Social Security Benefit. 2. The Government Pension Offset was created by Congress and limits a CSRS access to their spouse s social security benefit. This calculation does not affect the spouse, only the CSRS. The GPO does not affect CSRS Offset. It only affects CSRS.

44 Government Pension Offset (GPO) Example 1. Formula: Take 2/3 of your CSRS Pension and subtract it from your spouses social security benefit. CSRS Monthly Pension: $3000 2/3 of $3000 = $2000 Spouse s Social Security Benefit: $1500 $ $2000 = $0 Spousal Social Security Benefit to the CSRS

45 Timing Spousal Social Security Benefits If your spouse worked in a position where he/she contributed to Social Security you should take time deciding whether you want to take Social Security as early as possible or postponing it to make a higher benefit. Health, and longevity, will be major factors in this decision. We recommend that you meet with an expert to help you figure out whether taking Social Security early, or later, is better for your long term financial situation.

46 When Can Your Spouse Claim Social Security Retirement Benefits? Benefits are based on the age when your spouse claims them: Earliest age: 62* Full retirement age: 66 to 67 (depending on year of birth) Latest age: 70 *Surviving spouses of a Social Security Qualifier can claim survivor benefits at age 60

47 How Does Your Spouse s Initial Claiming Age Affect His/Her Monthly Benefit? At age 62: Monthly benefit could be reduced by 25% to 30%, depending on the year you were born At Full Retirement age (66 to 67): Entitled to 100% of full benefit At age 70 (latest age): Monthly benefit could be 132% of full benefit (depending on year of birth)

48 Questions about Social Security?

49 Resources 2014 Innovate Financial, Inc. Innovate Financial, Inc & Michael Nakashima Financial Updates, News, Calculators Life Insurance Calculators Financial Industry National Regulatory Authority (FINRA) Office of Personnel Management & FEGLI Thrift Savings Plan Federal Long Term Care Insurance Program Vision Plan Dental Plan Adi & Emma at the Disney Store- MOA Contact Innovate Financial, Inc. for additional information about our services: (612) This power point presentation offers links that operate outside Innovate Financial, Inc. is responsible for the validity, completeness, or accuracy of any information provided on those sites.

50 Thank you for attending this training session today! For more information about Mike Nakashima please visit our website at Our website has this training manual available for printing, upcoming retirement and federal benefit web training events, and other retirement planning information. Adilyn & Emma s 1 st Day of Preschool Need financial planning assistance? Please contact us toll free at (866)