Retirement Myth Busting

Transcription

1 Presented by: Retirement Myth Busting Fact or Fiction Tammy Flanagan Senior Benefits Director National Institute of Transition Planning, Inc.

2 I will never be able to retire What are the myths? Is there any truth? Spouse has retirement, no need for survivor benefit Social Security is going bankrupt Congress is eliminating FERS

3 I will never be able to retire under FERS!

4 Your Salary vs Your Retirement Paycheck Retirement Income Gross Amount $10,000 $7,800 Reductions - $780 Taxes -$3,000 -$1,800 Retirement Contributions -$1,500 -$0 Insurance -$600 -$400 Total $5,100 $2,980 Net Amount $4,900 $4,820

5 Reductions and Withholdings Reductions (FERS) Withholdings Benefit Survivor Benefits Federal Tax FERS, SSA, TSP Age (MRA + 10) State Tax FERS, TSP (usually not SSA) Part-time Health Insurance FERS, SSA (Medicare Part B) Former Spouse Life insurance FERS FEDVIP FLTCIP FERS FERS

6 Yes, you can retire under FERS! FERS: Office of Personnel Management TSP: Federal Retirement Thrift Investment Board SSA: Social Security Administration

7 FERS LEO Basic Retirement Benefit 1.7% 20 years 1.0% x remaining yrs / mos x $ highthree = $ yearly (FERS/LEO) / 12 = $ / month

8 FERS Basic Retirement Benefit 1.0% X yrs / mos X $ highthree = $ yearly (FERS) / 12 = $ / month 1.1% X yrs / mos X $ highthree = $ yearly (FERS 62+ with 20+ years) / 12 $ / month

9 FERS Basic Retirement Benefit 1.7% 20 years x 1.0% 10 years x $100,000 = $44,000 (FERS/LEO) $3,667 / month 1.0% X 30 years X $100,000 = $30,000 (FERS) $2,500 / month 1.1% X 30 years X $100,000 = $33,000 (FERS 62+) $2,750 / month

10 FERS Supplement Social Security Office of Personnel Management Payable on unreduced immediate retirement Subject to an earnings test at MRA (FERS service / 40) x age 62 Social Security benefit Example: 30/40 x $1800 = $1,350 / month Social Security Administration Payable beginning age 62 (to age 70) Subject to an earnings test (62 - FRA) Replaces 15% - 50% of pre-retirement income Low wage earner / higher replacement High wage earner / lower replacement Average benefit $1,341 / month (all retirees) Maximum benefit $2,687 (66 in 2017)

11 Thrift Savings Plan Save Invest Pre-Tax / After- Tax Withdraw Example: $500,000 balance Taxes 5% of pay up to maximum ($18,000 + $6,000 catch-up) C Fund, G Fund, F Fund, S Fund, I Fund / Lifecycle Traditional: Pay taxes later Roth: Pay taxes now Monthly payments Life Annuity Transfer to IRA for payout $20,000 / year or $1,667 / month monthly payments (increase over time) Roth: Tax free (generally) Traditional: Federal and State income tax considerations

12 If your spouse has their own retirement, there is no need for a survivor benefit!

13 Example of couple with NO Survivor Election: $14,700 Me You FERS $4,000 Pension $3,200 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $8,200 Total $6,500

14 Example of couple with NO Survivor Election: Lose $5,000 Me You FERS $4,000 Pension $3,200 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $8,200 Total $1,500

15 Example of couple with NO Survivor Election: Lose $5,800 Me You FERS $4,000 Pension $3,200 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $4,200 Total $4,700

16 Example of couple with FULL Survivor Election: $13,980 Me You FERS $3,600 Pension $2,880 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $7,800 Total $6,180

17 Example of couple with FULL Survivor Election: Lose $2,680 Me You FERS $4,000 Pension $1,600 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $8,200 Total $3,100

18 Example of couple with FULL Survivor Election: Lose $3,080 Me You FERS $2,000 Pension $3,200 Social Security $2,000 Social Security $1,800 TSP $2,200 Retirement Savings $1,500 Total $6,200 Total $4,700

19 Social Security is going bankrupt!

20 2017 Trustees Report Social Security pays out: Social Security takes in: $17.1 trillion (historical) $19.9 trillion (historical) 61 million people (2016) 171 million taxpayers (2016) Balance at the end of 2016: $2.8 trillion

21 2017 Trustees Report Year 2035 Old Age Survivor s Insurance (OASI) will be enough to pay 75% of benefits

22 Some Options to Fix the Problem Raise the full retirement age Change the calculation of the benefit Change the cost-of-living adjustment Increase the payroll tax Raise earnings amount taxed

23 Less money going in / More going out Year Workers Beneficiary One worker must pay for one $1,000 benefit Payroll tax increase Today $ $500

24 One thing to remember: People with higher wages receive lower replacement from Social Security People with lower wages receive higher replacement from Social Security

25 Congress is eliminating FERS

26 What is at stake this year? Elimination of the FERS Supplement Elimination of FERS COLA (reduced for CSRS) Increase of FERS employee contributions from.8% to 6% over 6 years (+.5% for LEO) Change from high-three average to high-five average Voucher system for FEHB (Republican Study Committee added)

27 How likely will these changes take effect? 86 percent of bills die in Congress There are some changes being considered to TSP: TSP Modernization Act Multiple partial withdrawal options 25% chance of passing Postal Reform Bill has passed the House Require Medicare

28 Where is Congress Recess from July 31st - September 4th Back in session from September 5th - December 15th (2 weeks off during that time)

29 What is grassroots lobbying? Meet with members Share stories Write letters Attend town hall meetings

30 Next Session: When it Comes to Retirement Planning Should You Follow the Crowd?