Helping to Understand the Federal Employee Retirement System (FERS) Benefits

Transcription

1 Helping to Understand the Federal Employee Retirement System (FERS) Benefits Michael Nakashima, CFP Certified Financial Planner Chartered Federal Employee Benefits Consultant (ChFEBC) Lauren Brown Financial Planner, Inc. (612)

2 Disclaimer Michael Nakashima is a financial planner and he works with a lot of 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 ProEquities, Inc. ProEquities Member FINRA & SIPC and Registered Investment Advisor. Non-securities products or services are not offered through ProEquities. ProEquities 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. ProEquities inc. is not responsible for the validity, completeness, or accuracy of any information provided in this presentation. ProEquities and Innovate Financial, Inc. are not affiliated.

3 Agenda for Today s Meeting 1. Utilizing and understanding your Pension, The Survivor Pension Benefit, and how to calculate your benefits. 2. Tips for retiring with confidence and understanding the what to expect in the 1 st year of retirement. 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. Coordinating Social Security & Medicare with your Federal Employee Benefits. 8. Feel free to ask questions throughout the presentation. Your feedback is appreciated.

4 About the Trainers: Michael Nakashima, CFP Mike Nakashima lives in Minneapolis with his wife, Kelly, and their three children: Adilyn (age 9), Emma (7) and Teddy (5). He is originally from Dubuque, IA and graduated from the University of Iowa in Mike is a Certified Financial Planner & 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. Mike is an Investment Advisory Representative through ProEquities, Inc. Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker/Dealer, and member FINRA and SIPC. Innovate Financial, Inc. is Independent of ProEquities, Inc.. Contact Information Innovate Financial, Inc. Attn: Mike Nakashima 6701 Penn Ave. Ste 200 Richfield, MN Ph: (612) Toll Free: (866) Fax: (612) mike@innovatefinancial.com Website

5 About the Trainers: Lauren Brown, Financial Planner Lauren Brown lives in Eden Prairie, MN with her husband, Elliot, and their two children: Mason (5) and Aubrey (3). Lauren graduated from Concordia University in She has been in financial services industry since In 2011 she started at Innovate Financial, Inc. She has her Series 7, 66 and Life Insurance license. Lauren is an Investment Advisory Representative through ProEquities, Inc. Contact Information Innovate Financial, Inc. Attn: Lauren Brown 6701 Penn Ave. Ste. 200 Richfield, MN Phone: (612) Toll Free: (866) Fax: (612) Advisory Services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker/Dealer, and member FINRA and SIPC. Innovate Financial, Inc. is Independent of ProEquities, Inc.. lauren@innovatefinancial.com Website

6 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. Determine what portion of your pay goes to retirement programs during your employment years that will not continue in your retirement years (FERS, Social Security, Medicare A, TSP) 5. Add up all sources of retirement income (pension, social security, etc) 6. Establish whether you will carry a mortgage into retirement and how this affects your budget. 7. Estimate the value of your savings and investments at retirement and establish whether or not it is enough to provide thirty to forty years of income. 8. You may want to create a cash position to help you fund the 1 st year of retirement pay.

7 Retirement Contributions that stop at Retirement Social Security: 6.2% - Up to $118,500. You stop paying after that Social Security Cap. FERS Pension: 0.8% Medicare A: 1.45% Thrift Savings Plan: 5 to 25% - You will have taxes, and health insurance costs off your pension but not the above preretirement deductions.

8 How Much Money Will You Need in Retirement? Our experience has been that people generally need the same, if not slightly more, amount of net, take-home pay in the 1 st few years of retirement. The typical expenses that decrease at retirement are: - Commuting costs. - Debt reductions costs if you eliminate the debt. - Business costs (wardrobe, lunch). Calculating how much you ll need: - Take your Net, after tax income from your pay stub. Multiply it by 26 and divide it by 12 to establish how much you are currently living on each month. - Decrease your monthly net income by any costs that will stop when you retire. - Remember to use your after tax income that actually gets deposited as this is what you truly live on.

9 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

10 2016 Innovate Financial, Inc.

11 Beneficiary Designations Named Beneficiary Forms will be honored over a Will or a Trust. You may want to update your beneficiary forms when you have life events (marriage/divorce, death, births). You should understand the difference between Per Stirpes and Per Capita on your beneficiary forms. Especially if you have grandchildren.

12 Updating Beneficiary Forms 1. Go to 1. Click on Forms 1. SF 3102 Designation of Beneficiary Federal Employee Retirement System 2. SF 2823 Designation of Beneficiary Federal Employee Group Life Insurance Program. 3. SF Designation of Beneficiary for Unpaid Compensation and Unused Annual Leave of a Deceased Federal Employee 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.

13 The FERS Pension Benefit Utilizing and Understanding Your FERS Pension and the Survivor Benefits

14 The Best Time for FERS to Retire FERS should retire at the end of the month! The pension is calculated on the first Full month that you are not working. Save up your annual leave because you will get a lumpsum payout of the Annual Leave. Example: if you want your pension to start the next day you should retire on the last day of the month. For example, Dec 31, Jan 31. If you retire on Jan 31 your pension will start on Feb 1. Source:

15 Important Changes Defense Authorization Act of 2010 Your Sick Leave is now added to your pension. If you have 2087 hours of Sick Leave when you retire it will add 1 year to your Years of Service. - Example: you have 30 Years of Service and 2087 Hours of Sick Leave at retirement. Your pension is calculated as if you worked 31 Years. FERS employees returning to work for the federal government are able to redeposit their refunded retirement contributions plus interest to buy back the time.

16 The First Year of Retirement Most retirees find that their pension is 60% to 80% of the projected full pension amount in the first six to twelve months of retirement. This is known as the Interim Period. The Office of Personnel Management (OPM) does not withhold premiums for health insurance during the Interim Period and it s ok with the insurer. When they true up your pension to the full amount they will reduce your catch-up payment by any money you owe for health insurance premiums. OPM does not withhold state taxes from your Interim Payment. You can authorize OPM to start withholding for the state taxes after your Interim Period ends. You do this by logging into OPM with the log-in instructions you received after the Interim Period ends. Some people pay quarterly estimated state taxes during the Interim Period.

17 The First Year of Retirement Paperwork to look out for: - The Blue Book of Your Federal Employee Benefits - OPM will send you a CSA Number to login into to OPM. During the Interim Period you cannot do much on the site. After the Interim Period you will have full access to view your elections and make changes. You may want to save up your Annual Leave because you get a lump sum payout on your Annual Leave when you retire.

18 Sick Leave and Annual Leave It is my opinion that because the Interim Period provides less pay than anticipated that it might be better to retire with significant Annual Leave hours to get a lump sum payment for it a couple weeks after you retire. - Please note that the Annual Leave payment usually has more taxes withheld than normal because the payroll system assumes you are getting large payouts as a normal occurrence. We know that Sick Leave is credited at 50% until Dec. 31, 2013 and on Jan 1, 2014 you will get full credit for sick leave. We know that most federal employees can carry over 240 Hours of Annual Leave from one year to the next. We also know that most people close to retirement accrue 8 hours every pay period. Question: are you better off with 300 Hours of Sick Leave or 300 Hours of Annual Leave?

19 Sick Leave at Retirement Accumulated Sick Leave will add to your pension at retirement. Most Federal Employees earn 4 Sick Leave Hours Every two weeks. You can carry over unlimited Sick Leave Hours from year to year. If you retire with 2087 Hours of Sick Leave it will add one year to your pension calculation Hours of Sick Leave = 1 Year of Sick Leave. - If your High 3 Average is $75,000 1 Year of Sick Leave will add $750 to your pension annually.

20 Annual Leave at Retirement Your Accumulated Annual Leave can be cashed out when you retire at your hourly wage. - Most positions earn 8 hours of Annual Leave every two weeks. - You can carry over 240 Hours from year to year. - If you retire on December 31 you can carry over 240 from the previous year and accumulate another 208 for 448 total. If you make $75,000 and retire with 240 Hours of Annual Leave the lump sum payout is: $ (gross pretax) this will be received shortly after retirement. - Formula example: $75,000 (Salary) / 2087 = Hourly Wage x 240 (Annual Leave Hours) = $ (gross).

21 Sick Leave and Annual Leave Estimate Assumptions: Hi-3 Average & Last Year Salary: $75,000 Retiring at age 62 with 30 Years Should he retire with 300 Hours of Sick Leave or 300 Hours of Annual Leave? 300 Hours of Sick Leave (adds to pension) 300 Hours of Annual Leave (lump sum payout at retirement) Formula: Sick Leave Hours/ 2087 (Work Hours in a Year) = Time Factor Formula: Salary / 2087 (Annual Work Hours) = Hourly Wage Age 62 with 30 Years Annual Leave Payout 300/2087 = 0.14 (Time Factor) $75,000 (Salary) / 2087 (Annual Work Hours) Age 62 with 30 Years Formula for Pension = $35.93 (Hourly Wage) (FERS Factor) x 0.14 (Sick Leave Time) x $75,000 = $ Annually for life (if retiring in 2014 or later) Analysis: The Sick Leave time will add an estimated $ Annually to his/her pension. This money will qualify for retirement COLA s. $35.93 x 300 (Annual Leave Hrs) = $10,779 One Time Lump Sum Analysis: you ll get a one time lump sum of $10,779 a couple weeks after retirement. Answer: In this scenario I would be more excited about getting $10,779 (Gross) from my Annual Leave then $ (Gross) Annually for my Sick Leave. It takes 95 Years of $ to equal a lump sum payment of $10,779.

22 Family Leave Currently the Federal Government does not provide paid maternity/paternity leave. - You are able to take up to 12 weeks unpaid leave after the birth or adoption of a child. - This is in addition to your Annual and Sick Leave. You can purchase a private Short Term Disability policy to supplement your income during this time. - Typically Short Term Disability policies pay between 50% and 100% of your current salary for a certain number of weeks. Six weeks is the standard amount of time covered for pregnancy. - Some plans will allow for more time if you have had complications and may also cover bed rest before birth.

23 Retirement Eligibility Full Retirement Benefit Minimum Retirement Age (MRA) with 30 Years Age 60 with 20 Years Age 62 with 5 Years Early Retirement (Reduced) MRA with 10 Years - Pension Reduced 5% per year for every year under age No FERS Special Supplement Involuntary Retirement (No Reduction for FERS) Age 50 with 20 Years Any age and 25 Years The FERS Special Supplement does not start until you reach your Minimum Retirement Age. Source:

24 The FERS Pension Vesting Schedule FERS employees are vested in the FERS Pension after 5 years of creditable service. If you leave federal service prior to retirement you can leave your pension contributions with OPM and you will receive a pension at age 62 (earlier if you have over 20 Years). Contact HR or the Office of Personnel Management ( for more information.

25 Creditable Service You should 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. 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.

26 FERS Pension High 3 Average - Includes Base Pay and Locality Pay - Based on the highest 36 months of consecutive pay Example: 2012 Salary: $75, Salary: $76, Salary: $77,000 Hi 3 Average: $75,000 + $76,000 + $77,000 = $228,000. Divide $228,000 by 3 ($228,000/3) for a Hi-3 of: $76,000 Defined Benefit Plan - The FERS Pension is a Defined Benefit Plan because the retired federal employee will receive a specific dollar amount based on salary history (High 3 Average) and Years and Months of Service.

27 FERS Minimum Retirement Age & 2 months & 4 months & 6 months & 8 months & 10 months & 2 months & 4 months & 6 months & 8 months & 10 months 1970-Later 57

28 Calculating the FERS Pension Under Age 62 or Age 62 with Less than 20 Years 1% x Hi-3 Average Pay x Years & Months of Service Age 62 or Older with 20 or more Years 1.1% x Hi-3 Average Pay x Years and Months of Service

29 Regular Benefit Example Hi-3 Average: $75,000 Years of Service: 30 Age: 61.5 Bob 0.01 x $75,000 x 30 = $22,500 Retired at Age 61.5 with 30 Years. Source:

30 Increased Benefit Example Hi-3 Average: $75,000 Years of Service: 30 Age: 62 Mary x $75,000 x 30 = $24,750 Retired at Age 62 with 30 Years. Source:

31 Bob vs Mary Bob s Pension is worth $22,500 Mary s Pension is worth $24,750 Year One Annual Difference: $2250 With Cost of Living Adjustments the difference will grow LARGER over time!

32 The FERS Special Supplement Social Security does not pay until age 62 so the FERS Special Supplement pays to those who retire: - At MRA with 30 Years - Age 60 with 20 Years Subject to Social Security Earnings Test for Wages - $15,720 per year (2016) You will lose $1 of Special Supplement for every $2 you make over $15, Pension income does not count as income for the earnings test. Source:

33 Calculating the FERS Special Supplement Formula Example Social Security Benefit at age X Years of Actual FERS Service (only actual FERS time counts for the FERS SS) $1500 Month 40 X 30 Years of Actual FERS Service $1500/40 = $37.5 x 30 = $1125 Month Source:

34 CSRS to FERS Transferees Federal employee hired before 1/1/84 Has at least 5 years of service under CSRS Transferred to FERS in 1987, 1988, or 1998 Or, rehired with 5 years of service under CSRS and chose to go into FERS

35 CSRS to FERS Transfers Pension Calculation Use your actual Hi-3 whether it s from FERS or CSRS time. With 5 Years or More of CSRS Service - Use CSRS Formula for CSRS Years & Months 1.50% x Hi-3 x 1 st 5 yrs = A 1.75% x Hi-3 x Next 5 yrs = B 2.00% x Hi-3 x Rest of CSRS Years = C - Use FERS Formula for FERS Years & Months 1.00% x Hi-3 x FERS Years = D Basic Annuity - Add A + B + C + D = Pension - Sick leave & military service calculated under last of CSRS calculation - CSRS to FERS Transferees will get credit for sick leave time and it will most likely count as FERS time. OPM has not put out specific calculations on this matter.

36 FERS Survivor Benefit (While Employed) If you pass away while employed there are benefits for your spouse. This requires at least 18 Months of Service. Less than 10 Years of Service Payment of $29,722 + The Greater of 50% of Final Salary or 50% of Hi-3 Average More than 10 Years of Service Lump Sums from Above + 50% of the Basic Earned Pension and the Special Retirement Supplement if the Spouse is younger than age 60 and not yet eligible for Social Security (provided married for at least 9 Months)

37 FERS Retiree Pension Survivor Options At retirement you can leave your spouse a Survivor Pension. You elect this on your retirement paperwork. 50% of Full Survivor Pension - Will cost 10% of your Annual Pension 25% of Reduced Survivor Pension - Will cost 5% of your Annual Pension 0% of Full Pension - Cost is 0% but if you predecease your spouse they will lose the Federal Employee Health Insurance Benefit! If you are married federal employees you have additional options. Spouse needs to approve anything less than 50% of Full Pension If you leave a 0% Survivor your spouse cannot continue the federal health insurance if you predecease him or her. The Federal Health Insurance is a HUGE benefit in retirement.

38 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. 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!!

39 Form SF-3107 Application for Immediate Retirement Source:

40 FERS Survivor Pension Cost Maximum Survivor Option (50%) If you choose the 50% Survivor Pension Option the cost is 10% of your Full Pension. - Example: $30,000 FERS Pension with 50% Survivor will cost $3000 Annually with COLA s. Partial Survivor Option (25%) If you choose the 25% Survivor Pension Option the cost is 5% of your Full Pension. - Example: $30,000 FERS Pension with 25% Survivor will cost $1500 Annually with COLA s. Source:

41 Increasing Full Survivor Pension Cost for FERS with 30 Years of Service and $75,000 High-3 Average and age 62 at Retirement

42 Increasing Cost for FERS Full 50% Survivor Pension 30 Yrs Age 62 $75k Hi-3 Average

43 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:

44 Children Survivor Benefits Active or Retired Children are: - Unmarried - Up to age 18 if not in school - Up to age 22 if full-time student - Any age if disabled before 18 and still disabled. - Offset by Social Security Benefits With one parent remaining, lesser of: $469 per month per child or $1409 per month divided by number of children. With no living parent, lesser of: $563 per month per child or $1691 per month divided by number of children.

45 First Year: FERS Disability Benefits - 60% of Hi-3, reduced by Social Security Disability Benefit Second Year through age 62: - 40% of Hi-3, reduced by 60% of Social Security Disability Benefit. Pension Benefit Recomputed at Age 62 as if you were working entire time.

46 FERS Pension & Cost of Living Adjustments FERS COLA s are Based on the Consumer Price Index increase. FERS COLA s start at age CPI Increases 0% to 2% FERS receives actual increase - CPI Increase 2% to 3% FERS receives 2% Increase - CPI Increase Over 3% FERS receives the CPI Increase 1%.

47 Checking Your Federal Employee Record Go to and find the Forms Section. On the payroll website you should be able to view your Estimate of your FERS Retirement Benefits. Complete SF for: - Retirement Counseling Purposes - To receive a record of Creditable Service Form SF is found in the Application for Immediate Retirement (Form SF-3107, page 9 of 13 )

48 SF Innovate Financial, Inc.

49 Questions and Answers About the FERS Pension

50 Thrift Savings Plan 1. Overview of the C, S, I, F and G Funds 2. Diversification, Rebalancing and Dollar Cost Averaging 3. The Lifecycle Funds 4. The TSP Roth Option 5. The TSP After Retirement

51 Disclaimers for the TSP Section 1. In this TSP presentation there are slides with different investment allocations. We are not recommending that you copy any of the allocations on the following slides. 2. Diversification, Dollar Cost Averaging, and Rebalancing do not insure a profit or guarantee against loss. Investors should consider their financial ability to continue their purchases through periods of low price levels. This strategy may or may not be suitable for you and you should consult with a professional to establish the strategy that is best suited for your risk tolerance. 3. The information on the slides is provided as a service of Innovate Financial, Inc. We do our best to maintain accuracy. However, you should consult a financial professional and the Thrift Savings Plan to confirm the provided information is accurate to your situation. The TSP can be reached at or by phone at (877) The information on these slides is a compilation of information from the TSP website ( from calling the TSP, and from assisting multiple federal employees with their TSP s. Innovate Financial, Inc. is not in any way associated with the federal government. This information is provided to assist you with your retirement planning. You should consult the Thrift Savings Plan for the most accurate information.

52 TSP Funds G Fund (Government Securities) Fixed Rate of Return, Established Monthly, Backed by the US Government F Fund (Fixed-Income Index) Looks to replicate performance of Barclays Capital U.S. Aggregate Bond Index C Fund (Common Stock Index) Looks to replicate performance of S&P 500 Index I Fund (International Index) Looks to replicate performance of MSCI EAFE Index S Fund (Small-Cap Index) Looks to replicate performance of Dow Jones U.S. Completion Total Stock Market Index L Fund (Life-Cycle Funds) Model portfolios utilizing the G Fund and the 4 Index Funds Asset Manager: The Federal Retirement Thrift Investment Board currently contracts BlackRock Institutional Trust Company, N.A. (BlackRock) to manage the F, C, S, and I Fund assets. Source:

53 TSP Contributions Limits $18,000 (2016) Catch-Up Contribution $6000 (2016) Catch-Up available the year you turn 50 and after. If you are turning 50 in August you could start doing Catch-Up Contributions as early as January the same year.

54 Matching Contributions FERS Contributes 0% 1% 2% 3% 4% 5% Government Contributes 1% 2% 3% 4% 4.5% 5% Source:

55 Maxing Out The Thrift Savings Plan How much you contribute now to your TSP can make a big difference over time. The more you contribute to your TSP, the greater your principal amount will be. With a greater principal amount, the more you could end up with in interest and appreciation. Compounding interest will allow your investment to grow at a faster rate. The biggest factor with compounding interest is TIME!

56 The Value of Compounding Interest Albert Einstein called compound interest "the greatest mathematical discovery of all time Example: If you invest $10,000 today at 6%, you will have $10,600 in one year ($10,000 x 1.06). If you keep it invested for another year, and you continue to earn the same rate of 6%, your investment will grow to $11, ($10,600 x 1.06) by the end of the second year. After the next year, your investment will be worth $11, ($11,236 x 1.06). This increase in the amount made each year is compounding: interest earning interest on interest and so on. This will continue as long as you keep reinvesting and earning interest.

57 $10,000 Annual Savings Compounding Interest Amanda, at age 25, starts saving $10,000 a year and she hopes to earn 7% annually. If she earns 7% on average she ll have $1,382,368 at 60 years old. Paul, at age 30, starts saving 10,000 a year and hopes to earn 7% annually. If he earns 7% annually he ll have $944,607 at 60. Bill, at age 35, starts saving $10,000 a year and hopes to earn 7% annually. If he earns 7% annually he ll have $632,490 at age 60. Disclaimer: this does not including employer matching. You may or may not earn 7%. If Amanda only earns 3% annually she ll have $604,620 at age 60.

58 The Rule of 72 When you divide 72 by the annual rate of return, you will get an estimate of how many years it will take for your initial investment to double. Example: - You are earning a 6% rate of return on your investment / 6 = 12 roughly 12 years for your investment to double.

59 TSP Options After Retirement

60 TSP Options after Retirement (Slide 1) At retirement you are allowed different options from the TSP. - You can do a Partial Withdrawal, a Full Withdrawal, take Monthly Distributions or if you are under 70 ½ you can do nothing. You can roll all, or a portion of, the TSP to an IRA Rollover - One Partial Withdrawal is allowed during your lifetime from the TSP. - If the IRA Rollover is done correctly it will be a tax free transfer of assets. - A Trustee to Trustee Transfer is generally recommended for the least amount of tax reporting. You can take monthly distributions. - Once started, you eliminate your option for a Partial Withdrawal! - You can change the monthly distribution amount once annually. You usually have to notify the TSP by early December. - You cannot turn off monthly income once started unless you do a Full Withdrawal to either yourself (taxable) or to an IRA (non-taxable if done correctly).

61 TSP Options after Retirement If you are working and age 59.5 years old: - You are allowed an In-Service Withdrawal and can move all or a portion of the TSP to an IRA Rollover. An In-Service Withdrawal will count as your One Time Partial Withdrawal. The year you turn 55 or older you can retire and take monthly distributions from the TSP without the 10% IRS Penalty. - You will still have to pay Federal, and potentially State, Ordinary Income Taxes on your distributions that are sent to you. A 72(t) withdrawal allows you to avoid the 10% Early Distribution penalty if you retire prior to age 55. Check the IRS for rules. You can annuitize the TSP. By taking this option you will give up control of the asset and will be provided different options for guaranteed payments. This is usually an irrevocable decision. See for more information. Sources: and

62 Partial Withdrawal and Full Withdrawals Rules One Time Partial Withdrawal Rules: You are allowed one Partial Withdrawal during your lifetime. If you start taking monthly distributions you will forfeit your One Time Partial Withdrawal If you leave a small balance at the TSP you can always move your IRA money back to the TSP. You can have the one time partial withdrawal sent to a new IRA Custodian, to you, or to both you and the new custodian. If you send the money to a new IRA Custodian as a tax free transfer of assets it will qualify as a tax free exchange. Distributions sent to you will be taxable. Generally speaking, a direct Trustee to Trustee Transfer from your TSP to the new IRA will be the cleanest way to transfer the money. Full Withdrawal Rules A Full Withdrawal after seperation/retirement will result in the TSP closing your account. A Full Withdrawal is allowed at any time after retirement even if you are taking monthly distributions. Helping to Understand the FERS Federal Employee Benefits & Retirement Sources: Benefits and w

63 Required Minimum Distributions When you reach 70 ½ years old the IRS mandates that you take Required Minimum Distributions (RMD s) from your tax deferred retirement plans (TSP, 401k, IRA, 403, etc). - The TSP will allow you to delay your RMD s if you are still actively employed as a federal employee past age 70. You have to take Required Minimum Distributions and pay Ordinary Income Tax (federal/state) on them. RMD s can push your income and Social Security benefits into a higher tax bracket. The penalty for missing an RMD is 50% of the RMD amount in addition to the owed federal and state taxes. Roth IRA s do not require Required Minimum Distributions. The Roth TSP does require RMD s. You may want consult a professional when establishing your RMD Strategies.

64 A Case Study for Diversification, Rebalancing and Dollar Cost Averaging

65 Case Study of a TSP Participant Carl, age 40 Moderate approach to risk. He can deal with volatility over the long term. Develops plan to Diversify, Rebalance and Dollar Cost Average Note: Dollar Cost Averaging and Rebalancing do not insure a profit or guarantee against loss. Investors should consider their financial ability to continue their purchases through periods of low price levels. This strategy may or may not be suitable for you and you should consult with a professional to establish the strategy that is best suited for your risk tolerance.

66 Diversification Carl meets with his financial planner and they discuss his TSP and other investments. They decide on a diversification model for his TSP. Diversification By choosing a US Large Cap Index (C), a Large Cap International Index (I), a Small Cap Index (S), a Bond Index (F), and the G Fund Carl is spreading his risk across multiple asset classes. C Fund: 20% I Fund: 10% S Fund: 20% F Fund: 20% G Fund: 30% Note: this may not be a good diversification model for you and is not a recommended portfolio.

67 Contribution Allocation & Interfund Transfers Interfund Transfers: by doing an Interfund Transfer in the TSP you are moving your account balance. Contribution Allocations: when you update your Contribution Allocation you are changing how your new money is invested. If you do an Interfund Transfer you are moving your account balance. When you change your Contribution Allocation you are telling your future, new money, how to be invested.

68 Rebalancing Every year you will find that some funds outperform the other. As a result your portfolio balances will drift from your initial allocations. To keep your portfolios properly diversified you should rebalance your portfolio back to your initial allocations monthly, quarterly, semi-annually or annually. You should also review your diversification model annually to make sure it is appropriate for your risk tolerance and age.

69 Interfund Transfer & Contribution Allocation Assumption: at the beginning of the quarter he did an Interfund Transfer to 8% G, 7% F, 40% C, 23% S and 22% I to match his Contribution Allocation. You can see the percentages in his Distribution of Account fluctuated from his Contribution Allocation because of market performance. Which funds are performing better?

70 Rebalancing Example* STEP #1 January 1 March 30 REVIEW STEP #2 April 1 Update the Interfund Transfer & Contribution Allocation Percentages G Fund: 20% F Fund: 20% C Fund: 20% S Fund: 20% I Fund: 20% Review Distribution of Account G Fund: 21.9% F Fund: 22.4% C Fund: 19.6 % S Fund: 18.9% I Fund: 17.2% Update Interfund Transfer Percentages G Fund: 20% F Fund: 20% C Fund: 20% S Fund: 20% I Fund: 20% Carl Quarterly Rebalances on Jan 1, April 1, July 1, and Oct 1 by doing an Interfund Transfer and putting 20% into each of his five funds. He also sold a small amount of G and F (the bond funds) and bought a small amount of C, S, and I Funds (the stock funds) to get his TSP rebalanced. * This rebalancing example is for illustration purposes only and is not a recommended platform or investment strategy.

71 Dollar Cost Averaging may lower your price per share. Carl and his financial planner discuss his new contributions to the TSP. Every two weeks Carl contributes to the TSP. The strategy of buying shares at different prices over a period of time is known as Dollar Cost Averaging. Federal Employee owns 100 Shares of C with Average Price: $14.00 Federal Employee Purchases 100 Shares of C at $10.00/share Federal Employee will need the C Fund to be worth $12.01 to be in the money for those 200 Shares. Note: Dollar Cost Averaging does not insure a profit or guarantee against loss. Investors should consider their financial ability to continue their purchases through periods of low price levels.

72 Interfund Transfers For each calendar month, the first two Interfund Transfers can redistribute a participant s account among any or all of the TSP funds. After that, for the remainder of the month, participants may only move money into the Government Securities Investment (G) Fund (in which case the participant will increase the percentage of the account held in the G Fund by reducing the percentage held in one or more of the other TSP funds). Source:

73 The Lifecycle Funds Select Time Horizon L or later L or later L through 2034 L through 2024 L Income Today / Near Future If you hold the L 2020 fund in the year 2020 it will convert to the L Income Fund in year 2021.

74 L July 2009 July 2009 G Fund: 33.40% F Fund: 7.6% Source:

75 L July 2020 July/ % Fixed Income 20% Stock Portfolio July 2020 F Fund: 6% G Fund: 74% Source:

76 The Roth TSP More Tax Flexibility in the TSP The TSP is now offering all active Federal employees and members of the uniformed services the option to designate some or all of their contributions as Roth contributions. The TSP Roth feature will give participants flexibility in the tax treatment of their contributions now and in the future. Earnings grow tax-deferred. Contributions are made with after-tax money. Qualified distributions are tax-free upon retirement when an account has been open for at least five-years and/or certain requirements have been met. Non-qualified distributions of earning are taxed as ordinary income and prior to age 59 1/2, a 10% federal penalty tax may apply to the taxable amount.

77 How does Roth TSP compare to Traditional TSP? Roth contributions are taken out of your paycheck after your income is taxed. When you withdraw funds from your Roth balance, you will receive your Roth contributions tax free since you have already paid taxes on the contributions. You also won t pay taxes on any earnings, as long as you re at least age 59½ (or disabled) and your withdrawal is made at least 5 years after the beginning of the year in which you made your first Roth contribution. Traditional (pre-tax) contributions, which lower your current taxable income, give you a tax break today. They grow in your account tax-deferred, but when you withdraw your money, you pay taxes on both the contributions and their earnings.

78 Electing Roth contributions is not an all-ornothing decision. You can contribute to both your Roth and traditional balances. The Roth gives you the opportunity to diversify the tax treatment of the money in your account.

79 2011 Innovate Financial, Inc. LD /10 Can Roth benefit you? Everyone s situation is different. Whether you would be better off making traditional or Roth contributions depends on your income tax rate now and in the future. For example, you might benefit from making Roth TSP contributions if: You are in a low tax bracket now, but think your tax rate may be higher in retirement. With a Roth, your contributions are taxed at your current rate, and you avoid paying taxes when you take distributions in the future as long as you follow the Roth distribution rules. You technically do not know if taxes will be higher or lower in the future so it may make sense to have both tax deferred (TSP) and tax free (Roth TSP) money at retirement. Maximizing the CSRS Federal Employee Benefits & Retirement Benefits

80 Tax rate 2016 Innovate Financial, Inc. Where are income tax rates headed? U.S. federal income tax rates, (%) This chart reflects the maximum federal income tax rate at each year-end. Source: Internal Revenue Service, 2010.

81 How does Roth TSP work? Money already in your account when you begin making Roth contributions will remain part of your traditional balance. You will not be able to convert it to a Roth. The combined total of your Roth and tax-deferred traditional contributions in 2015 cannot exceed the elective deferral limit of $18,000, or the catch-up contribution limit of $6000. Agency contributions will always be part of your traditional (non-roth) balance. Any contribution allocation or interfund transfer will apply to the investment of both your Roth and traditional contributions or balances. You will be able to transfer Roth 401(k), Roth 403(b), and Roth 457(b) (but not Roth IRA) money into the Roth balance in your TSP account. Pre-tax transfers will continue to be placed in your traditional balance.

82 How does Roth TSP work? You will be able to take loans, in-service withdrawals, and partial withdrawals from your account as before. They will come out of your account on a pro rata basis with a proportional amount from your traditional and Roth balances. If you withdraw money from your TSP the withdrawals come out proportionally from the Traditional TSP and Roth TSP. You can transfer your Traditional TSP to an IRA Rollover and Roth TSP to a Roth IRA.

83 Roth TSP is similar to a Roth 401(k), not a Roth IRA. There are no income limits for Roth TSP contributions.

84 How will you sign up? You will elect to make Roth contributions in the same way as you have always elected traditional contributions. using either the electronic system of your agency or service, or Form TSP-1, Election Form (TSP-U-1 for uniformed services). If you are eligible for catch-up contributions, you will use your agency or service electronic system or Form TSP-1-C (TSP-U-1-C for uniformed services). Check with your agency or service to find out whether your TSP elections should be made electronically or by using a TSP form.

85 Electing Roth TSP and TSP Contributions

86 You may want to consult a qualified tax or financial advisor to help you decide if Roth is for you. You should reassess your decision anytime your tax or income situation changes.

87 Questions and Answers About the Thrift Savings Plan

88 Federal Employee Group Life Insurance (FEGLI)

89 FEGLI Life Insurance Overview Must have Basic FEGLI Insurance to apply for Option A, Option B, or Option C - Basic, Option A, Option B, Option C Available without underwriting at initial employment. Insurance provided and underwritten by Metlife Life Insurance Company.

90 Basic Life Insurance Basic Life Insurance is equal to: 1X Your Salary, Rounded Up, and Add $2000 Employees Pay $0.15 Per $1000 Biweekly Retirees Pay Retirees 75% Reduction 50% Reduction No Reduction Until the Month after your 65 th Birthday Starting the Month after your 65 th Birthday $0.325 monthly per $1000 Free $0.925 monthly per $1000 $0.60 monthly* per $1000 $2.155 monthly per $1000 $1.83 monthly* per $1000 * You will continue to pay premiums for life (unless you cancel or subsequently elect 75% Reduction). Source for all FEGLI Rate Information:

91 Basic Life Insurance Example 2016 Innovate Financial, Inc. Basic FEGLI Death Benefit: $50,000 Employed Retiree Current Premium $195 Annually No Reduction $50,000 Death Benefit for Life Annual Premium: $1293 Retirement to Age 65 Annual Premium: $1098 Post Age 65 50% Reduction Death Benefit is Level until Age 65 when the Death Benefit drops by 1% a month until you have 50% $25,000) of his Basic Death Benefit at Retirement. Annual Premium: $555 until Age 65 $360 Annually After Age 65 75% Reduction Death Benefit is Level until Age 65 when the Death Benefit reduces by 2% a month until you have 25% ($12,500) of his Basic Death Benefit at Retirement. Annual Premium: $195 until Age 65. $0 After Age 65 Joe 57 Years Old Salary: $47,999 Retiring this year Deciding what to do with his BASIC FEGLI

92 Extra Benefit Example Must have the Basic FEGLI. Extra Benefit doubles the Basic FEGLI death benefit for people under age 35. At age 36 it starts to reduce by 10% a year until age 45 when there is no Extra Benefit. Age 34 Salary: $47,500 Basic FEGLI: $50,000 Under Age 35 Extra Benefit: $50,000 Total Death Benefit to Age 35: $100,000 Age 36: $95,000 Age 37: $90,000 Age 38: $85,000 Age 39: $80,000 Age 40: $75,000 Age 41: $70,000 Age 42: $65,000 Age 43: $60,000 Age 44: $55,000 Age 45: $50,000

93 Part A FEGLI Insurance $10,000 of Life Insurance No price increase for Retirees At age 65 automatically reduces by 2% a month until age 70 when you will have $2500 No premiums due after age 65 Age Group Biweekly Monthly Annual Premium Under 35 $0.30 $0.65 $ $0.40 $0.87 $ $0.60 $1.30 $ $0.90 $1.95 $ $1.40 $3.03 $36.40 If you have Basic the extra cost for Option A is miniscule $2.70 $5.85 $ $6.00 $13.00 $ $0 $0 No Charge Source for all FEGLI Rate Information:

94 Part B Life Insurance 1 to 5 Times Your Salary Age Group Biweekly Monthly, per $1,000 Under 35 $0.02 $ $0.03 $ $0.05 $ $0.08 $ $0.13 $ $0.23 $ $0.52 $ $0.62 $ $1.14 $ $1.80 $ and over $2.40 $5.20 Part B will have no premiums due after age 65 if you take a 100% Reduction of Part B at retirement. Reduces by 2% a month for 50 Months until it is worth $0. Rates May Change in the Future Source:

95 Part B Life Insurance Example Dave: Age 30 Salary: $60,000 (all years for example) He has 5X Option B for $300,000 in Death Benefit. Age Group Biweekly Annual Premium Under 35 $6 $ $9 $ $15 $ $24 $ $39 $ $69 $ $156 $ $186 $ $342 $ $540 $14, and over $720 $18,720 Part B is designed so that you have few choices but to cancel it if you live a long life.

96 Increasing cost of FEGLI Part B

97 Part C Life Insurance Sold in 1 to 5 Multiples Employee's Age Group Biweekly Monthly, per multiple $2,500 up to $12,500 per child $5,000 up to $25,000 on spouse Example: 5X Part C on Spouse Death Benefit: $25,000 Fed Age 65-69: $390 Annually Fed Age 70-74: $442 Annually Fed Age 75-79: $585 Annually Fed Age 80+: $780 Annually Special Consideration: The Part C is very well priced while the Federal Employee is alive. If the Fed Employee (retired or not) predeceases the spouse, or covered children, the Part C will have to be converted to Whole Life and the price will go up. The conversion does not require proof of health if done on time and the spouse/covered children will have to weigh the benefits of keeping the insurance, replacing it, or cancelling it. Under 35 $0.22 $ $0.29 $ $0.42 $ $0.63 $ $0.94 $ $1.52 $ $2.70 $ $3.14 $ $3.60 $ $4.80 $ and over $6.60 $14.30

98 5X Part C Illustrated

99 Federal Employee Group Life Insurance (FEGLI) If you are replacing any life insurance coverage you should never drop your current coverage until the new coverage is in force and paid. In our opinion, the Basic option for FEGLI is a good deal. You should consult with a professional about whether the No Reduction, 50% Reduction or 75% Reduction is best for you when you retire. It s my opinion that you should never completely drop the Basic FEGLI. The value of the rest of the Federal Employee Group Life Insurance options (Option A, Option B and Option C) depend on your age and health. It is advised that you meet with a professional who understands your federal benefits to ascertain the value of Option A, Option B and Option C for your situation. We meet with people on this subject often. All options in FEGLI can be valuable and careful consideration should be made before making any changes.

100 Questions and Answers About Life Insurance

101 Long Term Care Insurance 1. Who needs it? 2. What protection does it offer? 3. How do I choose a policy?

102 Who Needs Long Term Care Insurance 1. People/Couples who want to protect their assets and each other from impoverishment. 2. People who want an advocate for their long term care should a need arise. 3. People who plan for the future and want to make sure that the children are not burdened with years of long term care for an elderly parent.

103 What Protection Does Long Term Care Insurance Offer? 1. Provides a insurance benefit to people who own a policy and cannot perform two activities of daily living or have significant cognitive impairment. Activities of Daily Living: Toileting, Incontinence, Transferring, Dressing, Eating and Bathing 2. Medicare and your FEHB provide for skilled medical care. Generally speaking, a long term care need is usually requires non-medical care and your FEHB and Medicare are not designed to pay benefits for long term care. 3. A Long Term Care Partnership Approved policy allows for additional estate protection (to be covered). The Federal Long Term Care Insurance Program does not carry the LTCI Partnership endorsement.

104 Choosing a LTCI Policy 1. Daily or Monthly Benefit: The amount your policy will pay out. Some carriers offer daily amounts and others offer monthly. 2. Length of Benefit: 1, 2, 3, 4, 5 Years or Lifetime Benefit 3. Pool of Money: Your Daily Benefit x 365 x Years of Benefit 4. Elimination Period: ranges from 0 to 100 days and is your deductible. If you have 100 Days of Elimination Period you will pay the first 100 Days of Care. 5. Inflation Rider: required for most partnership programs including the state of Minnesota. Increases the daily/monthly benefit, and the pool of money, by set rate (usually 3% to 5%). 6. Is it Long Term Care Partnership Approved? The Fed LTCI is not Partnership Approved. 7. Private Sector policies offer additional benefits like Shared Care that offer a pooled benefit for both spouses so that if one does not use the benefit and dies the remaining spouse will inherit it. 8. Example of Coverage: 1. Daily Amount x 365 x Years of Coverage = Total Coverage 2. Example: $200 Day x 365 (days) x 3 (years) = $219,000 Insurance Pool of Money.

105 Long Term Care Partnership Program In states with LTCI Partnership Programs if youpurchase certain long-term care insurance policies will be able to protect more of their assets under the state s LTCI Partnership Program. Currently, in order to qualify for Medical Assistance, a consumer must first draw down his or her personal assets. The Long Term Care Partnership gives consumers the ability to protect assets up to the amount of long-term care coverage they purchase. - For example, consumers who purchase $100,000 of coverage would be able to keep an additional $100,000 of their assets if benefits from a long-term care policy are exhausted and they need to apply for Medical Assistance. For more information google Your State + Long Term Care Partnership Program.

106 Partnership Approved VS. Not Partnership Approved HELEN MARY LOU Helen and Mary Lou each own a long term care insurance policy with the following: $200 Day 3 Year Benefit 90 Day Elimination Inflation Rider $200 x 365 (days) x 3 (Years) = $219,000 Helen s policy is Long Term Care Partnership Approved She can protect a portion of her estate equal to the amount her LTCI policy pays for her care: Helen can keep $219,000 in her estate and qualify for Medicaid (+ $2000 that Medicaid normally allows) Mary Lou s policy is not LTCI Partnership Approved She will not receive the dollar for dollar asset protection and she is a widow. If Mary Lou uses the $219,000 LTCI benefit from her policy she will have to spend her estate down to $2000 before Medicaid starts assisting her with the LTC expenses.*

107 The Importance of the Partnership Plan for Long Term Care Insurance The Federal LTCI Program is not LTCI Partnership Approved. There have been two periods with the Federal Long Term Care program where they offered policies on a Simplified basis with fewer health questions. The first occurrence was 2001 and the 2 nd was While you can purchase the FED LTCI at any time you would now have to go through Full Underwriting which is what you ll have to go through if you buy a Individual Policy on your own (or with a spouse). With the recent Federal Long Term Care price increases we feel that you should highly consider comparing the federal coverage to a private sector policy. If you are buying a private sector policy it s very important to make sure it is Partnership Approved. If you are married we find great value in the Shared Care Rider that allows a husband and wife to pool their benefits.

108 The Federal Long Term Care Insurance Program John Hancock is the underwriter of the new LTCI Fed Program. Every seven years (approximate) the federal program group LTCI program is renegotiated. New contract in 2010 brought an increase in premium for people who had the inflation rider on the Fed LTCI policies they purchased prior to You can get a quote for the federal long term care program at or by contacting us. We can quote you the fed program and the fully underwritten partnership policies if you contact us at The Federal Long Term Care Insurance Program does not have the Long Term Care Partnership Program qualification.

109 New Federal LTCI Program Options Coverage Plan: - Comprehensive: Home Care, Adult Day Care, Respite Care, Facility Care. New Plan has all facilities at 100% of the Daily Value. Daily Benefit - The FLTCIP offers eight DBAs from $100 to $450 in $50 increments. Length - 2 Year, 3 Year, 5 Year or Unlimited benefit period Elimination Period - 90 Days Inflation Protection - 4% or 5% Compounding or Future Purchase Option The Federal LTCI Program is Not LTCI Partnership Approved!

110 Questions about Long Term Care Insurance?

111 Health Insurance Utilizing the features of the Federal Employee Health Benefits

112 Federal Employee Health Benefits The federal government pays 71% of your premium for your health insurance both pre and post retirement. The percentage they pay could change in the future. - While employed you pay your portion with pretax dollars. - In retirement you will pay your portion of the premiums with after tax dollars. You must have the FEHB five years prior to retirement. - to continue FEHB you must retire on an immediate pension. You must provide your spouse with a survivor pension benefit if he/she wants to continue the FEHB Benefit after federal employee s death. OPM will pay 71% of spouse s FEHB cost if you provide a survivor benefit.

113 Flexible Spending Accounts Paid with Pre-Tax Contributions FSA Contributions can be used to pay health, vision and dental expenses. Must sign up during an Open Season (November) Up to $2500 per individual if no dependent care If spouses are both federal employees you can do a maximum of $2500 each. If you have dependent care costs (day care, not medical) you can do $5000 per household. Special exceptions for special needs children or if you are caring for an elderly parent. Must use it or lose it by March 15 th of the following year. However, you can carry over $500 from one year to the next. Not available to retirees If you contribute to the FSA in the year you are retiring you can only submit claims through March 15 of the following year if those claims occurred while you were employed.

114 Medicare at Age Innovate Financial, Inc. Part A Hospital - Deductible is $ You pay for this while employed at a rate of 1.45% per year. Part B Medical Insurance - Deductible is $166 - For joint income under $170,000 Premiums: $ per month per person. - For joint income over $170,000 Premiums increase on a schedule with a maximum of $ per month (2016) Part C Medicare Advantage - Offered by private companies approved by Medicare - Combined coverage A, B, D & may include vision & dental Part D Prescription Drug Plan Coordinating Medicare with your FEHB Website:

115 Medicare If you are retired and age 65 - Apply for Part B You have a 7 month window around your 65 th birthday to apply. 10% Penalty Per Year that you do not apply and are retired. - Can postpone if you retire after age 65 from the federal government: 8 Month window to apply. Verify with Social Security that you can wait to apply if retiring after age 65 from the federal government. - General Enrollment Jan 1 through March 31 For more information please visit:

116 Social Security for FERS Social Security Eligibility and Rules

117 The only place to get a current Social Security Statesment 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.

118 The Social Security Website

119 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 Maximum Taxable Earnings for OASDI = $118,500.

120 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

121 Social Security Credits Earnings Required to Receive One Credit (you can earn up to four credits a year) - Through 1977: $50 per quarter and later 2007 $1,000 Quarterly $4,000 Yearly 2008 $1,050 Quarterly $4,200 Yearly 2009 $1,090 Quarterly $4,360 Yearly 2010 $1,120 Quarterly $4,480 Yearly 2011 $1,120 Quarterly $4,480 Yearly 2012 $1130 Quarterly $4,520 Yearly 2013 $1160 Quarterly $4640 Yearly - Note: you can earn 4 Credits in One Quarter if you make $4640 in one quarter of 2013.

122 Social Security Earnings Test If you are taking Social Security Income and still receive Ordinary Income (not pension income) you may have a Social Security Earnings Test. Earnings Test Rules If you take Social Security before the year you reach full retirement age: - $15,720 Annual Earnings Limit (2015) Lose $1 of Social Security Benefits for every $2 of Ordinary Income earned over $15,720. If you are taking Social Security Income the year of your full retirement age: - $41,880 Annual Earnings Limit (2015) Lose $1 of Social Security Benefits for every $3 of Ordinary Income earned over $41,880. Month of full retirement age and later: - Unlimited earnings are permitted without affecting your Social Security Income.

123 The Windfall Elimination Provision (WEP) THIS ONLY EFFECTS CSRS to FERS TRANSFEREES If you are Regular FERS, FERS LEO and never transferred from CSRS this will not effect you at all. Please X out this slide. Must have 30 Years of Substantial Earnings and 40 Credits Under Social Security to avoid WEP. To Calculate WEP go to You must have your CSRS Portion of your Pension amount to calculate how the WEP will affect your Social Security Benefit. You can go online or you can schedule an appointment with your local Social Security office to review your benefits.

124 When to Elect Social Security If you are under Full Retirement Age (66 to 67 years old) you should make sure you are not making income over the Earnings Test Limit. If you are married you need to factor in survivor income when electing Social Security. A widow can receive a benefit equal to the higher of the two spouses benefits. Too many people turn on Social Security without considering the ramifications of an early demise for one of the spouses with great longevity for the other.

125 Questions about Social Security and Medicare

126 Thank you for attending this training session today! For more information about Mike Nakashima, Lauren Brown or Melissa Richter please visit our website at Our website has this training manual available for printing for free, upcoming retirement and federal benefit web training events, and other retirement planning information. Need financial planning assistance? Please contact us toll free at (866) Lauren Brown, Financial Planner Michael Nakashima,CFP Melissa Richter, Office Manager Training Manual:

127 Resources Innovate Financial, Inc. Website 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 Contact Innovate Financial, Inc. for additional information about our services: (612) This power point presentation offers links that operate outside Innovate Financial, Inc., is not responsible for the validity, completeness, or accuracy of any information provided on those sites.

128 About Innovate Financial, Inc. We have a specialization in financial planning for federal employees and their families. We offer full service financial planning to all types of people. Mike and Lauren have trained thousands of federal employees on the value of their federal employee benefits. We also consult one-on-one with federal employees and their spouses. Attendees of our seminars can receive one free consultation per lifetime. Established in 2007, always working in the clients best interest.

129 SPECIAL SECTION FOR: Law Enforcement Officers (LEO), Federal Firefighters (FF) and Air Traffic Controller (ATC) The following section is only for LEO s, ATC s and FF s. Please disregard this section if you are a REGULAR FERS and not a LEO, FF, ATC.

130 Helping to Maximize the FERS Federal Law Enforcement Officer, Federal Firefighter, and Air Traffic Controller Benefits & Retirement Benefits Michael Nakashima, CFP Certified Financial Planner Chartered Federal Employee Benefits Consultant (ChFEBC) Lauren Brown Financial Planner, Inc. (612)

131 FERS LEO, FF, ATC Pension Deductions 7.5% of base pay 1.30% FERS & 6.2% Social Security 1.45% Medicare A TSP Contributions? These contributions stop at retirement and will not be taken from your pension or special supplement.

132 Preretirement Deductions You Will Not Pay in Retirement FERS LEO, FF, ATC put 7.5% into their pensions and/or social security. Most people plan on living on less in retirement. Your pension will not have this 7.5% Deduction. You also put 1.45% into Medicare Part A that is not deducted in retirement. If you are putting 15% into your TSP, 7.5% into your pension/social security, and 1.45% into Medicare you are living on 76.05% of your Gross Income.

133 FERS LEO, FF, ATC Retirement Eligibility Any age with 25 Years Age 50 with 20 Years LEO/FF Mandatory Retirement at age 57. ATC Mandatory Retirement at 56.

134 Calculating the FERS LEO, ATC, FF Pension Formula 1.7% x Hi-3 Average Salary x 1st 20 Yrs = A 1.0% x Hi-3 Average Salary x Rest of Yrs = B FERS LEO Pension = A + B + Example Hi-3 Average: $100,000 Years of Service: x $100,000 x 20 = $34, x $100,000 x 5 = $5,000 = FERS LEO Full Pension: $39,000 If you transferred from CSRS to FERS you begin a new 20-year period at 1.7%

135 The FERS Special Supplement for LEO s, ATC s and FF s Social Security does not start until age 62 so OPM pays FERS a Special Retirement Supplement. LEO/ATC/FF FERS have additional benefits over Regular FERS. You will not have a Social Security Earnings Test until you reach Regular FERS Minimum Retirement Age (see next slide). - Earnings Test states that you will lose $1 of FERS Special Supplement for every $2 you earn over $15,720 in The FERS LEO/ATC/FF Pension will have Cost of Living Adjustments (COLA s) on it. Regular FERS do not get retirement COLA s until age 62. The FERS LEO/ATC/FF Special Supplement does not have a Cost of Living Adjustment.

136 FERS Minimum Retirement Age (MRA) - This MRA only applies to LEO/ATC/FF for the Special Supplement Earnings Test. - At your Minimum Retirement Age the Earnings Test says you will lose $1 of Special Supplement for every $2 you make over $15,480 (2014) - For those of you retire prior to the MRA you will receive the Pension and the Special Supplement without an Earnings Test until you reach MRA & 2 months & 4 months & 6 months & 8 months & 10 months & 2 months & 4 months & 6 months & 8 months & 10 months 1970-Later 57

137 Special Thrift Savings Plan Rule for LEO, FF and ATC s (HR 2146) If you retire after age 50 on a full pension as a Federal LEO, ATC or FF you can access the TSP for monthly withdrawals. You should leave the money in the TSP that you may want to access prior to age 60. This exception is only for the TSP. You are allowed to move some of your money to an IRA and still leave the money you ll need in your 50 s in the TSP. You are only allowed one partial withdrawal during your lifetime from the TSP so take care when you make withdrawal elections. You should probably seek the advice of a professional for the best strategies given your circumstances. If you retire as a federal LEO/FF/ATC prior to age 50 you are not allowed this exception. As long as there is a balance in your TSP you can always move money from an IRA back to it. You should seek an expert s advice when making these transactions.

138 About Innovate Financial, Inc. We have a specialization in financial planning for federal employees and their families. We offer full service financial planning to all types of people Mike and Lauren have trained thousands of federal employees on the value of their federal employee benefits. We also consult one-on-one with federal employees and their spouses. Attendees of our seminars can receive one free consultation per lifetime. Established in 2007, always working in the clients best interest.