As a federal employee, you have spent years in your career and want a comfortable retirement. But it’s often tough to find advice in this area that fits your situation with government employment.

If you read the newspaper or surf the web, chances are you have come across some articles with retirement advice. For many people, these insights can be quite helpful: catching up on retirement savings, estimating how much retirement income that you will need, deciding when to retire, and so on.

But in many cases, these insights don’t matter as much to federal government employees. In fact, a great deal of the advice may not apply at all. Why?

Federal Employees Need Tailored Retirement Guidance

As a government employee, you need information that covers your unique federal employee benefits and they fit into your financial picture. One big question: how you can optimize your employee benefits for a comfortable and secure retirement after you separate from service?

It’s important to be able to answer questions such as this, so that you can make confident and well-informed decisions for your family and yourself.

Here’s a few reasons why generic retirement planning advice doesn’t cut it for federal employees – and, instead, how tailored guidance can make a world of difference for their unique employee benefit programs.

1. Different Benefits Programs from the Private Sector

Federal employees have far different retirement benefits from those of private-sector employees. Depending on when they came into service, civil federal employees are grouped into two systems:

• the Civil Service Retirement System, also known as CSRS, and
• the modernized Federal Employees’ Retirement System, commonly referred to as FERS.

In CSRS, U.S. government employees receive a large pension annuity that has accumulated from earnings from their base pay over their federal careers. With FERS, they have Social Security, a smaller pension annuity, and the Thrift Savings Plan (401(k) like savings plan for the federal public sector).

CSRS employees have the option to participate in the TSP. However, they aren’t automatically enrolled in it.

If you are part of the uniformed services (military), you might be part of the CSRS system or the Blended Retirement System. It depends upon when you enlisted and the number of years of service that you have put in.

All of these programs have unique benefits, including defined-benefit pension income. In the private sector, the vast majority of companies use defined-contribution plans like the 401(k) plan. The Thrift Savings Plan is the government’s version of a 401(k) plan. During your years of accumulating assets, it works similarly to a 401(k) plan in many respects.

2. Treated Differently Under Social Security

Social Security rules don’t apply equally to federal employees as they do to private-sector employees.

Depending on your specific federal retirement system, a part of federal law called the Windfall Elimination Provision might apply to you. The time of your service impacts whether you might receive Social Security benefits or not.

From that standpoint, it’s easy to see why the one-size-fits-all advice of when to take your Social Security benefit might not apply to you. Federal employees may also be eligible for earlier retirement than private-sector workers, who often retire at the ages of 62 to 65 or older.

Hence, the advice surrounding Social Security as the breaking point for your entry into retirement might not apply. Some federal employees can retire after they have put in 30 years of service. For example, someone who started working for Uncle Sam when they were 25 years old could retire at age 55.

Federal employees may want to coordinate their Social Security decisions with how they will tap their other retirement benefits. For example, say someone is in their late 50s and is covered under the FERS system. They have enough creditable service where they qualify for a FERS immediate retirement (a.k.a. a regular or voluntary retirement under FERS).

Our federal employee wants to bridge the gap from when they retire to when they take Social Security. However, the minimum age for Social Security is 62. Even then, they are thinking about taking Social Security later so that the benefit has more time to accrue.

Assuming other conditions are met, our federal employee may want to look into the FERS supplement. This is a supplement that is designed to help certain FERS employees cover the gap between when they separate from service and later claim Social Security. Many federal employees haven’t heard of this, and it’s formally called a Special Retirement Supplement.

That is without talking about situations where our federal employee may maximize their benefit by claiming well beyond the minimum age of 62. The point? Generic retirement planning advice just doesn’t cut it in this case.

3. Making Assumptions about Your Savings Progress

Most retirement articles assume the reader needs to play catch up with retirement savings, which might not apply to federal employees. And you know what they say about assumptions!

In retirement, one of the most crucial outcomes is income. How much income will you receive each month? How much income does it take to pay for your preferred lifestyle? This isn’t a question that having a certain amount in overall retirement savings will answer in itself.

Since most federal employees fall under the FERS system, they will probably have two sources of guaranteed income: their pension and their Social Security benefits. If they are eligible, they might take advantage of the FERS supplemental benefit, as discussed earlier.

Just those two benefits will give some reliable cash-flow each month. Most private-sector workers are in a different boat. They will likely rely on Social Security — only one predictable monthly income stream — and will have to figure out how to make up income gaps with their investments.

Back to our discussion of you and other federal employees. The pension and Social Security are sources of guaranteed income that will be paid out each month. So, the question of how much retirement savings a federal employee has accumulated isn’t as important as how much income.

What’s more, federal employees have some limits on the distribution rules for their TSP accounts. However, these limits aren’t as restrictive as they were in years before.

The TSP Modernization Act gave more flexibility in how you can withdraw your money and in frequency of withdrawals. But there are still some rules for distributions that should be kept in mind. Again, it’s another example of how cookie-cutter retirement advice doesn’t serve federal employees well.

4. Other Benefits That Affect Your Retirement Benefits

Federal employees may choose to continue FEGLI coverage post-retirement. However, the premiums rise by a lot. In fact, the monthly premium for FEGLI increases by more than a whopping 4,500% from age 30 to age 70.

On the other hand, private-sector employees often don’t have group life insurance in post-retirement. One exception is they are a key employee at their workplace, and they have extended permanent life insurance coverage in a group carve-out plan.

If a federal employee takes advantage of their FEHB benefits, then possibly continues them into retirement, that can affect their pension income. It can shave off some of the income they might receive from their pension annuity.

Those who are age 65 and over must also enroll in Medicare Part A in order to avoid a penalty. That is, unless they are still working.

As long as someone is still working, there is no requirement to enroll in Medicare. But once they retire they must either do so or face a penalty.

Some FEHB plans offer a coordination of benefits feature designed to complement Medicare coverage. That being said, in many cases the FEHB coverage will overlap Medicare in some areas. These are all things for federal employees to think about with their benefits options.

Looking for Personalized Guidance That Is Right for You

Generic retirement advice doesn’t address these unique situations for federal employees at all. You need a guide who understands your federal benefits and who can educate you on their inner-workings.

That way you can make informed, confident decisions for your family. Consider requesting a federal benefits analysis from a benefits-knowledgeable financial professional. This can help you with important decisions of when and whether to retire. It can be the subject of an entire article, but someone who emphasizes the educational aspect of your benefits, and you understanding them, is a good starting point.

Other telltale signs that someone is experienced to guide you through your federal benefits is through holding a professional designation suited just for federal employee benefits.

The Chartered Federal Employee Benefit Consultant℠ designation is one such mark. Feel free to ask us for more information about this on our contact page, if it would help you.

Now, let’s go back to you. If you are looking for a financial advisor or an organization that understands federal benefits, check out our “Find a Financial Professional” section. Many financial professionals on the SafeMoney.com platform work with federal employees for retirement. If you would like a personal referral, feel free to call us at (877) 476.9723 for more information.

The post Why Run-of-the-Mill Retirement Planning Advice Doesn’t Work for Federal Employees first appeared on SafeMoney.com.

Created in 1954, FEGLI provides group term life insurance that may serve several purposes.

Federal employees depend on FEGLI for many reasons in the event of untimely death: income replacement, death benefit protection, coverage for debts or expenses that may overwhelm survivors, financial safeguards for young families, and other benefits.  

FEGLI often features a lower requirement for participation compared to other life insurance policies. For private-sector group life insurance – or just personal life insurance coverage in general – people are often required to undergo a medical examination or to meet other eligibility criteria.

The Government Kicks in for Basic Coverage

While FEGLI coverage is offered by most federal agencies, the coverage isn’t free to federal employees. And not all government agencies offer it, either.

FEGLI automatically covers most federal employees. This automatic coverage is called “Basic” life insurance coverage.

However, the cost of “Basic” insurance is shared. Employees pay for 2/3 of the cost of their coverage, while the U.S. government pays the balance. For postal employees, the USPS helps pay for FEGLI coverage.

Since FEGLI is term life insurance coverage, there is no cash value. Federal employees’ options are not limited to the Basic purchase coverage, however. They have three choices for “Optional” life insurance. Depending on your needs and the legacy you hope to leave, it’s valuable to know what is available to you.

To pursue Optional life insurance, you must elect to go beyond the Basic coverage. And, in contrast to Basic coverage, you pay the total bill for your Optional insurance, no matter which of the three coverage levels you select. There is no government contribution.

Weighing Your Options

It’s a prudent move to consult with a financial professional who is experienced in helping federal employees understand their benefits. That being said, you can follow these guidelines to understand the basics of different coverage options available to you.

Basic life insurance coverage is equal to your annual salary, rounded to the nearest $1,000, plus $2,000.

Then there are three levels of Optional coverage, conveniently categorized as A, B and C coverage. Here’s how they break down:

• Option A or Standard insurance adds $10,000 more of life coverage on top of Basic coverage.
• Option B or Additional insurance pays out at 1 to 5 times your salary in more life coverage.
• Option C or Family insurance equates to 1 to 5 multiples on lives of eligible family members.

You can see that figuring out Option C requires at least a good calculator. From that standpoint, federal employees may find it helpful to work with a financial professional who is skilled at counseling them on their options.

Under Option C each multiple equals $5,000 of coverage on a spouse and $2,500 of coverage on each eligible individual child, according to the Federal Benefits Information Center.

What Does Age Have to Do with It?

Whether you are a federal or postal employee, insurance premiums for Basic coverage aren’t based on your age.

Optional life insurance coverage is different. These premiums increase as a federal employee reaches a new five-year age bracket. For instance, say a federal civilian employee is 35 years old. Your rate at age 35 will change when you reach age 40, the start of the next age bracket.

Unfortunately for participating federal employees, from ages 50 through 60, premiums may skyrocket—as much as 200%. Premiums are calculated using actuarial tables on the likelihood of nearing the point where the policy could pay out.

Here’s another good thing to know. This increase simply maintains your existing level of protection — it doesn’t increase coverage.

Many federal employees reach their Minimum Retirement Age during this span from age 50 through 60. Weaving FEGLI coverage into your overall financial plan will help you understand what other life insurance options to consider and how they compare to FEGLI coverage.

Understanding that FEGLI is simply a death benefit, that it doesn’t have a cash value, and cannot be counted on to potentially provide long-term care benefits, often motivates federal employees to seek coverage that that provides more than death benefit proceeds.

They may seek some form of long-term care coverage, not to mention other care coverage benefits, to prevent them from becoming a financial burden to their families.

Who Gets It When You Are Gone

The Office of Federal Employees’ Group Life Insurance (OFEGLI) pays life insurance benefits in an order set by law. If an employee assigns ownership of their life insurance, OFEGLI will first pay out to the beneficiary designated. If there isn’t a designated beneficiary, the payout goes to the assignee.

In the case when an employee didn’t assign ownership, and there is a valid court order on file, OFEGLI will adhere and pay benefits in accordance with that court order.

If there is no assigned ownership and no court order to follow, benefits are paid as follows:

• To the beneficiary designated;
• If none, then to the widow or widower;
• If none, to the child(ren), with the share of any deceased child distributed among the descendants of that child (a court will usually have to appoint a guardian to receive payment for a minor child);
• If none, to the parents in equal shares or the entire amount to the surviving parent;
• If none, to the executor or administrator of the estate; or
• If none, to the next of kin as determined under the laws of the state where the annuitant or employee lived.

Having someone else decide who gets your life insurance payout should motivate you to keep your designated beneficiaries up-to-date. Divorces, remarriages, and new family additions are just some of the many life events that might warrant a review of beneficiaries for all your policies. This applies just as much to FEGLI coverage.

Providing updated addresses is important, too. You don’t want a beneficiary to lose the benefit you intended for them simply because they can’t be located.

Putting Your FEGLI Life Insurance Strategy in Order

As there can be many moving parts in FEGLI coverage, it’s best to consult a financial professional who has been down this road many times before.

This is an opportunity for you to receive experienced advice. Not only that, you can save time in getting the benefits you want paid out exactly as you want them to be. A benefits-knowledgeable financial professional can help you coordinate the rest of your federal employee benefits, too.

Are you ready to start? Use our “Find a Financial Professional” section to connect with someone directly. You can request a personal appointment or phone call to begin the discussion. Should you need a personal referral, call us at 877.476.9723.

The post FEGLI Insurance for Federal Employees first appeared on SafeMoney.com.

Among your many benefits are programs that directly affect your financial future. Tax-advantaged retirement savings plans, guaranteed-pension payouts, and cost-efficient life insurance coverage are just a few of those programs.

Your challenge is to ensure that you maximize what is available to you. Making smart choices early will help you reap rewards for the rest of your life. So, it’s important to weave your federal employee benefits into your complete financial picture to set yourself up for the most successful retirement possible.

To get there, you need to avoid the mistakes some federal employees make with their benefits and retirement planning. These slip-ups can cost you tens of thousands of dollars in lost benefits. And what’s more, once these mistakes are made, they can’t be reversed or changed.

Neglecting Your Personnel File

Do you know exactly what your personnel file says?

When you were hired you have may assumed that your file was set up correctly and the federal system knows your exact status and eligibility. Believe it or not, some federal employees who wait to review their files as they start to plan for retirement have found there was a mix-up when they were hired… And they were placed in the wrong federal retirement system.

Don’t be that employee. Routinely review your Official Personnel Folder (OPF) for accuracy. Pay close attention to Form SF 50 (Notice of Personnel Action). This form is updated every year and features important retirement-related details.

Want to know which retirement plan you’re in? Find Box 30 (“retirement plan”) on that form and see if you are officially covered by the Civil Service Retirement System (CSRS), CSRS-Offset or the Federal Employees Retirement System (FERS).

Another important indicator is Box 31, “Service Computation Date” or SCD. While there are many intricacies to how this date is calculated, it generally refers to the date you started contributing to your retirement system.

Your SCD is one of the factors used to determine when you can retire and how much income from the CSRS or FERS annuity you will receive. You can see the value of confirming your SCD with your personnel office.

Failing to Maximize Your Thrift Savings Plan Contributions

If you are enrolled in FERS, your retirement income will largely depend on income from your Thrift Savings Plan (TSP). Are you maximizing your contributions to your TSP? Not starting your contributions early in your federal career or not maximizing your contributions could make you fall short on vital retirement income.

Like a 401(k) plan in the corporate world, your TSP sets a maximum regular contribution you can make. If you are over the age of 50, you can make additional “catch-up” contributions to accelerate your savings.

According to TSP.gov, your agency may offer a dollar-for-dollar match on the first 3% of pay you contribute. Afterward, if you are contributing less than 5% of your gross salary each pay date, you are missing out on “free” money your agency could be adding to your nest egg.

Who is Your Beneficiary?

You may know who you want to receive your nest egg upon your death, but have you filled out the proper forms?

Be sure to review forms for your Federal Employees Group Life Insurance (FEGLI) coverage, for your TSP account, and for your unpaid compensation and unused annual leave.

And have you have had life changes, as we all do—from marriage or divorce to new heirs added to the family? If so, are your wishes on how you want to leave your legacy accurate and up-to-date on your beneficiary forms?

Not Managing Your Health Benefits

One of the largest expenses for retirees is healthcare costs. Luckily, the federal government covers 100% of its retirees who meet eligibility requirements.

This primarily means that you have to have been enrolled in the Federal Employees Health Benefits (FEHB) program for the five years prior to retiring. Being covered by your spouse’s FEHB policy also qualifies.

Without this, you won’t be able to continue coverage into retirement, which could be a financial blow that seriously impacts your retirement lifestyle. There are a few exceptions to the government’s rule. But it’s in your best interests to investigate this now so that you are well-positioned for your future. You may also want to explore your options for Medicare.

Failing to Prepare a Plan for Retirement

There is no question that the federal retirement system can seem complicated. How will your benefits fit into with other parts of your financial puzzle? You can’t know until you consult with someone who understands both your retirement system and what it will take to help you fulfill your overall financial goals for your golden years.

A great way to get started is by attending federal benefits seminars and workshops for retirees and pre-retirees. Another way to educate yourself on these matters of critical importance is by consulting with a retirement professional who is familiar with federal benefits.

Missing Out on a Federal Benefits Analysis

Advisors who are well-versed in federal employee benefits have access to software that can evaluate all of your individual data. Then they can calculate the income you can expect to receive, your precise income amounts from your pension and from Social Security (if it applies to you), and other helpful financial variables.

Think of it as being like driving cross-country without directions. You wouldn’t do it, right? Then use this analysis to measure your progress and make any course-corrections necessary to help you get to your desired retirement “destination.”

Need Help Figuring Out Your Federal Benefits and Retirement?

Good news – you don’t have to figure out the complexities of your federal employee benefits — and how they will fit into your retirement plan — alone. Many people who have federal civilian or military employment have benefited from the guidance of a federal benefits-knowledgeable financial professional.

If you find yourself in this situation, financial professionals at SafeMoney.com can help you.

Use our “Find a Financial Professional” section to locate someone and learn more about their unique credentials as well as expertise. You will have the ability to connect with them directly. And if you need a personal referral, call us at 877.476.9723.

The post Common Retirement Mistakes Made by Federal Employees first appeared on SafeMoney.com.