Retirement Financial Advice

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Hornswaggled
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Joined: Tue Oct 26, 2021 5:39 pm

Retirement Financial Advice

Post by Hornswaggled »

I'm a government civil servant with 33 years, turning 65 in November. I'm a GS-15, step 10. I'm under the FERS retirement system, where I have $1.25M invested to date. I plan on retiring at the end of next year. I'm looking for help/guidance on a number of things.

1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.

2. I've received notice from Social Security that I will pay approximately $240.00 a month on medical insurance thru Medicare because of my income. I believe this is standard. Since Medicare becomes the primary insurance, I was planning on keeping my govt. medical insurance too. Is there any offset in premium now that I'm 65? Otherwise it seems like I'm paying a LOT of $$ for health insurance now. Any suggestions from those in similar situations is greatly appreciated. I'm working my way thru that minefield and don't want to make any expensive mistakes.

3. Since I'm retiring soon, should I leave the $$ in the TSP or transfer to a ROTH IRA or some other investment account?

4. Since I'm retiring at 66, I believe I have to start making required withdrawl's from TSP when I turn 70. Any advice?

Thanks so much for your time. I'm new to this site - it was recommended by my son.
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David Jay
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Re: Retirement Financial Advice

Post by David Jay »

Welcome to the forum!
Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm 1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.
I would not sign up for SS benefits while you are still working. 85% of your SS benefit will be taxed at your current (high) tax rate.

As you were born in 1956, your “full retirement age” (FRA) is 66 years, 4 months (March 2023). Filing before FRA will reduce the SS payment due to your work income so I would wait to file for benefits until after you retire. Every month you wait after March 2023 increases your SS benefit 2/3 of 1% (i.e. 8% for 12 months).
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AnnetteLouisan
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Re: Retirement Financial Advice

Post by AnnetteLouisan »

Item 4 - I think this has been increased to age 72. can anyone confirm?
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grabiner
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Re: Retirement Financial Advice

Post by grabiner »

Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm I'm a government civil servant with 33 years, turning 65 in November. I'm a GS-15, step 10. I'm under the FERS retirement system, where I have $1.25M invested to date. I plan on retiring at the end of next year. I'm looking for help/guidance on a number of things.

1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.
The benefit is that you are likely to get more total money, especially if you are in good health, or have a lower-earning spouse who will continue to receive benefits if you die first.

Your FRA is 66 years, 4 months. If you wait until age 70, your benefit will be 29% more every year after age 70. You can cover the money not received at ages 66-70 by taking withdrawals from your TSP G fund; the larger benefit will then mean that you need less from the TSP after age 70. (The reason I suggest withdrawing from the G fund is that you are trading one guaranteed benefit for another.)
2. I've received notice from Social Security that I will pay approximately $240.00 a month on medical insurance thru Medicare because of my income. I believe this is standard. Since Medicare becomes the primary insurance, I was planning on keeping my govt. medical insurance too. Is there any offset in premium now that I'm 65?
There is no offset in premiums, but most FEHB plans coordinate with Medicare if Medicare is primary. The plan may waive its usual deductibles and co-payments.

The alternative, given your high income, is to decline Medicare Part B and rely on FEHB alone. There will be no penalty for late Part B enrollment if you wait to enroll until after you leave the government. (And your income may go down then, reducing the Part B premium.)
3. Since I'm retiring soon, should I leave the $$ in the TSP or transfer to a ROTH IRA or some other investment account?
The TSP is a good investment account, and there is nothing comparable to the G fund available at retail, so it is probably worth keeping enough in the TSP to have your G fund holdings. But there may still be reasons to roll over some of your TSP to IRAs:

Rolling the Roth TSP to a Roth IRA eliminates Required Minimum Distributions during your lifetime; this is good if the RMDs will be more than you need to spend, and you want to leave more to your heirs.

Rolling the Traditional TSP to a Roth IRA also eliminates RMDs, but you will pay tax on the rollover. This may be worth doing if you will be in a higher tax bracket later in retirement, or will stay in the same tax bracket throughout retirement and can pay the conversion tax from a taxable account.

Rolling the Traditional TSP to a Traditional IRA does not affect RMDs. However, once you turn 70-1/2, you can make Qualified Charitable Distributions from a Traditional IRA. These distributions can satisfy your RMD requirement, and are not counted as income for tax purposes. Therefore, you get the tax benefit even if you don't itemize deductions, and the income is not counted for the higher Medicare premium. (It is also not counted as income for making SS taxable, but you will probably be paying tax on the maximum 85% of your SS anyway, since your FERS pension with 34 years of service will be 37.4% of your average salary for your three highest-earning years.)
4. Since I'm retiring at 66, I believe I have to start making required withdrawl's from TSP when I turn 70. Any advice?
It's age 72 now. But this is a reason to do conversions early if the RMDs may be too large. It would be better to convert some of the TSP to a Roth IRA at a 12% tax rate rather than be forced to withdraw from the TSP or traditional IRA at a 22% tax rate
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BarbBrooklyn
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Re: Retirement Financial Advice

Post by BarbBrooklyn »

Did you sign up for Medicare parts A and B?

If you have coverage for that which is covered by part B, you probably don't need to sign up for Part B now.

Medicare Part A (hospitalization) is free.

Get a copy of the most recent "Medicare for Dummies".
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."
Lalamimi
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Re: Retirement Financial Advice

Post by Lalamimi »

Does your govt insurance require you to sign up for Part B Medicare at 65? If not, you do not have to until you retire next year. Then file a Life Changing Event form, that will reduce the IRMMA payment.
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calmaniac
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Re: Retirement Financial Advice

Post by calmaniac »

Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm ---SNIP---
1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.
---SNIP---
Thanks so much for your time. I'm new to this site - it was recommended by my son.
Thank your son, he sent you to the right place.

In regard to Social Security. Questions:
1. Are you married?
2. Your age and spouse's age?
3. Your Social Security PIA (primary insurance amount, $$ you would get at your full retirement age)
4. If spouse, their PIA?

Social Security is longevity insurance. For a couple, there can be huge benefits to the high earner waiting to take SS at age 70 (particularly if it's a male older than wife). Get What's Yours: The Secrets to Maxing Out Your Social Security goes into that. Or you can Google the bogleheads website for "social security" and "high earner" for some explanations.
Last edited by calmaniac on Wed Oct 27, 2021 5:15 am, edited 1 time in total.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
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pahkcah
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Re: Retirement Financial Advice

Post by pahkcah »

1. Assuming you are single, I would agree with David Jay and wait at least until retired from the Government before starting SS. Other factors such as your current health and/or overall health history of your family could influence the decision. Every month you wait beyond FRA adds another 2/3 of a percent to your SS monthly payment (8% for each full year).

2. Dear Wife (DW) and I are both Federal retirees and have chosen to keep our FEHB plan. We also have Medicare Part A (which is free anyway) and Part B. With our FEHB plan (BCBS Basic) and Medicare, we have pretty much no co-pays or anything else beyond the premiums we pay. And, BCBS Basic reimburses each of us $800 per year to help cover Medicare Part B premium costs. Our FEHB plan is better, drug cost wise than Medicare Part D, so we don't need it. This is what we chose to do, but another plan, such as GEHA, may work best for you. With our pensions, we are subject to the Income Related Month Adjustment Amount (IRMAA), which, based on the cost of Medicare you mentioned, appears you will be as well. The premiums for FEHB are the same whether someone is working or retired. You can suspend FEHB if you just want and go with just Medicare coverage. Having said that, do not “DROP” FEHB coverage because you would never be able to get back in! There are a number of threads on this site that deal with Medicare and FEHB. And, as others have pointed out, you do not need to sign up for Medicare Part B until after you retire.

3. There are a lot of smart financial people on Bogleheads that can provide better recommendations than me on what to do with your TSP. Remember that you can keep your TSP open by keeping a minimum balance of $200, which I would recommend doing.

4. From the TSP: “The Internal Revenue Code (IRC) requires that you begin receiving distributions from your account in the calendar year you become age 72 and are separated from federal service.” So 72, not 70.

DW and I are both retired GS-15 step 10’s. Look forward to welcoming you to the club!
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calmaniac
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Re: Retirement Financial Advice

Post by calmaniac »

Even if you are not claiming now, sign up for the "my Social Security" website now. It will give you your detailed social security earning record and you can calculate your benefits at different ages. Also makes it harder for someone to create an account in your name.

Thinking about when to take SS, you may also may want to look at Mike Piper's Oblivious Investor website, it has a short very clear section on social security. His short book Social Security Made Simple, or his free Open Social Security calculator are also worth a spin.
Last edited by calmaniac on Wed Oct 27, 2021 5:17 am, edited 1 time in total.
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
delamer
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Re: Retirement Financial Advice

Post by delamer »

I highly recommend that you purchase the Consumer Checkbook guide to FEHB plans: https://www.checkbook.org/newhig2/hig.cfm

It has extensive advice/recommendations for FEHB for retirees, including integration with Medicare. I, for one, decided to forego Part B.

Some agencies offer access to the guide for free via their intranet.

Is your TSP account invested in the Traditional or Roth option (or some of each)? If it’s not in the Roth TSP, then you’ll pay a lot of taxes if you roll it into a Roth IRA all at once. It might make sense to do Roth conversions over multiple years though: https://www.bogleheads.org/wiki/Roth_IRA_conversion

Required Minimum Distributions start at 72 for someone your age. With a pension plus Social Security, you can reduce the RMDs by doing Roth conversions.

Are you married? Is someone else dependent on your retirement income?
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chemocean
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Re: Retirement Financial Advice

Post by chemocean »

1 and 2. As mentioned, why sign up for Medicare while working and paying FEHB. Perhaps you can reverse that request. If not, signing up will only cost the extra Medicare dollars for Part B for a few years.
IRMMA for each year calculated from your AGI two years back. For MFJ, your 2019 joint AGI can be $176,000 and there will be no IRMMA. Even with 33 years with a high three at GS15 step 10 in FERS, you spouse would need to match your pension to get anywhere near the first IRMMA cliff.
I signed up for an FEHB HMO advantage plan in which the coordination of benefits includes $100/month for each spouse for reimbursement for Medicare premiums. The deductibles are also lower for the combined FEHB/Medicare plan. Although Medicare advantages is private insurance, which has its disadvantages.
The younger retired me was looking at the medical expenses of the older me or surviving spouse only (guess what podcast I listen to?). The extra premiums for Medicare only cost me and my spouse $1164 a year in 2021 dollars with the reimbursement, or $30K lifetime expense. I figure that higher deductibles for a FEHB-only plan for our end-of-life medical expenses could easily exceed that amount.

3. a) As suggested above, you can't take qualified charitable distributions from TSP. So transfer some of your traditional TSP to an IRA. BTW. you can take QCDs when you reach 70.5 even though you don't need to take RMDs.
b)TSP has some disadvantages as far as estate planning. You mentioned you had a son. Read the TSP brochures below. Non-spousal beneficiaries of the ORIGINAL owner can transfer the Funds from a TSP to a non-spousal beneficiary (tspbk31, p.13), but the time line is tight (90 days). Also, it is unclear if the non-spousal contingent beneficiaries of the original owner can transfer their funds to an inherited IRA if the primary spouse disclaims the funds from the original owner. You are correct that non-spousal beneficiaries of a spousal TSP account can only receive their funds as a taxable cash lump-sum payment (tspbk32, p.14).
c) You didn't say whether your TSP was traditional or Roth. Once retired, you cannot convert traditional TSP to Roth TSP. To convert after retirement, YOu need to transfer some funds out of TSP to a traditional IRA and then convert to a Roth IRA
d) For the past several yeas, I have been taking partial withdrawals amounting to two-years of Roth conversions out of my TSP into an traditional IRA. Now the only fund I have in the TSP is the G fund.
e) Roth conversions are a taxable event. Conventional wisdom suggests that Roth conversions are only advantageous if the taxes on the conversions are paid out of other taxable accounts. I am making Roth conversions each year such that my AGI stays under the first IRRMA threshold.
f) Note that the tax rates under CURRENT law are scheduled to go up in 2026. So, any conversions you do between now and 2025 will save you a few percentage in taxes under CURRENT law.
ChrisC
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Re: Retirement Financial Advice

Post by ChrisC »

Hmmm, retirement from the Federal government, with all its nuances, can be overwhelming and baffling, especially if one has not been on top of things. Others here have pointed out some of the looming issues confronting the OP. (Btw, I don’t think the OP’s Part B Medicare premium is $240 a month but it appears at his income level (filing single) as a GS-15 that the $240 figure is the added IRMAA to the base premium of $148 a month so his total payment would be $388, which is what my wife pays monthly at IRMAA tier 3).

Many federal agencies have retirement seminars (perhaps now all web-based or online with Covid) for the soon-to-be-retirees in their workforce. I’d recommend the OP see if his agency has those available and take the seminar. My former agency ran mid-career (minimum 15 years of Federal service) and pre-retirement seminars (minimum 25 years of service) and these were invaluable to most of us who took the seminars.

At minimum, the OP should dis-enroll in Medicare Part B until he gets his bearings straight— I think he would have 7 months to enroll in Part B once he separates from the Government without penalty, but this is something a seminar or expert would cover.
redmaw
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Re: Retirement Financial Advice

Post by redmaw »

My thoughts:

1) I'm not sure why you would want to pay for both Medicare and your existing insurance, seems like double coverage isn't beneficial.
2) personally I would hold off on SS as long as possible, seems like you wont need it, so wait a few years to start collecting. If you want a detailed answer opensocialsecurity.com is a good resource for claiming strategies.
3) I would probably leave funds in TSP unless it prevented something specific I wanted to do (like use it for some alternative investments). Conversion to Roth is an entirely different question and you have not provided nearly enough info to answer that question...though would guess not worth it with the pension and SS you will be getting.

Unsolicited advise:
Individual agencies provide pension estimates prior to retirement, but they are often off by a bit, and sometime off by a lot. Don't bet your life on that number until you get the official ruling by OPM.

TSP G fund is often touted around here as some unicorn investing option...Its even been mentioned in this thread already as having no commercial equivalent. Look into it before you buy into that hype. It is currently yielding just over 1%, and 2% for the last 10. Its a bit better than a savings account, but in my opinion not worth the discussion it gets here. My point is, I wouldn't be overly concerned about losing access to it by moving funds elsewhere.
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retiredjg
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Re: Retirement Financial Advice

Post by retiredjg »

Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm 1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.
If you are married, there can be a benefit for your spouse if you delay your SS. If you are single, I'm not sure there is much of a benefit. Either way, you will have plenty of money.

With your pension, you are going to pay tax on 85% of your SS no matter when you take it, so that is not a factor in your decision.

2. I've received notice from Social Security that I will pay approximately $240.00 a month on medical insurance thru Medicare because of my income. I believe this is standard. Since Medicare becomes the primary insurance, I was planning on keeping my govt. medical insurance too. Is there any offset in premium now that I'm 65? Otherwise it seems like I'm paying a LOT of $$ for health insurance now. Any suggestions from those in similar situations is greatly appreciated. I'm working my way thru that minefield and don't want to make any expensive mistakes.
There is not an "offset" in premium, but there are several of the FEHB plans that will give you a reimbursement on your Medicare premiums. For the BCBS basic plan, the reimbursement is $800 this year.

There are good reasons to pay for both insurances.
  • -The FEHB plan will cover prescriptions so this will eliminate your need for Medicare Part D.

    -Between the two plans, you should not have any co-pays other than Rx co-pays. If you have Medicare only or FEHB only, there are co-pays and they can add up.

    -You no longer need one of the higher tier plans from FEHB - the low cost plans are all you will need to be your Medicare supplement. So paying for "two plans" may not be as much as you think at first.

    -After retirement, your Medicare may not be $240 a month because your income will go down. That payment is based on your income 2 years ago. You can get a waiver for life changes (like leaving employment) if your income does go down once you retire.
I've been very happy carrying both BCBS Basic and Medicare. I like never having a medical bill at all other than what I pay for insurance. Others here either prefer something different or have found that they are so high on the Medicare payment chart that paying for both is too much. Don't make this decision quickly. You can even take a couple of years to figure this out if you are careful to maintain your options.

3. Since I'm retiring soon, should I leave the $$ in the TSP or transfer to a ROTH IRA or some other investment account?
Do not transfer to Roth or you will owe taxes on all that money in one year. You can roll to traditional IRA if you want. I suggest you take a year or two to figure this one out too - the TSP is a very good plan, but clunky. I kept mine for a long time, but moved my money to an IRA after a number of years (for inheritance simplicity).

4. Since I'm retiring at 66, I believe I have to start making required withdrawl's from TSP when I turn 70. Any advice?
The age is now 72.

Thanks so much for your time. I'm new to this site - it was recommended by my son.
There is a ton of information here on the things you want to know. My best suggestion is not to feel like you have to make any of these decisions right now. You can let a lot of this ride until you have a better understanding of how things work.
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JoeRetire
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Re: Retirement Financial Advice

Post by JoeRetire »

Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm 1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.
There's no need to start your Social Security benefits just because you have signed up for Medicare.

Check with https://opensocialsecurity.com/ to see if there are potential benefits to delaying until 70.
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ChrisC
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Re: Retirement Financial Advice

Post by ChrisC »

redmaw wrote: Wed Oct 27, 2021 10:26 am Unsolicited advise:
Individual agencies provide pension estimates prior to retirement, but they are often off by a bit, and sometime off by a lot. Don't bet your life on that number until you get the official ruling by OPM.
Perhaps this is a hit or miss situation depending on the agency. The "official ruling" from OPM, in my dated CSRS experience, comes with your official, individual Federal Retirement Booklet that OPM sends you -- it could be months later! It's precisely because OPM takes a long time to figure out things that one would receive a large "interim" payment before the monthly annuity payments start (those who retired in the last few years might provide an update on the process) not to mention that any annual leave lump sum payment might not be received for a several weeks after separation/retirement.

My former agency outsourced retirement benefit estimates to a contractor, in which employees could go online to obtain pension estimates. I think it was this outfit and there are probably many other Federal agencies that use the same contractor:
https://www.econsys.com/fedhr-navigator ... eparation/ The estimates provided by this contractor, which had assess to lifetime Federal earnings, service credit, and leave, were highly accurate for employees in my old agency. Moreover, you could tinker with this software application to assess optimal dates for retirement, taking into account service credit for sick leave, and it also linked your TSP balances to project income streams.

I wouldn't bet my life on anyone's estimate, but I certainly don't have great confidence in OPM processing retirement in a timely fashion! Nonetheless, the estimate I received from this contractor was very accurate.
redmaw
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Re: Retirement Financial Advice

Post by redmaw »

ChrisC wrote: Wed Oct 27, 2021 1:30 pm
redmaw wrote: Wed Oct 27, 2021 10:26 am Unsolicited advise:
Individual agencies provide pension estimates prior to retirement, but they are often off by a bit, and sometime off by a lot. Don't bet your life on that number until you get the official ruling by OPM.
Perhaps this is a hit or miss situation depending on the agency. The "official ruling" from OPM, in my dated CSRS experience, comes with your official, individual Federal Retirement Booklet that OPM sends you -- it could be months later! It's precisely because OPM takes a long time to figure out things that one would receive a large "interim" payment before the monthly annuity payments start (those who retired in the last few years might provide an update on the process) not to mention that any annual leave lump sum payment might not be received for a several weeks after separation/retirement.

My former agency outsourced retirement benefit estimates to a contractor, in which employees could go online to obtain pension estimates. I think it was this outfit and there are probably many other Federal agencies that use the same contractor:
https://www.econsys.com/fedhr-navigator ... eparation/ The estimates provided by this contractor, which had assess to lifetime Federal earnings, service credit, and leave, were highly accurate for employees in my old agency. Moreover, you could tinker with this software application to assess optimal dates for retirement, taking into account service credit for sick leave, and it also linked your TSP balances to project income streams.

I wouldn't bet my life on anyone's estimate, but I certainly don't have great confidence in OPM processing retirement in a timely fashion! Nonetheless, the estimate I received from this contractor was very accurate.
Lets say a family member worked for OPM, the stories of having to tell distraught retirees that they not only are they not getting what their HR told them, but they have to pay back the excess payments they've received for the last 6 months leave an impression. As I understand it some agencies are better than others, but some retirements are easier than others as well. If you worked for the same agency in the same retirement system for 30 years and no breaks, then the estimate should be pretty good. Switched a bunch of times, took some retirement refunds at separation, etc...it might get hairy. Certainly the timeliness point factors in as well, as I understand you don't get to ask OPM for a number until you separate. Not sure what the current backlog is, but 6 months sounds normal.
Jovby
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Re: Retirement Financial Advice

Post by Jovby »

Hornswaggled wrote: Tue Oct 26, 2021 6:03 pm I'm a government civil servant with 33 years, turning 65 in November. I'm a GS-15, step 10. I'm under the FERS retirement system, where I have $1.25M invested to date. I plan on retiring at the end of next year. I'm looking for help/guidance on a number of things.

1. I just signed up for Medicare, but haven't yet chosen to start receiving Social Security payments. Should I? I don't see the benefit of waiting until I'm 70 to start.

2. I've received notice from Social Security that I will pay approximately $240.00 a month on medical insurance thru Medicare because of my income. I believe this is standard. Since Medicare becomes the primary insurance, I was planning on keeping my govt. medical insurance too. Is there any offset in premium now that I'm 65? Otherwise it seems like I'm paying a LOT of $$ for health insurance now. Any suggestions from those in similar situations is greatly appreciated. I'm working my way thru that minefield and don't want to make any expensive mistakes.

3. Since I'm retiring soon, should I leave the $$ in the TSP or transfer to a ROTH IRA or some other investment account?

4. Since I'm retiring at 66, I believe I have to start making required withdrawal's from TSP when I turn 70. Any advice?

Thanks so much for your time. I'm new to this site - it was recommended by my son.
1. Your SS benefit will increase by 8% per year that you delay up to age 70. That gives you additional guaranteed income that is adjusted for inflation. FERS looses ~ 1% to inflation annually. If you are married and your SS is the greater amount, then your SS will apply not only over the course of your life, but also your spouse (if they survive you). Here is a calculator that can help you figure out the best strategy for you https://opensocialsecurity.com/

2. Medicare doesn't cover 100%, and your federal healthcare can serve as your supplemental insurance. You are allowed to switch plans, so I would look for one with a lower cost, that would still cover what you need. Some of them will "reimburse" your Part B cost.

3. TSP has very harsh treatment of non-spouse beneficiaries. They must take ALL of it out in the year of your death, which given the balance would result in significant taxes. IRAs allow for withdrawl over a 10 year period which would allow for additional tax-free growth, and lower taxes. For that reason, if you don't have a spouse beneficiary I would move most of it out. Leave some of it in the TSP to leave it open and take advantage of the G fund.

4. Minimum required distributions start at 72. At age 72 it is 3.9% and it goes up each year. For your current balance that would be 46K. Given that you will have SS and your pension at age 72 you will likely be in a relatively high tax bracket. You will want to develop a strategy to manage that, likely some combination of spending down TSP, Roth conversions, and/or charitable contributions.

Congratulation for setting yourself up for a financially secure retirement.
ChrisC
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Re: Retirement Financial Advice

Post by ChrisC »

redmaw wrote: Wed Oct 27, 2021 1:39 pm
ChrisC wrote: Wed Oct 27, 2021 1:30 pm
redmaw wrote: Wed Oct 27, 2021 10:26 am Unsolicited advise:
Individual agencies provide pension estimates prior to retirement, but they are often off by a bit, and sometime off by a lot. Don't bet your life on that number until you get the official ruling by OPM.
Perhaps this is a hit or miss situation depending on the agency. The "official ruling" from OPM, in my dated CSRS experience, comes with your official, individual Federal Retirement Booklet that OPM sends you -- it could be months later! It's precisely because OPM takes a long time to figure out things that one would receive a large "interim" payment before the monthly annuity payments start (those who retired in the last few years might provide an update on the process) not to mention that any annual leave lump sum payment might not be received for a several weeks after separation/retirement.

My former agency outsourced retirement benefit estimates to a contractor, in which employees could go online to obtain pension estimates. I think it was this outfit and there are probably many other Federal agencies that use the same contractor:
https://www.econsys.com/fedhr-navigator ... eparation/ The estimates provided by this contractor, which had assess to lifetime Federal earnings, service credit, and leave, were highly accurate for employees in my old agency. Moreover, you could tinker with this software application to assess optimal dates for retirement, taking into account service credit for sick leave, and it also linked your TSP balances to project income streams.

I wouldn't bet my life on anyone's estimate, but I certainly don't have great confidence in OPM processing retirement in a timely fashion! Nonetheless, the estimate I received from this contractor was very accurate.
Lets say a family member worked for OPM, the stories of having to tell distraught retirees that they not only are they not getting what their HR told them, but they have to pay back the excess payments they've received for the last 6 months leave an impression. As I understand it some agencies are better than others, but some retirements are easier than others as well. If you worked for the same agency in the same retirement system for 30 years and no breaks, then the estimate should be pretty good. Switched a bunch of times, took some retirement refunds at separation, etc...it might get hairy. Certainly the timeliness point factors in as well, as I understand you don't get to ask OPM for a number until you separate. Not sure what the current backlog is, but 6 months sounds normal.
Let’s say I had a complicated service history; VISTA service, part-time and seasonal service at 2 different agencies, and full-time permanent service at 3 other agencies — all over 35 years of creditable service, and along the way one of the agencies miscalculated my SCD and I had to deal with OPM with its ancient system for deposit credit to take advantage of the VCP in place for CSRS employees.

I have no idea about paying back excess payments of leave: how does that even happen? I do know that I would have been distraught if OPM told me that my SCD was wrong and that I had 2 more years to work before I could retire. I’ll give OPM credit when due and the Boyers operation appears well run for retires, though they still do things manually and are difficult to reach.
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retiredjg
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Re: Retirement Financial Advice

Post by retiredjg »

I agree with much that you have written, but have to question a couple of things. :(
joverby wrote: Wed Oct 27, 2021 2:02 pm 1. Your SS benefit will increase by 8% per year that you delay up to age 70. That gives you additional guaranteed income that is adjusted for inflation. FERS looses ~ 1% to inflation annually.
Agree that the FERS pension does not always keep up with inflation, but I don't think it is accurate to say it loses 1% a year to inflation. That does not sound right to me, but it has been a long time since I looked. Doesn't it depend on just how much inflation was in a particular year?

3. TSP has very harsh treatment of non-spouse beneficiaries. They must take ALL of it out in the year of your death, which given the balance would result in significant taxes.
Not sure where you read this, but I just can't see how it could be correct as written.

I think it is true that there are problems if a spouse inherits the TSP and then dies while still owning the TSP. In that case, the spouse's heirs do have to take the entire distribution...which is a tax nightmare for the heirs (often the children of the federal employee). However, this can be avoided if the inheriting spouse simply rolls the TSP to an IRA before dying. This is the warning that I am aware of.

I think it cannot be true that non-spouse beneficiaries must take an entire distribution in one tax year and pay taxes on it all in one tax year. That would punish non-married people and benefit married people. That seems very unlikely to me.

I suspect that a non-spouse beneficiary can keep the TSP (but should not...)? Or the non-spouse beneficiary is given the opportunity to roll directly to an IRA and then follow IRA rules. As I recall, there is a time limit for this to be done (which is why I finally closed my TSP account after keeping it many years after retirement).
delamer
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Re: Retirement Financial Advice

Post by delamer »

retiredjg wrote: Wed Oct 27, 2021 4:38 pm I agree with much that you have written, but have to question a couple of things. :(
joverby wrote: Wed Oct 27, 2021 2:02 pm 1. Your SS benefit will increase by 8% per year that you delay up to age 70. That gives you additional guaranteed income that is adjusted for inflation. FERS looses ~ 1% to inflation annually.
Agree that the FERS pension does not always keep up with inflation, but I don't think it is accurate to say it loses 1% a year to inflation. That does not sound right to me, but it has been a long time since I looked. Doesn't it depend on just how much inflation was in a particular year?

3. TSP has very harsh treatment of non-spouse beneficiaries. They must take ALL of it out in the year of your death, which given the balance would result in significant taxes.
Not sure where you read this, but I just can't see how it could be correct as written.

I think it is true that there are problems if a spouse inherits the TSP and then dies while still owning the TSP. In that case, the spouse's heirs do have to take the entire distribution...which is a tax nightmare for the heirs (often the children of the federal employee). However, this can be avoided if the inheriting spouse simply rolls the TSP to an IRA before dying. This is the warning that I am aware of.

I think it cannot be true that non-spouse beneficiaries must take an entire distribution in one tax year and pay taxes on it all in one tax year. That would punish non-married people and benefit married people. That seems very unlikely to me.

I suspect that a non-spouse beneficiary can keep the TSP (but should not...)? Or the non-spouse beneficiary is given the opportunity to roll directly to an IRA and then follow IRA rules. As I recall, there is a time limit for this to be done (which is why I finally closed my TSP account after keeping it many years after retirement).
joverby is incorrect, assuming that the non-spouse beneficiary inherits the TSP account directly from the participant:

Non-spouse Beneficiary. A beneficiary who is not a surviving spouse cannot retain a TSP account. The death benefit payment will be made directly to the beneficiary or to an "inherited" IRA.

https://www.tsp.gov/publications/tspbk31.pdf

However, in the case of a spouse beneficiary dying, then whoever inherits the account can’t do a rollover to an inherited IRA and the account wll be cashed out.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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grabiner
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Re: Retirement Financial Advice

Post by grabiner »

retiredjg wrote: Wed Oct 27, 2021 4:38 pm I agree with much that you have written, but have to question a couple of things. :(
joverby wrote: Wed Oct 27, 2021 2:02 pm 1. Your SS benefit will increase by 8% per year that you delay up to age 70. That gives you additional guaranteed income that is adjusted for inflation. FERS looses ~ 1% to inflation annually.
Agree that the FERS pension does not always keep up with inflation, but I don't think it is accurate to say it loses 1% a year to inflation. That does not sound right to me, but it has been a long time since I looked. Doesn't it depend on just how much inflation was in a particular year?
The FERS diet COLA is equal to inflation if inflation is less than 2%; 2% if inflation is 2%-3%; and 1% less than inflation if inflation is over 3%. Thus you will lose 1% per year to inflation if it remains high.
Wiki David Grabiner
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retiredjg
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Re: Retirement Financial Advice

Post by retiredjg »

Thanks David. That sounds more like I remember it should be.

Also called "COLA lite".
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