Haws Federal Advisors Podcast

Life is constantly moving and it can be hard sometimes to keep up with a rapidly changing world. But your federal benefits are something you should always keep up on.  Retirement can be a more difficult time to keep up with it all because you are no longer surrounded by co-workers going through the same things.  Here's a list of some common life events that might happen during retirement and what you should do to keep your benefits all up to date.  A Move You would need to contact OPM and give them your new address. This will be vital if any of your benefits or payments were connected to your geographic area. Sometimes your health  Benefit Plan covers only a limited geographic area and OPM would be able to help you change that plan.   If you had your state income taxes withheld from your pension, you will want to make sure you get that updated based on the new state that you live in.  A Move out of the United States  Most of your benefits won't be affected by this change unless you move to a  "Blocked" country. It is unlikely because the only countries that are currently blocked are Cuba and North Korea. Medicare might be affected by this move because only certain types of treatment are covered outside the United States. You'll want to take this into consideration when planning a move. A Divorce If you have a divorce decree that affects your federal benefits, you will want to provide this decree to OPM.  They will be able to coordinate your benefits accordingly. You will also want to update any of your beneficiary designations if they don't match your new family situation. A Marriage You will want to send a copy of your marriage certificate and OPM will provide the information to provide a survivor annuity to your new spouse if desired. If you want to update your health benefits for dental vision benefits, you will have 31 days before your marriage then 60 days afterward to get that updated without waiting till the next open enrollment. Again, you will want to update your beneficiary designations to match your new family situation. Reaching Age 65 At this point you will want to apply for Medicare. Analyzing the pros and cons of Medicare is for a different discussion, but age 65 is when most people become eligible. At this point you are able to convert to a less expensive health benefits plan if desired.  Starting after your 65th birthday, your Federal Group life insurance will start to reduce by 2% per month. You can stop this reduction if desired by paying the premiums to OPM. Reaching Age 72 At this age you will have to start taking required minimum distributions from your tsp balance. This basically means that the government wants you to take a portion of your money out of the tsp so they can collect taxes on the portions that were pre-tax. If these distributions don't happen, a penalty will be charged. The Death of a Spouse or Child If this member of the family was covered under the federal group life insurance then you would file a claim with OPM. You'd also want to update your beneficiary designations if applicable.  If you were receiving a reduced pension/annuity payouts for the right to a survivor annuity for your former spouse, you will want to contact OPM to get your full pension reinstated.

It makes sense for many people to stay with the federal government for their entire career. But for others, it simply does not. For these individuals it is important to know what happens to your federal benefits if you decide to leave before you are eligible to retire. Pension You have two different options when it comes to your pension. You can apply for a refund for all of your contributions that you made during your career. This refund will generally include interest if you had more than one year of service.  If you had more than 5 years of service, you may be eligible for a deferred retirement. This means that you could potentially start drawing a pension at age 62. Under FERS, if you have at least 10 years of service, you may be eligible to receive a pension once you attain your minimum retirement age. This age is between 55 and 57 depending on the year you were born. With this option you would see a 5% decrease to your pension for every year that you start drawing your pension before you turn 62. If you have more than 20 years of service you may be eligible for different types of retirement.  FEHB Once you separate from service, you have the ability to continue your coverage up to 18 months after your separation date. But you will have to pay your normal premiums plus your employer portion as well as an extra 2% fee.  You also have the option of converting your plan to individual coverage. Your coverage may not be identical to what it was before and you will have to talk to your insurance company to know what it would cost. FEDVIP There are very few options to keep this benefit once you leave the government. If you have at least 10 years of service you may be able to re-enroll once your annuity begins. But other than that, there is no way to extend coverage, temporarily continue coverage, or even convert to an individual policy. FEGLI You have 31 days after your separation date to convert this benefit into an individual policy if desired. If you wait longer than the 31 days then you may have to provide medical information. If you chose to convert, you could choose how much coverage you'd like but you will have to pay full premiums at individual rates. Long-term Care Insurance You can continue your coverage under this benefit as long as you pay the premiums. If your premiums had previously been deducted straight from your pay, you should call your long-term care insurance provider to arrange to pay those premiums directly. TSP First, you can keep your money in the TSP if you'd like. Once you are separated, you will still have the ability to change how it is invested. You also have the option of doing a direct rollover into an IRA or your next employer's retirement plan.  If you transfer your TSP funds in any other way other than a direct transfer, the TSP will withhold 20% of your account for tax purposes. If you leave the government before age 55 you will not be able to withdraw any money from the TSP before age 59 1/2 without being subject to a 10% penalty in addition to taxes.  A direct rollover to another retirement account does not count as a withdrawal for the purposes of this rule. Conclusion: Working for the government has many perks but sometimes it makes sense to move on to something bigger and better.  Knowing how your benefits will work after the switch will help the transition be that much smoother.

I've seen many people retire, travel for a year, get bored, and then go back to work. Whether it's out of boredom, financial need, or for any other reason, many federal employees find themselves in a position where they want to go back to work after they've already retired. The question is, how will going back to work affect your benefits and your retirement? To those who are employers that go back to work in the private sector, they will see basically no change in their benefits. The only situation where benefits might be affected is if they are not yet their full retirement age for Social Security and have income over certain limits. In this case, their social security monthly payout may be decreased. Once someone reaches their full retirement age then their Social Security will not be decreased for any reason. Social Security can always be taxable but will not be reduced after your full retirement age.  For those who want to go back to work for the federal government, the rules get much more complex. For most of these individuals, they will continue to receive their full pension and benefits but their pay may be reduced by the amount of their pension. In other cases, their pension will be stopped completely and they will be covered as just a regular employee.  In most cases your pay will be simply decreased by your pension amount, but I would definitely check with your hiring HR department to see what applies to your position. Some agencies hire retired federal workers under personal service contracts. In this situation retirement benefits would not be affected. These contracts often explicitly state what tasks are to be completed, at what compensation rate, and within what amount of time. Another thing to ask your hiring HR department would be how they handle your federal employee health benefits. During your career, your premium comes right out of your paycheck on a pre-tax basis. In retirement however, you have to pay taxes on your income and then pay your premiums with what is left. Some agencies allow rehired retired federal employees to come back under the agency plan. This would allow them to enjoy the pre-tax benefits. Consult with your agency to see if this would apply to you. Although it is impossible to know exactly which rules will apply to you, hopefully this article gives you an idea of what things might look like and if it makes sense for you to jump back into the workforce. For more information about the rules for rehired retirees: https://www.federalretirement.net/rehired_annuitant.htm#FERS_Rehired_Annuitant_Guidance (https://www.federalretirement.net/rehired_annuitant.htm#FERS_Rehired_Annuitant_Guidance)

Beneficiary designations  are one of those things that most employees fill out when they're first employed and never think about much after that. But most people don't know that these designations are extremely powerful. They will overrule a will or other estate documents every time. This means that regardless of what you put in your will, once you die your benefits will go to exactly who is on your beneficiary designations. Even if this means that your benefits go to a former spouse. This has been upheld in many court cases as well.  It is important to consistently review your designations, especially after a life event. Things like a birth, adoption, death, marriage, divorce, or any other significant change within your family. You may change your designation as many times as needed. Key designations to think about are those for your TSP, your group life insurance, and your pension. Speak to your agency to get the correct forms for these designations. If there are no designations on file then your benefits will be paid according to law. This generally goes to your spouse first, then to your children in equal shares, then to your parents in equal shares, and finally to your estate.  Putting in a little effort now to make sure these are correct can save tremendous amounts of problems and heartache download for your family.

A federal employee has a lot of options when retirement comes. With just about every benefit that employees enjoy, a decision will have to be made on how to use that benefit in retirement. One of these decisions that will make a huge impact over the course of a retirement is what to do with your TSP. Following the TSP Modernization Act that was implemented last September, there are now more options and flexibility when taking money out of your tsp. One of these (although not new) options is to take what they call a life annuity. With the life annuity option, you give a portion or all of your tsp balance to MetLife (an insurance company and annuity provider) who then guarantees you fixed payments over the course of your lifetime. It may seem like an attractive option for some people but there are some things you have to know before choosing this option. The major downsides to this option is that it limits what changes you can make down the road. Once you make the decision, there is very little you can do to change or get out of the contract. If something was to change in your life that would affect how much you need each month, it is very difficult or impossible to adjust.  Another downside of life annuities is that your money doesn’t grow much over the life of your contract. The annuity provider (Metlife) guarantees a fixed growth rate but it is generally around 2.6%.   The good news is that those who want a fixed monthly payment out of their tsp will have other options to make this happen. Retirees can take what they call an installment payment. With this option your money stays in your tsp account and the tsp will pay you a fixed amount every month, quarter, or year (whatever you pick). Not to mention that you will be able to stop and start these payments whenever you'd like and even change the payment amount a couple times a year. And because your money stays in your tsp account, you will also be able to  continue investing those funds in retirement. When you compare the life annuity option to the installment payment option, the latter is simply a better option for the majority of people. It provides much more flexibility and potential growth. Especially now that retirements are lasting 20, 30 or even 40 years, it can be a huge plus to have the flexibility to adjust as the needs in your life change. The one advantage with the life annuity however is the certainty that comes with it. This option guarantees that you will receive a monthly payment for the rest of your life and you won't have to worry about your investments. These can be valuable characteristics for some people. With any of your retirement decisions, you have to educate yourself in what options are available and see what makes sense for you. With many federal benefits and especially your TSP, tens of thousands or even hundreds of thousands of dollars are won and lost based on these types of decisions. It is worth your time and energy to make sure you make the best decision for you. 

This is a crazy time for the world. A time that no one has predicted or lived through before. The global spread of the coronavirus as well as the economic consequences that are following are unprecedented. In response to these events, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was just passed into law on March 27th. This has now become the largest stimulus package of all time with provisions to pour more than 2 trillion dollars into the economy.  Here are some of the highlights. Rebate Checks Understandably, one of the most popular and already well-known parts of the act is the Recovery Rebates For Individuals. If you haven’t heard, that is the portion about Uncle Sam writing checks to 80% of the taxpayers.  Here’s how it works. Individuals will be eligible for a refundable tax credit of up to $1,200 while couples will be eligible for up to $2,400. That credit will be increased by $500 for every child they have that is under age 17. For example, if a couple files jointly and they have three kids. They’d be eligible for up to $3,900 ($2,400+500+500+500).  But if you noticed I did say they’d be eligible for “up to” those amounts. That is because over certain income levels, this credit will be phased out. More specifically, for every $100 a taxpayer’s income these thresholds, their potential Recovery Rebate will be reduced by $5.  The thresholds where the credit will start to be phased is:  -Married Joint: $150,000 -Head of Household: $112,500 -All Other Filers: $75,000 It is important to know that the credit will be based on either 2018 or 2019 tax returns (Which ever is the most recent that the IRS has on file). If someone had income that was too high for the credit in 2018 and 2019 but were eligible based on their 2020 income, they will be eligible for the credit when they file their 2020 tax return in the spring of 2021. Individuals who have banking information on file with the IRS should only have to wait a few weeks to receive their funds while those that don’t may have to wait a few months to get a check mailed.  Coronavirus Distributions This portion of the act allows individuals to distribute up to $100,000 from their retirement accounts such as IRAs and employer sponsored retirement plans such as your TSP. To be eligible someone would have to have been adversely affected by the virus in some way. This may include getting the virus or experiencing financial difficulty from things like being quarantined, reduced hours, or being laid off.  Normally, there are numerous rules around how individuals can access their retirement accounts before age 59 and ½. For those that qualify, the following will apply: No 10% penalty for removing funds before age 59 and ½. No 20% withholding for taxes. Whenever you take money out of pre-tax accounts, taxes will become due. Those that are eligible would be able to spread out that income between the next three years.  They would have 3 years to replace the funds they took out without penalty. This provision will allow those affected to have access to funds that they might not otherwise be inclined to use. But because all of this is so new and changing rapidly, I would definitely wait to hear from the TSP to see how they will be implementing this change.   No Required Minimum Distributions in 2020 For those that have retirement accounts and are over age 70 and ½ (now age 72 after the Secure act passed in 2019), you are already familiar with RMD’s or required minimum distributions. This is where the government requires you to take a portion of your money out of your retirement accounts so that they can collect their portion of taxes on that money.  The CARES act completely waives the requirement for RMD’s in 2020 so the individuals that this applies to will be able to keep more money in their retirement accounts for longer.  Student Loans This act...

Starting a family can be an exciting time but it is important to adjust your health benefits so that everyone is always covered. But just like everything else with the government, this is not quite as simple as you might hope. The first question we have to answer is who qualifies as a child that can be covered under your plan? Qualifying children include children under age 26, adopted children, natural children born out of wedlock, stepchildren, and foster children (the rules are a little more complicated for foster children so I would encourage you to research the rules if you'd like to add a foster child to your plan). Also, to be covered under the FEHB program the children need a state-issued birth certificate that claims you as a parent. Having a child is considered a qualifying event which allows you to change your benefits even if it is not open enrollment. You would be able to change your enrollment between self only, self plus one, or self and family. You would also be able to switch to another FEHB plan if desired.  Employees that are not currently enrolled in FEHB would also be able to enroll because of the birth of a child. If you are already retired, this life event would not allow you to re-enroll. Once a child turns age 26 they are no longer eligible to stay on their parents plan (unless they have a qualifying disability). At that point they can continue coverage through FEHB for up to 36 months but they will have to pay the full premium plus 2% for admin fees. After that they would then have to get their own coverage. The parents would then be able to switch their enrollment to self only, self plus one, or continue with self and family depending on what is applicable for their family. The parents have a window of about 90 days to change their coverage. This window allows for 30 days before and 60 days after your child turns 26. It is up to the parents to notify their agency once a child is no longer eligible. For a retiree they will have to talk to OPM. Parents would be able to remove a child from their plan before age 26 if their child is eligible for their own help plan through their employer. Generally, the child must be at least 18 for this to be possible. This would only make sense if the family could then downgrade coverage from family coverage to self plus one for example.  All this may seem quite complicated but it gets better as you learn more about it. FEHB is an incredible benefit and knowing the rules will help extend this benefit to your entire family.

Whether we realize it or not, we all have a relationship with money. Just like food, your possessions, and the people in your life, there are certain feelings and attitudes that you associate with money. These feelings can be vastly different from person to person. Most people never stop to think about what their relationship with money looks like. Or at least never in those terms.  Some people grew up with nothing. Others had plenty plus some. Some see money as a means of survival. Others see it as a means to gauge success. Some see it as a necessary evil. Others see it as a blessing in their lives. Some see it as the reason they have to go through the 9 to 5 grind every week. Others see it as a tool to lift those around them. But if we stop and think for a moment, we might remember that money is nothing but a tool meant to ease the buying and selling of goods. It is inherently 100% neutral. Neither good nor bad. Then why do we all have vastly different experiences and feelings about money?  Everyone on earth grows up with a certain view on the world. Even the most neutral things, such as money, are seen through the lense that we have formed over our lifetime.  We all have heard the saying that money is the root of all evil. While this may be popular, I don’t agree. I have seen how powerful money can be for the good. Money can change lives. It can get people proper medical treatment. It can give someone the opportunity for education. It can give the freedom of time to do things that we are passionate about. It can give security that our future will be bright. It can truly change lives. I subscribe to the adjusted version that the love of money is the root of all evil. When we obsess over money itself, we will always come away wanting, no matter how much we have. Money doesn’t have the ability to fulfill or bring true joy. Don’t get me wrong, money can provide a lot of comfort and opportunities, but at the end of the day, it can’t and won’t make you happy.  It is completely up to you what your relationship with money will look like. Define what you want your life to be and what role you want money to play. Just remember that you are the star of your life’s show and don’t ever let money replace what you really want out of life. Money should not be the goal. It should be a tool that can help you get to your goals. 

You have worked hard your whole career looking forward to a comfortable retirement. You have patiently invested and planned diligently. You are excited to start drawing social security to reap the benefits of years of hard work. But, did you know that a huge portion of your social security benefits will most likely be counted as taxable income? This is a common mistake that we see people make all the time in their retirement planning.  Because of all the misconceptions that exist about social security, here are few things that we all need to keep in mind.  It Matters When You Start Drawing It This may seem like a no-brainer but deciding when to start Social Security can make a huge difference on your benefits over your lifetime. The earliest you can start drawing it is age 62. But your benefits will be reduced by every month that you begin benefits before you FRA (Full Retirement Age). Your FRA will range from age 65-67 depending on when you were born. The Social Security estimate that you can get online, is your estimated monthly benefits if you start drawing at your FRA. Now if you choose to delay starting your benefits until after your  FRA, your benefits will increase by 8% every year up until age 70.  Some might ask, “Why doesn’t everyone just wait until they are 70 to start drawing Social Security to get the highest monthly amount?” There are a couple of things to consider. Need and longevity. Some people can’t afford to delay starting their benefits so they start right at age 62. This may make sense for some but they will see up to a 30% decrease in their monthly benefits because of the early start. Now, if someone starts benefits at age 70 and they pass away at 71, they did not benefit much from their increased monthly amount. It is important to find a balance between your financial need and lifespan in order to maximise your benefits.  Taxes, Reductions, and More Taxes If someone takes Social Security early (before their FRA) and they continue to work, their benefits will be reduced for every dollar they make in their jobs over certain limits. In this case, their benefits would be reduced for taking them early and reduced again for earning over certain amounts. Sometimes it still makes sense to continue to work in retirement just make sure you understand these limits. Once you reach your FRA, your benefits will not be reduced because of your income.   Like I mentioned in the intro paragraph, Social Security can in fact be taxable. The equation can get complicated but for simplicity’s sake, if you have income over certain thresholds, up to 85% of your benefits can be taxable. For this calculation, money that is taken out of certain retirement accounts (401(K), TSP, IRA) may be counted to push your benefits into taxable zones. When you are planning for retirement, make sure you run your numbers with taxes in mind.  Conclusion: The rules can be a bit complex and hairy at times but please don’t let this scare you into making an uninformed decision. This is a decision that can make a huge difference in your life. Because people are living longer, retirement is making up a larger percentage of our lives. It might take a little time and energy to navigate the Social Security system, but it will be one of the best investments you make as you reap the rewards of an informed decision for years to come.