4 Federal Retirement Planning Tips
Whether under the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS), federal employees have several options when planning for retirement. Here are just a few recommended opportunities.
1. Utilize TSP Partial Rollover
A partial Thrift Savings Plan (TSP) rollover is a strategy that works for many. The TSP’s five asset class funds are:
· The C Fund – A passive index fund that tracks the S&P 500
· The S Fund – An index fund tracking US companies not listed in the S&P 500
· The G Fund – Exclusively invested in nonmarketable short-term US Treasury security specially issued to the TSP
· The F Fund – Tracks the common Barclays Aggregate Bond Index and is one of two bond funds available
· The I Fund – International-based companies with investments limited to companies in developed countries
Partial rollovers offer better overall diversification for increased returns. The TSP is missing several investments. For example, the I Fund doesn’t include companies from emerging market countries, however, this class has been a top performer many years with over 10% of the world’s stock market.
2. Invest in the Voluntary Contribution Plan
The Voluntary Contribution Plan, eligible only to CSRS annuitants, permits federal employees to add up to 10% of their lifetime income into the plan. Before retirement, a smart investment is to roll over the Voluntary Contribution balance into a Roth IRA so it can grow tax-free with zero required minimum distribution. Once transferred to a Roth IRA, the funds should be reserved for later in life or as an inheritance to heirs. Contributions can begin 5-10 years before retirement to build funds.
3. Decline Medicare B at Age 65
Medicare B, created for non-government retirees to mirror Federal Employees Health Benefits (FEHB) that federal retirees receive in retirement, most often is duplicative. With a two-pension family, your Medicare B premiums will be higher than the standard rate. Barring any major medical concerns, your Medicare B premiums will far surpass out-of-pocket pay through FEHB plans. In general, declining Medicare B is most cost efficient, however, every situation is unique and you should seek advice from an informed and neutral third party.
4. Choose the Survivorship Option
For most people, especially couples with one CSRS retiree, selecting the 55% max survivorship option is the lowest cost life insurance available. Federal annuitants that select the survivorship option waive up to 10% of their maximum pension amount, however, your pension reduction will be much less than the price of a life insurance premium representing the lifetime, cost-of-living-adjusted income stream that a surviving spouse receives.
At Federal Educators, we can help you better understand your TSP investments and federal retirement benefits. Give us a call and request your free analysis at 866-226-8160.
