In this episode, Val answers some of the most frequently asked questions that we hear from federal employees who want to improve their financial situations and prepare for a successful retirement.
Request a complimentary consultation now: Book Here
Frequently Asked Questions What People Like You Want to Know.mp3: Audio automatically transcribed by Sonix
Frequently Asked Questions What People Like You Want to Know.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
Well, welcome back, everybody, to the Federal Retirement Show. I'm your host, Val Majewski, vice president at American Benefits Exchange. Thank you for joining us today on this episode. And today, we're going to be talking about you and your questions and things that we've been hearing from federal employees just like you through the different events that we've been participating in, through the different training sessions that we've performed over the past couple of years. And really just find out what is it that you want to know about? What are the questions that you have? So today's episode is entitled Fakes, and that's exactly what we're going to go over. And I will tell you recently, our company, American Benefits Exchange, we're national corporate partners with several different government unions and associations, and we attend local, regional and national events. Well, we attended a national event recently, about 3500 in person federal employees and other 3000 plus virtual and really had a great turnout to the two retirement and benefit sessions that we gave a lot of great questions. Certainly wish I had enough time to share all of them with you, but I'm going to pull up the top ones that I've been hearing. Either people that came by our table to chat with us and ask about their personal situation, people that raised their hand during the training session. And we're asking some very pertinent and important questions. And then people that I've bumped into and talked to over the phone recently and what are they asking? What are the questions that federal employees, just like you want to know? And we're going to cover some of them today, at least some of the important ones, the ones I think that you're really going to find a lot of benefit and interest in.
Val Majewski:
So as we go again, if you have additional questions and if your question that you have on the top of your mind has not been asked or answered during this episode, please reach out to us if you can go on the Federal Retirement Show dot com and submit your question. Reach out to us personally, give us a call, shoot us an email and we'd be happy to talk to you on a one on one basis. Make sure that the information you are requesting you are looking for. Is given to you and we can answer and make sure that you're set up in the proper situation and you've got everything you need to move forward. But without further ado, we're going to dive into today's FAQs and some of the questions that I've been hearing. Federal employees ask and try to give you an accurate, honest answer. I certainly am not going to go into crazy amount of detail during our talk today just for the sake of time. I could probably spend the entire episode on just one of these questions. So we're going to try and be precise, be efficient, but be accurate and honest with our answers today.
Val Majewski:
So what are we looking at first? Well, what are the big questions? And believe it or not, a lot of federal employees do not know this because this is what your retirement revolves around is your Hi three. There are a couple of things. Number one, your base salary and your locality pay so it doesn't matter where do you live in retirement? The locality that you earn while working will count towards your high three. And I'll give you an example. Let's say you're working in the Midwest somewhere and you get a job offer a transfer, you go to the West Coast, you go to Los Angeles, and the locality pay in Los Angeles could be a lot higher from where you're coming from in the Midwest. And you spend several years there and then you go back to an area where maybe the locality isn't as high or you take a lesser job or whatever it is. And you're thinking, okay, well I just did that so I can improve my high three. That is something that happens. Base pay plus locality is included in your high three. If you're a law enforcement officer and you have additional pay that's thrown in there that can be included in your high three as well. Your all but bonuses over time are not included in your high three annual leave. Sick leave is not included in your high three. Basically it is base pay plus locality.
Val Majewski:
And what does it mean? It's not your top three years in total if it's your first year of middle year and last year it's your high three high consecutive 36 month period, that's going to be what your high three consists of. So base pay plus locality and your highest average of your highest 36 month period is what's going to count as your high three when it comes towards retirement. If you have any additional questions about that or you have a unique situation, again, reach out to us, schedule some one on one time. We can go over that with you. Next question. Is it beneficial to purchase back your military time now? One of the big participants of the event that we just worked was the DOD, and we had a lot of folks that were ex-military that had served three, four, five, six years. And we're wondering if it was very beneficial to purchase back their military time. In my opinion. In my opinion, I have never really run across a scenario where it is not beneficial to purchase back your military time. So in my opinion, yes, extremely beneficial to purchase back your military time in all circumstances. Now again, there are some unique circumstances where maybe it's not beneficial. I can go into an example of that here in a second, but I'd recommend a couple of things. Number one, do you get familiar with the process and we can help you out with that? There is a little bit of a process in order to purchase back military time and number two, that you get that done in a timely fashion.
Val Majewski:
Why is that? Because if you do not purchase back your military time, as soon as you're eligible to do so beyond a certain period, you start getting charged interest on the deposit that is owed to purchase back that time. So the extreme example that I have and there has been one federal employee where it really wasn't beneficial because they had waited a significant amount of time to try to purchase back their military time. And the interest that they owed was extremely high compared to the amount of the deposit and it wasn't really beneficial for them to do it at that point. I'd highly recommend if you have previous military time and you are not a retiree, meaning you did not retire and get a pension from your service time with the military, then purchase back your military time. Get credit for that as a federal employee, a civilian federal employee, that time counts towards your eligibility for retirement and it counts towards your retirement calculation. So why not boost your future benefits, increase or make your retirement come a lot sooner by adding these extra years of military time? So again, if you do not know that process, reach out to us. We can go over it with you and walk you through it so you can properly purchase that time back.
Val Majewski:
Now I will say something else. If you have already done that process, or maybe you have already purchased, completely purchased your military time at the time of retirement or as you're nearing retirement, be sure that that time is counted when it comes to your pension and your service time. There have been some examples that I've seen where people have bought back their military time. They have a receipt for the deposit, they've got confirmation. But when they looked at their personnel file, it just wasn't in there. There was a mistake made and mistakes are sometimes made. So if you have military time, I recommend buying it back. And if you have already purchased it back, just ensure that it is in your personnel file and is counting towards your future retirement calculation. Let's see. Next question. What is the five year rule for insurance? While there's two types of insurance that we're going to talk about. Right. And people have asked me about both about your filing, your life insurance and your health insurance. Let's start with health insurance. So the five year rule states that in order to keep your health insurance in retirement, you need to have the FBE for the five consecutive year period prior to retirement. What does that mean exactly? Well, you need to have or beyond the benefits for five consecutive years immediately preceding your retirement or if you've only worked for a couple of years, whatever time you have it, you had to have had the FBE coverage.
Val Majewski:
Now there are times where a federal employee and their spouse are both on FB, they both are federal employees. So if you are covered under a spouse's plan who is also a federal employee, that counts as having FHB. But if you're on a spouse's plan who is a non federal employee, that does not count towards that five year rule. So you have to make sure if you want to keep your FHB, your federal employee health benefits into retirement, that you need to be on an FHB plan five consecutive years prior to retirement. Now let's go to life insurance. The same is true for Fegley if you want to be able to keep Fegley into retirement as well as the optional coverage you need to have fegley for the five consecutive years prior to retirement. So if you've opted out and you're thinking you're going to want to have it, you need to get it and try to get your coverage reinstated. Now that can be done by applying for new coverage. And if we're not in an open enrollment or open season, then you're going to have to be able to provide proof of health that you're eligible for coverage. So you may have to take a physical exam, answer health questions and prove that you're healthy enough and eligible for that coverage. So the five year rule for both FHB Federal Employee Health Benefits and fegley your federal employee group Life Insurance states that you need to have both coverages if you want to keep them in retirement for five consecutive years prior to retirement.
Val Majewski:
Next question, please. Will my insurance costs increase when retired? So let's look at both again health and life insurance. Let's start with health insurance again. Generally speaking, your health insurance costs will be the same in retirement as they are prior to retirement. So good news there. You're not going to get a huge price hike just because you retire. Now, if there is a price increase, because the plan price increased, that is across the board, not just for retirees. So good news there with health insurance is you will not see an increase in the costs when it comes to retirement. Now, for life insurance, it's a slightly different story. With Fegley. You have different optional coverages as well as basics, starting with basic. The cost in retirement will be determined by the option you choose with your basic. If you need more information on that, go back to a previous episode where we talk about Fegley. When it comes to the optional coverages, if you keep an optional coverage in retirement, you keep the full coverage in retirement, the cost will increase every five years. So you will see price increases. And this is important because if you want to keep a certain amount of your life insurance, you should get a full review done by somebody who's an expert, like perhaps somebody on our team to see if keeping those coverages is beneficial, both in the coverage amount as well as the price.
Val Majewski:
And if the price doesn't work well, we can look at other options that may be more suitable for you and save you a ton of money over time. Go back to our previous episode about option B, the option B replacement. If you're not aware, costs could increase in retirement. If you choose to keep a good amount of the optional coverages that Fegley offers, be aware of that because they're not going to send you a letter in the mail that says, Hey, happy birthday. You just hit another benchmark and your fegley rates or your fegley costs are going up. You'll just see that come right out of your paycheck. And most folks that I talk to do not scrutinize their retirement paycheck. They just see that it hit their bank account and they're not looking at the itemized deductions to notice that there was a change in those costs. So be aware that, yes, vaguely optional costs as well as fairly basic costs, depending upon the option that you choose, could increase in retirement. Our next question now. This is one of the biggest questions that we get asked. It's when am I eligible to retire? When can I leave? When can I stop working and leave with full benefits or collect some sort of pension and not be penalized for it? So we're talking about full retirement.
Val Majewski:
When am I eligible to retire now? It depends on which system that you're in. Let's go back to the CSRs. The older system, there's one of three criteria that you need to satisfy. So of these three, I'm going to list you need to satisfy at least one of them. You need to be age 60 with at least 20 years of service, 62 with at least five years of service or age 55 with at least 30 years of service. So if you can satisfy at least one of those, you can retire as a CSRs employee. Fers two of them are exactly the same. So age 60 with 20 years of service 62 with at least five years of service. And the last one you have to have 30 years of service and be at your minimum retirement age. Now your FRA is anywhere between age 55 and 57, depending upon your birth year. So if you have 30 years and you fit your minimum retirement age, your mirror, you can leave no penalties, no reductions, no questions asked, full benefits. So those are the criteria for both CSRs and FERS to leave federal service. No strings attached, no penalties. Now, the next question that we get asked then is what am I going to get? So if the biggest question, I'd say that is the biggest one that we get across the board, not just recently, but over my history past ten years plus of working with federal employees is when am I eligible to retire? When can I leave? The second biggest question follows up right behind it is How much am I going to get? What am I going to receive in my retirement annuity? Now, again, this depends upon your system.
Val Majewski:
Csrs, I'm just going to give you some general numbers here just so you can have an idea. Now, this is general numbers. I'm not giving specifics. If you want specifics, let us run your retirement and benefits report. We'll show you income projections so you can see exactly how you're doing and what you can expect when it comes to retirement. Here's just a general rule of thumb. A CSRs employee will receive a little less than 2% for every year of service of their high three, a little less than 2% for every year of service of their high three. So let's say that a CSR employee worked 42 years. They would receive 80%, which is a little less than 2%, 80% of their high three. In retirement, a FERS employee receives approximately 1% for every year of service of their high three. So a FERS employee, if they work 30 years they will receive about 30% of their high three. Now the CSR system was a one paycheck system. There was no Social Security, and at the time that the CSRs system was created, there was no TSP option. Tsp didn't exist, so they were relying on one check.
Val Majewski:
The first system relies on three checks. You've got your first annuity, Social Security or the first supplement. If you don't know what the first supplement is, check out our episode on the first supplement and TSP. Tsp is the third income source for a first employee. So again, CSRs, you can rely on a little less than 2% per year of service, fers about 1% for every year of service of your high three. So that's when can you retire and how much are you going to receive? Next question. Now, some of you have seen recently or try and logging in to TSP during their kind of blackout period and saw that you couldn't get in. So the questions that we were getting recently and we're still continuing to get what are all these updates? That had been made to TSP. What's going on? Well, TSP made an announcement and said that they were going to be making some changes to their website. So if you haven't been on TSP of recently, go check it out. You will have to create a whole new account so your previous login will not work. But TSP has made some changes. Now the website has a facelift. I think it's a lot more user friendly, it's a lot more simplified. You'll just have to get used to navigating it. If you need assistance, we can kind of point you in the right direction. But they've tried to simplify some of the processes when it comes to withdrawals, transfers.
Val Majewski:
They've made that easier for you to do some some of those things completely online, not having to print forms and get notarized signatures and things of that nature. The website, as I said, is seems to be more functional, more user friendly. They've also come out with what are some new investment choices for you now? What is what does that mean? Well, they've been announcing for a while that they were going to come out with some of these they called mutual fund options. They call it the mutual fund window. And we've been getting asked a lot of questions about this. What is it? What is the mutual fund window? This is a another way that a federal employee can invest their money in TSP outside of the traditional funds, the CFC's and and L funds. But in order to do so, you have to transfer money out into a different account. Basically, they call your transferring money into the mutual fund window vendor and you have access to potentially thousands of different mutual funds. Now there is a warning that comes with this, and TSP makes it very clear in their publications and their notifications that there are additional fees, there are additional transaction fees, trade fees every time you buy a mutual fund within that plan. So just educate yourself, go on the website, check out some of these new options and see what the fees are for yourself.
Val Majewski:
You can read it in plain English and just make sure that if you're going to choose any of those options, that you understand all the things that come along with it. If it comes to additional costs or risks or things like that, just make sure you're aware. But the TSP changes that they have made. Most of them have been very beneficial, at least to the federal employees that I've spoken to in the past week and a half since these new changes went live. I think it's a good move, but it's just now navigating a new system and getting used to a new website once you're able to log in with your new account. So those are the basics of the TSP updates and the changes that were recently made. I again recommend go to TSP dot gov, get your new account set up so you can get in there and navigate and see what looks different. Another question about TSP because of the craziness that's going on. So if you looked at your TSP bank account or your TSP balance, I should say on January 1st, you probably were looking pretty good. I mean, everything was was on the up and up stocks, bonds, the funds, everything. Annual statements were looking great. I saw 20, 30. In one case, I saw one person at a 40% annual return based on their investments. Not so much right now. This as of the time of recording of this radio show, this podcast, which is the first second week in June, we want to just let you know that it's not all that it seemed to be on January 1st.
Val Majewski:
Right. You can go check out the performance history yourself and see what your TSP account balance looks like now compared to January 1st. And unless you were in the G fund, you're not seeing the same balance that was in there. So there's some risk involved. And as well as the market went and as great as things were for years and years and years since 2008, things are looking a little less optimistic moving forward. Now, I don't have a crystal ball to tell you exactly what's going to happen, but the question we've been getting asked when it comes to TSP and risks is how do I protect myself? What are my options? What am I able to do to mitigate my risk and save my money, save myself from losing any additional money when it comes to my TSP? Well, you've got a couple of different things. Tsp has only a few truly conservative options. There's actually only one option within the entire TSP where it guarantees that you cannot lose any money. And that's the G Fund. If you thought or said the G Fund, congratulations, you're on the same page. But the G Fund, the only fund that's guaranteed never to lose the F fund, is supposed to be conservative, and then the income is going to be the most conservative of all the L funds.
Val Majewski:
But the G is the only one that's guaranteed not to lose. Now, if you've noticed the history of the G, it doesn't perform as well as the other funds because it's the only one that's guaranteed never to lose. It's going to be protecting itself. So you can make sure you're not going to lose money, but you're not really earning much either. Now, there are options. As I just said, there are options for investing and taking risk in TSP. If you do not want to take any risk, there are options outside of TSP. Now, in order to do so, I must say this it's not for everybody to look into these things, but if you are still working for the federal government and your age, 59 and a half or older, you can take a portion or all of your TSP funds and move them into a different account. Do a transfer or rollover into your own IRA into something that's going to be either 100% safe or a lot less risky when it comes to investment options and losing money. Because I know most people as they're nearing retirement, especially if they're 59 and a half or older. Most that I talk to do not want to lose any money, at least would not be comfortable losing a good amount of money. So that's an option. And of course, if you're separated from service, if you just have your TSP funds sitting in TSP riding the market roller coaster and you're separated from service or retired, you can move your money at any time into your own IRA and you can find out which would be most suitable by talking to us, reaching out to your local expert, your federal employee benefits specialist, somebody who's extremely knowledgeable and up to speed on federal employee benefits and retirement information.
Val Majewski:
And we can point you in the right direction, at least share with you some options that are available. Ultimately, you make the decision that's best for you, your family, your retirement, your situation. But there may be options that are available that you did not know about, that you just were not up to speed on, because TSP doesn't share with you all of those things that you can do outside of TSP. They want you to keep your money there. So when it comes to risk, what are ways in which you can mitigate your risks or avoid too much risk when it comes to your TSP if you're eligible to do so? Like I said, you're working and you're 59 and a half or older or you're separated from service. You have the ability to take control of your money, take the risk out of it, and transfer or rollover your money into something that is a lot more safe or maybe up to speed with your risk tolerance. So when it comes to questions again that people are asking us about their federal benefits, retirement information, we get a ton of them on a daily basis.
Val Majewski:
And some of them are extremely common. Some of them are off the wall. And there are those 1% or less than 1% questions that I've never heard before. But still, we will do our best to get you a timely answer. So if your question on here was answered, great. I'm glad you tuned in to this episode and got what you needed. However, if you have additional questions, please reach out to us. Visit Federal Retirement Showcase. Submit a request. Submit your question and we'll be happy to get to you so that you can get the information that you need, get your questions answered. So ideally, you can position yourself both today and in the future on the right path. Again. My name is Val Majewski, the host of the Federal Retirement Show and vice president at American Benefits Exchange. I really appreciate your tuning in to this fake episode. Like subscribe to our podcast, share it with your friends, tell your colleagues about it. Because ideally we just want to give you the information that we know you need and we know is lacking out there. So if you like it, share it and tune in to all of our other episodes which are on all the platforms that you can subscribe to podcasts on. Again, thank you for tuning in and I look forward to seeing you on a future episode. And.
Sonix is the world’s most advanced automated transcription, translation, and subtitling platform. Fast, accurate, and affordable.
Automatically convert your mp3 files to text (txt file), Microsoft Word (docx file), and SubRip Subtitle (srt file) in minutes.
Sonix has many features that you'd love including transcribe multiple languages, enterprise-grade admin tools, powerful integrations and APIs, upload many different filetypes, and easily transcribe your Zoom meetings. Try Sonix for free today.