Val goes through the retirement process step-by-step for federal employees and shares an in-depth look at the CSRS and FERS retirement applications. We also share some important tips about retirement start dates and income strategies for after you stop working.
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11.14.22: Audio automatically transcribed by Sonix
11.14.22: 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 to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. Today, we're going to be talking about the retirement process. Now, normally when we discuss with federal employees their benefits and retirement situation, we're going over everything, like finally their retirement system, their retirement calculation, survivor benefits, TSP, the costs of their benefits while they're working, how to navigate through their working career, how to maximize their benefits or optimize their benefits. Prepare for retirement. But all of that leads up to knowing what the process is and how to make sure you avoid some of the shortfalls are aware of some of the things to expect when it comes to retirement and the processes that are involved. So today we're going to bring to light some of those things and hopefully, this is extremely helpful for you as you navigate your career and get ready to retire. So let's dive into today's content and talk about the retirement process. Now, first and foremost, when we're talking about retirement, how do you do it? What do you do? Well, typically and there's other forms of retirement and the documents you can fill out. But if you're filling out paperwork for full retirement from either the CSRs or first system, you have to fill out an application. Now, for CSRs employees, this is standard form 2801. For FERS employees, it's a 3107. A big question we get asked is when, when should I submit this form? When should I file my retirement paperwork? When should I start this? Well, if you're prepared, if you're looking at a certain date and you have an end in mind and you've got to count down going, I would recommend that you fill out that form, fill out the paperwork, get it submitted at least two months in advance of the separation date of your effective retirement date.
Val Majewski :
This gives OPM enough time to start that process, get your file on hand. And ideally, it would shorten the amount of time that you'd ultimately have to wait to get your full pension check. We'll get into that here in just a little bit. But the first step in the process is deciding on a retirement date and filling out the appropriate paperwork. Now, I say at least two months in advance. What's the worst-case scenario You can actually separate from service and then file for retirement. That seems a little counterintuitive, but people have done it or they've decided they're going to file their paperwork the day they want to leave. Not ideal, not something I'd normally recommend because OPM has to go through their process of looking through applications, making sure all the documentation is filled out correctly, making sure everything is in and in good order, and then go through their processes. And if you're not familiar with OPM and their timeline, they are extremely backlogged. They have been for years.
Val Majewski :
So they have a whole list of applications and paperwork that they're going through. The quicker you can get that in, the more time you allow them to go through their process, the better it's going to be for you. And this is just in my experience, helping federal employees go through that process and ultimately enter into retirement in a fashion that is doable and not something that's going to have them sitting there pulling their hair out because they didn't know what was going on or didn't prepare properly. Now I say in here, ensure that your personnel file is correct. What do I mean by that? I mean, if you've got breaks in service, if you have military time that you've bought back, if you had changed from the CSRs to the first system, you know, you want to make sure that all of that is accounted for properly and you can request a service record so you can see what time they have as far as your service time when you were hired, when you separated, when you came back, or if you switch positions or if you switched agencies. You want to make sure that all of your time is accounted for, especially when it comes to military buyback. There are federal employees that have bought back three, four, six years of military time, only to see that it's not in their file. Now, they may have made their deposit, they may have finalized their payments, and for some reason it's not there.
Val Majewski :
This is not very common but it has happened. So it helps you if you're going to be diligent, redundant, just to make sure that. That time is counted for in your file and you want to make sure other things too are correct. So it doesn't hurt to contact your employment office, your HR department, your personnel department, and make sure that your personnel file is up to date is correct. And all the time that you believe you have that counts towards retirement is accounted for. That's big. So that's up to you to do that. They're not going to do the review. They're not going to contact you and say, hey, let's set up a meeting to make sure that all of this is correct. That's up to you to just do your diligence and make sure that everything is in your file. Now, OPM, once they receive your paperwork, they're going to go through the process. You're going to get a number, basically a file number, claim number that you can check up with them using that number and see the status of your retirement paperwork. So it's important that you can file in a timely manner or submit your paperwork in a timely manner and keep track of it along the way because mistakes have happened. I'm not saying that's going to happen with your particular case or your particular file, but it doesn't hurt the check.
Val Majewski :
And that way there's not going to be any hiccups or there's a lesser chance of hiccups along the way. Now let's look at retirement, start dates, because we get asked this question a lot to, you know, when should I retire? And a lot of people have looked at it saying, well, I'm going to retire on my birthday when I hit this age or I'm going to retire once I hit my work anniversary for 30 years or whatever it might be. Well, it's very important to know, based upon your system, what are the most effective days to retire? Let's go with CSRs first. So if you're a Caesars employee, we normally recommend retiring on the first, second or third day of the month. Now, I'll back up a second. The reason why we're recommending the certain days is because we want to minimize the amount of time that you go without a paycheck. So we want to maximize your earning potential and the money that you're going to be receiving. Up until retirement. So the first, second or third day of the month, if you're a CSRs employee, your effective retirement date is actually going to be the next day. Your first paycheck is going to be due the first month of the next month. So let's look at it at an example. Let's say that you're going to retire on the third day of September, third day of September.
Val Majewski :
Your effective retirement date would actually be September 4th, and your first paycheck would be due to you on October 1st. So in this example, you're going to go about four weeks without receiving a paycheck. Let's say the worst case happened and you wanted to retire on your work anniversary, which happens to be on September 4th. So if you retired on September 4th. Your effective retirement date would actually be the first of the following month, October 1st, and then your first paycheck would be due the month after that November 1st. So you'd go almost two months without getting paid. That would be a worst-case example for CSRs employees. So it's ideal to retire as late as you possibly can to minimize the amount of time that you go without receiving a paycheck. So first, second or third day of the month. Your effective retirement date is the next day you retire any other day of the month. Your effective retirement date is the first of the month after that. Then your paycheck do the following month. So if you're following along, we want to minimize the amount of time you go without a paycheck. Similarly, in the first system, we want to minimize the amount of time you go without getting paid. For those employees, you can retire any day of the month and your effective retirement date is the first of the following month. So let's use this September example again.
Val Majewski :
When would be the ideal date to retire? It would be the last day of September. Why? Because your effective retirement date would be the first day of October and your first paycheck would be due November 1st. So if you retired on September 4th, for example, like we showed before, your effective retirement date would still be October 1st. If you retired September 15th, your effective retirement date would be October 1st. If you retired the last day of September, your effective retirement date would be. You guessed it, October 1st. And your first paycheck. Your first pension check should come November 1st. So you're going to go in both systems about one month. If you minimize the amount of time all the way down to as close as possible. You're going to go about one month without receiving a pension. This is important to note, because it doesn't start immediately and you have to account for that month as far as income. So it's proper to prepare for that month. Without income, you might have emergency savings, you might have just money you've set aside for this occasion. We're going to talk about your annual leave payment here in just a second. But it is important to prepare for that month that you're not going to get paid. Now, if you had a another pay period that you were owed, there was a pay day that you hadn't gotten it.
Val Majewski :
Yes. You're going to get paid for that extra time. Some people try to look at being or retiring on their last pay day, but they might go a little bit longer without getting paid. So if you work beyond a pay day and you're in the middle of a pay cycle, you're still going to get paid for that time. That will come hopefully during that month when you're not getting a pension check. But to minimize the amount of time they minimize or maximize your earning potential while minimizing the amount of time you go without a paycheck for first employees. The last day of the month is generally something we recommend. I mentioned in leave. So something that's factored in when it comes to retirement pay and the retirement process is how is leave? Taken care of in retirement. First of all, how is sick leave treated in retirement? Well, any leftover sick leave that you have at the time of retirement is going to be added to your service credit. So sick leave. There's a conversion chart. If you don't have that, we can send that to you. We can point you in the right direction of where to find that. But any leftover sick leave will be converted into service time and then added to your total years of service. So let's say you had 20 years of first service, you had four years of military, and then you had 2100 hours of sick leave time at the time of retirement.
Val Majewski :
Well, that's approximately one year of service. So they would add one year of service to your total calculation for your pension. Not bad. Now, if you don't have any sick leave left over, well, nothing is going to get added to your pension calculation. But sick leave, they add years of service. To increase your pension calculation. You cannot use sick leave as a means to qualify for retirement. So let's say you are six months short of full retirement and you had six months of sick leave time. You cannot add those together to qualify for retirement. It's only as a boost to your retirement calculation, your retirement pension calculation. Now, how is annual leave treated in retirement? So any leftover annual leave is going to be converted into a lump sum of money. So any hours of annual leave converted into a check that you're going to receive at the time of retirement, they're going to take your total base pay. Convert that to an hourly rate and then multiply it by the number of sick leave hours that you have at the time of retirement that will get sent to in a lump sum check. Typically, that check is received the next pay period after you retire. So that could, if you do have annual leave left over, could be a way to bridge the gap between retirement and when you start collecting your first check because you should receive that check during that month that you're not getting paid so sick leave just to review added to your service.
Val Majewski :
Time to increase your pension calculation annual leave. Convert it into a lump sum check. Generally paid by the next pay period after you retire. Let's talk about interim pay. Now, interim pay is something that you first receive when you're collecting your retirement check. Talk to those that you know that you work with that have recently retired and ask them about their interim pay. Again, what is it? This is what the government would lpm is going to pay you as an estimate. A quick estimate. Upon retirement until they figure out your exact amount. So when. When your pension check is supposed to start. So let's go back to that example I said about a FERS employee retiring at the end of September. Their effective retirement date is October 1st. Their first paycheck should be due November 1st. They're not going to get their full paycheck right away. They're going to get what's called interim pay or an interim payment. And that's going to be a fraction or a percentage of what they should get in the end. And a lot of cases, at least in my experience, talking to federal employees and I'll go over an example here in a second, but that could be anywhere from 50 to 75% of what you're about to get in full pension payments.
Val Majewski :
And you might be like, well, they're going to be paying me less. Why is that and how long is it going to take them? Until they pay my full amount. And will they pay back what they owed me to make up the difference? So, in short, yes, you're going to get paid everything you're owed and they're going to pay you back everything that they should have been paying you from the very beginning. However, if you were making 60% of your actual retirement, check in retirement. That's something you have to prepare for, something you have to be aware of because you're still going to have bills to pay. You're still going to have to live. This is still going to be the money you're receiving. It'll be great when they bump it up and they pay you everything they owed you. But for that time being. You'd have to be prepared for that. That could be set up with emergency savings or other forms of income or sources of income to make up the difference. So interim pay again, what is it? It's what opium is going to pay you for a temporary period until they finalize your calculation and pay you your full pension amount. Now, how long I said this can be anywhere from I say typically 4 to 6 months. I was just talking to a federal employee earlier today. They had three months of interim pay.
Val Majewski :
I talked to a federal employee earlier this week who's been retired for a year and it took 12 months for them to get out of interim pay into their full pension. And that federal employee was at about 60% of their full payment amount. So could you go 12 months making only 60% of what you're owed in retirement? If that answer is no, then you need to properly prepare and make sure you're setting enough money aside as you get closer so you can account for that. You're not going to be strapped. You're not going to have overdue bills. You can still afford to live. Now, again, 12 months is extreme. I said typically it is 4 to 6 months. It could be shorter than that. I just showed you an example of a three-month term of interim pay. What it's going to be for you depends on a couple of things. Number one, did you get your full retirement application in? Completed? No errors, no issues. Is your personnel file up to date? Does it have everything in it? Have you double-checked on that? There's not going to be any hiccups along the way. We can't guarantee that. But if everything is filled out correctly and everything's there, there's a lesser chance of hiccups and a higher chance of things getting processed more quickly. If you got it in at the last minute, if you took until the end and you said, I'm retiring tomorrow, here's my retirement paperwork, you might be in that six-month plus area where you're going to get interim pay for at least six months before they figure this all out.
Val Majewski :
So give OPM, even though they're backlogged enough time to work through your application, figure out your correct pay, and hopefully your time and interim pay is shorter as a result. Shorter as a result. But in the extreme case, this person still had their paperwork in on time. I know because I helped them through the retirement process there it was in on time, It was accurate, Everything was accounted for. There weren't any hiccups, and it still took 12 months to get out of interim pay and do that full payment. So just be aware that it could be a great idea to prepare for this. Set aside emergency funds or money in another account that you can utilize. To make up the difference between what you are getting paid and what you are expecting to get paid. So if we look at the process, right, if it comes down to filling out the application, making sure that your personnel file has everything in it, making sure that there aren't any hiccups, and you're trying to lessen the amount of time that you go without a paycheck, whether it's interim pay or up until you've got your full paycheck. What does your retirement look like in the end? What does your income stream look like in the end? Well, there's a number of things that go into making up your full retirement income.
Val Majewski :
We just talked about your CSRS or FERS retirement. That's your pension check, your annuity that you're getting from the government and that relies on OPM to finish that up. And that's going to be a big, big chunk of the money. The other one is Social Security and the first supplement. Now, if you're retiring with full benefits as a FERS employee prior to the age of 62, the first supplement is an entitlement. It's a free benefit. It's something that you automatically get and you can account for. Hopefully they're sending you that payment at the appropriate time, right, when you should be getting paid. Social Security you can elect to take that at 62 or wait a little bit longer. And if you've prepared properly, if you've got your savings set up and you can wait longer to increase that Social Security benefit, that's something you can choose. Social Security maximization is a big thing for everybody, not just federal employees, but for everybody. There are trillions of dollars left on the table by not maximizing Social Security benefits. Now just which is right for you, which strategy to use or timing? There's a lot of factors that go into that and we can talk on a personal level then TSP. If you've watched any of our previous videos on TSP, you know that I call it a wild card because this is the thing that relies solely on you, your contribution level that you decide and your investment strategy.
Val Majewski :
But that's another source of retirement income that you can count on. So if you're not getting your pension, you can dabble, you can pick at your your TSP to help provide that additional income that you need. Usually that's not ideal. Federal employees would rather have a supplemental account set up, whether it's an extra checking your savings account or an extra retirement account set up that they can pull from to make up the difference during that interim pay time or that month when they're going without a paycheck at all. Then lastly, we talk about supplemental retirement accounts. Some folks I talked to do have an outside Roth IRA or IRA or other retirement savings vehicle that they're utilizing in conjunction with their pension, Social Security and TSP to maximize their income in retirement. And because folks like this have prepared properly and have taken the time to do so well in advance of retirement, they could have situations where they're making more money in retirement than they were making while they're working because they've properly prepared. So not only were they prepared for the retirement process, but they were prepared for the retirement income and they overprepared. I've said this once, I'll say it again that no federal employee, not a single one that I've ever talked to or helped, has called me in retirement, said, wow, I don't know what went wrong.
Val Majewski :
I don't know what we did. But I have too much money coming in retirement. Not a single person in their right mind would think that because they've overprepared and now they can live even better in retirement than they did because they prepared properly. That's the whole point of this radio show. The Federal Retirement Show is to give you all the information that you can possibly need. And we can we'll take suggestions if you have topics and things that you're wanting to hear about or your situation is so unique that you need some guidance, reach out to us and we can help you. We can have an entire radio show episode on that one situation, or we can at least get you the answers that you're looking for so you can prepare properly when the time is done for you to fill out that paperwork and hand it into OPM for their processing. You are confident knowing that you've done everything you could for this moment and you're going to be prepared to live the lifestyle that you want to when it's all said and done. So I really appreciate you taking the time to learn about the retirement process. I hope you found the information valuable again. My name is Val Majewski with American Benefits Exchange. Look forward to seeing you on a future episode.
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