On this episode, Val explains the definition of FSPS, and shares step-by-step guidance for using the FERS Pension Calculator!
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1.12.23: Audio automatically transcribed by Sonix
1.12.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
Welcome back to the Federal Retirement Show. I am your host, Val Majewski with American Benefits Exchange. Appreciate you joining me today for another episode. And we're going to be discussing foreign service and the retirement system. For those that are in foreign service with the Department of State. We've touched on a similar topic in the past with those that are in special groups. But today we're going to touch specifically on those that are in foreign service. So let's dive in to today's information and talk about the Foreign Service Retirement System. Now, as I said, these are folks that are career Foreign service with the Department of State, the Foreign Service Pension System, Fsps, and this is the newer version of it. So just like in the current civilian federal systems, we've got the CSRs, the old system and the new system Fers. This is the newer system for foreign service folks. So Fsps is what we're going to primarily talk about today. Now it works very similarly to Fers special groups, but just want to touch on that in case you are in foreign service and you had some questions about your retirement system and how it all works. So if you're in this fsps system, you're automatically covered under Social Security. You contribute when you're talking about contributing to the Fsps system, you contribute 1.35% comes out of every paycheck and goes towards your pension system. So automatically covered under Social Security, that's 6.2%. 1.35 comes out of each paycheck to go to the Fsps system.
Val Majewski:
Now, big questions that we get asked when it comes to federal retirement and those that are in foreign service are no different. First, biggest question, right. If I say there are two big questions, the first one is when am I eligible to retire? When can I leave? When am I eligible to retire with full benefits? Well, the first two things are typical and typical of those that are also in special groups. As we covered in the past, if you're age 50 with at least 20 years of service, or have 25 years of service at any age, you can retire voluntarily with full benefits, full pension. We're going to get into the calculation here in a second. You can also retire once you hit your minimum retirement age, which is age 55 to 57. Depending upon your birth year. You can retire once you hit your minimum retirement age and have at least ten years of service. Now, I'll get into the calculation of this also in just a second, but this is an option to voluntarily retire but at a reduced pension amount. Okay, those that are in foreign service, there is a mandatory retirement at the age of 65. So unlike special groups, which were 56 and 57, mandatory retirement for those that are Foreign service is age 65. I said, there's two big questions. So the first one, when can I leave? Number two is what am I going to get now? This is your general first pension calculation.
Val Majewski:
Just so we can touch on those that are in furs, traditional furs versus those that are in fsps but furs, pension calculation for those that are regular furs employees. You're using your high three, right? It's the same in both systems. High three, which is the average of your highest three consecutive years of total base pay. Base pay plus locality. So the average of your highest three consecutive years, it doesn't matter if it's your first three years, your middle three years. Generally speaking it's your last three years. But it doesn't have to be the average of your highest three consecutive three year period. 36 month period, right? It doesn't have to be just calendar year, 33 year or 36 month period, the average of that. And we're going to multiply that by 1 or 1.1% and multiply that by your years of service. So without going into the crazy details for furs and explaining the 1 or 1.1, you can see it here on the slide. General rule of thumb as a firm's employee, you're going to get 1% of your high three for every year of service you work 30 years, you're going to get about 30%. Now, how does it work for those that are in foreign service? Okay, foreign service pension is going to work very similarly to the special groups pension where you take the high three. It's the same average of your highest three consecutive years of total base pay. Multiply that now for the first 20 years. In order to get this calculation, you have to have at least 20 years of service as an fsps as a Foreign Service career Foreign service person, in order to get that 1.7, in a typical sense, you need to have at least 20 years of service as an fsps.
Val Majewski:
So if you don't have the 20 years, it's just going to be 1% of your high three for every year. But if you've got at least 20 years, it's going to be 1.7% for the first 20 years of service, then 1% thereafter. So if you had 25 years of service, the first 20 years would be at 1.7 of your high three. The second five years would be at 1%. Sorry. Let me go back to that. And that will be your annual retirement annuity, your annual pension from the Fsps system. Now, I said typically, typically to get the 1.7, you need to have at least 20 years of service. And for those that do not have 20 years of service at the Foreign Service level, you will not get the 1.7. You'll just get 1%. There is a little bit of a caveat, though. If you've retired involuntarily as a result of maxing out your age right age 65, then you will get the 1.7 for the amount of years that you have under Foreign Service. So I'll say that again. If you retire voluntarily and do not have 20 years of service as an fsps, then you're not going to get the 1.7. However, if you retire involuntarily, meaning you were forced out at age 65, you will get the 1.7 even if you did not have the 20 years.
Val Majewski:
So if you have questions on that, you can reach out to us. You can go to Federal Retirement Show.com fill out the form, and we'd be happy to sit down with you and go over your situation specifically and answer those individual questions. If you've got something that you want to dive into a little deeper about this, but just generally, again, if you've got 20 years of service, you're going to get 1.7. Now, if we go back to the requirements for retirement, then the way that you can retire with full benefits as an fsps foreign service is by age 50 with 20 years of service or any age at 25 years of service. So you will get the 1.7 for 20 years because those are the requirements. Again, the only caveat if you're forced out because you've hit that max age of 65. Now, I mentioned one of those ways that you can retire on an immediate pension is through the MRA plus ten provision, just like a regular Fers employee. So foreign service no different if you pitch your minimum retirement age 55 to 57, depending upon your birth year, and have at least ten years of service, you can voluntarily retire early. Understand though, you're going to see your pension calculation reduced by 5% for every year under the age of 62, so that can be a pretty stiff reduction.
Val Majewski:
It's not something that we normally recommend, but you have the option to do that once you've hit your minimum retirement age and have at least ten years of service. Now looking at your retirement income sources, if your fsps right. We just went over the retirement calculation. The annuity calculation. That's number one. Number two, we said earlier that you're covered by Social Security. But you may be looking and say, well Val, again, I can retire at age 50 with 20 years of service or any age with 25. I may not yet be Social Security eligible when I retire. What do I get at that point? Well, that's where the Fsps supplement comes in, and it works very similarly to the Fers supplement. So if you need to go back and review it, the first supplement is you can look at our previous episodes when we've talked about that, but the Fsps supplement is available for those that retire with full benefits prior to being Social Security eligible at age 62. This will be a bridge. It will be a gap filler. It's an entitlement. It's a free benefit. It's not something you pay for, and it will pay you a benefit from the time you retire until you become Social Security eligible at age 62. At age 62 will automatically stop. You do not have to elect Social Security at that point, but you will now be Social Security eligible. So the supplement will stop. So again, now going back to the retirement income sources, you have your retirement annuity, the supplement or Social Security depending upon what age you retire.
Val Majewski:
Then there's TSP. So TSP similar to regular Fers employee you can contribute to. And there's also supplemental accounts that you can do if you've got them on your own. I know other federal employees that have outside retirement savings accounts, like Roth IRAs or traditional IRAs or other investment accounts where they put aside money that they're going to eventually use for retirement income. So at the minimum, you should have three retirement income sources that you can choose from. You may have more than that if you decide to get, uh, or start some supplemental accounts, like I said, a Roth IRA or traditional IRA outside the government. Now, the goal for everybody fers fsps whoever you are that works for the federal government, the goal that we've seen. And if I if I pull the audience right, federal employees want to get as close to 100% of their pre-retirement income in retirement. So what do I mean by that? I mean your net take home pay. Most federal employees and retirees that I talked to want to get to as close to 100% of their pre-retirement take home pay. They want to have that in retirement. Now, what do I normally see though? So if the goal is to get to 100. What I normally say, and hopefully you're not in this boat is federal employees are preparing at a 50 to 80% level.
Val Majewski:
Now, that may be okay for you. You may be all right with 50% of your pre-retirement income or 80% of your pre-retirement take home pay. But I know most that I talk to want to get to 100%. Why is that? Because they want to make sure they can live the same lifestyle in retirement that they were living prior to retirement. You've been working your entire life, been working for this moment to finally retire, and I want you to be able to retire. We want you to be able to retire the way you want, how you want, when you want, doing the things that you want to do, living the same lifestyle or living the lifestyle that you want to live in retirement. And generally speaking, that takes getting to close to 100% of your pre-retirement income. So if there's a gap or if you don't even know if there's a gap, here's another reason why you need to speak with us. Not just if you're a Foreign Service employee and you want to dive a little deeper into to your specific retirement system and make sure your retirement plan is on track. If you're a federal government employee in general from any retirement system, from any job agency or area of the country, reach out to US Federal Retirement Show.com fill out our form. We'll do a full benefits and retirement overview. Answer any and all of your questions and as a result, you may even get a copy of the book that I wrote on federal benefits called There's No Excuse.
Val Majewski:
So again, federal retirement Show.com fill out the form. One of our reps across the country, if it's not me personally, will be reaching out to you to schedule a time to go over your individual situation and get all of your questions answered. Make sure that you're on track because you don't want to get to retirement. Hit one of those. Those, uh, criteria were your age, 50 with 20 years of service and realize, yes, you can retire early, but you did not prepare to retire early at age 50. You want to be as prepared as possible when that day comes, when you can walk out with your head held high, knowing that you're going to live the lifestyle that you want to live when you do retire. So I hope you enjoyed today's talk. If you're a Foreign Service employee, I apologize. If you're not a Foreign Service employee, then this really wasn't for you. But thanks for joining us anyway, um, be sure to check out our previous episodes. Go through all the information that we're providing. This is for you, so you can make sure you've got a wealth of knowledge and you can make the right decisions if you need additional help and assistance or wants a personal review done again, go to our website, Federal retirement Show.com fill out the form. We'll be in touch. Thank you for joining me today and look forward to seeing you on a future episode.
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