Key Considerations for Federal Employees Approaching Retirement

1. Understanding Your Federal Retirement System

Federal employees fall under one of two primary retirement systems:

• Federal Employees Retirement System (FERS): Established in 1987, FERS provides a three-tiered approach to retirement that includes a basic benefit plan, Social Security, and the Thrift Savings Plan (TSP).
• Civil Service Retirement System (CSRS): The predecessor to FERS, CSRS is a defined benefit pension plan for employees hired before 1984. Unlike FERS, CSRS does not include Social Security benefits.

Understanding which system applies to you is the foundation of a strong retirement strategy. Our advisors will help you analyze your projected benefits and make adjustments where needed to optimize your retirement income.

2. Maximizing Your Thrift Savings Plan (TSP)

The TSP is a crucial component of a federal employee’s retirement portfolio. Key factors to consider include:

• Contribution Limits & Matching: Federal employees under FERS receive agency-matching contributions up to 5% of their salary. Maximizing contributions ensures you take full advantage of this free money.
• Investment Allocation: The TSP offers various investment funds, including the G Fund (government securities), C Fund (common stock), and L Funds (lifecycle funds). Choosing the right allocation based on your risk tolerance and retirement timeline is essential.
• Withdrawal Strategies: Federal employees must decide how to withdraw funds upon retirement while minimizing taxes and avoiding penalties. Options include annuitization, periodic payments, and rollovers to IRAs.

3. Federal Pension Benefits & Survivor Options

Your pension plays a vital role in retirement planning. Key considerations include:

• Annuity Calculation: Your pension amount is based on years of service and your high-three average salary. Ensuring accuracy in your service history can prevent costly errors.
• Survivor Benefits: FERS and CSRS offer survivor benefit options that allow spouses to continue receiving a portion of your pension. Selecting the right option requires careful evaluation of costs and long-term financial needs.
• Cost-of-Living Adjustments (COLAs): CSRS retirees receive automatic COLAs, while FERS retirees have a diet COLA, meaning adjustments are limited based on inflation.

4. Social Security & Medicare for Federal Retirees

• Social Security Benefits: FERS employees are eligible for Social Security, while CSRS employees may be subject to the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO), which can reduce benefits.
• Medicare Enrollment: At age 65, federal retirees must navigate Medicare choices, including whether to enroll in Medicare Part B alongside the Federal Employees Health Benefits (FEHB) program. Strategic planning ensures you balance costs with comprehensive healthcare coverage.

5. Federal Employee Health & Life Insurance in Retirement

• Federal Employees Health Benefits (FEHB): Retiring federal employees can keep their FEHB coverage into retirement if they meet eligibility requirements. Understanding premium costs and coordination with Medicare is essential.
• Federal Employees’ Group Life Insurance (FEGLI): The cost of FEGLI increases significantly in retirement. Exploring alternatives such as private life insurance or long-term care insurance may provide more cost-effective solutions.

6. Long-Term Care & Estate Planning

• Long-Term Care Insurance (LTCI): Federal retirees can enroll in the Federal Long-Term Care Insurance Program (FLTCIP) or explore private options to protect against high long-term care costs.
• Estate & Legacy Planning: Proper estate planning ensures your assets are protected and distributed according to your wishes. Setting up a will, trusts, and power of attorney documents safeguards your financial future.