6 Little-Known Facts About FERS Retirement
More than a Three-Legged Stool
Most Federal Employees are familiar with the of the FERS retirement program—the basic annuity, TSP investments, and Social Security.
But there’s more to the FERS retirement system than these basic components. We’ve gathered 6 little-known FERS retirement facts to spark your interest and help you maximize your retirement.
1. Collecting Social Security and Working Full Time
Some FERS employees don’t realize that they can work full time, contribute to the TSP, and collect Social Security without a reduction once they reach age 66.
However, those who don’t need the money may want to wait until age 70 ½ in exchange for a bigger check.
Other strategies, such as file and suspend, may come into play as well, but it’s good to keep in mind that Social Security isn’t just for retirees.
2. The FERS Annuity Supplement
Nowadays, “old” is a relative word. 50 years old was old once upon a time. But today, if someone retires before age 65, we assume they’ve either come into money, sold their business for a big chunk of change, or had an epiphany and moved to an isolated Caribbean island to live in a shack on the beach selling conches and beautifully carved coconuts.
However, many FERS employees reach minimum retirement age (MRA) well before age 60, and may wish to hang up the lunch box and tend the garden full-time instead.
So what can you do until you qualify for Social Security, one of the legs of your three-legged stool of FERS retirement? Will your basic annuity and TSP be enough to carry you through?
This is where your FERS annuity supplement comes in. The supplement is there to tide you over until you reach age 62, when you officially qualify for Social Security benefits.
The supplement is subject to an earnings test just like Social Security, so if you decide to work after leaving the government your supplement may be reduced.
3. Using the TSP to Combine Retirement Accounts
If you have a traditional IRA somewhere or a retirement account lurking around with an old employer, you can consolidate them into your TSP account and enjoy the benefits of the TSP’s low administrative costs and streamlined approach toward saving for retirement.
Even if you’ve left the government to work other places, you can still consolidate all your retirement accounts (except Roth IRA’s) into your TSP account.
Not all FERS employees are treated alike these days. Congress decided that all new Federal Employees and some rehires starting in 2013 would have to contribute more for the basic annuity than their colleagues.
Federal Employees who started working for the Federal Government before 2013 contribute .08% and these newer employees have to contribute 3.1%, an additional 2.3%.
A Federal Employee making $100,000 who began work on January 1, 2013, will pay $2,300 more per year than someone who was hired a day earlier.
Congress raised the contribution amount to 4.4% in 2014 for all new hires and some rehires. These employees have the moniker of FERS-FRAE. The “FRAE” stands for Further Revised Annuity Employees.
With new employees paying more than four times what their counterparts of two years earlier are paying for the same basic annuity accrual levels, it will be interesting to see what effect this will have on the Federal Government’s ability to attract high level candidates.
6. Catch-Up TSP Matching
The TSP is most often associated with FERS employees. FERS employees are those hired on or after January 1, 1984, or rehired Federal Employees who did not earn five years of creditable service by December 31, 1986.
But the TSP wasn’t put in place until 1987, so were the FERS employees who worked between 1984 and 1986 just out of luck?
Well, the government did give those employees a catch-up 1% match on any salary earned during that time. However, that doesn’t make up for the lost tax deductions on what could have been the employees’ contributions, the potential for an additional 4% match, or the tax-deferred growth in the TSP.
But who said life is fair?
Successful Retirement Isn’t Just About Luck
We’ve given you our 6 little-known facts about FERS retirement, but the truth is, a successful retirement isn’t just about luck. It‘s about being rational, reasoned, persistent, and diligent.
Being rational and reasoned means being willing to create a plan that looks for walks, singles, and the occasional double—not home runs. Boring can be good. Remember, Warren Buffett invested billions in a coffee and donut company.
Persistence means sticking to the plan, regardless of what the stock market does, what you want for Christmas, or where you want to go for vacation. Don’t divert from the plan to chase last year’s returns or reduce your diversification because of media hype on a new company.
Lastly, be diligent in monitoring your plan’s progress. Modifications may be needed, but remember to be rational and reasoned if you do need to make changes.
To help you stay on track and make good choices, we recommend speaking to a certified financial planner who specializes in federal employee retirement.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.