Everything You Need To Know About Your Federal Retirement Package

By Jay Shareef ChFEBC℠ and Chris Rhoads ChFEBC℠

Federal employees have access to a host of unique retirement benefits. Part of our role as financial advisors is to help you understand the options available to you and put a plan in place to ensure that you get the most out of your package. 

Pension Annuity

Federal benefits vary depending on when you were hired; employees hired in 1984 or after are covered under the Federal Employees Retirement System (FERS). Employees hired before 1984 (and did not elect to roll their retirement over to FERS) are covered under the Civil Service Retirement System (CSRS). CSRS is no longer offered to new employees; as of 2018, there were only 108,000 active CSRS employees (vs. 2,585,000 active FERS employees). 

FERS employees have up to three retirement income streams: the pension annuity, TSP, and Social Security. CSRS employees do not receive Social Security benefits upon retirement, since they do not pay Social Security withholding taxes, but they do contribute at least 7% of their salaries and have paid higher amounts during some prior periods.

As I shared in a previous article, it is not necessarily advisable to retire as soon as you reach the minimum retirement age (MRA). You can increase your pension amount by staying active a little bit longer. This is particularly true if your salary has recently increased; your pension amount is based on the three highest-income years of your employment.

Thrift Savings Plan (TSP)

Most federal employees are eligible for TSP, which is similar in structure to a private sector 401(k) plan. Eligible employees receive a matching contribution equal to a maximum of 5% of their gross pay. The matching contribution includes an automatic 1% match (which does not require the employee to make a contribution). Like a 401(k) or IRA, the matching contribution provides additional income, and TSP can be set up with “traditional” (pre-tax) or Roth (after-tax) contributions, and you can also make a combination of both traditional and Roth contributions.

Medicare And Federal Employee Health Benefits (FEHB)

The FEHB program covers many of the same types of benefits offered by Medicare, but the expenses covered are not exactly the same. Most employees do not pay premiums for Medicare Part A, and retirees receiving FEHB may find that they do not have a need for Medicare Part D. FEHB is considered “creditable” coverage, so you can keep your FEHB plan without needing to enroll in Medicare and without incurring a penalty. However, if you lose or terminate FEHB coverage after turning 65, you will need to enroll in a Medicare program within 63 days or incur the late enrollment penalty.

Life Insurance

Eligible employees receive Federal Employee Group Life Insurance (FEGLI), and the basic plan is free. Additional options can be purchased at a low cost. FEGLI includes only term life with no whole life component (meaning that you do not build any equity or cash value over time). For this reason, many federal employees choose to purchase private insurance to supplement FEGLI as part of their retirement plan.

We Are Here To Help

We are extensively familiar with the various aspects of managing the different plans available as well as the challenges that come up. We are both Chartered Federal Employee Benefits Consultants℠ (ChFEBC℠) and are trained in both the FERS and CSRS retirement systems as well as general financial planning. If you need help navigating your federal retirement benefits, reach out to us at (301) 798-5250 or schedule a phone call now.

About Jay

Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at Certa Advisors. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. He holds the Chartered Federal Benefits consultant (ChFEBC℠) credential. To learn more about Jay, connect with him on LinkedIn.

About Chris

Chris Rhoads is a co-founder and vice president of Certa Advisors. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. He is a Chartered Federal Employee Benefits Consultant (ChFEBC℠) and he is currently pursuing the Chartered Financial Consultant® (ChFC®) designation through the American College of Financial Services. Chris has been married to his wife Tia since 2009 and they live in Frederick, MD together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes he cares passionately about. To learn more about Chris, connect with him on LinkedIn.

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