Transcript Retirement Lessons FERS Law Enforcement

TAMMY FLANAGAN – FEDERAL BENEFITS SPECIALIST
PRESENTER
WRITER
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Mistake Mistake Mistake
#1
#2
#3
Avoiding risk
Believing
others who
know less
than you
Focus only on
accumulation
and not
distribution
Playing it too
safe
Who do you
trust?
No plan, but
cash out
anyway
https://www.youtube.com/user/TSP4gov
MISTAKE #1: AVOIDING RISK AND PLAYING IT TOO SAFE
More risk
and volatility,
higher
potential for
reward
•When do you want
to retire?
•How much income
will you have from
other sources?
•How much will you
depend on the TSP?
Less time to invest
and more money
needed to replace
income
More time to invest
and less money
needed to replace
income
RISK
Market Risk: C, S, I Funds
Interest Rate Risk: F Fund
Inflation Risk: G Fund
Longevity Risk: Withdrawal Choices
For a
Equities:
C, S, and I funds
are
essential
diversified
retirement
portfolio
(mix of investments)
The key to investing for
and during retirement
isn’t to avoid risk, but to
diversify it.
Due to rising life
expectancies,
retirement can last
30+ years
https://www.youtube.com/user/TSP4gov
https://www.youtube.com/user/TSP4gov
IS THIS A DO-IT-YOURSELF PROJECT?
OR
THIS IS A DO-IT-YOURSELF PROJECT!
MISTAKE #2: WHO CAN WE TRUST TO HELP US?
What is your
experience?
•CFP, CPA, RIA
•Fiduciary
How much do you
know about CSRS,
FERS and TSP?
How will I pay you for
your services?
What services do
you offer?
Can you provide
references?
Where is my money
invested?
How’s your record?
•CFP Board
•FINRA
•SEC
How often will we
interact?
Do I like you?
Time to move money
to G Fund (sell high)
Time to move money
from the G Fund
(buy high)
The C Fund
earned 11.89%
return over the
last 12 months
That’s great…I’ll
keep doing what I’m
doing
Time to rebalance
Time to move money
to G Fund (sell high)
Time to move money
from the G Fund
(buy high)
The C Fund
earned 11.89%
return over the
last 12 months
That’s great…I’ll
keep doing what I’m
doing
Time to rebalance
Month L Income L 2020 L 2030 L 2040 L 2050 G Fund F Fund C Fund S Fund I Fund
2014
Jun
0.58%
1.19%
1.52%
1.77%
1.96%
Jul
(0.26%)
(0.97%)
(1.34%)
(1.63%)
(1.86%)
Aug
0.84%
1.64%
2.07%
2.40%
2.61%
Sep
(0.42%)
(1.36%)
(1.84%)
(2.18%)
(2.50%)
Oct
0.61%
1.09%
1.36%
1.58%
Nov
0.55%
1.04%
1.27%
Dec
(0.04%)
(0.50%)
Jan
(0.08%)
Feb
0.19%
0.14%
4.45%
0.99%
0.19% (0.19%) (1.37%) (4.38%)
(1.95%)
0.20%
4.98%
(0.14%)
0.18% (0.58%) (1.40%) (5.10%)
(3.82%)
1.70%
0.20%
0.96%
2.45%
4.11%
(0.63%)
1.42%
1.55%
0.17%
0.74%
2.70%
1.33%
0.51%
(0.67%)
(0.76%)
(0.94%)
0.18%
0.21% (0.24%)
0.99%
(4.13%)
(0.58%)
(0.83%)
(1.02%)
(1.18%)
0.18%
2.13% (2.99%) (1.85%)
1.19%
1.19%
2.95%
3.80%
4.39%
4.99%
Mar
(0.07%)
(0.44%)
(0.58%)
(0.64%)
(0.76%)
Apr
0.37%
0.81%
0.95%
1.00%
1.16%
May
0.30%
0.50%
0.62%
0.72%
YTD
1.72%
3.25%
3.96%
4.43%
1.12%
2.07%
4.01%
2015
Last
12 mo
0.13% (0.91%)
5.75%
6.05%
5.97%
0.47% (1.57%)
1.24%
(1.43%)
0.15% (0.28%)
0.96% (1.50%)
4.11%
0.78%
0.17% (0.26%)
1.29%
1.84%
(0.42%)
4.97%
0.79%
3.26%
5.71%
9.59%
0.16%
1.13%
Move everything to
the G Fund
Evaluate my
retirement income
from all sources
I’m planning
to retire next
year, so I will
Consider my cash
flow needs
Call that guy from
the free lunch
seminar
Move everything to
the G Fund
Evaluate my
retirement income
from all sources
I’m planning
to retire next
year, so I will
Consider my cash
flow needs
Call that guy from
the free lunch
seminar
MISTAKE #3: FOCUS ONLY ON ACCUMULATION
How much of my income will come from…
• FERS/CSRS?
• Social Security?
• Other sources?
… at my
• 1st Eligibility for CSRS or FERS?
• 5 years later?
• Are there any other milestones?
HOW MUCH DO I NEED FROM
TSP TO REACH MY GOAL?
WHAT DO YOU NEED THE TSP TO DO FOR YOU?
Create
Income
•Monthly
Payment
•Annuity
As Needed
•Partial
Withdrawal
•Transfer to
IRA
A Little of
Both
•Mixed
Withdrawal
•Monthly
Payments
•Transfer to
IRA
•Annuity
THRIFT SAVINGS PLAN
Monthly
Payments
Life Expectancy
Specific Amount
Cash or Transfer
to IRA
Annuity
TSP
EXAMPLE OF PARTIAL WITHDRAWAL
$300,000 TSP
Withdraw $100,000
Transfer
$80,000 to IRA
Cash out
$20,000 to
you
$200,000
remains in TSP
EXAMPLE OF FULL WITHDRAWAL
$300,000 TSP
$100,000 keep in L Income Fund
/ withdraw $2,000 monthly
payment
Transfer
$1,000 to IRA
Transfer
$1,000 to
bank
$200,000
transfer to IRA
May change amount
REQUEST FOR PARTIAL WITHDRAWAL TSP-77
23
REQUEST FOR FULL WITHDRAWAL TSP-70
24
MONTHLY PAYMENTS
Age 50
• Retire
• TSP: $500,000
• Investment Return: 6%
Age 62
• Use $500,000
• Begin to withdraw $3,000 /
month
Age 90
• Balance: $0
MONTHLY PAYMENTS: LIFE EXPECTANCY
Age 50
• Retire
• TSP: $500,000
• Investment Return: 6%
Age 62
• Use $500,000
• Begin to withdraw $1,833 /
month ($22,000 / year)
Age 90
• $4,000 /month
• $48,000 / year
• Balance:
$543,203
MONTHLY PAYMENTS: ANNUITY
Age 50
• Retire
• TSP: $500,000
• Investment Return: 6%
Age 62
• Use $500,000
• Payments: $1,476 / month
• $17,712 / year
• Cash Refund / Increasing
Payments
Age 90
• $3,378 / month
• $40,536 / year
• Balance to
beneficiary: $0
6% Rate of Return
TSP RETIREMENT INCOME CALCULATORS
WWW.TSP.GOV
ONE MINUTE VIDEO
BONUS MISTAKE: FORGETTING ABOUT TAXES!
Taxable Accounts: usually 15% capital gains
• Investments (stocks, bonds, real estate)
Tax-deferred Accounts: ordinary income tax
• TSP, IRA’s, 401(k)
Most interest taxed at ordinary income tax
• CD’s, savings accounts, etc.
Pensions: ordinary income tax
• CSRS and FERS (small portion tax-free)
Social Security: It depends
Roth IRAs and Roth TSP: TAX FREE!
ORDINARY INCOME TAX: 2015 FEDERAL TAX BRACKETS
Rate
Single
Married (Joint Return)
10%
$0 - $9,225
$0 - $18,450
15%
$9,225 – $37,450
$18,450 - $74,900
25%
$37,450 - $90,750
$74,900 - $151,200
28%
$90,750 - $189,300
$151,200 - $230,450
33%
$189,300 - $411,500 $230,450 - $411,500
35%
$411,500 - $413,200 $411,500 - $464,850
39.6%
$413,200+
$464,850+
Other IRS Publications:
• Credit for the Elderly or
the Disabled
• Pension and Annuity
Income
• Contributions to
Individual Retirement
Arrangements (IRAs)
• Distributions from
Individual Retirement
Arrangements (IRAs)
• General Rule for
Pensions and Annuities
SOCIAL SECURITY MAY BE TAXABLE
Single
Under $25,000
$25,000-$34,000
Over $34,000
Married
Under $32,000
$32,000 - $44,000
Over $44,00
Tax-Free
50% taxable
85% taxable
Tax-Free
50% taxable
85% taxable
Provisional Income: adjusted gross + tax-free
interest + 50% of Social Security benefit
Kiplinger State by State Tax Guide/
Kiplinger State by State Tax Guide/
MARITAL STATUS
If you get married, get divorced, or
become widowed as a retiree, you
may need to change your:
Survivor benefit election for your retirement benefit.
Health insurance coverage.
Beneficiary designation forms for FEGLI, CSRS or FERS, and TSP.
Social Security benefits payable to your new spouse or from your
new spouse.
MARITAL CHANGES: CSRS AND FERS
Marry
Add survivor
benefits
Within 2
years of
marriage
Pay back to
when last
benefit
stopped (or
retirement)
Divorce
Election made
at retirement is
void
Divorce decree
determines
division of
retirement and
survivor
benefits
Widow
Elect to stop
reduction for
survivor
benefit
U.S. Office of
Personnel
Management
Retirement
Operations
Center
Post Office
Box 45
Boyers, PA
16017