How much do you know about the federal retirement system? Chances are, not a whole lot. Here are 8 fun facts about the federal retirement system.
The federal retirement system is almost 100 years old.
An act in 1920 created a single mandatory retirement age of 70. Earlier retirement was not permitted except for disability, although in 1922 a retroactive provision was introduced allowing discontinued service retirement at age 55 with 15 years of service. No survivor annuity benefits were payable and for service of 30 years or more, the basic annuity was 60% of the final 10-year average salary, with a minimum benefit of $360 per year and a max of $720 per year. Of course, that wasn’t enough to live on.
Retirement views were different back then. Secretary of the National Association of Letter Carriers, Ed J. Cantwell had this to say, “One doesn’t stick to a job 30 years and then lightly give it up, particularly when retirement brings home the gaunt, ghostly fact that old age is close at hand and advancing with his inseparable companion, the grim reaper.”
Withdrawals from Traditional TSP accounts are taxed as ordinary income.
Traditional (as opposed to Roth) TSP withdrawals become part of your other income and taxed at ordinary federal rates. Also, be aware of the 10% tax penalty on early withdrawals if you’re resigning or taking early retirement before age 55.
People are working longer.
As of 2014, 23% of men and 15% of women age 65 and older were in the workforce and these numbers are only expected to rise. According to the Census Bureau, the nation’s 90 and older population has nearly tripled over the past 4 decades, reaching 1.9 million in 2010. Federal retirees should recognize the value of lifetime pensions and health insurance and weigh the value of lifetime survivor benefits that are adjusted for inflation.
There’s a 76% difference in the Social Security benefit when claimed at age 62 vs. 70.
If you delay your Social Security benefit until age 70, you can get $700-$1,000 in additional benefits. However, this only makes sense if most of the following are true:
- You are still working at age 62 and beyond.
- You live comfortably without claiming benefits early.
- There is enough investment income in your accounts to withdraw larger payments in your early retirement years while delaying Social Security.
- You have an average or above average life expectancy.
- You are the higher income earner of a married couple or the older spouse of a married couple.
There are more than 250 health plans in the Federal Employee Health Benefits Program.
There may be a ton of options but according to a 2017 Government Accountability Office report, 2/3 of all participants choose one of the 2 options under Blue Cross and Blue Shield Association Plans.
Federal Employee Group Life Insurance isn’t always the cheapest option, but the benefits it offers are important.
These include Basic and Option B benefits that increase as your basic pay rate does. It also follows you into retirement if you retire with an immediate annuity and you’ve had coverage for the 5 years leading into retirement.
Federal Employee Benefits don’t include disability insurance.
Sick leave and disability retirement provide for times when federal employees can’t work due to illness or disability. Federal employees earn 104 hours of sick leave per year. Those under FERS are eligible to apply for disability retirement after completing 18 months of service if diagnosed with a condition that prevents them from doing their job for at least a year.
If you think you may qualify for federal disability retirement, don’t hesitate to call us at 877-226-2723 or fill out this INQUIRY form. The consultation is always FREE.