critical mistakes



CRITICAL MISTAKES

FEDERAL EMPLOYEES MAKE brought to you by Federal Navigators FederalNavigators.com 301-990-8625

11 MISTAKES FEDERAL EMPLOYEES MAKE

INTRODUCTION As a federal employee it’s easy to become overwhelmed by your benefits. When faced with the mountain of options and all the fancy terminology, most choose to defer until tomorrow. The problem is tomorrow never seems to come and, before you know it, your retirement is here. Many mistakes and oversights are caused by putting off the learning process until the last minute and then rushing as retirement approaches. Some mistakes have greater consequences than others and many are irreversible.

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Having worked with thousands of federal employees, we have identified ! 11 most common mistakes we see federal employees make. But keep the in mind, there are many more potential mistakes to be made. This guide is a great introduction, but preparing for your retirement is going to take a little more time and commitment.

If you are not sure where to go next, we provide some great resources near the end of this guide. The information discussed in this guide, while researched and thought to be accurate, is subject to the various prospectus wording and contract language. You should consult with OPM, Human Resources and/or a qualified financial advisor as well as do your own due diligence before making any decisions. All decisions should be based on your specific situation.Securities offered through Securities Service Network, Inc., Member FINRA/ SIPC. Fee-based advisory services offered through SSN Advisory, Inc., a registered investment advisor.

“The bad news is time flies. The good news is you’re the pilot.” ― Michael Altshuler

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Underestimating Income Needs Many federal employees base their income needs for retirement on a general rule of thumb. This might not be the best approach considering the variety of unique factors that can effect one's retirement.

Instead of crossing your fingers and hoping for the best, we suggest you create a detailed financial plan or have a professional create one for you. Some of the important items your plan should address include: retirement spending goals, income sources, taxes, inflation, risk tolerance and life expectancy. A well thought out plan should seek to minimize anxiety and answer the following questions: 1. How much income do you really need in retirement? 2. How many predictable income sources does your strategy provide? 3. How do you determine if you will have a shortfall?

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For example, let's say you invest $3,500 a month into the TSP starting in January. By the end of May, you would have invested $17,500, and thus, maxed out your allowable contributions for the year. As a result, you would no longer be able to invest in the TSP until the next calender year.

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Maxing Out The TSP Early

Here is the kicker: if your salary was $100,000, the government normaly would match $5,000 that year, but they didn't because the match is calculated evenly throughout the year. The math would be $5,000 / 26 pay periods . In this example you would have received a total match of around $1,900 and lost out on over $3,000.

For FERS employees your Match is calculated each pay period. If you do not contribute during a pay period, you do not get your match. Currently, the max for TSP contributions in 2014 is $17,500. TIP

The best way for FERS employees to make sure they don't max out their TSP early is to divde the current year's maximum investment by 26 (number of pay periods). So, in 2014, the max you would invest per pay period is $673.

Some of the major advantages of the TSP include low fees, simplicity, and automatic contributions which allow for a mechanism to grow your retirement nest egg.

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Assuming TSP is Best After Retirment

The TSP is a great vehicle for the accumulation phase when you are building your nest egg. One of the main benefits is that the cost is VERY low. This vehicle should not be overlooked as part of your investment portfolio.

However, for some the TSP may not be the best fit for the retirement phase of their plan.

! A few things to conider about the TSP as you get closer to retirement... ! Limited Diversification: the TSP only has five funds you can invest in. ! Limited Withdrawal and Transfer Options. ! An IRA can be more efficient for Estate Planning. There is no adviser with your TSP.

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FORGETTING ABOUT FEGLI Option B increases in cost every five years. Relatively healthy employees should consider comparing their optional FEGLI with private life insurance company quotes.

We recommend federal employees keep their basic insurance. Currently 2/3 of the premium is subsidized by the federal government until retirement. Upon retirement you will have the option to elect a 75% reduction in coverage and the annual premium will be $0 from age 65 and on. Before shopping for an Option B replacement, take a moment to calculate how much coverage you actually need. If you do decide to replace your optional coverage, make sure your new policy is in force before dropping your Option B.

TIP Your PBA will help you detirme how much insurance you need and the accumluated cost.

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Not Designating A Beneficiary If no beneficiary is selected, your life insurance, retirement, and TSP will be paid in the pre-determined order of precedence. These forms are quick to fill out, afford you more control, and can make the process easier for your loved ones.

One Word Of Caution: If you do fill out the beneficiary forms, make sure you review regularly to make sure your situation hasn't changed. (For example: if you remarry, you may not want your ex to get all of your money any more.) Here are the forms you will need to designate your beneficiaries: 1. FEGLI Form: SF-2823 2. TSP Form: TSP 3 3.For lump sum retirement payout use form SF-2808 for CSRS and SF-3102 for FERS

FERS employees have the choice of 3 different survivor annuity options. You can choose...

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Neglecting Survivor Option

Tomorrow is not promised for any of us and making assumptions about when you will die can be a huge mistake. This is especially true if your assumption leaves the people you care about in a desperate situation.

1. Full Survivor Annuity - 50% of your pension 2.Reduced Survivor Annuity - 25% of your pension 3.No Survivor Annuity CSRS employees also have 3 options: 1. Full Survivor Annuity - 55% of your full pension 2. Reduced Survivor Annuity - 55% of a portion of your pension 3. No Survivor Annuity Make sure you keep enough survivor benefit to cover the cost of health care so that your widow(er) does not have to worry about making this payment every month. If you are married, you will need your spouse's written permission to choose anything other than the full survivor annuity IMPORTANT: You must choose a survior benefit for your spouse to remain covered on your health plan beyond your lifetime.

Think long and hard about the tax consequences before pulling a large lump sum of money out of any qualified account.

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You may not ever be able to recoup the loss that this creates.

Paying Debts With TSP

If you are under the age of 59 ½ you will also be subject to a 10% tax penalty.

Before cashing out your TSP, it's important to remember you have never paid taxes on this money and therefore, it will all be taxed as ordinary income.

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Consult with a financial professional to help you weigh the pros and cons before making a decision.

Here are some of the forms you may want to review: SF-50 – “Notification of Personnel Action” This form is to establish and reinstate federal employment. This form also lists grades, occupation, and pay;

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Failure To Review Records Employees should review their OPF (Official Personnel Folder). This file will verify and show validity of your federal employment for retirement and the computation of your CSRS or FERS annuities.

- Box 30 - Type of retirement coverage - CSRS, FERS, or none; Type of appointment - temporary, intermittent, WAE (When Actually Employed), part-time, career, or career conditional; - Box 31 - "Service Computation Date" (SCD) (usually accompanied by the word "leave" in parenthesis). This is the date you joined the Fed, but not necessarily the SCD that will be used to calculate your retirement. It is one of the two determining factors that will determine when you can retire and how much of a CSRS or FERS annuity you will receive. SF 2823 - “Designation of Beneficiary under FEGLI (The federal group life insurance); TSP-3 - “Designation of TSP Beneficiary” This form designates who will inherit your Thrift Savings Plan if you pass away; SF 2808 (CSRS) or 3102 (FERS) – “Designation of Beneficiary Civil Service Program” This form designates who will receive your contribution to the retirement system if you pass away before you receive the contributions back through benefits. This form was completed when you first began service; Health Insurance Benefits Registration Form DD214 - "Certificate of Release or Discharge from Active Duty", is a document of the United States Department of Defense, issued upon a military service member's retirement, separation or discharge from active-duty military service.

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Not Using VCP

If you are a CSRS Employee you may be able to use the voluntary contribution program to fund a Roth IRA with a large lump sum contribution of up to 10% of your career earnings. The typical income and contribution limitations do not apply to this transfer. This could be a good opportunity to shelter your non-qualified cash from taxes.

CSRS Employees have access to a special program called the "Voluntary Contribution Program". Note : There may be taxes on the deferred interest of the VCP money rolled to a

Roth IRA. You should consult with your tax advisor regarding the tax impact that this strategy may have

Here are just a few ways we have seen federal employees leave Social Security benefits on the table:

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Taking Benefits too Early to Maximize Payouts. Your benefits increases approx 8% betweeN ages 62 and 70. According to Social Security 74% of retirees take benefits before full retirement age (FRA). Not addressing the $15,120 earning limitation on Social Security prior to FRA.

Not Understanding Social Security

Married Couples Not Collecting Spousal Benefits. Applies to both the working and non-working spouse. Which is higher- your own retirement benefit or ½ of your spouse’s benefit?

The Social Security benefit system is somewhat complex and often misunderstood.

Not Using the FERS Social Security Supplement. Apples to those who reach their MRA and retire after 55, but before 62. CSRS Employees Not Collecting. Many CSRS employees do not understand the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO). Just because you are CSRS does not mean your social security will be $0. You may still be entitled to at least 1/3 of the Social Security you earned before you became a civil servant.

Furthermore, it is the responsibility of the retiree to understand what they are entitled to. The Social Security Administration will not volunteer benefits that are owed, but not requested. As a result, many federal employees leave money they are owed on the table.

Here are a few considerations when determining your retirement date: Consideration One: How does your retirement system calculate when your payments begin?

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Retire On The Wrong Day If you have the luxury of being flexible with your retirement date, it may make sense to try and pick a retirement date that will allow you to get more out of your benefits.

Under the FERS system, an employee must be off the rolls for an entire month in order to receive an annuity for that month. For example: A FERS employee who waits until November 3, 2012 to retire will receive their first annuity payment on or about January 1, 2013, and the payment will represent the December annuity. The employee is not entitled to any payment for November, as they were not off the rolls for the whole month. Under the CSRS system, an employee must be off the rolls no later than the 3rd of the month in order to receive any annuity for that month. A CSRS employee who waits until November 4, 2012 to retire will receive their first annuity payment on or about January 1, 2013, and the payment will represent the December annuity. The employee is not entitled to any payment for November, as they were not off the rolls by the end of the day on the 3rd of the month. Generally speaking it is best for CSRS employees to retire on the 3rd day of the month and FERS employees to retire on the last day of the month. Consideration Two: Annual leave. Any annual leave over 240 hours will be lost after the fiscal year, which is usually sometime around mid-January. However, if you retire before the end of the fiscal year, your annual leave will be paid out in a lump sum. If you have a lot of annual leave saved up, it is proably best to retire before the end of the fiscal year. Consideration Three: Your tax braket. It is not uncommon for someone to enter a lower tax bracket in retirement. If you think that might be the case for you, it may make sense to retire at the end of the year, so that your annual leave lump sum payment will potentially be taxed at a lower rate.

11 MISTAKES FEDERAL EMPLOYEES MAKE

This Barely Scratches The Surface Your benefit system is complex. However, you are beginning to see why understanding how it works is important. ... One wrong move could have major consequences that are sometimes irreversible. Below is a list of simple ways you can continue to add to your knowledge base in bite-sized easy to follow steps.

RESOURCES

CONSULTATION

We maintain a valuable list of free tools and resources on our website that we feel are more than worth your time. You can find it at www. http:// federalnavigators.com/tools/ Hint: You are going to want to bookmark this page so you can benefit from our new discoveries. ! Our most popular and valuable service is what we call the PBA (Personal Benefit Analysis). When you take us up on our free offer, you get a complimentary oneon-one consultation with one of our Federal Employee Benefit Consultants that will be custom tailored to your unique situation. Imagine your own personal retirement seminar that only focuses on the topics that are relevant to you and where you have the opportunity to ask as many questions as you would like. There is no cost, no pressure, and never any obligation to work with us. To request a PBA give us a call at 301-990-8625 and let us know you would like to schedule your free PBA or request your PBA online by visiting http://federalnavigators.com/request-a-free-pba/

11 Mistakes Federal Employees Make

ONE LAST THING… Getting a grip on your benefits and retirement is not something that can be accomplished over night. Think about it. Do you really think a 3 day seminar, jam packed with information, is really enough for you to get a handle on everything you might need to know about your benefits and retirement? Understanding your benefits is something that takes time and effort. But, in the end, the rewards are more often than not worth every ounce of effort. Don't forget to celebrate your victories along the way; for example taking the time to download and read this guide. Most don't even do that. Congrats!