Maximizing Your Federal FERS Benefits Offered through: Colorado Federal Executive Board Presenter:...

Maximizing Your Federal FERS Benefits

Offered through:Colorado Federal Executive Board

Presenter: Ann Vanderslice

Securities offered through Allied Beacon Partners, Inc. Member FINRA/SIPC. Home office 1201 S. Highland Avenue #2, Clearwater, FL 33756 727-441-1616

Getting And Keeping Important Documents Together

What We Will Cover Today:

FERS Magic Numbers


When Can You Retire?


You’re Eligible to Retire – Now What?


How Much Will Your Pension Be?


If You’re Married, Should You Take Survivor Benefits?


What If You Become Disabled Before Retirement?


When Should You Take Social Security?


Do You Get Raises In Retirement?


What Are Your Choices In TSP While You’re Working?


Understanding The Impact Of Your TSP In Retirement


How To Choose The Best Health Plan For You And Your Family


Maximizing The Value Of The Flexible Spending Plan


How FEGLI Works For You


FLTCIP 2.0 – The Longest Acronym In Federal Benefits


Tax Implications While Working


Rules Of Thumb For Retirement Planning


What Are Your Investment Alternatives?


Understanding Diversification


How Do You Create Income From Your TSP In Retirement?


What Types Of Insurance Do You Need In Retirement?


What Else Do You Need To Pay Attention To?


Do You Really Need A Will (And All Those Other Documents)?


Important Documents

Certified Copy of Birth Certificate DD214 – Certifies Military Service SF-50’s – Official Personnel File Social Security Statement Marriage Certificate (if married) Divorce Decree (if divorced) Beneficiary Forms

Last Paycheck – SF 1152Thrift Savings Plan – TSP 3FEGLI – SF 2823Annuity (if single) - SF 3102 (FERS)

Most Common Reasons for Retirement Processing Delays• Part-time service is involved.

• Service has been refunded or a deposit for service is needed.

• Receipt of workers' compensation is indicated.

• Military retirement pay is involved.

• Unpaid military deposits are present.

• Excess leave without pay (defined as more than six months) is present on the record.

• The application includes unverified or missing service.

• The employees has elected an insurable interest (a survivor benefit option available under the Federal Employees Retirement System)

• No survivor election is made. (Remember- even if you are unmarried at the time or retirement, don't leave this section of the retirement application blank.)

• A court order for a divorce requires apportionment of the annuity.

• The submission by the agency is incomplete and is missing key data needed for calculating interim payments. According to OPM, 23 percent of all claims received are missing one or more records and 11 percent are not received during the first 30 days.

Ages35 = Free FEGLI begins to reduce from double

benefit

45 = Free FEGLI double benefit ends

55 = Earliest age to retire on unreduced annuity FEGLI premiums for Options A and B increase significantly Access to TSP without 10% excise penalty if you separate or retire

Magic Numbers

Ages59½ = Access to TSP Funds for one-time withdrawal

if still working Penalty-free access to IRA’s, 401(k)’s, etc.

62 = Earliest eligibility for Social Security benefits

65 = Eligible for Medicare

70 = Latest eligibility for Social Security benefits

70½ = Must begin taking at least minimum withdrawals from tax-qualified accounts (TSP, IRA’s)

Magic Numbers

Years of Service30 years – needed to qualify for unreduced annuity if

younger than age 60

5 years – least amount of years you can work and qualify for an annuity

Magic Numbers

Magic Numbers

$1,000,000

Savings Amount Needed At Retirement

Magic Numbers

Amount you need to save each year to have a comfortable supplement to your federal pension at retirement

Rule of Thumb – 10%

FERS

Employees hired after to 1/1/84 who did not have at least 5 years of service at 1/1/87

Contribute 7% of pay to: 6.2% to Social Security - 4.2% for 2012 .8% to FERS

FERS and FERS Transferee

FERS Transferee –

Employees hired before 1/1/84 Employees with at least 5 years of CSRS employment

who opted to go to FERS in 1987, 1988, or 1998

Rehired with at least 5 years of service under CSRS or CSRS Offset and chose to go to FERS Social Security benefits may be reduced for portion of annuity based on CSRS years

FERS and FERS Transferees

FERS - Retiring On an Immediate, Unreduced Annuity Age Years of Service MRA* 30

60 2062 5

Voluntary Early Out With Reduction - Age Years of Service MRA at least 10 years If you retire at the MRA with at least 10 but less than 30 years of service, your benefit will be reduced at the rate of 5/12ths of 1% for each month you are under age 62 (5% for each year) unless you have 20 years of service and your annuity begins at age 60 or later.Involuntary Early Out Without Reduction - VERA Age Years of Service 50 20 Any age 25 MRA = Minimum Retirement Age

FERS - Minimum Retirement Age If you were born Your FERS MRA is:

before 1948 55 in 1948 55 and 2 months in 1949 55 and 4 months in 1950 55 and 6 months in 1951 55 and 8 months in 1952 55 and 10 months in 1953 – 1964 56 in 1965 56 and 2 months in 1966 56 and 4 months in 1967 56 and 6 months in 1968 56 and 8 months in 1969 56 and 10 months 1970 or after 57

Best Dates to Retire The last day of the month End of a pay period

- Accrue sick and annual leave for that pay period Last day of the year

- Rollover maximum annual leave

- Receive COLA on payout of annual leave

- Pay taxes in new year

December 31, 2012 – Best of the Best

Best Dates to Retire –2012

January 31February 29March 31April 30May 31 (holiday!)June 30 (also end of pay period)July 31August 31September 30 October 31November 30December 31

Best Dates to Retire –2012

Years of Service Based on Retirement Service Computation Date

High 3 Average Salary

% Formula Based on Years of Service

Components to Calculate Federal Annuity

Retirement Service Computation Date

Based on time between appointment and separation where deductions are withheld. It includes:

Leave without pay (up to six months/calendar year) Part-time service prior to 4/7/1986

- Full credit for eligibility and annuity computation Part-time service on or after 4/7/1986

- Full credit for eligibility – prorated for annuity computation

Intermittent days worked (WAE 260-day year) Military service/Deposits/Re-deposits (SF 2803)

FERS - Buying Back Military Time To Add To Your Creditable Service

Employee Must Waive Active Military Retirement Pay

Make Deposit of 3% of Basic Pay + Interest = Credit for eligibility and annuity

Do Not Make Deposit = No credit for eligibility or annuity

Deposits

Prior to 1-1-1989:

Deposit Made = 100% for eligibility and annuity computation

Deposit Not Made = NO credit for eligibility or annuity computation

After 1-1-1989:

NO credit = Deposit is not allowed

Re-deposits

Contributions Not Refunded:

100% for eligibility and annuity computation

Contributions Refunded:

Re-deposit CAN be made to get 100% for eligibility and annuity computation

No re-deposit = time does not count

Part-time Service

Any part-time service prior to April 7, 1986 counts 100% toward eligibility and annuity calculation

Any part-time service after April 7, 1986 counts 100% toward eligibility but is prorated for annuity calculation

Annual Leave

Employee Type Less than 3 years of service*

3 years but less than 15 years of service*

15 or more years of service*

Full-time employees ½ day (4 hours) for each pay period

3/4 day (6 hours) for each pay period, except 1¼ day (10 hours) in last pay period

1 day (8 hours) for each pay period

Part-time employees**

1 hour of annual leave for each 20 hours in a pay status



Can carryover up to 240 hours of unused leave per year Paid out as lump sum for any unused hours at retirement

Sick Leave

Accrue 4 hour per pay period for sick leave.

FERS can include 50% of their sick leave in their creditable service for annuity calculation purposes only if they retire prior to 1/1/2014.

FERS can include 100% of their sick leave in their creditable service for annuity calculation purposes only if they retire after 1/1/2014.

1,194 Hours

Creditable Service Calculation Year Month Day

Planned Retirement Date ____ _______ ____

Retirement SCD ____ _______ ____

Creditable Service ____ _______ ____

Unused Sick Leave ____ _______ ____

Total Creditable Service ____ _______ ____

2012 12 31

1984 8 14

28 4 17

8 28

3 13

High 3 Average

Average of your base + locality pay over any 3 consecutive years of creditable service

Does NOT include:

BonusesOvertimeMilitary PayCash AwardsHoliday PayTravel Pay

High-3 Calculation Year Salary

2008 _____________

2009 _____________

2010 _____________

2011 _____________

2012 _____________

2013 _____________

2014 _____________

2015 _____________

2016 _____________

2017 _____________

74,025

76,91279,219

79,219

Add last three years together and divide by 3$79,219

79,219

1% X Years of Service X High 3 Average = Annual Annuity

At age 62+ with at least 20 years of service =

1.1% X Years of Service X High 3 Average = Annual Annuity

Calculating Your FERS Annuity

Annuity Calculation High-3 Average ________________

Creditable Service % ____________

= Annual Annuity ______________

/ 12 = Monthly Annuity _______

$79,219

.286667

$22,709

$1,892

Present Value - $488,695

Future Value = $956,699360 Time Periods - 30 years2.24% COLA

QuickTime™ and a decompressor

are needed to see this picture.

FERS - Survivor Benefits

Provides 25% or 50% of annuity at a cost of 5% or 10%

Available to: Current spouse Former spouse Insurable interest Minor children

MUST keep at least minimal survivor benefit to allow spouse to continue health benefits if employee passes away

FERS - Survivor Benefits

What happens if you die before you have a chance to retire?

With at least 18 months of creditable service – survivor receives: * Lump sum benefit of $30,792.98 (adjusted annually for inflation) PLUS * Half of the greater of your average high-3 or your current salaryAdditionally, with at least 10 years of creditable service: * 50% of your annuity calculated as of the date of your deathSocial Security and other survivor benefits are not affected by the lump sum payments.

IF you do not want to take the penalty associated with a Voluntary Early Out – you may defer your retirement to age 62 and then take the unreduced amount.

IF you have at least 20 years of creditable service, you may defer your retirement to age 60 and take the unreduced amount.

You must “suspend” your health benefits if you defer in order to pick them back up when you begin receiving retirement benefits.

Deferred Retirement

Disability Retirement

May earn up to 80% of fed pay in private sector job

Health and life insurance continue if previously insured for 5 years

Must have at least 18 months creditable service to apply

Employee (or agency, guardian, or interested person if incapacitated) must apply for benefits

Must apply for Social Security disability benefits

No longer able to perform in your position and not qualified for any other position in same location at same grade/pay

Disability Retirement

1st Year – 60% of High-3 average salary less any benefits received from Social Security

2nd Year – 40% of High-3 average less 60% of any benefits received from Social Security

Benefit recomputed at age 62 with credit for years between disability retirement and age 62

Benefits are calculated as follows:

3 Components of FERS Retirement

- FERS annuity

- Social Security

- TSP

Because Social Security is not available until age 62a Supplement is available for those who retire at theirMRA with 30 years or age 60 with 20 years of service

FERS Supplement and Social Security

Supplement is calculated based on:

Years of FERS Service* Social Security Benefit

40 X at age 62

Subject to Social Security earnings test for wages - $14,160

* Military buy-back time will be deducted from equation

FERS Supplement and Social Security

Become eligible by earning 40 “credits”

Receive full benefits based on year you were born

Social Security Benefits

Birth Year Full Benefits Birth Year Full Benefits

1937 65 1943-1954 66

1938 65 + 2 mos 1955 66 + 2 mos

1939 65 + 4 mos 1956 66 + 4 mos

1940 65 + 6 mos 1957 66 + 6 mos

1941 65 + 8 mos 1958 66 + 8 mos

1942 65 + 10 mos 1959 66 + 10 mos

1960 + 67

Other members of your family may receive benefits based on your work history:

Spouse: 50% of yours or 100% of their own (whichever is higher)

Child (up to age 18): 50%

Former spouse:

- Married at least 10 years

- Age 62


Your survivors may also be eligible to receive benefits on your work history:

Spouse you’ve been married to for at least 9 months who is age 60 or older

Child under age 18 (19 if still in school) or any age if disabled before age 18

Former spouse you were married to for at least 10 years


By delaying taking Social Security until your full retirement age, you can increase your benefits by 20% - 30%. You’ll get an additional 20% for waiting until age 70.

You can also begin taking benefits and use a Social Security option that lets you repay those benefits at an older age and begin receiving the higher amount!


Benefits are based on Average Indexed Monthly Earnings “AIME”

Formula for calculating your benefits:

90% of first $767 AIME Plus

32% of AIME from $767-$4,624 Plus

15% of AIME over $4,624

Earnings limit before full retirement age = $14,640*(For every $2 over you give back $1)

Year of full retirement age = $38,880*(For every $3 over you give back $1)


* 2012 Limits

The Windfall Elimination Provision was enacted in 1986 to cause people eligible for both a pension based on non-covered employment (e.g., CSRS, CSRS Offset and FERS Transferees employees) and Social Security to have their Social Security calculated using a different formula.

The main exclusion is for workers with more than 30 years of substantial earnings under Social Security.

Social Security Benefits and Your Federal Annuity

Substantial Earnings Years Replacement Factor30 years 90%29 years 85%28 years 80%27 years 75%26 years 70%25 years 65%24 years 60%23 years 55%22 years 50%21 years 45%20 years 40%

Windfall Elimination Provision

If you can’t have your own Social Security benefit – can you get your spouse’s?

To determine eligibility, subtract 2/3 of government pension from spouse’s Social Security benefit. If the answer is greater than zero, you are eligible for that benefit.

Government Pension Offset

Spouse’s Social Security Benefit $1,340

Your Federal Annuity Benefit ($3,000)x .66% ($1,980)

($ 640)

You are eligible for…………. 0

Government Pension Offset

Cost of Living Adjustments

http://www.ifpte.org/calculator/

On $96,001 salary frozen for 2 years you would lose $90,505 over 20 years

On $96,001 salary frozen for 3 years you would lose $131,617 over 20 years

AND

Your High 3 would be $5,432 lower w/2 year frozen salary and annuity would be $1,629/year less

Your High 3 would be $8,068 lower w/3 year frozen salary and annuity would be $2,420/year less

What impact does a pay freeze have on your current and future income?

http://www.ifpte.org/calculator/

Cost of Living Adjustments

% Increase of CPI as follows:0%-2% Actual CPI % Increase2%-3% 2%Over 3% CPI increase less 1%

Effective December 1/appears on January 1 annuity payment

Prorated if you retire in middle of year

Do NOT receive COLA until age 62

2009 COLA = 4.8% 2010 COLA = 0% 2011 COLA = 0% 2012 COLA = 2.6%

Prior to retirement based on amount approved in legislation by Congress each year. After retirement:

A Short History of the TSP

Implemented in January 1988

S and I Funds added in May 2001

Everyone could participate up to IRS limits in 2005

Largest defined contribution plan in the US with $290* Billion in assets, ~4.5 million participants with 85.5% of FERS employees participating

1988 - 1999 average annual return was 19.4%

2000 - 2009 average annual return was (.94%) * as of 12/31/2011

What’s New With TSP

Four new provisions in Tobacco Act of 2009:

• Creation of Roth TSP - May 7 rollout

Automatic enrollment for new federal employees

New survivorship options • Option to create mutual fund choices for investment

NEW www.tsp.gov website is UP!

http://www.tsp.gov/

What’s New With TSPThe treatment of... Traditional TSP Roth TSP

Contributions Pre-tax After tax

Your paycheck Taxes are deferred, so less taken out of your paycheck

Taxes are paid upfront, so more money comes out of your paycheck

Transfers in Transfers allowed from eligible employer plans and traditional IRAs

Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s

Transfers out Transfers allowed to eligible employer plans, traditional IRAs and Roth IRAs

Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs

Withdrawals Taxable when withdrawn Tax free earnings if 5 years have passed since January 1 of the year you made your first Roth contribution AND you are age 59 1/2 or older

TSP Options While You’re Working

• Amount of Contributions• Allocation• How Much You Borrow• Withdrawals After Age 59 ½

Thrift Savings Plan

2012 Contribution Limits –

$17,000 – under age 50

+$ 5,500 – catch-up contributions age 50 or better

$22,500 TOTAL 2012

5% Match – FERS and FERS Transferees

Accessing Your TSP Account

You will need:

13-digit Account Number Issued by TSP

PIN Number Issued by TSP

You may customize your User ID by logging on to TSP website:

Can change both your sign-on and your password

Thrift Savings Plan

G Fund – Offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of

loss of principal and very little volatility of earnings. The G Fund is invested in short-term U.S. Treasury securities

specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no “credit risk.”

The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with

4 or more years to maturity. Earnings consist entirely of interest income on the securities. Interest on G Fund securities has, over time, outpaced inflation and

90-day T-bills.

Thrift Savings Plan

F Fund – Offers the opportunity to earn rates of return that exceed those of

money market funds over the long term with relatively low risk. The objective of the F Fund is to match the performance of the

Barclays Capital U.S. Aggregate Index, a broad index representing the U.S. bond market.

• The risk of nonpayment of interest or principal (credit risk) is relatively low because the fund includes only investment-grade securities and is broadly diversified. However, the F Fund has market risk (the risk that the value of the underlying securities will decline) and prepayment risk (the risk that the security will be repaid before it matures).

• Earnings consist of interest income on the securities and gains (or losses) in the value of securities.

Thrift Savings Plan

C Fund – Offers the opportunity to earn a potentially high investment return over the long term from a broadly diversified portfolio of

stocks of large and medium-sized U.S. companies. The objective of the C Fund is to match the performance of the

Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies.

There is a risk of loss if the S&P 500 Index declines in response to changes in overall economic conditions (market risk).

Earnings consist of gains (or losses) in the prices of stocks, and dividend income.

Thrift Savings Plan

S Fund – Offers the opportunity to earn a potentially high investment return

over the long term by investing in the stocks of small and medium-sized U.S. companies.

The objective of the S Fund is to match the performance of the Dow Jones Wilshire 4500 Completion (DJW 4500) Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.

There is a risk of loss if the DJW 4500 Index declines in response to changes in overall economic conditions (market risk).

Earnings consist of gains (or losses) in the prices of stocks, and dividend income.

Thrift Savings Plan

I Fund – Offers the opportunity to earn a potentially high investment return

over the long term by investing in the stocks of companies in developed countries outside the United States.

The objective of the I Fund is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.

There is a risk of loss if the EAFE Index declines in response to changes in overall economic conditions (market risk) or in response to increases in the value of the U.S. dollar (currency risk).

Earnings consist of gains (or losses) in the prices of stocks, currency changes relative to the U.S. dollar, and dividend income.

Thrift Savings Plan - Funds

Lifecycle Funds - The L Funds provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your “time horizon” is the date (after you leave Federal service) that you think you will need the money in your TSP account.

• The five L Funds were designed for the TSP by Mercer Investment Consulting, Inc. The asset allocations are based on Mercer’s assumptions regarding future investment returns, inflation, economic growth, and interest rates.• The L Funds are rebalanced to their target allocations each business day.• When a fund reaches its horizon, it will roll into the L Income Fund, and a new fund will be added with a more distant time horizon• Putting your entire TSP account into one of the L Funds allows you to achieve the best expected return for the amount of expected risk that is appropriate for your time horizon.

http://www.tsp.gov/lifecycle/flash/index2030.html


L2040 L2020L2030L2050 L Income

G Fund – 74%F Fund - 6%C Fund - 12%S Fund - 3%I Fund - 5%

G Fund – 3.83%F Fund - 7.67%C Fund - 43.4%S Fund - 18.7%I Fund - 26.4%




Allocations as of April 2012





http://www.tsp.gov/lifecycle/flash/indexincome.html

Year G Fund F Fund C Fund S Fund* I Fund*

2002 5.00% 10.27% (22.05%) (18.14%) (15.98%)

2003 4.11% 4.11% 28.54% 42.92% 37.94%

2004 4.30% 4.30% 10.82% 18.03% 20.00%

2005 4.49% 2.40% 4.96% 10.45% 13.63%

2006 4.93% 4.40% 15.79% 15.30% 26.32%

2007 4.87% 7.09% 5.54% 5.49% 11.43%

2008 3.75% 5.45% (36.99%) (38.32%) (42.43%)

2009 2.97% 5.99% 26.68% 34.85% 30.04%

2010 2.81% 6.71% 15.07% 29.06% 7.94%

2011 2.45% 7.89% 2.11% (3.38%) 11.81%)

10-yr Avg 3.96% 5.84% 2.94% 6.76% 4.72%

10-year Average Returns

G Fund - .39%

F Fund - .32%

C Fund - 12.63%

S Fund - 14.45%

I Fund - 10.91%

L Income-2.72%

L 2020 - 6.93%

L 2030 - 8.58%

L 2040 - 9.85%

L 2050 - 11.08%

Year-to Date Returns as of 3/31/12

Allocating Your TSP In Volatile Markets

Allowed 2 Inter-fund Transfers per Month

Can Move Funds into the G Fund in Addition to the Inter-Fund Transfers

Allocating Your TSP In Volatile Markets

Considerations:

Assessing Your Tolerance for Risk http://moneycentral.msn.com/investor/calcs/n_riskq/main.aspPast Performance Look at historical returns on www.tsp.gov Periodic Updates from TSP Go to www.tsp.gov and Click on “Get e-mail updates” Click on the icon to subscribe and you’ll receive automatic updates by e-mail from TSP

Outside Resources

http://www.tsp.gov/

http://www.tsp.gov/

Projected incomefrom current balance as if youwere 62 shown onback of statement

Thrift Savings Plan - Fees

2011 Expense Fees = .025%

Use low-cost index funds

Keep it simple – only five funds available

Huge economies of scale – competitive procurement

Use commingled trust funds instead of individual accounts

- Only invest one amount per fund each day

- Individual accounts are maintained in TSP

Tips for Maximizing Your TSP

Don’t contribute too much too soon each year if you are under FERS

Develop a strategy/plan for monitoring your funds What’s the overall state of the economy What are you willing to risk How does your current allocation fit your retirement

plan If you have had a loss, what’s your recovery plan

TSP Loans Two Types of TSP Loans – May have one of each

General – 1-5 years to repay – No documentationResidential – 1-15 years to repay – Documentation

Apply Online or Paper Application (TSP-20) Current Interest Rate – 1.875% Amounts You Can Borrow

Must borrow at least $1,00050% of current vested balance up to $50,000

After Repaying Loan Must Wait 60 Days to Borrow Again

TSP Loans

Risks – Loan payments may cause you to contribute less to

your TSP If your TSP earns a higher return than the loan interest

rate, there will be less in TSP Residential loans are not considered mortgages and

interest is not deductible on tax return Your loan is paid back with after-tax dollars

Creating Income From Your TSP in Retirement

Two Chances to Take Distributions at Retirement -

Partial withdrawal using Form TSP-77 Full withdrawal using Form TSP-70

OR

Create an immediate annuity through TSP (Met Life) Current Rate = 2.125%

Form TSP -3 to Name Beneficiaries If no TSP-3 on file at death, TSP is distributed according to Order of Precedence

* To widow or widower * If none, to child or children equally and to descendants of deceased children by representation * If none, to parents equally or to the surviving parent

Beneficiary Designations

Health Insurance - FEHB

While employed, premiums are paid using premium conversion provision – paid with pre-tax dollars. Retirees cannot participate in premium conversion.

FEHB continues into retirement if you :

Were insured on your retirement date

Retired on an immediate annuity*

Were enrolled or covered as a family member for the 5 years immediately preceding retirement or since first opportunity to enroll

* May suspend benefits if deferring retirement annuity


Choosing Your Plan

Health Maintenance Organization “HMO” – Choose a primary care physician (PCP) from a list of member physicians. The PCP provides general medical care and must provide a referral to see a specialist (who must also be part of the HMO).

No coverage for out-of-network care (except emergencies)

Typically, no deductibles but members often pay a co-payment for care.


Choosing Your Plan

Preferred Provider Organization “PPO” –

Do not choose a primary care physician and can refer themselves to specialists.

Do not have to stay within network, but there is a financial incentive to do so.

Typically, deductibles are required before benefits begin and can also include co-payments that are larger than HMOs.


Choosing Your Plan

Fee-for-service “FFS” –

You go to the doctor or hospital of your choice

You (or your doctor or hospital) submit a claim to your insurance company for reimbursement

You will only receive reimbursement for the "covered" medical expenses listed in your policy, typically at 80% of reasonable and customary


Choosing Your Plan

Traditional Plan –

For people with more significant, on-going medical issues

Anticipate multiple visits with specialists

Ongoing prescription needs

Often includes higher premiums but lower deductibles or co-pays

Has annual out-of-pocket limits


Choosing Your Plan

Consumer Driven Health Plan –

For generally healthy with minor, ongoing medical issues, e.g., allergies or acid reflux

Need few specialist visits annually

Few ongoing prescription needs

Typically includes set account you can rollover each year if you don’t use

Lower premiums than traditional plans and has maximum annual out-of-pocket limits


Choosing Your Plan

High Deductible Health Plan –

No known medical issues

Routine visits to doctor, e.g., flu or broken arm

No ongoing prescription medications

Includes Health Savings Account that can be rolled over from year-to-year

Lower premiums than traditional or consumer-driven plans and has maximum annual out-of-pocket limits


Choosing Your Plan

High Deductible Health Plan “HDHP” –

Intended to cover serious illness or injury. Includes some preventative care.

Includes HSA or HRA

Minimum deductibles of $1,100 (self) or $2,200 (self + family)

Deductible must be paid before any benefits paid

Higher out-of-pocket limits

HSA and HRA can build savings for future medical expenses


Choosing Your Plan

Health Savings Account “HSA” –

Must be enrolled in HDHP to have one

Tax-advantaged savings for future medical expenses

You own account you can use to pay qualified medical expenses for you and your dependents

Account grows “tax-free” to be used for qualified medical expenses


HSA Funding –

Can contribute up to your deductible annually through premium pass-through and your own contributions

HSA Eligibility –

You must enroll in HDHP first

Can’t participate if you are;Enrolled in MedicareCovered by non-OPM health planEnrolled in FSA (except for dental and vision)Covered by Tri-Care or TFL

Flexible Savings Account - FSA

You can set aside up to $5,000/year in pre-tax dollars to pay for medical costs, deductibles, co-pays, etc.

You can set aside up to $5,000/year in pre-tax dollars to pay for dependent care including elder care

Must use it or lose it by March 15 of the following year

Enroll during FEHB open season – employees only

www.fsafeds.com

http://www.fsafeds.com/

FEDVIP – Dental and Vision Program

Available to current and retired federal and postal workers and eligible family members

Purchased on a group basis but employee pays entire premium

Pre-existing conditions are included in coverage

Premiums are paid on a pre-tax basis

You can enroll in either or both during FEHB Open Season

Do not have to be in FEHB to enroll (but must be eligible

www.fedvip.com

http://www.fedvip.com/

Medicare

Part A – HospitalizationDeductible - $1,068* Pay 1.45% of pay while workingFree at age 65 as long as you qualify for Social Security with 40 credits

Part B – Medical ExpensesDeductible $135* +20% after deductiblePay $115.40/mo* with MAGI under $85,000Pay $308.30/mo* with MAGI over $85,000

Part D – Prescription Drug Plan

Medicare

Enrollment:

Age 65 – Part A - within 7-month window of birthdatePart B – within 7-month window of birthdate if retired otherwise within 8 months after retirement

General enrollment is from January 1 to March 31 each year. Penalty for not enrolling “on time” is 10% for each 12 months late.

Medicare

Do I need Part B?

Most federal employees use their FEHB as a Part B replacement. You can have both, but you will be paying not only your portion of the FEHB but the Medicare premiums, as well.

Medicare becomes the primary payor and your FEHB acts as a supplement in this case.

FEGLI

Basic coverage – Current salary rounded to the nearest thousand + $2,000Costs .15/thousand = employee shareFederal government picks up 1/3 of premium

Option A - $10,000Must have Basic coverage to participateCosts increase from $.30 - $6.00 from age 35 to age 60

Option B – Current salary rounded to the nearest thousand in multiples from 1-5Must have Basic coverage to participate Costs increase dramatically at age 55 and beyond

FEGLI

Age BandPremium/

$1000/Month

*NEW Premium/$10

00/Month

For persons ages 35 and under $0.065 $0.043

For persons ages 35 through 39 $0.087 $0.065









For persons ages 80 & Over $5.20 $5.20

FEGLI

Option C– For spouse and minor childrenSpouse = $5,000 in multiples of 1-5Children - = $2,500 in multiples of 1-5Children covered until age 22 unless disabled

Costs increase from $.27 to $3.00 from age 35 to age 60In retirement – you choose how much of the benefits to

keep.

FEGLI

At retirement, most federal employees choose to keep their Basic coverage with a 75% reduction and eliminate their other coverages. This reduces or eliminates the cost at age 65.

To compare coverage and premiums:

www.opm.gov/calculator/worksheet.asp

http://www.opm.gov/calculator/worksheet.asp

Original coverage was established in 2002 as a partnership between John Hancock and MetLife – managed by LTC Partners

John Hancock awarded next 7-year contract beginning October 1, 2009 – still managed by LTC Partners

FLTCIP 2.0Federal Long-term Care

Long-term Care Insurance

You make four choices in creating your coverage: How much? $100 - $500/day How long? 2 years, 3 years, 5 years or lifetime Inflation? 4% compound, 5% compound or future

purchase Deductible? 90 days

Long-term Care Insurance All tax-qualified plans: Pay non-taxable benefits directly to you Start payments when you cannot perform 2 out of 6

activities of daily living (certified by your physician) or cognitive impairment

Provide for the deductibility of premium payments under certain conditions

To calculate premiums or apply for coverage:www.ltcfeds.com

http://www.ltcfeds.com/

Taxes While Working

Your current W-4 dictates withholding from your salary Contributions to Thrift Savings Plan reduce taxable

income Unused annual leave is paid in a lump sum and taxed at

the higher lump sum rates (currently ~40%!)

Rules of Thumb to Consider

70% - 80% of your pre-retirement income is required to maintain your standard of living in retirement

Your retirement savings should be allocated more conservatively as you move into retirement

Investment returns need to outpace taxes and inflation

Retirement Concerns in America

• Another market downturn• The demise of pension plans• Keeping up with healthcare costs• Taxes may take too much of retirement plans and IRA’s

Emotion Taxes Inflation Volatility

Barriers to Growing and Keeping Your Money

Buy

Optimism

Sell

Excitement

Thrill

Euphoria

Anxiety

Denial

Fear

Desperation

PanicCapitulation

DespondencyDepression

Hope

Relief

Optimism

Emotion vs. Logic – The Cycle of Market Emotions

No Market Risk

Cash CDsFixed

Annuities

Fixed Index

Annuities

5% to 8% guaranteed growth

for income benefit

3.15% for 5 years

$20,000 to $50,000 in bank type

accounts

Some Risk

BondsREITs(non-

traded)

5%

5% to 7% DividendCapital Gains

Interest risk

Most Risk

Variable Annuitie

s

Mutual Funds

Stocks & ETFs

VentureCapital

1% to 2%

fees2% to 3%

fees

8.4% average*

Fees

2.50%

1.25%

0.25%

0.25%

5.00%

VA Fees

0.75%

Why Does Wall Street Exist?

1. Allocate capital to deserving new businesses and technologies (and some undeserving ones, as well).

2. Capital markets are a major contributor to our economy and society.

Is It Still Okay to Mistrust Wall Street?

1. Reckless with leverage

2. Required taxpayer funded bailouts

3. Want less regulation - not more

Wall Street told us to:

1. Be a long term investor.

2. If you are willing to take higher risk, over time you will be rewarded with a higher return.

135

135

Market Index Stayed Fully

Invested

Best 10 Days

Missed

Best 20 Days

Missed

Best 30 Days

Missed

Best 40 Days

Missed

U.S. S&P 500 Composite

8.18% 4.83% 2.26% 0.02% -1.87%

Past Performance is no guarantee of future results. The table is for illustrative purposes only, and the rates of return are not representative of any portfolio or security. Please remember that each asset class has its own unique risks and potential for rewards. Indexes referenced in the table do not include reinvestment of dividends, are unmanaged and not available for direct investment.


15-year time period 1/1/1995 - 12/31/2009

18-22Single

22-30YoungMarried

31-42YoungFamily

46-50Family,College

Kids

50+Empty

Nesters60+

Retired

Change in Spending at each Age & Stage of Life

The bigger picture…

Source: H.S. Dent Foundation

Baby Boomers Are Not Different

Front end of Boomer generation began retiring in 2003.

Wave continues through 2025.

Spending STILL PEAKS between the ages of 48-50.

The bigger picture…

MISSING THE WORST –

The average total return for the S&P 500 over the last 25 years (i.e., 1984-2008) is +9.8% per year.

If you missed the 25 worst percentage gains days in those 25 years (i.e., 25 days in total, not 25 days per year), your average total return increases to +17.8% per year.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the US stock market (source: BTN Research).



Indices are unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results.

RISK

Source: Morningstar. Morningstar Categories presented are for illustrative purposes only and are not indicative of the performance of any particular investment. They are not investment vehicles available for purchase.


Indices are unmanaged and cannot accommodate direct investments. Past performance is not indicative of future results.

The S&P 500 is an unmanaged index which measures broad based changes in stock-market conditions based on the average performance of 500 widely held common stocks. The S&P 500 does not represent the performance of an investment option. This index is not available for direct investment.

A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Diversification strives to smooth out unsystematic risk events in a portfolio so that the positive performance of some investments will neutralize the negative performance of others. Therefore, the benefits of diversification will hold only if the securities in the portfolio are not perfectly correlated.

A New Definition of Diversification

Correlation measures how closely related your various investments are related to a benchmark.


http://bloggersiva.files.wordpress.com/2008/05/its-86.jpg


2008

G Fund

F Fund

C Fund

S Fund

I Fund

147

September 2000-September 2002September 2000-September 2002

$100,000

$55,270$55,270

+81%

The S&P 500 is an unmanaged measure of market conditions that is not available for direct investment. Past performance cannot guarantee future results.

105.13%

October 2002-September 2007October 2002-

September 2007

-44.73% -50.95%

October 2007-February 2009October 2007-February 2009

March 2009May 2011

March 2009May 2011

$115,170$115,170

$56,490$56,490

$108,330$108,330

+101.8%

91.77%

+8.3% Cumulative ReturnOver the last 10 Years

+8.3% Cumulative ReturnOver the last 10 Years

-44.73%

September 2000September 2002

October 2006

$100,000

$55,270

+81%

$500 Monthly

Distribution$12,500$42,770

+133% Return+133% Return

Meet David Walker

Served as the 7th Comptroller General of the United States and

head of the Government Accountability Office (GAO) from 1998 to 2008

Walker left the GAO to head the Peterson Foundation on March 12, 2008

QuickTime™ and a decompressor

are needed to see this picture.

Taxes in the Future

Affect your income in retirement

Even if you’re earning less – you may still be in a higher tax bracket

Tax rates aren’t in your control – how you plan is

Two Key Factors Are:

Historical Data Private and Public Debt

One Hundred Dollars$100 – Most counterfeited money denomination in the world.

Keeps the world moving.

http://usdebt.kleptocracy.us/ Source: Federal Reserve & www.USdebtclock.org

http://usdebt.kleptocracy.us/

Ten Thousand Dollars$10,000 – Enough for a great vacation or to buy a used car.Approximately one year of work for the average human on earth.



One Million Dollars$1,000,000 – Not as big of a pile as you thought, huh?Still this is 92 years of work for the average human on earth.



One Hundred Million Dollars$100,000,000 – Plenty to go around for everyone.Fits nicely on an ISO / Military standard sized pallet.



One Billion Dollars$1,000,000,000 – You will need some help when robbing

the bank. Now we are getting serious!



One Trillion Dollars$1,000,000,000,000 – If you spent $1 million a day since Jesus

was born, you would have not spent $1 trillion by now.



One Trillion Dollars$1,000,000,000,000 – Compared to a standard sized

American Football field, European Football field & Boeing 747.



15 Trillion Dollars$15,000,000,000,000 – Unless the U.S. government fixes the budget, U.S. national debt (credit card bill) will topple 15 trillion by Christmas 2011.



114.5 Trillion Dollars

$114,500,000,000,000 U.S. Unfunded

Liabilities

(Medicare, Medicaid, Medicare Prescription Drugs, Social Security, Military & Civil Servant Pensions)

http://usdebt.kleptocracy.us/ Source: Federal Reserve &

www.USdebtclock.org


The Future of Tax Rates

Where do you think tax rates are headed in the future?

1) Increase 2) Decrease 3) Stay the same

Top Federal Tax Rates 1913 - 2009

Source: Tax Foundation – www.taxfoundation.com and H.S. Dent Foundation

http://www.taxfoundation.com/

Married filing jointly

Source: Tax Foundation, 2005; CCH, 2009

2012 Marginal Income Tax Rates

$0 - $17,400 10%$17,400 - $70,700 15%$70,701 - $142,700 25%$142,701 - $217,450 28%$ 217,451 - $388,350 33%$ 388,351- and over 35%

Married filing jointly

Source: Tax Foundation, 2005; CCH, 2009

Marginal Income Tax Rates (after Bush tax cuts expire)

$0 - $43,850 15%$43,850 -$105,950 28%$105,950 - $161,450 31%$161,450 - $288,350 36% $ 288,350+ 39.6%

http://wheredidmytaxdollarsgo.com/

http://wheredidmytaxdollarsgo.com/

Examples of Investments Going In Growth Going Out

Option #1• Checking Accounts• Savings Accounts• Money Market Accounts• Mutual Funds• Certain Stocks That Pay Dividends• Certificates of Deposit (CD’s)

Taxed Taxed Taxed

Option #2• Stocks• Non-qualified Annuities• UIT’s

Taxed Tax-deferred Taxed

Option #3

• 401(k) Plans• Thrift Savings Plan• Qualified Annuities• Traditional IRA’s• SEP IRA’s

Pre-tax Tax-deferred Taxed

Option #4

• Roth IRA’s• VUL’s• Municipal Tax-free Bonds

Taxed Tax-deferred Tax-free

Taxes In Retirement

At retirement, you will complete a new W-4P for withholding from your federal annuity

You will need to get your state form for withholding – not included in OPM package

In Colorado – federal annuities are exempt from state tax up to $20,000 ($24,000 after age 65)

Unused annual leave is paid in a lump sum and taxed at the higher lump sum rates

http://apps.opm.gov/tax_calc/index.cfm

How much of your annuity will be tax-free as a refund of your contributions?

http://apps.opm.gov/tax_calc/index.cfm

Taxes In RetirementWhat about Social Security?Depending on your income a portion of your Social Security income may be taxed, as well.Single filers:AGI $25,000-$35,000 – 50% benefit taxedAGI $35,000+ - 85% of benefit taxed

Joint filers:AGI $32,000-$44,000 – 50% benefit taxedAGI $44,000+ - 85% of benefit taxed

Only 50% of your Social Security benefit counts in computing your AGI

Taxes In Retirement

What about Thrift Savings?

Taxed as ordinary income when withdrawn

No penalty if you:

Separate or retire when you reach age 55 or better

Retire on disability retirement

Take monthly payments based on your life expectancy

Taxes

What can you do to insulate your assets from future taxes?

Three ways to get tax-free income:

Municipal bonds

Roth IRA

Permanent life insurance

Who Can Contribute To a Roth IRA?

Income Limits on Eligibility to Contribute for 2012: Based on Adjusted Gross Income Married Filing Jointly: $173,000 - $183,000 Single: $110,000 - $125,000

NO Income Limits on Eligibility to Convert for 2012

Roth IRA

If eligible, 2012 Contribution Limits –

$5,000 – under age 50

+$ 1,000 – catch-up contributions age 50 or better

No Tax Deduction

Tax-free When Withdrawn

Three Credit Bureaus

ExperianEquifaxTransUnion

How Can I Find Out My Score?

www.mycreditreport.comwww.annualcreditreport.com

http://www.mycreditreport.com/

What should your credit score be?

850 = Pristine750 = Very Good680 = Minimum300 = Dismal

Tips for Improving and Maintaining Your Score

• Know your score• Scout for mistakes• NEVER be late• Magic 20%• Keep your oldest

cards• Accept fate on the

rest

PROs You’ll save thousands of dollars in interest Peace of mind CONs Possibility to earn higher returns on your money Liquidity Tax deductibility of interest

Should You Pay Off Your Mortgage?

Techniques and strategies while living

• Durable power of attorney

– Financial

– Health

• Living will

• Name beneficiaries to reduce probate costs and time delays

• Family planning

Save! Understand Your Options Make Good Choices Today to Build For Future Create Strategies for Balance

Getting Started

The best time to think about retirement is before your boss does.

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