Federal Benefits Question - Annuity, TSP, FEHBP

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arsenalfan
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Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 2:53 pm

Trying to compare Annuity/TSP to the $56k Profit sharing plan I currently have. Ability to purchase FEBHP could be a huge benefit since we plan on retiring 10 years prior to Medicare eligibility.

Can someone please verify that I understand the federal retirement system correctly?
Job: $300k per year, assume no raises, 10 years worked:

BASIC ANNUITY: takes out 4.4% of this ($13,200). Work for 10 years, and get annuity of (1% x $300k) x 10 years = $30k per year pretax. 20 years = $60k per year pretax. COLA after 62 yo. You have to calculate your Minimum Retirement Age to see when this starts (depends on birth year).

TSP: 5% match, of my max donation = $18,500 per year (24,500 after 50 yo)

HEALTHCARE: If I've had 5 years with Federal Employee Health Benefits Plan and leave the government, I have the option of buying same level of coverage at same price.

Thanks in advance for any wisdom

ExitStageLeft
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by ExitStageLeft » Fri Jul 20, 2018 5:28 pm

The basic benefit is the annuity/pension you describe. It is 1% of high three salary for each year worked. If you work until age 62 or later and retire with 20 years or more of service then it is 1.1% of high three times the number of years worked.

TSP match: 1% initial employer contribution, then 100% match of your contibution up to 3% of your salary, then 50% of additional contribution up to a total of 5% of salary. If you are earning $300k and contributing $18.5k then employer contributes $15k.

Healthcare is available as you describe once you start receiving the basic benefit annuity. If you have deferred the annuity then you won't have that available in the interim time period.

https://www.opm.gov/retirement-services ... Retirement

What is your current age?

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arsenalfan
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 5:51 pm

Thank you ExitStageLeft.

TSP: Thanks for explaining that on $300k, max TSP= 33.5k including match.
My MRA is 57, so if I started at 47yo with this position, pension would be $300k x 0.01 x 10 years = $30k pretax starting at 57yo.

I'm 44 and considering a change of scenery in my 0.6 FTE private practice medical job. We are essentially financially independent but for healthcare thanks to some passive investments/saving/other investments.

I could run/bike to the fed job, and it's 4 days a week and a MUCH slower/relaxed pace. Adds a small pension to retirement, and solves the healthcare question from 57yo-65yo if I early retire from the fed job.

I will probably take it in 3 years at 47 yo.

ExitStageLeft
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by ExitStageLeft » Fri Jul 20, 2018 7:34 pm

Sounds like a nice plan. If you retire at MRA with ten years of service, your basic benefit annuity gets reduced by 5% per year under age 62. That means for ten years of service with a $300k salary you would see an annual pension of $22,500.

If you stay another 5 years and retire at 62, then your basic benefit annuity would be $49,500 (15 years * 1.1% * $300k).

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 7:43 pm

Hmm good point.
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delamer
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by delamer » Fri Jul 20, 2018 7:59 pm

A minor point on FEHB — in retirement, you can buy any coverage that you are eligible for at the same price as active employees. The only difference is that active employees can buy it with pretax dollars (premium conversion) and retirees cannot.

I am a retired fed (pre Medicare) and after seeing the prices that other pre Medicare retirees on this forum are paying, I am more and more appreciative of my deal.

I pay less than $300/month for family coverage.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 8:01 pm

ExitStageLeft wrote:
Fri Jul 20, 2018 7:34 pm
Sounds like a nice plan. If you retire at MRA with ten years of service, your basic benefit annuity gets reduced by 5% per year under age 62. That means for ten years of service with a $300k salary you would see an annual pension of $22,500.

If you stay another 5 years and retire at 62, then your basic benefit annuity would be $49,500 (15 years * 1.1% * $300k).


Question: If I retire at MRA 57yo but don’t take pension until 62, no penalty right (30k/year)?

ExitStageLeft
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by ExitStageLeft » Fri Jul 20, 2018 8:12 pm

arsenalfan wrote:
Fri Jul 20, 2018 8:01 pm
ExitStageLeft wrote:
Fri Jul 20, 2018 7:34 pm
Sounds like a nice plan. If you retire at MRA with ten years of service, your basic benefit annuity gets reduced by 5% per year under age 62. That means for ten years of service with a $300k salary you would see an annual pension of $22,500.

If you stay another 5 years and retire at 62, then your basic benefit annuity would be $49,500 (15 years * 1.1% * $300k).


Question: If I retire at MRA 57yo but don’t take pension until 62, no penalty right (30k/year)?
Yes but no health benefits available until age 62.

delamer
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by delamer » Fri Jul 20, 2018 8:13 pm

arsenalfan wrote:
Fri Jul 20, 2018 8:01 pm
ExitStageLeft wrote:
Fri Jul 20, 2018 7:34 pm
Sounds like a nice plan. If you retire at MRA with ten years of service, your basic benefit annuity gets reduced by 5% per year under age 62. That means for ten years of service with a $300k salary you would see an annual pension of $22,500.

If you stay another 5 years and retire at 62, then your basic benefit annuity would be $49,500 (15 years * 1.1% * $300k).


Question: If I retire at MRA 57yo but don’t take pension until 62, no penalty right (30k/year)?

Yes. However, you can’t get the subsidized health insurance until you start your annuity.

PoppyA
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by PoppyA » Fri Jul 20, 2018 8:16 pm

You say you will retire at 57. Will you be under a special category like law enforcement, firefighter, etc? It could make a difference in your retirement.

ExitStageLeft
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by ExitStageLeft » Fri Jul 20, 2018 8:19 pm

arsenalfan wrote:
Fri Jul 20, 2018 7:43 pm
Hmm good point.
I’m fighting my frugal self.
It’s like that far side cartoon, where Einstein discovers Time = Money
Thanks for the LOL! Yeah, it didn't take too long for me to realize that it ALWAYS pays more to stay longer.

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TimeRunner
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by TimeRunner » Fri Jul 20, 2018 8:40 pm

OP, if I were you, I'd skip the fed employment and work as much or little as you feel like. You've got the money for healthcare now. My dos centavos.
One cannot enlighten the unconscious.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 8:41 pm

Honestly it's for the healthcare unknown and not the pension. Thank you for the clarifcation both - I would retire at 57 and take the FEHBP and pension penalty deduction (unless wife still working/we were on her healthcare).

Not firefighters or other special category pensioners. We are doctors, and made some fortunate investments (surgery centers, good private practice, landlords). So we will start receiving about $8k/month in rental income in our early 50s. We also have a separate nest egg that we're hoping to not touch/leave for foundational charity means, and some for the kids.

This job just kind of came across my radar, and I realized that in addition to dovetailing with my lifestyle goals, the FEHBP health benefits are great to bridge the years from 52-65 yo until Medicare at 65yo.

Thank you for answering the questions. I am seriously considering taking the job at 47yo/starting FEHBP at that time. Stay in for 5 years minimum, but probably longer (wife will still work - she's even looking at a fed medical job also, believe it or not), and when we decide to cut the cord from the working world at either 52, 57, 62 or more, the FEHBP plan is there.

Thank you everyone for answering (and don't worry I will get it verified by the benefits rep when I re-interview within the next 3 years).
Last edited by arsenalfan on Fri Jul 20, 2018 8:53 pm, edited 1 time in total.

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arsenalfan
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Fri Jul 20, 2018 8:45 pm

TimeRunner wrote:
Fri Jul 20, 2018 8:40 pm
OP, if I were you, I'd skip the fed employment and work as much or little as you feel like. You've got the money for healthcare now. My dos centavos.
Thanks. I'm probably being too conservative here, but a friend is FI/RE at 40yo, and the craziness of ACA premiums is really throwing a wrench into his calculations for the next 25 years. She has no idea how to plan for her and her husband (both healthy).

Combination of a cool job, good hours, and basically within a mile of our home are major factors too. 0.6 FTE is great, don't get me wrong, but I've been in the same hospital system for the past 10 years, and it's getting stale. Time for a different zoo, though I'm sure there will be the same animals.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by delamer » Sat Jul 21, 2018 11:41 am

arsenalfan wrote:
Fri Jul 20, 2018 8:41 pm
Honestly it's for the healthcare unknown and not the pension. Thank you for the clarifcation both - I would retire at 57 and take the FEHBP and pension penalty deduction (unless wife still working/we were on her healthcare).

Not firefighters or other special category pensioners. We are doctors, and made some fortunate investments (surgery centers, good private practice, landlords). So we will start receiving about $8k/month in rental income in our early 50s. We also have a separate nest egg that we're hoping to not touch/leave for foundational charity means, and some for the kids.

This job just kind of came across my radar, and I realized that in addition to dovetailing with my lifestyle goals, the FEHBP health benefits are great to bridge the years from 52-65 yo until Medicare at 65yo.

Thank you for answering the questions. I am seriously considering taking the job at 47yo/starting FEHBP at that time. Stay in for 5 years minimum, but probably longer (wife will still work - she's even looking at a fed medical job also, believe it or not), and when we decide to cut the cord from the working world at either 52, 57, 62 or more, the FEHBP plan is there.

Thank you everyone for answering (and don't worry I will get it verified by the benefits rep when I re-interview within the next 3 years).

I don’t claim to be an expert, but I don’t believe you can carry FEHB in retirement if you quit before you are eligible for a pension. So retiring at 52 is not going to work in your scenario. You’d have to be at your MRA with 10 years service to keep FEHB.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by mrc » Sat Jul 21, 2018 12:04 pm

FEHB for Retirees and Survivor Annuitants
Federal retirees and their surviving spouses retain their eligibility for FEHB health coverage at the same cost as current employees. In order to carry your FEHB coverage into retirement, you must be entitled to retire on an immediate annuity under a retirement system for civilian employees (including the Federal Employees Retirement System (FERS) Minimum Retirement Age (MRA) + 10 retirement); and you must have been continuously enrolled (or covered as a family member) in any FEHB plan(s) for the 5 years of service immediately before the date your annuity starts, or for the full period(s) of service since your first opportunity to enroll (if less than 5 years). The 5 year requirement period can include the following: the time you are covered as a family member under another person's FEHB enrollment; or the time you are covered under the Uniformed Services Health Benefits Program (also known as TRICARE) as long as you were covered under an FEHB enrollment at the time of your retirement.
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Iorek
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by Iorek » Sat Jul 21, 2018 12:08 pm

Just noting the COLA is 1% less than CPI increase if the CPI increase is 3% or more.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Sat Jul 21, 2018 12:42 pm

Thanks mrc, delamer & Iorek.

I have learned from you that 57 yo is the earliest out eligible to buy FEHBP with after tax dollars, and take my annuity at 5% penalty per year since not 62.

Digression - I was kind of confused why OPM calls it MRA +10. Thought it was 67 yo! Realized its MRA & 10 years (service performed).

As everyone can appreciate, so much easier to ask these questions in anonymous forum, versus a job interview!!!

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by stan1 » Sat Jul 21, 2018 1:37 pm

I'd also point out that many of these benefits can be changed by two votes and a presidential signature. Yes in the past many changes have affected new hires but the CSRS to FERS transition and increased contribution rates have impacted existing employees to varying degrees. My point is not to try to speculate about the future but rather to make your decision based on things you can control. If you have a successful career I am not sure I would leave it just to get a federal pension and health benefits as a primary factor. What professional reasons do you have for making the change?

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by arsenalfan » Sat Jul 21, 2018 1:42 pm

Good point. Job is a great fit, Way more relaxed and no production pressure like in private practice. Run or bike to work 1 mike away.

Honestly I thought the retirement was going to stink (I can defer 56k now) and didn’t know about the healthcare.

Now it’s the gravy on top. Pretty substantial gravy it turns out. We really worried about healthcare during the FIRE/pre 65 years.

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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by LadyGeek » Sun Jul 22, 2018 4:22 pm

New member Timetomakethedonuts has a similar question which I've moved into a stand-alone thread: [Federal Benefits Question - Annuity, TSP, FEHBP for part time worker]
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Re: Federal Benefits Question - Annuity, TSP, FEHBP

Post by TimeRunner » Sun Jul 22, 2018 5:39 pm

Iorek wrote:
Sat Jul 21, 2018 12:08 pm
Just noting the COLA is 1% less than CPI increase if the CPI increase is 3% or more.
More fully from OPM: "For Federal Employees Retirement System (FERS) or FERS Special benefits, if the increase in the CPI is 2 percent or less, the Cost-of-Living Adjustment (COLA) is equal to the CPI increase. If the CPI increase is more than 2 percent but no more than 3 percent, the Cost-of-Living Adjustment is 2 percent. If the CPI increase is more than 3 percent, the adjustment is 1 percent less than the CPI increase. The new amount is rounded down to the next whole dollar. "
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