2022 AFBA Financial Planning Guide

reimbursement for the cost of care when you are unable to perform at least two of the activities of daily living for an expected period of at least 90 days or when you need constant supervision due to a severe cognitive impairment. Information on program costs and benefits is available at www.ltcfeds.com . 7–5. RETIREMENT SYSTEMS. The majority of federal employees automatically participate in one of two retirement programs — CSRS (Civil Service Retirement System) or FERS (Federal Employees Retirement System). Generally the date of hire determines the applicable system. Employees hired before January 1, 1987 are covered under the CSRS program and employees hired on or after January 1, 1987 participate in FERS. Detailed information about the two systems can be found online at www.opm.gov/retire . CSRS is a defined benefit, contributory retirement system. You share in the expense of the annuities to which you become entitled. You contribute 7, 7.5, or 8 percent of pay to CSRS and generally pay no Social Security tax, but must pay the Medicare tax. Your employing agency matches you CSRS contributions. FERS is a retirement plan that provides benefits from three different sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP). Two of the three parts of FERS (Social Security and the TSP) can go with you to your next job if you leave the Federal Government before retirement. The Basic Benefit and Social Security portions of FERS require you to pay your share each pay period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay as payroll deductions. Your agency pays its part too. Then, after you retire, you receive annuity payments each month for the rest of your life. Service Requirements. Normal retirement benefits are available to CSRS employees at age 55 with 30 years of service, age 60 with 20 years of service, or age 62 with 5 years of service. FERS employees follow the same scheme for those aged 60 and 62. Younger retirees under the FERS system are also subject to a minimum service requirement of 30 years, however the minimum age requirement follows a graduated scale from 55-57 based on your date of birth. Pension Benefits. The pension benefit formulas under both systems are based upon two factors — High–3 salary base and years of service. The “High–3” is simply an average of the employee’s highest annual base pay over any three consecutive years of creditable service. As an illustration we will assume that Mr. Jones, 58, is eligible for retirement under both systems with 30 years of service and a High–3 salary average of $60,000.

CSRS Annuity: 1st 5 years: 1.50% x $60,000 x 5 years = $ 4,500 2nd 5 years: 1.75% x $60,000 x 5 years = 5,250 Over 10: 2.00% x $60,000 x 20 years = 24,000 CSRS Annuity$33,750 FERS Annuity: 1.00% x $60,000 x 30 years = $18,000 To correct the discrepancy between the two formulas, the FERS retiree receives an additional annuity supplement until the age of 62. At age 62, the FERS retiree will then receive social security benefits which in conjunction with his or her FERS annuity are designed to provide a total pension that is equal to their CSRS counterpart. COLA Increases. Both retirement programs provide annual cost of living increases based upon changes in the Consumer Price Index for Urban Wages Earners and Clerical Workers (CPI-W). CSRS annuitants receive the full amount of the annual change. FERS annuitants receive COLA increases starting at age 62. The amount of the increase is determined by the change in the index. Index changes of less then 2%, result in a COLA increase of the same percentage. Index changes between 2–3%, result in a COLA increase of 2%. Index changes of 3% or more, result in a COLA increase that is reduced by 1%. The 2022 cost-of- living adjustment for CSRS annuitants is 5.9% and 4.9% for FERS. 7–6. THRIFT SAVINGS PLAN (TSP). This plan is similar to the 401(k) program available to many employees in private industry in that contributions to the fund and earnings by the fund are not subject to taxes until withdrawn. Both CSRS and FERS employees may contribute up to $20,500 in 2022 if they are under age 50. For those 50 and over, they may make an additional “catch-up” contribution of $6,500. If you are a FERS employee you receive an automatic government TSP contribution of 1% of your salary and matching contributions of up to an additional 4%. The first 3% of pay that you contribute will be matched dollar- for-dollar and the next 2% will be matched at 50 cents on the dollar. Contributions above 5% of your pay will not be matched. CSRS employees do not receive any agency contributions. You can find more information at www.tsp.gov . 7–7. MISTAKES TO AVOID WHEN PLANNING YOUR RETIREMENT. Read this article about the 10 biggest mistakes federal employees make when planning for retirement and how to avoid them — https://www. myfederalretirement.com/federal-retirement-planning- mistakes .

CHAPTER 7: CIVIL SERVICE PAY & RETIREMENTS

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