The most common question we hear in seminars across the country is “what is the earliest I can retire!”. We want to cover the Early-Retirement options you have without there being an Early-out so everyone knows their options.

The first is a MRA+10 Early Retirement: This requires that you have at least 10 years of Civilian service (bought military time doesn’t count) and you have met your Minimum Retirement Age (MRA). If you have both requirements met you can retire but you will be subject to a penalty.

Let’s assume Joe has 12 years of service and is at age 56 (his MRA). He wants to retire and start his annuity immediately. Because Joe didn’t meet the full retirement guidelines he will see a 5% penalty for every year he is under age 62 (30%). If Joe’s pension was supposed to be $1,000 for his 12 years of service it will now be $700 after the penalty.

How can you avoid the penalty?

Joe can avoid the penalty by taking a Postponed Retirement. In a Postponed Retirement you do not draw your annuity immediately but postpone it until age 62. During the period between retirement and age 62 he will not have any federal benefits. However, when his annuity starts he will be able to enroll in FEHB and life insurance at that time.

Can I Retire Early if I am under my MRA?

The answer is yes, however it comes at a cost. This is called a Deferred Retirement. You can retire under your MRA as long as you have at least 5 years of creditable civilian service. For example if Joe is 53 and not at his MRA and has 8 years of service and wants to go to work somewhere else he can retire. His pension will be based on 8 years of service and there will be no penalty. He cannot draw his pension until age 62 and he WILL NOT BE ABLE TO CONTINUE FEDERAL HEALTH INSURANCE IN RETIREMENT.

Please understand your options before you decide to retire. You can request a free benefits review by visiting www.postalbenefitreview.com

See more from David Fielder at this link

I hate to bring up the nasty subject of taxes but unfortunately it is a subject none of us can escape. Some of you are going to retire in the next couple of years and there isn’t a whole lot you will be able to do to minimize your taxes. However, those of you who have 10 or more years to go may have an option to create a second pension that the government cannot touch.

Most of you know that the money you put in your TSP is not taxed when you put it in. Think of it this way, the government is letting you put that money in now and not pay the small amount of tax that would come out of it now, so he can take big chunks out of your money when you draw it out of the TSP. We like to call the TSP Uncle Sam’s retirement account.

Many will say that taxes will be lower in retirement so if I draw my TSP money out in retirement I will pay less tax. Well, I have a couple of questions for you: 1) Do you have more deductions now or when you retire? For most people the answer is now. By the time you retire the kids are gone and the house is either paid for or so close to being paid for you don’t have that deduction any more. 2) Do you think tax rates are going to go up or down over the next 20 years? Folks, the way the government is using its credit card there is no way any reasonable person would think taxes are going anywhere but up in the future. I mention both of these points to address the myth that taxes will be lower when you are in retirement. I’ve included below the history of tax rates in the US. As you can see, we are very low right now compared to what it has been in the past.

Historical Highest Marginal Income Tax Rates
Year Top Marginal Rate Year Top Marginal Rate Year Top Marginal Rate
1913 7.0% 1946 86.45% 1979 70.00%
1914 7.0% 1947 86.45% 1980 70.00%
1915 7.0% 1948 82.13% 1981 69.13%
1916 15.0% 1949 82.13% 1982 50.00%
1917 67.0% 1950 91.00% 1983 50.00%
1918 77.0% 1951 91.00% 1984 50.00%
1919 73.0% 1952 92.00% 1985 50.00%
1920 73.0% 1953 92.00% 1986 50.00%
1921 73.0% 1954 91.00% 1987 38.50%
1922 56.0% 1955 91.00% 1988 28.00%
1923 56.0% 1956 91.00% 1989 28.00%
1924 46.0% 1957 91.00% 1990 31.00%
1925 25.0% 1958 91.00% 1991 31.00%
1926 25.0% 1959 91.00% 1992 31.00%
1927 25.0% 1960 91.00% 1993 39.60%
1928 25.0% 1961 91.00% 1994 39.60%
1929 24.0% 1962 91.00% 1995 39.60%
1930 25.0% 1963 91.00% 1996 39.60%
1931 25.0% 1964 77.00% 1997 39.60%
1932 63.0% 1965 70.00% 1998 39.60%
1933 63.0% 1966 70.00% 1999 39.60%
1934 63.0% 1967 70.00% 2000 39.60%
1935 63.0% 1968 75.25% 2001 38.60%
1936 79.0% 1969 77.00% 2002 38.60%
1937 79.0% 1970 71.75% 2003 35.00%
1938 79.0% 1971 70.00% 2004 35.00%
1939 79.0% 1972 70.00% 2005 35.00%
1940 81.10% 1973 70.00% 2006 35.00%
1941 81.00% 1974 70.00% 2007 35.00%
1942 88.00% 1975 70.00% 2008 35.00%
1943 88.00% 1976 70.00% 2009 35.00%
1944 94.00% 1977 70.00% 2010 35.00%
1945 94.00% 1978 70.00% 2011 35.00%

So what avenues do you have available to you to save where the taxes won’t bite you in the back side? You have two options really as a Postal employee:

1) Roth RIA or Roth TSP

This is a great way to save money for retirement. You can fund it with after tax dollars and then when you draw it out in retirement there is no tax whatsoever. The downside to the Roth IRA is it is extremely limited on how much you can put in. The limits are $5,500 if you are under 50 and $6,500 if you are over 50. It’s pretty hard to accumulate any sizeable amount of money in a Roth with those kinds of limits. Think about this, the government lets you put $17,500 in an IRA in most cases but he limits what you can put in a tax free vehicle. Interesting huh?

2) Life Insurance

This vehicle has been around for a long time and is still one of the only places Uncle same can’t touch when it comes to taxes. As a matter of fact it’s the only place you can save money with no limit** and it be totally tax free in retirement. Cash value life insurance builds cash value obviously and when you accumulate a large sum of money in a policy you can take the cash out in the form of a policy loan that never has to be paid back. How much tax do you have to pay for taking one of these loans? NOTHING. You would also have to go along with the tax free income a nice death benefit that would take care of you loved ones in the event of your premature death.

An Example

Let’s look at a real example of a Postal employee who wants to set up a second tax free pension. This employee WAS contributing $500/pay over and above his match to the TSP. Let’s look at what happens when he puts this same $500/pay into the cash value policy we suggest and see what happens when he retires in 15 years.

Annual Contribution: $13,000

At age 60 the employee can convert his cash value into an annual 2nd pension of $33,000 a year. Remember, that $33,000 is tax free because it is a loan. None of this money would show up on your tax returns. I don’ t know many people who wouldn’t like to have a second tax free pension. On top of the tax free income you have created you would also have a death benefit of $360,000 at age 60 in case you pass away early. All of those proceeds pass to your heirs tax free as well.

See more from David Fielder at this link

One of the most common questions we receive in our seminars is from CSRS employees on their Social Security. While there aren’t a  lot of CSRS employees who qualified for Social Security there are enough that we felt it necessary to write this article. We have tried to simplify a very complex subject and explain it in a way you can understand.

Windfall Elimination Provision

The Windfall Elimination Provision was passed by the government because they felt CSRS employees were getting Social Security checks that were higher than they should be.    We don’t agree with this logic, but this is why the law was passed.  In a nutshell, the Windfall Elimination Provision reduces CSRS employees Social Security benefits based on how many years they had “Substantial Earnings” per the Chart below:

 

Year               Substantial earnings
1937-54 $ 900
1955-58 $1,050
1959-65 $1,200
1966-67 $1,650
1968-71 $1,950
1972 $2,250
1973 $2,700
1974 $3,300
1975 $3,525
1976 $3,825
1977 $4,125
1978 $4,425
1979 $4,725
1980 $5,100
1981 $5,550
1982 $6,075
1983 $6,675
1984 $7,050
1985 $7,425
1986 $7,875
1987 $8,175
1988 $8,400
1989 $8,925
1990 $9,525
1991 $9,900
1992 $10,350
1993 $10,725
1994 $11,250
1995 $11,325
1996 $11,625
1997 $12,150
1998 $12,675
1999 $13,425
2000 $14,175
2001 $14,925
2002 $15,750
2003 $16,125
2004 $16,275
2005 $16,725
2006 $17,475
2007 $18,150
2008 $18,975
2009 – 2011 $19,800
2012 $20,475

If you made at least the amount shown on the chart in a given year that year would be counted. If a CSRS employee worked 10 years from 1972-1982 and paid social security in those years and earned $7,000 in each of those years then the employee would have 10 years of “Substantial Earnings”.
Your Reduction
Now that we know how many years of substantial earnings we can find out how much our Social Security will be reduced by referring to another Social Security Chart. The following chart has years down the left-hand side. This is the year in which you turned 62. Find the year where you turn 62 and then find the years of substantial service and you will see the amount your Social Security is reduced.

 

Maximum Monthly Amount Your Benefit May Be Reduced Because Of The Windfall Elimination Provision (WEP) ELY = Eligibility Year: The year you reach age 62 or became totally disabled (if earlier).

Screen Shot 2012-12-16 at 3.58.13 PM

Using our example and assuming our employee turned 62 in 2011 they would have a reduction of $374.50 (using the 20 or less for years of substantial earnings). The more substantial earnings years you have the less the deduction from your social security.

[big_box title="Guest Post by David Fielder" bgcolor="#ffffff" txtcolor="#555555"]
President
Postal Benefits Group

david@postalbenefitsgroup.net

[/big_box]

In this article we will address how to write your letter to your doctors as well as how the compensation works if you are approved for a disability retirement.

Example Letter to Doctor:

(Start example)

Dr. Anyone,

On August 6, 2012, I wrote to you informing you that I had submitted my papers to the United States Postal Service Office of Personnel Management (OPM) requesting a Medical Retirement. You stated to me during my last scheduled appointment with you that you thought that was the best route for me to take other than just quitting. You stated that you would assist me in any way that you could.

Enclosed is a Physician’s Statement which is required by the OPM, along with copies of my bid job description (both personal and professional). I have highlighted exactly what is required from you (minus the copies of my medical records, as I already have those). It is important for me to show the OPM that I canno longer continue to do the work required in my current position as an Sales and Service Distribution Clerk (SSDA), as the repetitive work and heavy lifting, pulling and pushing is debilitating to my health and body. I must show that I have complied with all the tests, surgeries and therapies that you have suggested and completed; but that continued employment in this position is regretfully not conducive to my continuing issues with tendonitis and joint/arthritis issues. They also need to know I have reached “Maximum Medical Improvement” with my condition.

I realize this is additional work for you and I apologize for any inconvenience. This information is time critical. I need to have it as quickly as possible.

Thank You,
[your name]

(End example)

If I am seeing one doctor for my arthritis issues, another doctor for my respiratory condition and another doctor for back issues, Do I need each one to send in a physician statement?

Yes, the employee’s total medical health is taken into consideration. If your arthritis limits your mobility and your back condition limits your ability to lift weight, both conditions have an overall effect on if you can perform the essential requirements of your position.

What will my annuity be if I am approved for a medical retirement?

As a CSRS employee, you are guaranteed a minimum of 40%. However, if you have more than 21 years 11 months of service, your disability will be computed using all your creditable years of service. For example- if you had 30 years of service and were only 52 years old, you would receive credit for all years of service and would receive a disability of .5625% of your high-3.

That wouldn’t be a full annuity because you are forced to leave due to a medical reason three years earlier than a full retirement (which could have added another 6% at full retirement). You would receive this amount plus any additional COLA’s every year that one is granted.

If you are a FERS employee your computation is a bit different. You will receive earned annuity based on actual service if you are age 62 or over, or you are eligible for a regular Voluntary retirement with no age reduction.

If you are age 61 or less the FERS disability is computed at 60% for the first 12 months minus 100% of your Social Security entitlement (if you receive one from Social Security). This means you would receive an amount of 60% of your high-3 the first year. After the first 12 months, you would receive 40% of your high 3 minus 60% of the social security amount.

If you filed for disability from OPM, you are required to also file for disability from Social Security at the same time. This is required because you have Social Security as a component for your retirement and it also has a disability payment for FERS members.

Once you have been approved for Social Security disability, you must immediately notify OPM that it has been approved. If you are approved for both, you must recognize that you are not allowed to keep both of these amounts in total. You would receive this amount until age 62. At that time your retirement would be recomputed and you would receive a new annuity for all years of service plus the years you were retired on disability.

There is no underlying principle of the computation which allows for the offset. It is federal law and if you are under FERS, then you must follow the law. Do not think you can keep the entire OPM amount and the Social Security amount and it will not catch up to you. Understand that the government will catch up with you eventually. Sooner or later, you will have to pay this money back.

What if I want to work doing something else?

If you are approved for disability retirement from OPM, you can still work elsewhere and earn as much as 80% of your base for the grade and level of your last government position. It should be something within your restrictions. If you earn more than 80% while on disability, your retirement could be jeopardized.

See more from David Fielder at this link

In this article we will give you an example of how a postal employee should describe their job duties as part of the disability retirement process.

Example:

(Start example)

The position of a Sales and Service Distribution clerk assigned to the Anytown Post Office involves the following tasks. Use this as an example then analyze your position in the same detail the next day you go to work. Document every move and every detail.

In the morning, when breaking mail down to be sorted, I will be moving carts and large hampers from the dock area into the facility. This requires me to push equipment that weighs from 45-1200 pounds. Empty weight of a cage (6’x 4’x 3’ with a metal shelf that weighs 25 lbs) that is used to transport mail ~325 lbs and when it is fully loaded with mail, it can weigh up to ~1200lbs I will have to remove the mail from the equipment and it will be in trays (8-15 pounds), flat tubs (5-50 pounds), and mail sacks (variable weights up to 70 pounds).

I am required to stand for 2-3 Hours, intermittently static, when I am sorting mail to a letter case. These trays of mail weigh approximately 15 lbs. when full. The case is approximately 30 inches off the ground and has mail slots of 3” x 4” for mail to be placed in each slot. The mail sorting case looks like a grid and is a total of 56 slots for mail to placed with a total height of 6 feet. I will stand as I sort the mail and be required to place mail in the case reaching from below my waist to 18 inches above my shoulder. This requires a repetitive motion utilizing my upper arms and hands. I will repeat this motion 200-500 times in a 15 minute period.

I am required to stand for 2-3 hours, intermittently static, when I am sorting mail to a flat case. The flat tubs of mail (plastic containers -1’x 1.5’x 1’that weigh up to 50lbs) vary in weight from a few pounds to 50 pounds when full. The case is approximately 30 inches off the ground and has slots for flats that are 10” x 4” for mail to be placed in each slot. The mail sorting case looks like a grid and is a total of 40 slots for mail to placed I will stand as I sort the mail and be required to place mail in the case reaching from below my waist to 1 foot above my shoulder. I will repeat this motion 300-500 times in a 15 minute period. When I sort the mail to the Post Office Boxes in the office the task is similar to casing mail but the dimensions’ include boxes located only 18 inches off the floor to a height of 65 inches.

The mail distribution portion of my position requires prolonged standing, walking, bending, lifting (up to 70 lbs), pulling, pushing/pulling large metal containers (with weights up to 1200 lbs), and reaching above my shoulders and below my waist .

When assigned to the window section of the office, my tasks include selling stamps, accepting mail (letters and flats) and parcels (of all shapes and sizes up to 70 pounds). My job will involve fine manipulation using a computer system. I will have to lift packages across the counter to place them on a scale to be weighted. After the mail is accepted I will have to place the package in a mail cart/hamper/metal container for transport to the rear of the Post Office for dispatch.

The window clerk portion of my position requires prolonged standing, walking, bending, lifting (up to 70 lbs), twisting turning, pushing/pulling carts/hampers/large metal containers (with weights up to 1200 lbs). I will do this multiple times in an hour period depending on how busy the windows are.

I am allowed two 15-minute breaks and a 1/2 hour lunch in a 8 1/2 hour window. (hour 2 – break, hour 4 – lunch, hour 6 1/2- break).

(End example)

*ATTACH THIS TO THE FRONT OF THE JOB DESCRIPTION YOU GIVE YOUR PHYSICIAN

In our next article we’ll address how to write your letter to your doctors as well as how the compensation works if you are approved for a disability retirement.

 Click here for Part 3

See more from David Fielder at this link


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