Understanding Your 6 Federal Benefits – An Overview

As a federal employee, you can be covered by the Civil Service Retirement System (CSRS) or Federal Retirement System (FERS). There are also a few sub-categories that we will cover in future articles such as CSRS Offset and Trans-FERS.  For the most part, you are under the FERS system if you were first hired in 1984 or later. Most current federal employees fall under this system. There are major differences between the two, so it’s important to know which system you fall into. We will do an overview of what retirement benefits each system has, and then go into more detail about each benefit in a series of six future articles. So subscribe below, and stay tuned!

Federal Pension

Both retirement systems have a pension, but the calculation is very different between the two!

CSRS: the old retirement system was meant to be a single-source retirement system with a very rich pension. Under this system, you could earn up to 80% of your High 3 salary for the rest of your life if you put in 41 years and 11 months of service. Nothing else is needed. These employees never paid into social security for their government service and TSP was not considered a part of their retirement (although later they got the option to participate in TSP which was a huge advantage). 

FERS: The new system is a 3-income retirement system. The pension is much smaller, but only one of three retirement incomes. 

Federal Employee Health Benefit | FEHB

Both retirement systems have the same options when it comes to health insurance. This is one of the best retirement benefits the government has to offer. You get to keep your government health insurance, at the employee rate, for the rest of your life! That means the government continues to pay approximately 72% of your premiums leaving you only to pay about 28%. You have access to all of the same plans as the employees have and all the same coverage. You can still change your plan at any open season. What about vision and dental (FedVIP) you ask? Yea, go ahead and keep that at the employee rate as well!

Survivor’s Benefit Annuity Deduction

This one is very different depending on which retirement system you are on. We will cover all the dirty details in a future article, but here are the major points on the two systems when it comes to supporting your spouse if you pass away first in retirement. It is important to understand that in either system, you will need to leave some amount to your spouse if you want them to have the ability to remain on health insurance after you are gone. The more you want to leave them, the more expensive it is. 

CSRS: You can leave any amount between $0 and 55% to your spouse after you are gone. (you can leave them just $1 for them to be able to stay on the health insurance). If you leave them the full 55%, it will cost you a deduction of about 10% of your monthly unreduced pension amount. If you want to leave them 25%, it will cost about 5% of your monthly unreduced pension amount. It’s a sliding scale and the cost adjusts accordingly. 

FERS: You only get 3 options as it pertains to the survivor’s benefit as a FERS employee. There is the Max Survivor Benefit which leaves 50% of your unreduced pension to your spouse. This costs you a 10% monthly deduction. There is a Reduced Survivor’s Benefit that leaves 25% to the spouse and costs a 5% monthly deduction. Or there is a No Survivor Benefit which leaves nothing and costs nothing. Once again, If your spouse wants to continue the health insurance, they will need one of the survivor’s benefits. 

Federal Employee’s Group Life Insurance | FEGLI

This one is very complex. Here are the “CliffNotes,” but expect a very detailed article on this one soon:

Basic Life: The life insurance amount is your salary, rounded to the highest thousand and $2,000 added to it. While you work, this is dirt cheap, and most should carry it. In retirement, there are 4 options. 3 bad ones and 1 good one. The good option is that you keep some of it for free once you are retired and 65 or older. Plan accordingly. 

Option A: This is a flat $10,000 policy. It’s pretty cheap when you are young. Moderately priced when you get into your 60s and older. This one is good because you can keep some of it for free when you are retired and aged 65 or older.

Option B: You can carry up to 5x your salary in option B FEGLI. This can be a trap though, so beware. It is very well priced when you are young, but it gets more expensive every 5 years. The increases are small until your late 50’s and then it starts to increase dramatically! When you retire, you can keep any amount of your multiples, but the steep price increases will continue through age 80. 

Option C: This covers spouses and dependents 21 years of age and younger. You can carry up to 5 multiples. Each multiple is $5,000 for a spouse and $2,500 for children. This increases in price modestly every 5 years. You can keep any amount of multiples into retirement if you would like. 

Social Security

This is the second of three incomes for FERS employees (CSRS Offset will have a Social Security Component as well). You can take this as early as age 62. That will be the smallest monthly payment you would receive. You can wait as late as 70. That would be the largest monthly payment you can receive. It’s a sliding scale between the two. Everyone has a “Full Retirement Age” based on your date of birth. It is essential to understand what age that is for you if you plan on collecting SSA benefits before then because of something called “the earnings test”. (If you are a FERS employee eligible for retirement before age 62, you will get something called a “Special Retirement Supplement” until you reach 62). We will cover this in detail in a later article.

Thrift Savings Plan | TSP

As a FERS employee, this is your third retirement income. As a CSRS employee, this is a bonus second income if you chose to participate in it. FERS employees get a 5% matching contribution. This is the biggest advantage to the TSP and if you aren’t putting in at least 5%, you are leaving free money on the table! It is vitally important that you understand how to maximize this tool. This is the only federal retirement income that you have direct control over. Your pension and Social Security incomes tell you how much and when they are going to pay you and are automatically adjusted for the cost of living. Whereas with TSP, you are in complete control. You decide how much to contribute. You decide what investment options and allocation. You decide when and how much money you want to withdraw. It’s up to you to be able to pay yourself cost of living increases from your TSP without running out of money. We will go into great depth on this one in the future!

At the end of the day, you have a fantastic benefits package if you are a federal employee. You have access to things that almost don’t exist in today’s world to anyone but federal employees. Are these benefits perfect? No. Are they ways you can fill in the gaps and maximize them? Yes! The Federal Retirement Consultants℠ at FEBA are here to educate you and help you to make the most of the federal benefit options available to you. We want to help you retire sooner than you think possible. Subscribe to our blog below for tips on how you can do that!

Or, you can request a consultation for immediate assistance. We look forward to helping you on your retirement journey!

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