As a Federal Employee or Retiree, making wise choices can really make or break your retirement outlook. Below, we discuss some common mistakes that Federal Employees and Retirees make, and how to avoid them.
Mistake: Waiving survivor benefits for a spouse with an income or retirement plan. In the event of your death, all your bills do not die with you; joint expenses continue for your spouse. Electing a survivor benefit allows your spouse to live uninterrupted, in the lifestyle to which he/she has become accustomed.
Mistake: Deciding to move before determining the outcome. Before moving to a new location, you must examine all the pros and cons. A new city or state can be an expensive mistake. Thoroughly assess and compare the financial, emotional, cultural, medical, proximity to family, or other considerations to prevent an expensive mistake. Look at the reality of the move, rather than the dream location of retirement.
Mistake: Not considering your significant other and their interests. Your partner may not be eligible to retire or may never retire from being a homemaker. After 15-20 years, your partner may not want you around the house all day. Also, you may not be ready to relax and want to invest your time and energy elsewhere. Plan your retirement wisely. Whether it is volunteer work, projects, continuing your education, or employment, everyone needs a reason to get up and get going every day.
Mistake: Neglecting to change your insurance upon retirement. The Federal Employees’ Group Life Insurance (FEGLI) have options A, B, and C that increase in monthly premiums by nearly 50 percent at age 55 and 60. Many retirees who maintain the same coverage they had as employees are overpaying. Examine your needs to determine what purpose life insurance serves in your specific situation. Consider Long Term Care Insurance (LTCI) before you retire when the requirements are less restrictive. If you are able to drop or reduce your FEGLI, more money would be available for LTCI.
Mistake: Expecting to receive a full Social Security retirement. The Windfall Elimination Provision (WEP) can reduce the earned Social Security benefits of a federal worker who retirees after 1985 up to 60 percent. This does not apply to retirees under Federal Employee Retirement System (FERS) in 1986 and became effective on January 1, 1987. Under the Government Pension Offset (GPO), spouses could lose all their survivor social security benefits. To prepare for this hit, educate yourself on these issues, adjust your retirement budget accordingly.
Mistake: Neglecting to elect a survivor benefit when retiring. Electing a survivor benefit for a spouse at retirement or upon marriage (remarriage) after retirement will entitle a surviving spouse federal health benefits. Recent retirees can (within 18 months) elect a survivor benefit; however, post-retirement elections are very costly. Survivor benefits for a post-retirement marriage must be elected within two years of the marriage. The survivor can pay Federal Employees Health Benefit (FEHB) premiums directly if the survivor annuity does not cover the premium.
Mistake: Failing to have five years of FEHB coverage before retiring.
A federal employee covered by a spouse’s private sector health plan who opts not to enroll in FEHB while employed or is not enrolled for five years cannot enroll in FEHB as a retiree. To preserve the valuable benefits, enroll in the least five years before retiring to continue FEHB into retirement and maintain the opportunity to change to family coverage or self-plus one at open season.
Mistake: Losing your FEHB coverage for your spouse when they have a non-federal health plan. If you elect a self-only FEHB enrollment, your spouse will not be able to retain that coverage in the event of your death. As federal retiree, you must elect a survivor benefits and have a family enrollment or self-plus one plan during the next open season.
Mistake: Choosing the wrong health care options for a two-person federally-employed family. Choosing between two self-only or a family enrollment or self-plus one is an important decision with financial implications. Each family has its unique situation that will determine what type of enrollment is best. In some cases, two federal retirees should opt for the family plan while families with one federal employee still working can choose two self-only enrollments. Find out how premium conversion will affect your decision, the exceptions to the rules.
Being careful and making prudent decisions while planning for your retirement is one of the best ways to ensure you'll enjoy your time after work is over. Some of these decisions can be difficult, so plan early and do your research.
Publish Date: February 18, 2021 © Tangerine, Inc. All rights reserved. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular individual or circumstance. This article is not intended to be a client-specific analysis or recommendation. Do not use this article as the sole basis for any financial decisions. Consider all relevant information. Information should not be considered as tax or legal advice. You should consult with your tax advisor and/or attorney regarding your individual circumstances.