In this article we want to cover some problems we have discovered in our benefit reviews. We hope you learn about each of these issues and hopefully avoid any problems in the future.
Basic Life Insurance in Retirement
Most employees understand their Basic Life insurance is free. This insurance is no longer free when you decide to retire. The cost of your Basic Life Insurance in Retirement is listed on your annuity estimate. You can expect to pay $100/month or more for $50,000 of Basic Life Insurance. Most employees make the decision to drop all of their life insurance at retirement and this can be a big mistake.
When you complete your retirement paperwork you will make the choice of how much of your Basic Life Insurance you want to retain in retirement. Our suggestion to you is to always keep at least the 75% reduction in your Basic. The reason is pretty straight forward. If you are retiring at 55 or 56 you will only have to pay about $8/month for 25% of your Basic Life Coverage. This is fairly inexpensive but it gets even better. Once you turn age 65, you no longer have to pay for the 25% coverage amount. It is essentially a free burial policy for the rest of your life as long as you keep at least 25% of your Basic at retirement.
Maxing out your TSP
There are probably a few of you who are putting the maximum allowable ($16,500) into your TSP. We want you to be aware of a very important policy the TSP enforces all the time.
If you are a FERS employee you are obviously entitled to matching. Employees who are putting in the max can run into a problem if they are trying to put in the $16,500 over a period of less than 26 pay periods. The TSP will only give you matching on your contributions if you contribute to the TSP each and every pay period. If an employee has reached the $16,500 maximum in September, he/she will not receive matching on the pay periods from September until December 31st. The TSP (because you have met your max) will not accept any contributions once you hit the limit. If you want to do the max, take the $16,500 and divide it out over 26 pay periods so you don’t leave any matching funds on the table.
Accessing TSP Funds at ages under 59.5
A typical scenario is a CSRS or FERS employee retiring at 56 or older but not yet 59.5. Most employees do not access their TSP funds for fear of paying the 10% early withdrawal penalty. Under IRS rules as long as you are 55 or older and you RETIRE you can access TSP funds without paying the 10% early withdrawal. It would not make sense for the government to allow you to retire at ages in the mid fifties and not give you access to your retirement funds. This provision is not well known but can make a big difference in the retirement decision.
We encourage each of you to take responsibility for the information you need to make retirement decisions. If you are unable to get the answers you need from the Post Office, we are happy to help through our seminars and one on one benefit reviews.