The Human Resources Administration expects a surge in resignation applications due to more federal employees opting for the Voluntary Early Resignation Agency (VERA) and the delayed Resignation Program (DRP). Recently, OPM noted in a statement about contract awards aimed at modernizing the HR system that there could be “an expected double in the backlog of resignation applications.”
Given the number of people leaving their positions, it’s a timely moment for federal employees to enhance their understanding of the retirement process.
Misunderstanding: Retirement benefits kick in right away
Fact: The resignation agent will only forward resignation packets to OPM once the retirement date arrives. After that, OPM will begin to process these packets, though they currently face a backlog, meaning it may take up to 90 days before anything starts happening.
Retirees should anticipate receiving their first estimated pension in about two to three months. OPM refers to this as a “tentative” salary, which is usually around 60-70% of the actual pension amount. While the accurate calculations are in progress, there tends to be more caution in paying estimated taxes and benefits than necessary. When these calculations finally wrap up, any differences will be settled.
Misunderstanding: TSP is the only required savings post-retirement
Fact: Federal employees actually have three main income sources for retirement: pensions, social security, and savings plans.
When crafting a retirement budget, it’s fairly straightforward to estimate how much the first two will contribute each month. The TSP needs to fill in the financial gap between planned living expenses and these monthly amounts. So, it’s not as simple as saying how much a federal employee should have saved in their TSP account upon retirement; it really varies individually.
Moreover, TSPs offer multiple withdrawal options, like partial or full withdrawals, installments, or pensions. Employees closing in on retirement are often advised to transfer some or all of their TSP balance into a private-sector IRA or Roth IRA without incurring taxes, fees, or penalties, as long as the funds are moved appropriately.
Misconception: FEHB benefits disappear or become more pricey at retirement
Fact: Federal employees may, under certain conditions, continue receiving FEHB coverage. These requirements include being enrolled in FEHB for at least five consecutive years leading up to retirement. It’s worth noting eligible spouses, dependent children, and children with disabilities can maintain coverage without those five years. When employees retire, they are categorized as pensioners, and the government typically covers about 72% of FEHB premiums.
Additionally, retirees can enroll in Medicare parts A and B, which together provide almost comprehensive coverage. Medicare acts as the primary payer while FEHB serves as secondary. To save on costs, some retirees opt for a more basic FEHB plan.
Misconception: FEGLI costs stay the same after retirement
Fact: Basic FEGLI insurance runs between $10-30 per salary period while employed, but costs can surge significantly once you retire. The degree of this increase hinges on the specific plan you have. There are four FEGLI choices: Basic, Option A, Option B, and Option C. Many federal employees aren’t fully aware of their plan details or how much they are paying. Grasping this information will aid future retirees in optimizing FEGLI benefits upon retirement.
Misconception: Survivor benefits come automatically and at no cost
Fact: Federal employees need to make several decisions related to survivor benefits when filling out their retirement applications. Pensions are largely where retirees must weigh their options alongside potential beneficiaries, primarily spouses, though there are some exceptions. Each choice comes with monthly fees deducted from the pension amount, and these options and percentages vary by retirement system.
Misconception: Spouses will automatically retain FEHB coverage post-retirement
Fact: This is a crucial consideration about survivor benefits. If a surviving spouse is partaking in the federal retiree’s health insurance plan, that coverage will be lost if the spouse doesn’t benefit from it. Given the connection between survivor benefits and health insurance plans, it might be worth for retirees and their spouses to consult federal retirement advisors. They could discuss additional financial responsibilities like assets, income needs, budgets, life insurance, student loans, and children.
