FERS MRA plus 10 Annuity

What is a FERS Minimum Retirement Age (MRA) plus 10 annuity?

This is a provision that allows you to retire with benefits beginning immediately if you have ten years of service and have reached the Minimum Retirement Age (at least 55). However, the annuity is reduced for each month you are under age 62. The reduction equals five percent per year (or 5/12 of one percent per month). To avoid the reduction, you can postpone payment. You can later apply for the benefit by writing to OPM or filing an "Application for Deferred or Postponed Retirement," Form RI 92-19. You should submit the form two months before you want the benefit to begin.

Leaving Federal Service Early?

What Happens to retirement contributions when you leave the government early?

You can ask that your retirement contributions be returned to you in a lump sum payment. Or, you can wait until you are retirement age to apply for monthly retirement benefit payments. If you get a refund of your retirement contributions now, you will no longer be eligible to receive monthly payments when you reach retirement age.

Social Security & Getting Remarried

I'm getting remarried. How will this affect my Social Security benefits?

Answer:

If you're receiving benefits based on your own work record, your benefits will continue. If you're receiving spousal benefits based on your former spouse's work record, those benefits will generally end upon your getting remarried, but you may be able to receive benefits based on your new spouse's work record, or on your own.

If you're a widow(er) under age 60, or you're disabled but under 50, remarriage ends any benefits based on the record of your deceased spouse. However, if you remarry after age 60 (or after 50 and are disabled), those benefits remain intact, unless you get spousal benefits through your new spouse (at age 62 or older) if those benefits are higher. If your second marriage ends as a result of death, divorce, or annulment in less than 10 years, you will again be eligible to collect benefits on your first spouse's record. Benefits paid to a disabled widow(er) are unaffected by remarriage.

Note, too, that if you were the working spouse during your first marriage, your remarriage does not change the Social Security benefits paid to either your new spouse or ex-spouse. Because the rules surrounding payment of benefits are complicated, and depend on your particular situation, contact the Social Security Administration at (800) 772-1213 for more information.

Can You Afford Not To Diversify?

What to do with your Thrift Savings Plan (TSP) account?  So much has been written about this over the years.  Should I stay or should I go?  I say, why not have them both.  In our opinion, the TSP is a fantastic way to grow your retirement nest egg.    It’s low cost, and the funds are nice proxies to the large cap, small cap & international funds found in private sector 401K plans.  With guarantees* of never losing money, it’s also hard to argue with using the G Fund. 

However, as one gets closer to and into retirement, life circumstances change.   Financial and Investment planning should change accordingly.  In our later years, we are not able to afford the losses like those incurred during the Tech Bubble or Great Recession of ’08.  Who knows what the next 5-10 years will bring?  While the TSP has many advantages, there are also a few negatives.  Specifically, the level of diversification is lacking.  All of the equity positions in TSP are highly correlated, meaning TSP funds react the same way at the same time in varying economic or geopolitical events.  Dr. Harry Markowitz won a Nobel Prize for his Modern Portfolio Theory.  I won’t bore you with the minutia, but the main tenant is that in order to achieve an efficient portfolio, one should use investment vehicles that have low to slightly negative correlation to each other.  This is not the case if you are only allocated between the C, S & I funds. 

One suggestion would be to take a portion of the account and move it outside TSP into non-correlated investments.  How much to move is based on individual circumstance, but common ranges are anywhere from 20% - 40%.    This way, your portfolio can be truly diversified**.

If this is a topic you would like to discuss in greater detail, please feel free to call or e-mail.

* The payment of G Fund principal and interest is guaranteed by the U.S. Government.

**¹Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions

Living Trust & Wills

What is the difference between a living will and a living trust?

Question:

What is the difference between a living will and a living trust?

Answer:

These two very important estate planning devices are quite different from each other but serve similar purposes. A living will lets you manage your health-care decisions in case you become incapacitated. A living trust lets you manage your property in case you become incapacitated.

A living will is not actually a will at all. It is a legal document that becomes effective if you become so ill or injured that you can't make responsible health-care decisions for yourself. It lets you approve or decline certain types of medical care in advance, even if you die as a result.

A living will is allowed only in some states. If you don't live in one of those states, you may be able to accomplish the same goal using a durable power of attorney for health care, health-care proxy, or Do Not Resuscitate order.

By comparison, a living trust is just what it says. It is a revocable trust you create while you are living. You transfer property to the trust, and the trust then "owns" it. You name yourself as trustee and someone else as a successor trustee. You manage the property in the trust unless you become incapacitated (or until you die), in which case your successor trustee automatically steps in to continue managing the property for you.