Expert's View

The first change you’ll notice is that your annuity – which will only be a percentage of what you earned as an employee – will be paid to you on the first of each month, 12 months a year. Image: Jennifer G. Lang/Shutterstock.com

Reg Jones

There are big differences between being employed and retired. I’m not talking about obvious ones, like no longer needing to set the alarm clock to go to work. Instead, I want to explain how your financial picture changes.

The large majority of federal employees are paid biweekly and from each of those payouts (typically 26 a year) your agency deducts money for such things as required contributions to the retirement fund (and for FERS and CSRS Offset employees, Social Security deductions), Medicare, federal (and sometimes state) income tax, and, for most, premiums under the federal insurance programs. For most of you it also deducts Thrift Savings Plan investments, and for some it takes out certain other voluntary deductions such as union dues and flexible spending account set-asides.

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If you have a problem with any of those, your personnel or finance/payroll offices would be your first stop.

When you do retire, the picture changes. The Office of Personnel Management becomes your combination personnel and finance office. The first change you’ll notice is that your annuity – which will only be a percentage of what you earned as an employee – will be paid to you on the first of each month, 12 months a year.

And unlike your salary – which is usually increased by annual pay raises set by Congress and the White House, and at other times on events such as promotions or within-grade increases – your annuity will increased yearly by changes in the consumer price index. When that happens depends on whether you were a CSRS or FERS employee—COLAs start immediately for the former system but in most cases not until after age 62 in the latter (where those adjustments are reduced if the figure is above 2 percent).

The deductions from your annuity will also be different from those that were taken from your paycheck. For example, once you retire you’ll no longer have to make contributions to the retirement fund. You’ve already paid for that benefit though payroll deductions and are now enjoying it. And there won’t be any deductions for Social Security you had paid under FERS or CSRS Offset.

Deductions for union dues will also end when you retire and as a retiree you no longer can have a flexible spending account or make new investments in the TSP (although you can continue to manage your money by moving it among the funds and will now have a range of options to withdraw the money).

On the other hand, deductions will still be required for federal income tax (and state tax if applicable). Deductions also will continue to be taken from you annuity if you are still enrolled in the Federal Employee Health Benefits program and/or the FEDVIP vision-dental insurance program. However, if your premiums were paid in pretax dollars—as is the case for almost all active employees under FEHB and for all under FEDVIP—you’ll lose that advantage when you retire. Thus, even though the premium rates are the same, the premiums effectively are more expensive because the tax break is lost.

If you are enrolled in the Federal Employees’ Group Life Insurance program, deductions will also be taken from your annuity until you reach age 65 or when you retire if later than 65. If you elected the 75 percent reduction in your Basic coverage, you’ll no longer have to pay any premiums and it will begin to decline by 2 percent per month until it reaches 25 percent of its face value. If you chose the 50 percent reduction, it will decline by 1 percent per month until it reaches 50 percent of its face value. If you chose to have the value of the policy remain unchanged, you’ll continue to have deductions taken from your annuity until you cancel that enrollment or die.

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If you signed up for Option A (standard optional insurance) – a rarity these days – at age 65, you’ll no longer be required to pay any premiums and its value will be reduced by 2 percent each month for 50 months, at which point Option A coverage will end.

If you enrolled in Option B (additional optional insurance) or Option C (family optional insurance) and elect to continue that coverage, you’ll continue paying the premiums until age 65. At that point you’ll have the option of continuing coverage up to the full amount and pay the appropriate premiums for that level of coverage.

Under the FLTCIP long-term care insurance program, premiums remain the same as long as you continue paying them. As in FEGLI, those premiums are paid on a post-tax basis for both employees and retirees.

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