Federal positions offer some of the best financial benefits in the country. However, most federal employees don’t know how to maximize them. They lack the Financial Planning background needed to integrate their benefits into their overall financial lives. Their personal financial decisions are often made irrespective of Federal Benefits, and vis versa, many benefits are being over-utilized, under-utilized, or even downright mishandled because they have not been put into the proper context of overall financial planning. Federal Benefits that are not integrated into overall financial planning cause unnecessary losses of wealth.
The need to plan one’s financial life applies to the young new employee, just as much as it applies to seasoned soon-to-be retiree. However, the need becomes even more pronounced for pre-retirees as they start managing more complex decisions that involve Social security, Medicare, Estate Planning, Survivor benefits, Long Term Care, and the overall effects of working less and relying on assets for support.
* Organize, Strategize & Maximize™ is my tagline that expresses the steps and effects of utilizing my financial planning techniques.
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Federal Employee Retirement Systems
When employed as a Federal Civilian employee, you accrue credits toward a Federal Pension. This Pension is monthly income that will get paid to you when you retire and will (likely) last the rest of your life.
However, not all Federal Pensions are the same. The amount of your pension, as well as your eligibility to retire will depend on when you became a Federal employee, what position you held, and what agency you worked for.
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Social Security is a form of social insurance that supports you in retirement, provides disability income and provides income to the eligible survivors of someone who passes away. These three social insurances are alluded to in the Social Security acronym OASDI.
Similar to a Federal Pension, your Social Security retirement benefit is monthly income that will get paid to you when you retire and will (likely) last the rest of your life. The amount of this benefit will depend on your income throughout your career that you have paid Social Security tax on.
Retirees and pre-retirees have some considerations they need to be sensitive to. The need to decide when to take their Social security benefit. Taking it “early” will yield a lesser monthly benefit and also comes with an “earnings test.” Taking it “late” will provide a larger monthly benefit, but with less life expectancy. Another consideration is whether to take one’s own social security or to opt for a spousal benefit instead. CSRS employees have special social security issues such as the “Windfall Elimination Provision” (WEP) and the “Government Pension Offset” (GPO).
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Estate plans are the steps people take to ensure all their financial and personal matters are handled to their liking, even after they personally are no longer able to wield control over these matters. Such matters are relevant even when one doesn’t have significant wealth, and even before someone dies, whether young or old.
The core documents in an estate plan are the wills, trusts, powers of attorney, and health care directives. Other key documents which will significantly impact any estate plan are beneficiary forms as well as the titling of assets. All these can be personalized to express and control you’re your wishes.
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Federal Employee Insurances:
As a Federal Employee you are entitled to a variety of insurance benefits, including life insurance (FEGLI), Health Insurance (FEHB), Long Term Care insurance (LTCFEDS), Dental & Vision (FEDVIP, BENEFEDS), Disability insurance (CSRS or FERS). You also have access to Flexible Spending Accounts (FSA) for both health care expenses and dependent care expenses.
When organizing your financial life you will want to determine whether you have sufficient insurance coverage. If you don’t, you need to decide how much of a priority insurance is. Meaning, should your money be set aside for future savings, for spending, or for insurance?
Pre-retirees have additional considerations such as how to balance FEHB with Medicare, how to balance life insurance with survivor benefits, and how to be best prepared should you need long term care.
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