Feds & Social Security: Have at least one Plan B

Although they were outside of the Social Security loop for decades, virtually all federal and postal workers hired since the mid-1980s now pay into and will receive Social Security when they retire. It is an important component of the FERS (Federal Employees Retirement System). Most retirees will live off their Social Security monthly benefit, their FERS annuity (which is about half of the CSRS benefit it replaced) and income from their Thrift Savings Plan investments. And the excellent, generous 5 percent match the government offers FERS investors.

But Social Security can be a problem because lots of people (including yours truly) don’t fully understand it. If at all. Its Medicare component, for example, has nothing to do with long-term care. If you are expecting Social Security/Medicare to pay your LTC bills in the home — yours or a retirement or assisted living plan — you are in for a rude awakening.

Yesterday on our Your Turn radio show, benefits experts Tammy Flanagan talked about Social Security, including when to take it. Some take it at 62 (a reduced benefit) because they need it. Others take it because even though waiting a few years will dramatically boost the lifetime monthly payments they think more small payments is a better bet then fewer but much bigger payments down the line. To listen to the show, click here.

In the meantime, here’s an after-action report from a retired IRS worker who wanted to let his Social Security payment ride, to increase it, but then had second thoughts:

”Hey Mike, Loved Wednesday’s column since I retired at 60 I’ve been wrestling with that question every day since I walked out that door.

“Well, in talking with my financial planner the original plan was to make enough money (in my little tax consulting business) along with my pension to wait to take SS when I was 66. Well, a little over one year in business the income I bring in is not enough to pay the bills and enjoy life. As we all know, starting a business and staying in business is a five-year proposition. I’m happy the way going made more money than last year and hope to do that again this year. I also had to go to Plan B. I get my first SS check next month.

“The whole reason for not taking SS at 62 was so I could make as much as I wanted without any of my SS being taxable. Then at 66 the law changes and it doesn’t matter because my SS isn’t taxable. Without the supplement, my pension took a 60 percent net decrease. I’m not complaining, but most of my pension goes to pay my part of my insurance. My part of the insurance is $717 a month. That’s why I decided to take SS at 62 instead of waiting.

“I called OPM after I got my new statement as to my pension and the reason my insurance co-pay is so high is that I have one more kid who turns 25 in June still on my insurance. OPM said on my plan, if it was just my wife and myself would be only $450 or so, almost $300 less. So, this means making sure I have money withheld from my pension and distributions I take from my IRAs, which I set up when I withdrew from the thrift savings.

“All in all, I have to be careful that my pension and IRA distributions are not more than $15,000 this year since my Social Security will become taxable. I will see how it goes this year and maybe change things around. Next June, my kid turns 26 and she will have to find her own insurance. That will help and I will also find a cheaper health plan in November. At 65, I will apply for Medicare and that should reduce my health insurance at that time.

“I do enjoy working for people so as my financial planner says, you just may want to work a little longer as long as you enjoy it and keeps you busy. My advice is have a plan but also have a Plan B. Make sure you look at all the factors before. I didn’t want another 40-hour-a-week job I like keeping my own hours with my business. Hopefully, it grows, allowing me to depend less on the IRA distributions.” Tony Krolik

Nearly Useless Factoid

By Michael O’Connell

In 2003, the Boston Creme donut was designated the official state donut of Massachusetts.

Source: eReference Desk

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