Your million-dollar-plus annuity nest egg

Despite what your significant other may say from time to time, odds are you are worth more than you think, as in a lot more — especially if you were wise and tough enough to make a career with Uncle Sam. Thanks to the Federal Employees Retirement System, the Civil Service Retirement System and Social Security retirement programs many people will have guaranteed lifetime payments worth $1 million to $2 million.

And that is in addition to their investments in the Thrift Savings Plan.

Tom O’Rourke, a Washington area attorney whose practice is limited to estates, trusts, tax and federal pension matters, said most active and retired feds are worth more than they think, “especially if you are entitled to receive a lifetime annuity at retirement.” And that is especially if the annuity is indexed to inflation. CSRS and Social Security benefits get cost of living adjustments each January to match the rise in inflation as measured by the Bureau of Labor Statics. FERS benefits get a full COLA up to 2 percent, then a diet COLA on any increase over 2 percent.

Today at 10 a.m. EDT on our Your Turn radio show O’Rourke is going to talk about what feds and their survivors should be doing to maximize their cash benefits. These include things such as wills, powers-of-attorney (two kinds), trusts and the like to protect you and yours. Here are some numbers based on the “average” DC area federal worker:

Advertisement
  • The average salary of a D.C. metro area federal employee in 2017 was $112,601, according to the U.S. Bureau of Economic Analysis.
  • Assuming an employee retires at 62 and has a life expectancy of 23 years (IRS regs.), that employee will receive a cost of living adjustment of 1 percent per year.
  • If the employee is covered by CSRS and receives an annuity of $67,500 per year, or $5625 per month, the cost to buy an annuity that would pay income for life would be $1.7 million.
  • If the employee is covered by FERS and receives an annuity of $42,700 per year, or $3,558 per month, the cost to buy an annuity that pays income for life is $1.1 million. This FERS retiree would also receive Social Security of approximately $18,000 per year, though it could be as high as $42,000 per year. The present value of this benefit is $460,000, and combined with the value of the FERS annuity and Social Security payment brings it to $1.56 million.

Determining the government guaranteed value of your lifetime income is the starting point in doing any financial, estate or tax planning,” O’Rourke said.

This will dictate, among other things, the types of investments you can or should make in retirement, when to start taking withdrawals from your TSP account, and whether you need — or simply want — to take a part-time job in retirement.

It will also dictate what you can and cannot afford to do in retirement, what steps you need to take to minimize tax liabilities, and what you need to include as part of your estate plan.

You can listen to the show streaming on www.federalnewsradio.com or on 1500 AM in the D.C. area. Questions for Tom or me should be sent before showtime to mcausey@federalnewsradio.com

Remember all our Your Turn shows are archived on our home page so you can listen later, listen again or recommend them to a  friend or coworker. See, you really are worth more than you thought.

Nearly Useless Factoid

By: Amelia Brust

A 3-year-old English Bulldog named Otto, from Peru, set the world record for skateboarding through a human tunnel without being led or touched in any way in 2015. He glided through 30 people’s legs in Lima.

Source: Guinness World Records