There are several facts about retirement planning that elude most retirees. So in this article, I’ll highlight five fun facts about retirement you should be aware of.
- Survivors Elections Are Considered Permanent
Under the FERS and CSRS, a married employee has to get their spouse’s consent to choose less than the maximum survivor benefit. You can cancel or reduce the survivor benefit thirty days from your first regular payment. You can also change your election to add a survivor eighteen months from the commencement of your annuity if you elected a single-life annuity.
Under FERS, you’ll need to make a one-time payment of 24.5% of your annual retirement benefits to switch from a no survivor to a full survivor benefit or 12.5% to switch from no survivor to partial survivor benefits. For instance, if your annual retirement savings is $30,000, and you wish to add a partial survivor without your spouse’s consent, the penalty would be $4,900 (plus interest). You also have to do this within eighteen months from the date your annuity kicks off. A similar penalty is charged under CSRS.
- You May Have to Pay Federal Income Taxes on Your Social Security BenefitsÂ
If your combined income is less than $25,000 as a single filer or $32,000 as a joint filer, then your Social Security benefits would be tax-free. However, if it exceeds the stated amounts, then you’ll have to pay income taxes on either 50% or 85% of your benefits, depending on how much your combined income is. The combined income is calculated by adding your adjusted gross income + any nontaxable interest + half of your Social Security benefits.
You can ask for these taxes to be deducted at the source when filing for Social Security. If you are already receiving benefits, then you’ll need to fill a Form W-4V with the IRS to have your Social Security taxes deducted at the source. The good news is that a lot of states don’t tax Social Security benefits.
- Your Retirement Income Estimate May Likely be Wrong
It’s no one’s fault since they are just “estimates.” Also, it may be that you owe state taxes on your FERS or CSRS benefit, and the estimate only reflects withholding federal taxes. Moreover, the program can’t tell if you have received income from part-time work, spousal income, withdrawal from TSP or other retirement plans, or Social Security benefits. If you encounter a service credit issue that can affect your service’s length, it might also not reflect on your estimate. Some of these issues include undocumented service, services that may not be credible, changes in retirement coverage, changes in work schedule, unpaid deposits, or redeposit. Also, your former spouse entitlements, FERS supplement, or survivor benefits could be missing from the estimate. CSRS Offset estimate may not clearly explain the ‘offset’ that will occur when you reach Social Security or retirement eligibility. You can use the IRS tax estimator to get a more accurate estimation of your federal withholding tax.
- Your Life Insurance May Change at Retirement
Continuing life insurance once you’ve passed age 65 can be costly. It’s important to evaluate your options to determine whether you need life insurance in retirement. Basic FEGLI would continue at no extra premium once you click 65, but the coverage will reduce by 2% each month until it goes down to 25% of its original value. This could result in benefits for people born in 1960 being almost 6% less than those born in 1959.
- The Social Security Benefits of Individuals Born in 1960 Will Take a Hit
Over 4 million Americans were born in 1960, and they’ll become eligible for Social Security next year. Social Security indexes each individual’s benefit to the average wage level two years before their initial eligibility. The report released in 2019 showed the national average wage index for the year at $53,864. This will be used to compute the benefits of those born in 1959. The Congressional Budget Office expects a 0.5% decrease for 2020, which will mean that those born in 1960 may receive lower benefits.
