Key Takeaways:
- Keeping up with federal employee benefit changes is essential to protect your retirement plans and ensure financial security.
- New updates in COLA, health insurance, and TSP rules could directly impact your savings and benefits—stay informed to make smarter decisions.
What’s Changing with Federal Employee Retirement in 2024?
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This year, several shifts have occurred in areas like cost-of-living adjustments (COLAs), health insurance premiums, and the Thrift Savings Plan (TSP) that could affect your retirement income and expenses. Here’s a closer look at what you need to know to safeguard your retirement.
COLA Adjustments: How Much Will Your Pension Grow?
The Cost-of-Living Adjustment (COLA) is an essential part of retirement, designed to help federal retirees keep pace with inflation. For those of us under the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS), COLA ensures our pensions maintain their purchasing power.
In 2024, the COLA has been set at 2.5%. While this increase reflects rising inflation, there’s an important distinction between how COLA is applied to CSRS and FERS retirees:
- CSRS retirees receive the full COLA adjustment, so you’ll see the entire 2.5% boost.
- FERS retirees receive a slightly reduced COLA, which is typical. FERS retirees will receive 2.2% this year.
For those who rely heavily on their pensions for day-to-day living expenses, these adjustments can have a significant impact. If you’re a FERS retiree, this is something to consider as you may need to account for this smaller increase in your retirement budget.
Health Insurance Premiums: Are Costs Rising Again?
Yes, health insurance premiums are rising for federal retirees enrolled in the Federal Employees Health Benefits (FEHB) program. In 2024, premiums are expected to go up by an average of 7.2%. This marks one of the largest increases in recent years and could put extra pressure on your retirement budget.
While rising premiums aren’t new, it’s important to review your plan every year to ensure you’re still getting the best coverage for your money. After all, your health needs may change, and so might the offerings from different plans. Plus, with premiums rising at this rate, even small savings can make a difference.
If you’ve been enrolled in FEHB for at least five years before retiring, you’re eligible to keep your coverage throughout retirement, which is a huge advantage. But with these rising costs, take some time to evaluate your plan options before the open season ends. It’s worth the effort to compare your coverage, especially if you expect your health care needs to change in the coming year.
TSP Investments: Should You Reconsider Your Strategy?
The Thrift Savings Plan (TSP) is a vital part of your federal retirement, acting as a defined-contribution plan similar to a 401(k). But recent market fluctuations may have you wondering whether your TSP is still on solid ground. As we all know, the stock market can be unpredictable, and 2024 has been no exception.
If you’ve been watching your TSP balance dip or fluctuate, it might be time to take a second look at your investment strategy. The good news is that you still have a wide range of investment options within the TSP, from safer, government-backed G Fund to riskier but higher-yielding options like the C, S, and I Funds.
Here’s a quick tip: If you’re nearing retirement, consider adjusting your TSP portfolio to more conservative investments to protect yourself from potential losses. After all, the closer you are to retirement, the less time you have to recover from any downturns.
Retirement Processing Delays: What to Expect in 2024
We’ve seen increasing delays in retirement claim processing from the Office of Personnel Management (OPM), which could affect you if you’re planning to retire soon. In fact, the average processing time for federal retirement claims has climbed to 60 days or more, with some retirees experiencing even longer waits.
This delay could be due to a variety of reasons, including incomplete documentation or the sheer volume of retirement claims being processed. If you plan to retire this year, be proactive about submitting your paperwork well ahead of your target retirement date. The earlier you start, the better your chances of avoiding delays in receiving your pension payments.
If you’re already retired but experiencing issues with your benefit payouts, it might be time to follow up with OPM to check the status of your claim.
How Social Security Fits Into Your Retirement Plan
For many federal retirees, Social Security plays a crucial role in supplementing retirement income. If you’re a FERS retiree, you’re likely eligible for Social Security benefits alongside your FERS pension. However, keep in mind that the amount you receive can vary depending on how many years you contributed to Social Security and when you choose to start receiving benefits.
The Windfall Elimination Provision (WEP) is something to be aware of if you have a mix of Social Security-covered and non-covered employment. The WEP can reduce your Social Security benefits, particularly if you worked part of your career in a job where you didn’t pay Social Security taxes, like many federal employees before FERS was introduced.
The 2024 Social Security COLA is set at 2.5%, similar to the federal pension adjustment. This increase will help counter rising costs, but again, if you’re subject to the WEP, you may see a reduction in your benefits.
High-3 vs. High-5: Will Pension Calculations Change?
The way your pension is calculated under federal retirement rules is a critical factor in determining your final benefit amount. Currently, most federal employees’ pensions are calculated using the High-3 formula, which averages your highest three consecutive years of pay. This formula has been a mainstay of federal retirement for years.
However, there has been some talk about shifting future pension calculations to a High-5 formula, which would average your highest five years of pay. While this wouldn’t impact current retirees or those nearing retirement in the next few years, it’s something to keep in mind if you plan to work for several more years. This change would likely result in a smaller pension, as the five-year average tends to be lower than the three-year average.
For those of us nearing retirement, the High-3 formula still holds, but it’s always wise to stay aware of potential future changes to the retirement system.
Staying Prepared for Retirement’s Challenges
Navigating the maze of federal retirement benefits can feel overwhelming at times, but staying informed is the best way to protect yourself and your financial future. Whether it’s keeping an eye on COLA adjustments, reviewing your health insurance options, or making sure your TSP investments are in line with your goals, preparation is key.
Start planning early, stay proactive, and you’ll be in a great position to enjoy your retirement without unexpected hiccups. It’s your retirement—make sure you’re taking full control of it by staying on top of the latest news and changes in federal employee benefits.
