Welcome Guest! To enable all features please Login or Register.

Notification

Icon
Error

Retirement Planning


Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


To read today's top news stories on federal employee related news visit FederalDaily.com.

Options
Go to last post Go to first unread
TRW  
#1 Posted : Tuesday, April 16, 2019 3:25:24 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
I’m a retired AF E-7 (retired in 1998). Conventional wisdom has always said that as retired military, it doesn’t make sense for me to buy back my military time and get the additional 20 years, 8 months credited to my FERS retirement. Bored one day, I decided to test this theory and crunch the numbers. I was surprised to learn that by buying back my time, 20.8 years at a cost of approximately $16,940, and retiring with 37 years under FERS instead of 17, as I had previously planned, I would actually end up with a gain of $750 a month in my gross pay. I would be giving up my military retirement ($1782 per month) to get a $4250 a month FERS annuity. Without buyback, and only 17 years, my FERS annuity would only be $1718 a month.

Without buyback: $1718 (FERs annuity) + $1782 (military retirement) = $3500 gross pay.

With buyback: $4250 (FERS annuity) + $0 (military retirement) = $4250 gross pay

$4250 – $3500 = $750 net gain for buying back my military time.

Buyback payoff: $16,940 / $750 = 22.5 months to pay off the buyback amount using my $750 a month net gain.

After 22.5 months I would have the buyback amount paid off and starting in month 23 be enjoying my net gain of $750 a month ($9K a year) for the rest of my life.

For calculation purposes, I’m a GS-13 Step 7 equivalent (NT-05) in a 33% locality area and I expect my high-3 at retirement to be about $125K.

Buyback amount: $16,940 – based on 3% of my military base pay earned between 1978 and 1998, plus interest. I do have the cash saved to pay the deposit in one lump sum.

FERS multipliers used:

17 year retirement: 17 X 1.0 = 17%
37 year retirement: 37 X 1.1 = 40.7%

I also have a 10% VA disability of about $140 a month which I assume will not be affected or will lose as a result of the buyback.

Just throwing this out there for a group sanity check. Am I overlooking or missing anything? It seems a no brainer to me.

Edited by user Tuesday, April 30, 2019 5:33:20 AM(UTC)  | Reason: Not specified

Mac86  
#2 Posted : Tuesday, April 16, 2019 9:09:50 AM(UTC)
Mac86

Rank: Member

Groups: Registered
Joined: 1/20/2016(UTC)
Posts: 22
United States

Was thanked: 1 time(s) in 1 post(s)
TRW:

I'll leave the numbers check to others, but let me point out that military retirees receive a pretty good COLA each year, while there has been a push by the President and the Congress to (retroactively)do away with the COLA for FERS retirees. Even if they don't succeed, isn't the COLA that military retirees receive always better than what FERS retirees receive? Also, can you still hold onto Tricare if you buy back your military time(I've been told that Tricare is cheaper than FEHB in retirement)? Finally, will you owe interest on the $10,500 buyback for your military time, since you did not buy back your military time right after you left the service (I think there was a 2 year grace period when I bought back my 4 years of military time).
thanks 1 user thanked Mac86 for this useful post.
someoldguy on 4/16/2019(UTC)
TheRealOrange  
#3 Posted : Tuesday, April 16, 2019 9:51:16 AM(UTC)
TheRealOrange

Rank: Senior Member

Groups: Registered
Joined: 5/22/2011(UTC)
Posts: 635

Thanks: 1 times
Was thanked: 127 time(s) in 109 post(s)
Originally Posted by: TRW Go to Quoted Post
Buyback amount: $10,500 – based on 3% of my military base pay earned between 1978 and 1998.

I do have the cash saved to pay the deposit in one lump sum. Unfortunately, I’m over the three year grace limit for “interest-free” payback, so I will have to pay accrued interest, and I’m not sure how much this will be yet. Paperwork to determine this has been submitted and I should find out in 6-8 weeks. Obviously, any interest would increase the buyback payoff time. How much? Not sure yet and this is definitely a factor I will consider.

The interest can be multiples of the base amount depending on how many years are being calculated. For instance, I know of someone who left an agency in 1991 and the base service credit deposit was right around $200. With interest added from after the grace period, he owed over $2,000. It was still worth it for him, but it's a major consideration. The annual interest rates are available at the OPM website, although 2018 has not yet been added. I will try to reprint them below. As I understand, interest is compounded annually and is charged to the date the deposit is paid in full or annuity begins, whichever is earlier. Interest is charged at a variable rate determined by the Department of the Treasury every year.

https://www.opm.gov/reti...d=&url=interestrates

Interest Rates

Beginning in 1985, interest rates vary each calendar year, according to the interest rates earned by new retirement fund securities. Interest rates through 2017 are:

Year(s)/Percentage Rates
2017/1.875%
2016/2.0%
2015/2.0%
2014/1.625%
2013/1.625%
2012/2.25%
2011/2.75%
2010/3.125%
2009/3.875%
2008/4.75%
2007/4.875%
2006/4.125%
2005/4.375%
2004/3.875%
2003/5%
2002/5.5%
2001/6.375%
2000/5.875%
1999/5.75%
1998/6.75 %
1997/6.875%
1996/6.875%
1995/7%
1994/6.250%
1993/7.125%
1992/8.125%
1991/8.625%
1990/8.750%
1989/9.125%
1988/8.375%
1987/9%
1986/11.125%
1985/13%
1948-1984/3%
Before 1948/4%
frankgonzalez  
#4 Posted : Tuesday, April 16, 2019 10:53:56 AM(UTC)
frankgonzalez

Rank: Senior Member

Groups: Registered
Joined: 8/8/2008(UTC)
Posts: 5,182

Thanks: 72 times
Was thanked: 959 time(s) in 761 post(s)
Interest could double your deposit and so increase the payoff time before you see any real gains. Without knowing where you are in the timeframe (ie only been a fed for 4 years vs 15 years), it is hard to say.

Do you forgo the military annuity when you retire from the feds or immediately upon buyback? That would also need to be added to the calculation (immediate loss of the $1700+ month means you would need to be retired from civil service for many more years before it switches to being a net gain)....A little google-fu and it appears you can collect the military retired pay up to the point you retire from FERS (https://www.opm.gov/retirement-s...on/military-retired-pay/)so this isn't a loss.

The other consideration is what would that same deposit money earn in a Roth IRA or other financial vehicle (like a mutual fund tied to the S&P500)...and have you included that opportunity cost in your calculations.

I'm a retired NCO (retired 2008 with 22+ years) and a higher grade than you, and it was close to a wash unless I manage to become part of the SES (and no plans for that currently!).
You should have voted Cthulu...the greatest of all Evils
TRW  
#5 Posted : Tuesday, April 16, 2019 1:01:31 PM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
I'm at ~14 years civil service now. Buying back the 20.8 years would put me at 35 years by this November. If I didn't have the money saved it would be an easy decision (no). The interest rates posted above look kind of scary. I had a break in service from Aug 2002 to Jan 2007 so I'm not sure when the three year grace period starts and ends. Officially, beause of my break in service, my service comp date is recalculated to Jul 2005, so perhaps the interest penalty wouldn't start or be calculated until Jul 2008? If that was the case, the interest rates don't look as scary.

I don't lose Tricare, my retired ID card or my 10% VA disability payment. My military retirement stops the day my FERS retirement begins.

Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
TRW  
#6 Posted : Tuesday, April 16, 2019 1:06:43 PM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Originally Posted by: Mac86 Go to Quoted Post
TRW:

I'll leave the numbers check to others, but let me point out that military retirees receive a pretty good COLA each year, while there has been a push by the President and the Congress to (retroactively)do away with the COLA for FERS retirees. Even if they don't succeed, isn't the COLA that military retirees receive always better than what FERS retirees receive? Also, can you still hold onto Tricare if you buy back your military time(I've been told that Tricare is cheaper than FEHB in retirement)? Finally, will you owe interest on the $10,500 buyback for your military time, since you did not buy back your military time right after you left the service (I think there was a 2 year grace period when I bought back my 4 years of military time).


I'm pretty sure we get the same COLA raises as social security recipients. Lately, these haven't been very good.

TRW  
#7 Posted : Tuesday, April 16, 2019 1:15:17 PM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Originally Posted by: frankgonzalez Go to Quoted Post
Interest could double your deposit and so increase the payoff time before you see any real gains. Without knowing where you are in the timeframe (ie only been a fed for 4 years vs 15 years), it is hard to say.

Do you forgo the military annuity when you retire from the feds or immediately upon buyback? That would also need to be added to the calculation (immediate loss of the $1700+ month means you would need to be retired from civil service for many more years before it switches to being a net gain)....A little google-fu and it appears you can collect the military retired pay up to the point you retire from FERS (https://www.opm.gov/retirement-s...on/military-retired-pay/)so this isn't a loss.

The other consideration is what would that same deposit money earn in a Roth IRA or other financial vehicle (like a mutual fund tied to the S&P500)...and have you included that opportunity cost in your calculations.

I'm a retired NCO (retired 2008 with 22+ years) and a higher grade than you, and it was close to a wash unless I manage to become part of the SES (and no plans for that currently!).


My last year as an E-7 (1998) I only earned $27K. We were deep in the middle of the cold war drawdown. I'm sure you did much better retiring in 2008. Timing is everything! Seems like after 9/11 the military was getting consistent 3-4% a year raises for at least the next 10-12 years. I don't begrudge anyone their raises, you guys earned them!
frankgonzalez  
#8 Posted : Wednesday, April 17, 2019 3:04:06 AM(UTC)
frankgonzalez

Rank: Senior Member

Groups: Registered
Joined: 8/8/2008(UTC)
Posts: 5,182

Thanks: 72 times
Was thanked: 959 time(s) in 761 post(s)
Originally Posted by: TRW Go to Quoted Post
Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
Actually, once you enter Tricare for Life, you no longer pay for Tricare, only Medicare part B as Medicare become the primary insurance with Tricare secondary. (My father was retired military, and my mother is still on TFL...I have 14 more years to go before I'm in that category. Of course, they could change everything again in that time!)

So your total cost would only be for the Medicare Part B.

You should have voted Cthulu...the greatest of all Evils
TRW  
#9 Posted : Wednesday, April 17, 2019 11:57:21 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Originally Posted by: frankgonzalez Go to Quoted Post
Originally Posted by: TRW Go to Quoted Post
Off topic but I'm 59 and will have to do Tricare for Life when I turn 65 which you only qualify for if you participate in Medicare Part B, which is currently running $165 a month. Not sure what most FERs retirees pay a month for FEHB but between Tricare (~$50) and Medicare part B ($165) my monthly medical premiums will be ~$215.
Actually, once you enter Tricare for Life, you no longer pay for Tricare, only Medicare part B as Medicare become the primary insurance with Tricare secondary. (My father was retired military, and my mother is still on TFL...I have 14 more years to go before I'm in that category. Of course, they could change everything again in that time!)

So your total cost would only be for the Medicare Part B.



Good info! Thanks.


TRW  
#10 Posted : Tuesday, April 30, 2019 5:26:09 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Was just notified that my buyback amount, including interest, will be ~$16,940.

Based on calculations above in original post, which I have updated with the new figures, this takes my payback period from 14 months to 22.5 months.

I have the money to pay it lump sum, it seems like a no brainer.

They gave me 120 days to decide.

Are there other advantages or disadvanateges I am missing?

My current wife and I were married after I retired from the military. I don't plan on getting divorced but assume that since we were married after I retired, that my retired pay would not be subject to any shenannigans during a potential future divorce, but that my new and improved FERS annuity would be ripe for the picking.

Any thoughts on this?

Edited by user Tuesday, April 30, 2019 5:40:29 AM(UTC)  | Reason: Not specified

frankgonzalez  
#11 Posted : Tuesday, April 30, 2019 8:15:59 AM(UTC)
frankgonzalez

Rank: Senior Member

Groups: Registered
Joined: 8/8/2008(UTC)
Posts: 5,182

Thanks: 72 times
Was thanked: 959 time(s) in 761 post(s)
Originally Posted by: TRW Go to Quoted Post
My current wife and I were married after I retired from the military. I don't plan on getting divorced but assume that since we were married after I retired, that my retired pay would not be subject to any shenannigans during a potential future divorce, but that my new and improved FERS annuity would be ripe for the picking.

Any thoughts on this?
Your thoughts are correct....

You should have voted Cthulu...the greatest of all Evils
TRW  
#12 Posted : Tuesday, April 30, 2019 12:47:16 PM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Playing with the numbers again.....

Retiring next January at age 60 with 35.1 years would be a net loss of $42 a month. The $16,940 would never get paid back.

This is due to:
- two less years TIS (35.1 vs 37.1)
- Using 1.0%, instead of 1.1% multiplier (must retire at 62 to use 1.1%) (35.1% vs 40.8%)
- Lower high-3 ($118K vs $125K)

Definately will wait until age 62.

TRW  
#13 Posted : Wednesday, June 12, 2019 7:46:30 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Committed today and paid the deposit amount via pay.gov.

The only thing to do now is continue working until I retire (early 2022) and focus on getting my "high-3" as high as possible.

As acquisition workforce I am eligible for annual "pay point" bonuses (the gift that keeps on giving) so between those and possible annual raises from congress there are at least six opportunities for my pay to increase between now and early 2022.

Current rumor is congress is looking at a possible 3.1% raise for Feds in 2020. Keeping my fingers crossed.

GWPDA  
#14 Posted : Thursday, June 13, 2019 5:39:43 PM(UTC)
GWPDA

Rank: Senior Member

Groups: Registered
Joined: 2/26/2011(UTC)
Posts: 2,296

Thanks: 234 times
Was thanked: 484 time(s) in 404 post(s)
I've enjoyed reading this.

But this morning, at the Speaker of the House's press conference, one little word made its way through the fog.

Sequestration.

That's how I lost my job in 2013. It took me until 2016 to get back into service. Were sequestration to take place again, as a term (yes, I know, I took the risk for the High 3), my service could be ended at the end of the contract year - 1 year before I meet my Social Security full retirement, and one year before I anticipated and plan for FERS retirement. This time, I'm fully vested in everything - just not fully funded. I think that were sequestration to kick in, I'm best to formally retire. But oh lord! What a prospect!
TRW  
#15 Posted : Tuesday, July 16, 2019 7:53:00 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
Got my payment notification letter about 2 weeks ago from DFAS. Paid in full.

The next LES I got showed the amount also paid in full in block 20.

Scanned and sent a copy of the letter to my HR team for inclusion into my personnel file.

Will also maintain the original and digital copies in case something gets screwed up later during my retirement processing.

Not sure whether the time I bought back will adjust my SCD date now, or if they wait to do that during retirement processing.

Guess I'll send an e-mail to the HR rep I have been working with and ask.

TheRealOrange  
#16 Posted : Tuesday, July 16, 2019 8:33:39 AM(UTC)
TheRealOrange

Rank: Senior Member

Groups: Registered
Joined: 5/22/2011(UTC)
Posts: 635

Thanks: 1 times
Was thanked: 127 time(s) in 109 post(s)
Originally Posted by: TRW Go to Quoted Post
Got my payment notification letter about 2 weeks ago from DFAS. Paid in full.

The next LES I got showed the amount also paid in full in block 20.

Scanned and sent a copy of the letter to my HR team for inclusion into my personnel file.

Will also maintain the original and digital copies in case something gets screwed up later during my retirement processing.

Not sure whether the time I bought back will adjust my SCD date now, or if they wait to do that during retirement processing.

Guess I'll send an e-mail to the HR rep I have been working with and ask.


Your SCD for Retirement should be adjusted now. It took a little while for the change to be reflected after I made the deposit, but it was done very quickly. It definitely should not wait until retirement processing; I made my service credit deposit in 1995 and won't retire until 2022, and my SCD for Retirement was adjusted long ago.
Citrine  
#17 Posted : Tuesday, July 16, 2019 8:34:25 PM(UTC)
Citrine

Rank: Member

Groups: Registered
Joined: 10/13/2018(UTC)
Posts: 21
United States
Location: midwest

Was thanked: 4 time(s) in 3 post(s)
Interesting thread. I appreciate the details.



let us know if the SCD changes.
is there a separate SCD for RIF purposes?

definitely let us know if your milpay stops. :)


were you charged interest for that period when you were out of federal service?

did you have "veterans preference for RIF" already? my LES does not show that I have it, but it should. eventually I will ask for that to be fixed.



someday I will consider buying some time, but as a retired reservist.

Edited by user Tuesday, July 16, 2019 8:35:12 PM(UTC)  | Reason: Not specified

TheRealOrange  
#18 Posted : Wednesday, July 17, 2019 3:03:21 AM(UTC)
TheRealOrange

Rank: Senior Member

Groups: Registered
Joined: 5/22/2011(UTC)
Posts: 635

Thanks: 1 times
Was thanked: 127 time(s) in 109 post(s)
Originally Posted by: Citrine Go to Quoted Post
Interesting thread. I appreciate the details.

let us know if the SCD changes.
is there a separate SCD for RIF purposes?

definitely let us know if your milpay stops. :)

were you charged interest for that period when you were out of federal service?

did you have "veterans preference for RIF" already? my LES does not show that I have it, but it should. eventually I will ask for that to be fixed.

someday I will consider buying some time, but as a retired reservist.

Yes, the SCD for RIF is separate from the SCD for Retirement, and there are SCDs for several purposes: Life Insurance Payout and Career Tenure; Leave; Thrift Savings Plan (TSP); Reduction in Force; and Retirement. They all could be the same, but they are are not necessarily. For instance, my SCD for Leave is different from my SCD for Retirement.

https://www.fedsmith.com...e-comes-in-five-flavors/

Military retired pay "should" stop when the FERS annuity starts. It should not stop now based solely on the service credit deposit for military service. Just be sure not to actually waive the receipt of the military retired pay until the FERS annuity begins.

I had "Veterans Preference for RIF" reflected in my SF50 forms prior to making the service credit deposit and continue to have that status. It really has nothing to do with the service credit deposit and is determined entirely separately. The only caveat I recall is that, for the purposes of a Reduction in Force, employees are only eligible for Veterans Preference if they are either a disabled veteran or retired below the rank of major. If you meet either of those two criteria, you should qualify for Veterans Preference for RIF.

I generally advise people to contact HR and determine out their various statuses sooner rather than later to avoid trying to correct any outstanding issues in a rush at the time of retirement. Doing it now also means fewer surprises at retirement if it turns out that you are incorrect about your eligibility to a certain status.
TRW  
#19 Posted : Thursday, August 1, 2019 11:47:21 AM(UTC)

Rank:: Senior Member

Groups:: Registered
Joined: 1/13/2010(UTC)
Posts: 308

Was thanked: 1 time(s) in 1 post(s)
It's kind of confusing, but based on the following OPM criteria for retirees below the rank of Major, I don't think I qualify:

1. My retirement was NOT based on disability resulting from injury or disease....
2. My retired pay from a uniform service IS based on 20 or more years of full-time active service....
3. I was NOT employed on 30 Nov 1964 in a position covered by 5 U.S.C. Chapter 35 for 30 or more consecutive days. I was 5 years old in Nov 1964.



Rss Feed  Atom Feed
Users browsing this topic
Guest
Forum Jump  
You cannot post new topics in this forum.
You cannot reply to topics in this forum.
You cannot delete your posts in this forum.
You cannot edit your posts in this forum.
You cannot create polls in this forum.
You cannot vote in polls in this forum.


This page was generated in 0.901 seconds.