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If your annual household budget looked like this:

Spending:            $80,000

Income:               $68,000

                          -$12,000

Is there a problem?

How about the household budget of the United States:

United States 2018

Federal Revenue:         $3.33 Trillion

Federal Spending:        $4.20 Trillion

                                    -$873 Billion

Is there a problem?

As leaders of our country move forward on a budget deal that will add $1.7 trillion to the debt over the next 10 years, this math problem is going to get larger.

According to the Congressional Budget Office, “The United States is on an unsustainable and dangerous fiscal path. Our nation’s debt is at historically high levels and projected to rise dramatically, posing a significant risk to our economy and to every American’s future. Our debt challenge isn’t based on politics or partisanship – it’s the simple math of spending more than we take in.”

Perhaps a bigger problem is our country’s unfunded liabilities of $122 trillion, which includes Medicare, Social Security, Federal Debt, plus Federal Employee and Veterans Benefits.

According to the Peter G. Peter Foundation, www.pgfg.org, the Baby Boom generation – 73 million strong – has already begun to leave the workforce and access federal healthcare and retirement programs. Today, and every day for the next 11 years, roughly 10,000 baby boomers will celebrate their 65th birthday. Over the next 35 years, the number of people 65 and older will climb by 35 million, an increase of 67%. Not only will the number of older Americans increase, but they are also expected to live longer in retirement due to significant improvements in life expectancy.

This is telling us that the government will need to spend more for programs that will serve older Americans, such as Social Security, Medicare and Medicaid. The Medicare Trust fund is on schedule to be depleted in 2026 and the Social Security Trust Fund is scheduled to remain solvent until 2034.

While I could devote pages of the fiscal issues challenging affecting our country, I don’t choose to do so. I would rather focus on what we can do to protect ourselves. Most people believe that taxes will rise. We know that the Tax Cuts and Jobs Act of 2017 is scheduled to sunset in 2025, and that tax brackets will go back to higher levels. It also means that taxes could go even higher than they were pre-tax act of 2017.

What is uncertain?

The News:

Many Presidential candidates are seeking to:

·         Reduce federal and gift exemption to lower levels

·         Impose a new wealth tax on the ultra-wealthy

·         Increase top marginal tax rate from 37%

·         Eliminate or reduce the preferential rates on dividend and capital gains 

What is certain?

Major Things That Impact Taxes:

·         Next Presidential election

·         Change in leadership in the Senate?

·         Provisions of the tax cut that will be sunsetting -Tax Cuts and Jobs Act

·         Major provisions- which are permanent and which are  sunsetting?

·         Debt is at an all-time high

·         When is financial doomsday?

One of my favorite quotes, spells it out preciously: “We can throw stones, complain about them, stumble on them, climb over them, or build with them.” William Arthur Ward 

We know as individuals we can’t fix the problem but there are things that we can do to proactively make changes now to protect ourselves in the future. As Americans we can throw stones and complain or as William Arthur Ward says: build on the opportunities that we have available now. We have 7 years to save or convert taxable funds to tax-free funds.

Here are some strategies to consider now:

Strategy 1: Contributing to Roth TSP vs. Traditional TSP.

Do you want to pay tax on the seed or the harvest?

Autumn is the season when farmers all over harvest their crops.  How rewarding it must be for them to start from a small seed, to water and feed it and watch it grow, and then to reap the bounties that their hard work has produced.

The same can be said for us as we plan for retirement… we start with a seed, watch it grow over time and then as we enter retirement with the intent to reap the bounties of our growth – only to find out that the IRS has a right to a part of it.

One of the great advantages you have is the Roth TSP or Roth IRA.  A Roth investment allows you to pay tax on the seed (the smaller, starting investment) and reap the bounties (the investment plus growth/interest) tax-free.

Strategy 2: Roth Conversions

A Roth conversion strategy (TSP to Roth IRA or IRA to Roth IRA). You can spread these out over time 7 years to take advantage of the current low tax rate environment. Note, you will have to pay the tax on any pre-tax funds in the year you do the conversion. At Franklin Planning our team is very busy this year, given that clients still have 7 years do over time making the tax bite less momentous, analyzing Roth conversion solutions for our clients. It doesn’t always make sense when looking at the total financial picture, so I strongly suggest doing an analysis before processing Roth conversions. This strategy can make a significant positive outcome to your retirement.

Strategy 3: Contributing to a Health Savings Account (HSA)

A Health Savings Account (HAS)  can be a significant benefit for many reasons but the most unique of all is that it is the only vehicle I know of where you to get a tax deduction on what you contribute to the HSA and the funds come out tax-free if used for a health expense. Think about the money we spend on healthcare. The average cost of healthcare in the United States, just in retirement is $250,000.

Unfortunately, there are limits on who can qualify. For sure the younger you are the more significant the benefit will be because you will be able to make these contributions for a larger period of time.

First, the features of an HSA:

• Can carryover funds and interest each year
• Earns tax-free interest on unused balance
• Portability – you can take it with you if you leave the plan the plan or retire
• Funds are held with a custodian who provides a debit card
• There are usually investment choices available form no risk to taking risk in a mutual fund
• Can use in retirement – can’t contribute after age 65
• Is inheritable – just like an IRA
• HSA distributions are not included in MAGI, so don’t affect Medicare premiums

Second, to be eligible to enroll in an HSA:

• You must enroll in High Deductible Plan first
• You cannot participate if you are:
• Enrolled in Medicare
• Covered by non-OPM health plan
• Enrolled in Flexible Savings Account (FSA), except for dental and vision
• Covered by Tri-Care or Tri-Care for Life

If you make donations to a charity and are 70 ½ or over, why not contribute to the charity from your IRA and get a dollar for dollar reduction from your taxable income.  This is much better than a deduction, if you will even be able to do with the current tax system. To use this strategy, you must be age 70 ½ or older by the end of the year and the distribution needs to be part of your Required Minimum Distribution (RMD) not to exceed $100,000 in any year. In addition, it has to be paid out directly from your IRA to the charity. (This cannot be done with your TSP RMD).

For more in-depth information please attend our September Webinar: 

Steps to Take Now to Solve Your Math Problem in Retirement

Tues. 9/24/19 from 12:00-1:00pm EST

Click HERE to register

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC.  Advisory Services offered through J.W. Cole Advisors (JWCA). Franklin Planning and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value.  Investments are not guaranteed and you can lose money.   This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither Franklin Planning and JWC/JWCA are tax or legal advisors and this information should not be considered tax or legal advice.  Consult with a tax and/or legal advisor for such issues.

During a recent retirement class, I was asked if there was a checklist available to guide a surviving spouse on what is required to obtain spousal benefits. There is not a checklist that I am aware of, so I said that I would attempt to create one.

First of all, this checklist should be shared and discussed now, so that your spouse knows which benefits you have. For example, why should they be concerned about getting a FERS Supplement if you are not eligible for this benefit. Or, if you don’t have Federal Group Life Insurance, there is no need to submit a claim form.

Benefits you may be entitled to:

·         A survivor pension (CSRS or FERS annuity).

·         FERS Supplement

·         Last paycheck (if spouse was not retired)

·         Federal Group Life Insurance (FEGLI)

·         Lump sum benefit (FERS only)

·         Thrift Savings Plan (TSP)

Spousal Benefits:

1.      CSRS/FERS Annuity (pension)

CSRS

If deceased spouse was retired and chose a survivor benefit at time of retirement, then the survivor benefit is the amount chosen up to 55%.

If decease spouse had not yet retired, had at least 18 months of service, and marriage was at least nine months, the surviving spouse would be eligible for a 55% survivor annuity.

FERS

If deceased spouse was retired and chose a survivor benefit at time of retirement, then the survivor benefit is either 25% or 50%.

If deceased spouse had not yet retired, had at least 10 years of service, and marriage was at least nine months, the surviving spouse would be eligible for a 50% survivor annuity.

If the insured person was a Federal RETIREE: 

You must report the death to OPM’s Retirement Office. You can use report a death online or you can call Retirement at 1-888-767-6738

Survivors are required to notify OPM in the event of the benefit recipient’s death. Contact via email: retire@opm.gov, by telephone (888) 767-6738, or report online https://rsreporting.opm.gov/EmployeeDeath.

If the insured person was a Federal EMPLOYEE: 

You must report the death to the employee’s human resources office. If you don’t know how to contact the employee human resource office, you can reach out to the appropriate Agency Benefits Officer.

Paperwork:

Complete the appropriate application for death benefits SF 2800 for CSRS or SF 3104B for FERS SF 3104 or  SF 3104B for FERS if deceased was an employee at the time of death.

The agency where your spouse was still working at will need to complete part of this application, which should be completed before you sign off on it.

·         Attach a copy of your marriage certificate

·         Attach a copy of the retirees DD form 214 (For military service only)

·         Attach a certified copy of the death certificate

·         Mail to address listed below

·         Send US mail certified with return receipt

·         Keep a copy of everything you send

Send the completed application and above documents to:

Office of Personnel Management
Retirement Operations Center
ATTENTION: Survivor Processing Section
Post Office Box 45
Boyers, Pennsylvania 16017-0045

2.      FERS Supplement

In addition to a monthly annuity, an additional benefit may be available to certain survivors of deceased retirees. The surviving spouse must be under age 60 and eligible for widow(er) benefits at age 60, and not be receiving a Social Security parent benefit or a disability widow(er) benefit. The deceased retiree would have to been eligible for the benefit, which is typical has retired on an immediate unreduced retirement and was under 62. If you are eligible, this payment should be processed by OPM along with your regular spousal benefit, but you should inquire about it as well.

3.      Federal Group Life Insurance (FEGLI)

If your spouse was enrolled in FEGLI and you are the beneficiary, you need to download a claim form and mail it to OFEGLI, an office of MetLife. MetLife determines who is entitled to FEGLI proceeds, for what amount, and processes all claims.

Mailing address:

OFEGLI
P.O. Box 6080
Scranton, PA 18505-6080

The address to use for overnight mail deliveries only (such as FedEx) is:

OFEGLI
10 Ed Preate Drive
Moosic, PA  18507

Checking Status of a Life Insurance Claim

If it has been at least 30 days from the date you submitted your claim form, you may call 1-800-633-4542, the office that pays the life insurance claim. Overseas beneficiaries should call 212-578-2975.

Be sure you have the following information ready when you make the call:

the name of the insured employee/retiree the insured’s Social Security number the date of death of the deceased

4.      Thrift Savings Plan (TSP)

To report a death to TSP, you must complete TSP-17, Information Relating to Deceased Participant, and send it to TSP along with a death certificate.

Make a copy for your records and mail the original form to: TSP Death Benefits Processing Unit, P.O. Box 4450, Fairfax, VA 22038-4450. For overnight delivery, send the form to: ATTN: TSP Death Benefits Processing Unit, 12210 Fairfax Town Center, Unit 906, Fairfax, VA 22033. Or fax the completed form to: 1-703-592-0170.

Once the TSP processes this information, they will contact the beneficiaries with additional information and[CS1]  instructions.

A surviving spouse is the only survivor that can leave inherited funds in the Thrift Savings Plan (TSP). It is very common for a federal employee to tell their spouse to leave the funds in TSP, should the spouse survive the federal employee spouse. However, it is important to understand the rules so there are no surprises down the road. If a spouse chooses to leave funds in TSP, it will become a Beneficiary Participant Account (BPA).

The following applies to the Beneficiary Account owner:

They can leave funds in TSP They can access funds the same way the TSP owner did (partial withdrawal, monthly payments, annuity and full withdrawal) The surviving spouse should designate his/her beneficiaries on Form TSP-3 At the surviving spouse’s death, funds cannot remain in TSP

Death benefit payments made from a Beneficiary Participant Account must be paid directly to your beneficiary(ies). These payments are subject to certain tax restrictions and cannot be transferred or rolled over into an inherited IRA. In addition, the payment will be fully taxable, as ordinary income in the year your beneficiary(ies) receive it. This could mean half of the funds may be going to Uncle Sam, which is probably not your intention.

If a surviving spouse rolls over the TSP funds into an IRA, the named beneficiaries of the IRA can roll over their portion to an inherited IRA, thus avoiding paying tax in the year it is rolled over. The beneficiaries would be required to take a minimum distribution annually under their life expectancy. (Note: At present, there are proposals that would require an inherited IRA owner to distribute all funds within a ten- year period, versus their life expectancy).

Other benefits that you may be entitled to are Spousal Social Security Benefits and Military Benefits (if your spouse was receiving a military pension). Although the details of these benefits are not included in this article, more information can be found at www.ssa.gov and military survivor benefits.

Resources;

www.opm.gov

Information for FERS Survivor Annuitants

Information for CSRS Survivor Annuitants

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC.  Advisory Services offered through J.W. Cole Advisors (JWCA). FedSavvy Educational Solutions and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value.  Investments are not guaranteed and you can lose money.   This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither FedSavvy Educational Solutions nor JWC/JWCA are tax or legal advisors and this information should not be considered tax or legal advice.  Consult with a tax and/or legal advisor for such issues.