Transitioning into retirement as a federal employee often unveils unexpected deductions from your monthly FERS annuity (pension). It’s imperative to grasp these deductions to ensure your retirement income aligns with your financial requirements.
Deciphering Income Taxes
There’s a common misconception that FERS annuities are entirely tax-free since they’re funded partly by post-tax contributions. However, this is only partially accurate. While your FERS contributions constitute a fraction of your pension, the government spreads them across your retirement years, making the remaining portion taxable as income. Typically, 95% or more of your monthly payment is subject to taxation. By default, the OPM withholds federal income tax at rates applicable to a married individual with three dependents unless specified otherwise post-retirement.
Survivor Benefits Planning
Planning for retirement should incorporate considerations for a surviving spouse. Opting for a survivor benefit upon retirement reduces your monthly basic FERS annuity. Choosing a 50% survivor benefit entails a 10% reduction, while a 25% survivor benefit results in a 5% reduction. Declining a survivor benefit to avoid this reduction means your spouse’s FEHB coverage ceases upon your demise.
FEHB, FLTCIP & FEGLI Premiums
Maintaining FEHB coverage post-retirement comes with the same government contribution as during employment, with your portion deducted from your FERS annuity. For FLTCIP, premiums can be paid out of pocket or automatically deducted from your pension. Similarly, FEGLI coverage premiums are deducted from your benefit if retained in retirement.
Gaining Insight into Deductions
Understanding the deductions from your monthly FERS benefit is pivotal for evaluating the adequacy of your retirement income. Collaborating with an FRC® trained advisor well-versed in federal benefits can facilitate comprehensive financial planning, equipping you to make well-informed decisions for a secure retirement.
