How prepared are you if you no longer work for the Federal Government?
Maybe you accepted the Trump Administration’s “deferred resignation” package; maybe your agency did a Voluntary Early Retirement (authorized as a VERA); maybe there was a reduction in force of mass layoffs? Maybe you are one of the many federal employees that we have been chatting with who said, you know what, “It’s been real. Sometimes it has been fun. It’s no longer real fun.” and you just want to leave federal service.
Are you ready to leave federal service? If so, you may want your FERS Go Bag Packed and ready.
When planning for your federal retirement, one of the most important steps is to pack your “FERS Go Bag” – a metaphorical bag of financial and practical preparations to ensure a smooth transition when you leave federal services or, as smooth as things are going to be right now.
As financial advisors who have helped thousands of federal employees learn about their benefits (no matter where they are at in their careers), here is our list of the Top 5 Items you need to have verified and have before you leave Federal Service.
Item 1: Cash Reserves: Your Financial Safety Net
An adequate cash reserve is the first and most crucial item to include in your FERS Go Bag. Cash is critical to have on hand.
When we start financial planning with our feds, this is the first goal that we establish:
- Still Working: 6 months cash reserves saved
- Retiring: 12-24 months of cash reserves saved
I know it’s a lot of money to have sitting, liquid, and saved, and let’s hope that you never have to draw from it. Chances are, though, that if you are like most of the people we work with, you will have to dip into that reserve during times of transition.
Let’s go over the two categories: those who are not retired yet and those who are retiring.
For Those Not Yet Retired:
If you’re still working and planning for your retirement, aim to build up a cash reserve of at least 6 months’ worth of living expenses. This financial cushion will help you weather unexpected costs or income disruptions.
The disruption may be that you are leaving federal service sooner than you expected. It might take time before you’re able to secure another job at the same or equivalent pay.
This is contingent on the timing of the job market, but we like to use a simple rule of knowing that it could take one month per ten thousand dollars you earn to find the job you want to be at.
Example
- $60,000 could take 6 months
- $80,000 could take 8 months
- $100,000 could take 10 months
That doesn’t mean you won’t find employment right away but it might not be the position you want long term. Cash provides flexibility.
For Those Retiring Permanently:
If you’re on the verge of retiring permanently from federal service, it’s even more critical to have a robust cash reserve. In this case, you should strive for 12 months’ worth of living expenses set aside in easily accessible accounts.
Why Cash Reserves Matter
- Transition Buffer: The transition from regular paychecks to retirement income can sometimes involve delays or unexpected expenses. Your cash reserve helps bridge any gaps.
- Emergency Fund: Unexpected costs don’t stop in retirement. Having cash on hand prevents the need to dip into long-term investments during market downturns.
- Peace of Mind: Knowing you have a financial safety net reduces stress and allows you to enjoy your retirement more fully.
- Flexibility: A strong cash reserve gives you the flexibility to delay Social Security benefits or adjust your withdrawal strategy if needed.
- The Bell Curve: when you retire, your spending is most likely going to INCREASE, not decrease the first couple of years. Think about it, when do you spend the most amount of money? Monday through Thursday or Friday through Sunday? What happens when you approach retirement and you have a lot more time?
How long will it take for me to get my annuity payment from OPM?
OPM refers to your pension as an “annuity,” but we call it a pension. We want to be clear about that because we do not want you to get confused about insurance products in the private sector called annuities.
Pension payments from OPM have historically varied significantly in processing times. This is based on the surgence of paperwork that OPM sees during a specific period of time: the more people who apply for retirement at once, the longer it takes.
By prioritizing this first item in your FERS Go Bag as adequate cash reserves, you’re laying a solid foundation for a secure and enjoyable federal retirement. Remember, proper planning and preparation are key to making the most of your FERS benefits and ensuring a comfortable retirement.
Based on the most recent data available, the processing time for federal retirement claims by the Office of Personnel Management (OPM) has significantly improved. As of February 2024, OPM has achieved a record low average processing time for retirement claims.
Processing Times
- Average processing time: 47 days
- Simple cases: 29 days
- Complex cases: 135 days
This is a notable improvement from previous months, with the average processing time decreasing from 66 days in January 2024 to 47 days in February 2024.
Do you think that the time line is going to change now? We do too. That is why cash reserves as so important to have.
Factors Affecting Processing Time
Several factors can influence how long it takes OPM to process a retirement claim:
- Completeness of application: Missing signatures or incomplete forms can cause delays1.
- Complexity of the case: Special circumstances like disability provisions or specific retirement laws may extend processing time2.
- Additional information needed: If OPM requires more details from you or your former agency, it may take longer.
- Verification of service: If documentation is missing, OPM may need to complete verification, adding time to the process.
OPM’s Process
- Initial steps: After receiving your retirement package, OPM assigns you a claim number and begins interim payments1.
- Processing: OPM reviews and calculates your benefits, which can take 10-90 days.
- Finalization: Once processed, you’ll receive your first regular monthly payment.
Recent Improvements
OPM has implemented several reforms to speed up retirement processing:
- Increased staffing and work hours
- Educational campaigns to reduce filing errors
- Moving forward with a strategic plan to modernize the process
While the average processing time has improved significantly, it’s important to note that individual cases may vary. Preparing a complete and accurate retirement application can help ensure a smoother and potentially faster processing experience. Before you get super frustrated with OPM, remember that they didn’t cause this they’re just responding to it.
Feeling overwhelmed by all your benefits and not sure where to start?
We’ve got you covered.
Micah Shilanski 00:00
We’ve heard me say it before, and I’m gonna say it again. One of the best benefits you have is your federal employee health insurances, and I look on the outside in with my green colored lenses of envy, looking at how good your health insurance is, I can definitely say that, but you gotta understand the rules to keep it into retirement, and we have a really good question that came in from Matt, which I can’t really tell based on his comment if he’s going to be able to keep that health insurance or not, so if you’re interested in the answer to this question, then stay tuned for this FERS Federal Fact Check. Hi, I’m Micah Shilanski with Plan Your Federal Retirement. We have a good question that came in from Matt today talking about his health insurance. Let’s take a peek at his question first, let’s go through a couple scenarios after that. He says, my wife is a federal employee and will retire next year. She’s gonna be 50 years old, and I’m gonna be 58 when she retires, I’m on her health insurance, so we wanna continue having that post retirement. Can I stay on her health insurance without her having to take the survivor benefit? I understand that if she dies, I am no longer covered, but if she lives, we not take any survivor coverage? Can I remain on her health insurance as long as she is alive? Mark, this is an excellent question. I’m sorry, Matt, this is an excellent question that you have, so let’s break it down a couple different ways. Number one, let’s talk about the rules for retirement. Because you say she’s going to retire, but I don’t clearly see if she’s eligible to retire under an immediate retirement because she has two requirements that she has to meet, in order to keep health insurance to retirement, you have two requirements that you have to meet. Number one, she must retire with the eligibility of an immediate pension, that’s our first rule, right? So in that case, what are the rules? The rules under a normal FERS are, you got to be your Minimum Retirement Age and have at least 30 years of federal service. Or you got to be age 60 and have at least 20 years of federal service. Or you could be age 62 and have at least five years of federal service. Now those are the rules. Now, if she has potentially a special provisions, eligible for early retirement, maybe there’s an early out, then we could talk about those rules are, you can be any age and at least 25 years of service, or you could be age 50 and at least 20 years of service, so you made the comment that she’s 50 years old and she’s going to retire, it leads me to believe that she’s under special provisions, right? Or, you know, there’s an early out that you’re able to take advantage of, but she has to go out under this set of rules in order to be under an immediate retirement, and that’s the first requirement. Now, if you have 20 years of federal service and you’re 50 years young, you’re not special provisions, there’s no early out available that’s going to happen, there’s no RIF, etc. Can you retire? Absolutely, are you going to get an immediate pension? No, because if I’m just 50 and I got 20, 30, 40, years of service, I don’t know how 40 years would work at 50, but anyways, you get the concept, it doesn’t matter how much service you have at 50 years young, unless you’re special provisions or there’s an early out opportunity, you’re not eligible for an immediate retirement, this would be a deferred retirement, and in a deferred retirement, you lose your health insurance for a life, this is not a good option, really, be careful before you go down that. So that’s the first requirement she has to retire with the eligibility of an immediate pension, so Matt, question for you, does she meet that requirement? Number two, she must be in FEHB for five years prior to retirement, so great news, she’s gonna retire this next year, rewind the clock, five years has she been an FEHB? Probably most federal employees are in it for a long time, but that’s just this thing to check. Then it gets to your questions, can you stay on her health insurance? Absolutely, if she has FEHB, as long as she selects a family plan or self plus one, then you’re eligible to maintain on that coverage, but you brought up a point, and I have a little concern, I don’t know your situation, you understand that you are not wanting to leave a survivor benefit, and you are correct in your question or your statement that says, if she passes away and she does not leave a survivor benefit, her health insurance dies when she does, right? That means you lose that FEHB for life. That’s a pretty big risk, now, maybe have is taken care of somewhere else, maybe you don’t need the insurance after that, I don’t understand, right? Because there’s a lot of things in your situation I don’t know, but it’s definitely not something that’s kind of ooh, I’d be really careful before you sign on that paperwork and give that benefit up for life, God forbid, if she passes away, that you’re going to lose out on that, so it’s definitely something to think about, but if she retires, you absolutely can stay on her insurance as long as she’s eligible to keep it, it’s a great question. If you have questions like this that you need answers to, then jump on our website planyourfederalretirement.com and you could be featured in our next FERS Federal Fact Check. Till then, Happy Planning!