Guaranteed money maker for old-timers
By Mike Causey | @mcauseyWFED
January 22, 2016
I once read somewhere that our mental image of ourselves — particularly how young or old we look — is about 12 years off. We can't understand why the dashing young guy or slim woman we think we are always looks so much older and, uh, more substantial in pictures.
Stupid camera!
So, are you the oldest person in your office, carpool, division or even in your entire agency? If so, not to worry. Being one of government's senior citizens means you are in that happy but dwindling minority covered by the old Civil Service Retirement System or CSRS Offset. And that gives you an important leg up on those whipper-snappers hired after you, who are in the FERS retirement program.
FERS is great. Much better than almost anything in the private sector. It provides a smaller than CSRS defined benefit. But like CSRS it's for life, with the option to provide a survivor benefit. It is partially linked to the cost of living but those inflation-catch ups don't start until age 62 for most retirees. The jewel in the FERS crown is that Uncle Sam will put in up to 5 percent in your Thrift Savings Plan account if you put in that much. That's a tax-deferred 5 percent pay raise — guaranteed — each year you get it. When compounding kicks in that is dynamite and assures you a larger TSP account balance when you retire.
But FERS doesn't offer workers a little-known perk: The Voluntary Contributions program. It's like a super-in-house Roth IRA for workers under the CSRS or offset systems.
You can open an account, put in any amount you like (in $25 increments) up to 10 percent of your lifetime-to-date federal salary. If you hit the lottery, or live a very, very frugal life, long-time employees (under the CSRS program) could put in 10 percent of what they've earned to date. Few would be able to do it, but you could park a bundle of money there.
The interest rate varies from year to year. It has been as high as 9 percent, and as low as under 2 percent.
Money you put into the VC program is after-tax income. That means when you withdraw it your contributions are tax-free. You pay taxes only on the interest earned. When you decide to cash out you can do one of two things: Either use it to boost (very slightly) your lifetime annuity or take the more popular option which is to get it as a one-time lump sum payment. That could be a lot of money.
For more on the attractive-to-some VC program checkout this article by benefits expert Edward Al Zurndorfer.
If you are eligible and have a chunk of cash hanging around that isn't doing anything, you might want to check the VC Program out. But only if you are old enough! No "kids" (under FERS) need apply.
Posted by: sarah_oz@yahoo.com
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