Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Happy day my friends. Now we all know that in the federal government there are two types of retirement systems. There's FERS and there's csrs. Some people say FERS F E R S, not F U R S because of course people love their animals and pets and things like that. But with CSRs, some people say like scissors or I got a guy says sipping on some scissor for the civil service. Either way, civil service is the older version.
No one hired into the federal government any longer is going to be CSR CSRS because they were primarily hired before 1984. 1989 is also another important year for them.
There's a couple of different versions of them. If you are a civil service retirement system employee, you're talking to somebody who knows it very well. We definitely should talk. But what you need to know if you are a civil service employee is that there may come a day that if you've passed what's called your 4111, which if you've ever heard that in the, in the world of retirement, that's the amount of years of service that a civil service employee can work where if they retire then 4,111 equals 80% of their high three salary. But civil service doesn't get any Social Security. They didn't contribute. So it sounds like such a big number. And all my furs and boys like where's my 80%? This is nonsense. But you have a lower pension, but you also have Social Security and you also have a match in your tsp. Civil service doesn't get a match in their thrift either.
So they have this sort of one legged stool. Unless they've also added into TSP in terms of contributions.
And those are some things to consider. The thing I want to address now is when civil service contributes into their pension, they put in more than you. My FERS employees, they put in more Gatorade. So let's look at that and talk about what that means so you understand in context what this Means everyone contributes into their own pension. So I made this lovely little picture because I'm very visual. So if you are the powdered Gatorade, it's already sweet, remember, but the majority of your pension is water, right? When you make Gatorade for the football team or whatever sport, it's mostly water. And then you put in that ratio of Gatorade powder to make that water taste sweet, taste better.
So the government is the water, but they're not going to tax themselves.
They're not going to tax themselves. So you've already paid tax going in on the Gatorade, on the contribution that you've made.
Fast forward, time comes to retire, somebody gets out the big spoon and stirs it all up. And then every year, every month, rather, you get a red Solo cup, which is your pension. And as you know, when you drink Gatorade, most of it's water and a little bit is the Gatorade powder.
That's what makes it sweet. So there's this tiny little bit that comes out every month or gets paid back to you that was already taxed. That was your contribution. But the majority of it will be taxed because that's what the government put in.
Now, for further context, if you've been looking at your leave and earnings statement and you're saying, what do you mean I put in Gatorade? Well, if you're leaving, earnings statement looks like this. Like if you're maybe with VA or DOD in any way, this box 19 says cumulative retirement. That's the total amount of Gatorade or contributions to your retirement that you've put in. If you're with Social Security, it's over here on the left side. Cumulative retirement. You see how similar that is. If you are a postal employee, you've probably always wondered, what in the heck is this number on the bottom right hand side of my pay stub? That is not your monthly retirement. I had somebody say, oh, that's my monthly pension. No, no, no.
That is the total amount that you've contributed into your postal retirement retirement system yourself ever since inception. And even to go up here further, I don't know if you can see my mouse. 1, 2, 3, 4. From the top in the middle where it says under the employee ID 1234. From the top it says Retire 8. This person puts in $23.12 per pay period. And then at the end of every year, they do the math to add up this total in the bottom right. If you're with Border Patrol, you see here, this is your, your Your retirement deductions.
That's the total amount that you've contributed into that pension system.
Civil service, you contribute in 7%.
If you're a civil service special category, you're putting in seven and a half. Good grief.
So this is how it breaks down. But you're putting in a much higher percentage FERS employees. You're putting in 0.8%.
That's how that FERS employee is putting in $23 a pay period. Had they been civil service, it would have been more like 80.
So what we want to do now is understand that there may come a day where your Gatorade. Can you see this here? Your Gatorade bucket could be off kilter, oversaturated, maybe you were heavy handed on the Gatorade. What does that mean? If you passed your 4,111 civil service employees and you're retiring with 45 years of service, which my FERS employees are like, their, their jaws are dropping, they're falling out of their chair. Who work 45 years of service?
Many, many, many people. The longest person I had in service was over 60 years up in New Jersey and she retired. Her daughter works at the VA as well.
So you never know. People work long, long, long, long, long time. Me work here a long time. And that is an option that many people have to just keep going. They just want to keep working. And that's probably fine if you don't hate your job. So civil service, you're retiring. And let's say you had 45 years of service, which is obviously over 4111, your Gatorade is oversaturated. You retire, you're going to get a letter in the mail about a month later, usually a month and a half. And it'll look something like this.
Hey, Mr. Clandestine, you have retired. Congratulations. But you had excess contributions. You put in too much Gatorade. We want to give it back to you. Well, in the place where he lives, which is, you'll never know. Road.
If you zoom in on this a little bit, we can see they're saying, hey, you put in too much money. How much too much money?
39,000 plus. Now that's not all his money. Notice the I word right above it into the right interest.
So you've already paid tax on this money. And I had somebody call me, try to call me out. Like you said I wasn't going to pay tax on this money because I already paid tax. Right. Well, you earned interest while they were holding your Gatorade. So you will pay tax on the growth. You'll pay tax on the interest. Just like you pay tax every year on the interest you earn in your bank account.
That's what a 1099 INT is all about. You pay interest on it.
Correction. You pay tax on the interest.
So, hey, Mr. Clandestine, you put in way too much Gatorade. We'd like to give it back to you, plus interest. We're going to tax you on the interest. How do you want it?
You want the lump sum? Or you can take another lifetime pension. What are you going to do? Please tell me you want the lump sum. You already got a pension. And we all know, just like Social Security would love us to wait and wait and wait to take that bigger, bigger money until we die. We don't know how long we're going to live. We all have a shelf life.
Many of my people, most of my people so far, 100% of my people that are civil service and retiring and getting any type of excess contribution refund will take that lump sum to do all kinds of things with. Especially since most of it's not tax. The majority is not taxable. So maybe that's your retirement card. Maybe that's your retirement around the world cruise. Maybe you'd like to donate it to Raina Reyes. No, I'm just kidding. You can do all kinds of things with that.
You earned that you put in all this time. Do something with it. Enjoy it. You worked for an eternity. Now it's time for you to have an eternal enjoyment here with that money.
So in summary, if you're civil service and you over contributed, you're going to get it back.
You'll pay tax just on the growth and you'll have an option. I encourage you to take the lump sum because you want to get while the getting's good. You all take care. If you need help, civil service or civil service offset or fers or postal employees, anyone, I can help you do anything, any which way, anytime, anyhow, bring it on. And have your documents ready. It helps me because if I can use that to reference it, we can have the answers ready at all times. Happy retirement.
[00:09:12] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits consultants, call 1-800-8.
That's 1-800-8728857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the Federal Government or any state government. The terms CSRS, FERS, FEGLI and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents, consultants or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
