Retirement Facts: A True-False Quiz

Over the years, I’ve conducted more than 3,000 retirement planning seminars. That’s a lot of talking. Teaching is very rewarding for me. It doesn’t matter if it’s an auditorium of 500 people or a consultation with one employee, the best part is when you see the “ah-ha” moment of understanding in your students’ eyes.

The other thing I’ve learned over the years is to know when to say, “I’m not sure, but I’ll get back to you.” There’s nothing that will cause you to lose credibility faster than getting caught saying something dead wrong with great conviction.

Let’s test your understanding of the retirement process. See how you do with the following true or false statements about subjects that commonly come up in pre-retirement or mid-career seminars. Answers are at the bottom of the column.

1. In order for your spouse to be entitled to continue federal health insurance after your retirement, they must have been covered for five years before you retired.
2. Federal retirees do not have to enroll in Medicare Part B when they reach age 65. Their Federal Employees Health Benefits Program plan will continue to provide coverage whether they enroll in Medicare or not.
3. You can be assured your military service and any other prior federal service will count towards eligibility and computation of your retirement benefit as long as it is included in the service computation date that appears on your Notification of Personnel Action statement, Form SF-50.
4. A widow or widower can file for Social Security benefits on the work record of their late spouse and delay their own Social Security benefit to as late as age 70.
5. The main reason so many federal employees retire at the end of the year is the tax advantages of doing so.
6. Federal employees who continue to work past age 70 ½ are required to take minimum distributions from their Thrift Savings Plan accounts and are no longer permitted to contribute to their accounts.
7. When you begin receiving federal retirement benefits, you must cancel your Federal Employees Group Life Insurance coverage.
8. When you retire, you can continue to use the balance in your health care flexible spending account through Dec. 31 even if your retirement date is earlier in the year.
9. If you retire the day after your salary increases, the new salary rate will count as one year of your high-three average salary.
10. You should retire on your federal anniversary date so your retirement benefit will reflect another full year of federal service.

Answers:

1. False. You will need five years of coverage under FEHB to continue coverage after retirement. You can elect self plus one or self and family enrollment after retirement.
2. True. Your FEHBP plan will continue to provide coverage even if you don’t enroll in one or more parts of Medicare. But there are benefits to enrolling in Medicare once it becomes the primary payer after you are retired and over age 65. Many FEHBP plans will waive their own deductibles, copayments and coinsurance once Medicare is the primary payer. Some plans will provide a supplement to help pay the premiums for Medicare Part B.
3. False. Your leave service computation date appears on your SF-50. This is not necessarily the same as your retirement service computation date. Some service that was not covered by retirement deductions may not be credited towards retirement eligibility and computation even though it counts towards leave accrual. In addition, some military service used in computing military retirement benefits will count towards leave accrual but not towards retirement unless the military retirement benefit is waived and a military service credit deposit is paid.
4. True. Widows and widowers benefits are more flexible than other Social Security benefits. It’s possible to begin receiving benefits on the work record of a deceased spouse (or former spouse, in some cases) and delay your own “earned” benefit to avoid an early retirement reduction and earn delayed retirement credits up to age 70.
5. False. Although there may be some tax advantages to retiring at the end of the year, the main reason federal employees have traditionally done so is to get the maximum lump sum annual leave payout, which includes leave carried over from the previous year plus all leave accrued in the year of retirement that wasn’t used.
6. False. RMDs are not required until after you reach age 70 ½ and are separated from federal service.
7. False. As long as you’ve had Basic FEGLI coverage for at least five years prior to retirement, you can continue this coverage into retirement. It is valued at your final salary rate rounded to the next thousand, plus $2,000. You’ll pay the same premium as you paid while employed if you are under 65. Once you turn 65 and are retired, basic FEGLI is free and the coverage will reduce by 75 percent.
8. False. Your participation in FSAFEDS ends when you separate from the government. Any expenses you incur after your participation ends are not eligible for reimbursement from your health care FSA. (You may continue to use your dependent care funds until depleted or the end of the calendar year, whichever comes first).  Any eligible health care expenses incurred prior to separation will be reimbursed, and if you used your entire elected HCFSA amount before FSAFEDS has deducted it from your pay, you will not be responsible for the remaining allotments.
9. False. Your high-three average salary is a daily average of your basic pay rates over any consecutive three year period of your career with each rate weighted by the length of time it was in effect. If you retire the day after a pay increase, that rate will count for only two days out of the three-year average.
10. False. The significance of your anniversary date of federal service is to be sure you have the minimum amount of service needed to retire at your age. For example, at age 60, you must have 20 years of service to be eligible for an immediate, unreduced retirement benefit. The service used in the computation of your retirement benefit is calculated in 30-day increments.

Correction: Question No. 8 and its answer have been updated to clarify the rules about health care flexible spending accounts.

Photo: Flickr user Andrew Taylor