Making the decision when to collect Social Security payments can be difficult. While many people believe the deciding factor is age alone, there are more variables to consider.

There is no single, universally correct answer that covers all federal employees at the time of their retirement. However, two major considerations for determining when to collect Social Security payments are as follows:

When do they need the cashflow?

When to collect Social Security payments is determined in large part by how quickly a federal retiree needs the money. Some have minimal expenses and a significant nest egg at retirement, while others are still dealing with mortgage payments or other outstanding obligations. In the latter cases, waiting may not be an option.

Depending on how long an employee decides to work, one important subsidy may be the Special Retirement Supplement (SRS).

A federal employee has two paths on which to become eligible for retirement benefits:1

1. Retiring at 60 years old after 20 years of federal service, or
2. Retiring at any age after 30 years of federal service.

In either case, the federal retiree is likely eligible for SRS payments.

The SRS is a stopgap that provides federal retirees with supplemental income from the date of retirement to the age of 62, when they become eligible to collect Social Security payments. This provides financial support for those federal employees who retire prior to the age of 62 and need the additional cash flow prior to collecting Social Security.

However, the question remains whether the federal retiree will then have enough money to fulfill monthly obligations after SRS payments stop. This will go a long way in deciding when to collect Social Security payments.

At what age do they “break even”?

While a federal retiree can begin collecting Social Security payments at 62, they have the option to postpone those payments until the age of 70. While on the surface the choice may seem obvious, the decision as to when to collect social security payments takes more into consideration than one might realize.
If a federal retiree collects Social Security payments before the Full Retirement Age (FRA) of 67, benefits will be reduced permanently by as much as 30%, 2 while the benefits grow by approximately 8% each year that payments are deferred.

The decision then becomes one of life expectancy. Deferring payments until the FRA is inherent with the risk that the federal retiree dies shortly thereafter. For a federal retiree to “break even,” or receive the same total payout in either scenario, the federal retiree will need to live up until a certain age.

For example, if a federal retiree can expect Social Security monthly payments of $1,000 at age 62, that payment would increase by about 8% per annum to $1,469 if the federal retiree were to wait until age 67. In this case, the federal retiree would make up the forgone 5 years of $1,000 payments (between the ages of 62 and 67) at age 74 if receiving payments of $1,469.

No two retirement ages are the same

These are just two of the many factors that can influence the decision when to collect social security payments, and no two situations are alike.
At Your Benefit Resource Partners, we understand that your circumstances require a specific strategy. Our team is experienced in tailoring a retirement strategy that best fits each client’s individual financial situation.

The Thrift Savings Plan (TSP) was created by the IRS to provide federal employees with certain tax advantages. In exchange for those advantages, the IRS limits a federal employee’s options for withdrawing from a TSP without penalty. If a withdrawal were made outside of the approved qualifying circumstances, the federal employee would be charged a ten percent (10%) penalty.

However, as any worker moves closer to retirement, circumstances may arise that require additional funds – and the TSP account could be the only available option.

Qualifying Circumstances

Like 401(k) retirement accounts, the IRS does provide for certain situations under which withdrawing from a TSP without penalty is permitted. Those situations include (but are not limited to) the following:

Taking Out a Loan

A common method for withdrawing from a TSP without penalty is borrowing funds, as opposed to a permanent draw. A federal employee can take out a loan of up to $50,000 against a TSP account without a taxation penalty. Most loans must be repaid (including interest) within five years of the loan approval date. In addition, the loan period can be extended up to 15 years if the funds are used to purchase a primary residence.

If a federal employee does not pay their loan back on time, however, the IRS will charge them income tax and 10% withdrawal penalties on the unpaid amount.

Extenuating Life Circumstances

A federal employee can also avoid the 10% early withdrawal penalty by using the funds to fulfill obligations related to certain life circumstances. More specifically, the federal employee does not incur an early withdrawal penalty if:

• The federal employee becomes permanently handicapped
• The federal employee becomes permanently handicapped
• The federal employee incurs medical expenses that exceed 7.5 percent (7.5%) of their annual income
• A federal employee uses the funds to satisfy a divorce settlement

In all cases, the withdrawal amount cannot exceed the amount required to fulfill the obligation in question.

Leaving A Federal Position At 55

A federal employee may choose to retire at the Minimum Retirement Age (MRA) after 30 years of federal service, even if they are not yet 59 and a half years old. This means that they are ineligible to withdraw penalty-free from certain retirement accounts, such as an IRA or 401(k) from a prior job.

The rules for withdrawing from a TSP without penalty, however, are different. Federal employees can withdraw funds from their TSP account without penalty if they meet the MRA requirements and leave their federal position – by resigning or retiring – at the age of 55 or older.

If the MRA requirements are met, funds can be withdrawn for any purpose.

“Special” Positions

The IRS incudes a separate provision for special category personnel who are eligible to withdraw funds from a TSP account if they retire at the age of 50 or later. These positions include (but are not limited to):

• Capitol Police officers
• Supreme Court officers
• Firefighters

Know the Rules Before You Withdraw

The rules for withdrawing from a TSP without penalty are not always transparent, and determining whether you qualify may often require guidance.

At Benefit Resource Partners, we understand that these requirements can be unclear. Our experienced finance professionals are available to help advise you on your potential options.

Contact us today to see if you are eligible for an early TSP withdrawal.

The financial markets have been on a wild ride in 2020. The year began with a continuation of the bull market that started in 2009. The longest bull market in history, however, came to an abrupt end with the arrival of the COVID-19 pandemic.¹

From February 20 to March 23, the S&P 500 fell by 33.67%. From that lowpoint through August 14, the index has climbed 50%. In fact, the S&P 500 has recouped all earlier losses and is now in positive territory year-to-date.²

However, that doesn’t mean your portfolio is back where it started at the beginning of the year. Your portfolio is probably allocated across a variety of asset classes. The exact allocation should be based on your specific needs, goals and risk tolerance.

Diversification, or the allocation of funds across many different assets, helps to minimize risk exposure. If one asset performs poorly, only that portion of the allocation suffers. The loss may be offset by gains in other asset classes.

Your various asset classes are always moving in different directions. For example, consider a few asset classes and their index performance through July of this year:³

BloomBarc US 1-5 Yr Government Idx (Short-term Government Treasuries): 4.36%

Bloomberg Commodity Index TR (Commodities): -14.80%

S&P 500 Index (Large-Cap U.S. Stocks): 2.38%

S&P 600 Smallcap (Small-cap U.S. Stocks): -14.48%

That’s just a sampling of some common asset classes that are often included in diversified portfolios. Over time, your allocation becomes out of balance. For example, your allocation to small cap stocks may have declined this year as the asset class has declined in value. Similarly, your allocation to short-term treasuries may have increased as those assets have risen in value.

The result is an allocation that may be very different than what you intended.

One strategy is to review and rebalance your portfolio regularly. In fact, you can set your account up for automatic rebalancing, so at regular periods, assets will be sold and purchased to get back to your original allocation.

If you haven’t reviewed your allocation lately, it’s possible it doesn’t align with your current goals and risk tolerance. We can help you implement the right allocation for your needs and continue to rebalance the portfolio on an ongoing basis.

Let’s connect soon and start the conversation. Contact us today at Benefit Resource Partners.