The first change you will notice is that your pension – which will be just a percentage of what you earned as an employee – will be paid to you on the first of every month, 12 months a year. Image: Jennifer G. Lang/Shutterstock.com

Reg Jones

There are big differences between being employed and retired. I’m not talking about the obvious ones, like no longer having to set the alarm clock to go to work. Instead, I want to explain how your financial situation changes.

The vast majority of federal employees are paid bi-weekly, and from each of those installments (usually 26 per year) your agency deducts money for things like required retirement fund contributions (and for FERS employees and CSRS Offset, Social Security withholdings), Medicare, federal (and sometimes state) income tax, and, for the most part, premiums under federal insurance programs. For most of you, it also deducts Thrift Savings Plan investments, and for some, it removes certain other voluntary deductions such as union dues and flexible spending accounts.

If you have a problem with any of these, your staff or finance/payroll offices would be your first stop.

When you retire, the picture changes. The Office of Personnel Management becomes your combined personnel and finance office. The first change you will notice is that your pension – which will be just a percentage of what you earned as an employee – will be paid to you on the first of every month, 12 months a year.

And unlike your salary – which is usually increased by annual salary increases set by Congress and the White House, and at other times during events such as promotions or increases within the class – your pension will increase each year based on changes in the consumer price index. When this happens depends on whether you were a CSRS or FERS employee – COLAs begin immediately for the first system, but in most cases not until age 62 in the second (where these adjustments are reduced if the figure is greater than 2%).

Deductions from your pension will also be different from those deducted from your salary. For example, once you retire, you will no longer have to contribute to the pension fund. You have already paid for this benefit through source deductions and you are now benefiting from it. And there will be no deductions for Social Security you paid under FERS or CSRS Offset.

Deductions for union dues will also end when you retire, and as a retiree you will no longer be able to have a flexible spending account or make new investments in the TSP (although you can continue to manage your money in moving it between funds and you now have a range of options for withdrawing the money).

On the other hand, deductions will still be required for federal income tax (and state tax, if applicable). Deductions will also continue to be taken from your pension if you are still enrolled in the federal employee health insurance program and/or the FEDVIP dental vision insurance program. However, if your premiums were paid in pre-tax dollars, as is the case for almost all active employees under FEHB and all under FEDVIP, you will lose this benefit when you retire. So even if the premium rates are the same, the premiums are effectively more expensive because the tax relief is lost.

If you are enrolled in the Federal Employees Group Life Insurance Program, deductions will also be taken from your pension until you reach age 65 or when you retire if you are over age 65. If you have chosen the 75% reduction in your basic cover, you will no longer have to pay premiums and it will start to decrease by 2% per month until it reaches 25% of its face value. If you have chosen the 50% discount, it will decrease by 1% per month until it reaches 50% of its face value. If you elected to have the value of the policy unchanged, you will continue to have deductions taken from your pension until you cancel this membership or die.

If you purchased Option A (standard optional insurance) – a rarity these days – at age 65, you will no longer have to pay any premiums and its value will be reduced by 2% each month for 50 months from the date which Option A coverage will end.

If you purchased Option B (additional optional coverage) or Option C (optional family coverage) and choose to continue this coverage, you will continue to pay premiums until age 65. At that time, you will have the option of continuing coverage up to the full amount and paying the appropriate premiums for that level of coverage.

Under the FLTCIP long-term care insurance program, premiums stay the same as long as you continue to pay them. As in FEGLI, these premiums are paid after tax for employees and pensioners.

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