Declining a Relocation Offer and RIF Eligibility
Okay. Let’s move on to the second grouping of questions, which have to do with rifs, the reduction in force. So let’s start with Stefan’s question first. Question over here. I’m probably being removed from federal service this month for declining to relocate. I’m also eligible for retirement. So I have to admit, when I looked at this question, I wasn’t clear on the question, and I’m still not clear on the question.
Okay? I’ll tell you why. Because if you declined to relocate, that sounds like there was a reduction in force. And they came to you with what’s called a reasonable offer, and you declined the reasonable offer. If you declined, if I understand you correctly, I don’t know the all the details here, but if you declined the reasonable offer, well that means you’re not eligible for the rif, for the DSR.
That means you’re not eligible for the discontinued service retirement because they didn’t discontinue your service. They gave you the option of relocating, right? And you declined that option. So you may have declined what’s called a reasonable offer, declining. Your reasonable offer is tantamount to quitting.
You basically quit. So when you say that you are eligible for retirement, my question is. What retirement are you talking about the DSR, the discontinuing service retirement, or are you talking about regular retirements? And the answer to your question depends on which type of retirement you’re referring to.
If you were talking about that you were eligible for regular retirement, you will be able to keep your federal health insurance benefits long as you satisfy the five year rule, which I assume that you did. Okay, so meaning as follows, if you had FEHB for the last five years and now there’s this reduction in force that came to you with a reasonable offer and you said, nah, I’m not interested, I’m gonna choose to retire.
If you are eligible for regular retirement or MRA plus 10 retirement, you are able to keep FEHB in retirement as long as you satisfy the five year rule. However, Stefan, if you were not eligible for regular retirement, if you’re not eligible for the DSR because you declined a reasonable offer, I have news for you. That means you’re basically separating without being eligible for an immediate retirement. And if you separate without being eligible for an immediate retirement, you are not able to keep those benefits.
MRA+10 Retirement vs Discontinued Service Retirement (DSR)
Okay, fine. Let’s move on to Jonathan’s questions. When RIF’d, what are healthcare options and how can I keep my federal health insurance if I take the MRA plus 10 at 57? And how do I minimize financial penalties from taking MRA plus 10 at 57? So, John, your question suggests that you know a lot about this thing called MRA plus 10.
Okay? So some of the people in the audience may know, may not know if you get RIF’d, . Okay. And by the way, just so you guys know all the questions that I’ve answered thus far, not only do I address these in my classes, but I have the answers to them written out in articles on my website. Okay? So, for example, you know, should you be worried about the new proposed legislation? I have an article about that. And what happens if you get RIF’d? I have an article about that as well. Okay, so let’s talk about this. If you get RIF’d, . So my question for you, John, is are you eligible for the DSR, in order to be eligible for DSR? That means you have to not quit, not decline a reasonable offer, and you have to have either age 50 with 20 years of service or any age with 25 years of service.
So John, if you met those criteria and you get RIF’d, you could continue the health insurance in retirement, no problem. Okay. However, John, from your question, it sounds like you’re thinking that you’re not gonna be eligible for the DSR, but you may be eligible for the MA plus 10 re retirement if you have, if you choose MA plus 10 retirement, you have two choices.
You could retire and collect your pension immediately with a reduced benefit, or you could retire and postpone your pension until a regular retirement qualification. Okay. There’s a big difference between those two, aside from the penalty, meaning if you retire and you take your pension immediately, aside from the fact that there’s a penalty, you are able to continue your FEHB right away.
Health Insurance Costs and Retirement Timing
However, if you choose to postpone, if you postpone until a regular retirement qualification, it’s true, you avoided the penalty, but you are not gonna have FEHB during those years that you postpone. So for example, if you postpone from 57 to 62, you do not have FEHB from the age of 57 to 62, that means you’re gonna have to buy your own health insurance and you’re not gonna have a government subsidy to pay for your own health insurance.
You are gonna have to get your own health insurance on your own, and that’s gonna cost you a lot of money. I don’t know if you guys realize that the cost of health insurance, if you did not have the government paying their 70% or whatever the percentage is. The cost of health insurance would be thousands and thousands of dollars more.
I’ll just give you an example. If you have a family plan, it’s just a regular family plan. With FEHB, the government portion alone is about $15,000. So that means if you do not have FEHB from 57 to 62, that means you’re gonna have to get your own health insurance plan. That means you’re gonna have to pay not just your portion, but also the government’s, $15,000.
If you think about it, 15,000 times, five years, that’s gonna cost you $75,000. So, if, John, if you’re concerned about financial penalties, my question for you is, which penalty are you more concerned about? Are you concerned about the reduced pension or are you concerned about the $75,000 cost of health insurance that you just imposed upon yourself?
Just so you know, Jonathan, my general recommendation is if you’re in that situation where you’re gonna be delaying for five years without health insurance, if you’re in that situation, I would actually tell you to take the pension right away. But the reduced pension, right away, your right is reduced. However, if you delayed the amount of time it takes you to, to make back what you delayed is about 15 years. And then when you add on top of that, the $15,000 of FEHB premiums that you cost yourself for five years in a row, it’s gonna take you like 32 years to break even.
So I would just say, take it early. There are situations where I tell people to postpone. That’s, for example, I’ll give you a great example. Let’s say you take, you retired MRA plus 10, but you have health insurance through some other means, whether you have a spouse that has health insurance or you have tricare.
So by you postponing, you don’t incur an additional health insurance cost. And there’s one more detail. If you postpone, you’re not postponing for five years, you postpone for less than five years, less like three years or two years. In the situation I get where you have the health insurance and you’re only postponing for a couple years, I might just tell you to delay to avoid the penalty.
But if you’re postponing for five years, I would tell you not to delay. And if you’re postponing for five years and it’s gonna incur the additional health insurance cost, I’m definitely not gonna tell you to postpone.
Accessing Your TSP After a RIF
Okay. Kara, I have been RIF’d, and I’m not eligible to retire. Are there any options for me to access my TSP funds if I need to without being penalized?
And Lilica has a sim similar question. My agency is facing massive RIF’d, if pushed into retirement, which I’m eligible for? What is your advice regarding the TSP in that case? So Kara and Lilica, I have news for you. If you guys get RIF’d, can you access your TSP? The answer is yes. And I have two strategies, or let’s say three strategies to access your TSP.
The first strategy for accessing your TSP is the very simple one. If you are age 59 and a half, when you separate from federal service, you’re fine. 59 and a half is what’s known as, the age based withdrawal. You are able to access your TSP without penalty if you’re 59 and a half.
Okay? So that’s number one. That’s easy. That was, that’s for everybody. Okay? However, if you’re not age 59 and a half, then the question is if you separate from federal service due to a RIF, what age are you? ‘Cause that’s gonna be critical. So for example, if you are RIF’d, in the year that you turn age 55, there’s something known as the age 55 rule.
And the age 55 rule, believe it or not, will give you access to your TSP without penalty. So lemme say it again. Kara and Liga. If you are RIF’d, in the year that you are turning age 55, you can access your TSP without penalty.
Okay. However, if you are below the age of 55, then the only other option for you that I have to access your TSP without penalty is if you use something called 72 T. Okay? 72 T. The IRS allows you to structure substantially equal payments from your retirement accounts, whether it’s A TSP or an IRA or 401k. So long as you structure payments that are designed to last your life expectancy, it doesn’t literally have to last your life expectancy. It just has to be designed to last your life expectancy. And by the way, as I mentioned, I have an article that explains this as well. So I would encourage you guys, if anybody here has not yet navigated my website, I have an article that explains, what happens if you get separated before the age of 59 and a half and how to access your TSP before the age of 59 and a half.
