The Value of a CSRS Pension

[hellbender]

From time to time I check the TSP Annuity Calculator https://www.tsp.gov/planningtools/annuities/annuityCalc_select.shtml to determine the value of my CSRS pension.

Based on current interest rates, an inflation-adjusted annuity with a 50% survivor feature paying the same amount as my pension would cost $1,891,600. This blew my mind. Actually, I suppose my pension is worth more vecause its inflation adjustment is not capped and the survivor feature only kicks in upon the death of the annuitant. (The TSP annuity is reduced to survivor level upon the death of either the spouse or the annuitant).

Either my pension is worth much more than I thought or the TSP annuity is a really, really bad deal. The TSP annuity first year payout is only about 3.4% of the principal.

 

[chinaco]

Interest rates are pushed artificially low at this time and it introduces a distortion. Annuity costs (for a particular payout) are horrible.

Of course your pension payout (usually) is not based on interest rates... it is based on some factor times your avg salary times years of service.


If interest rates were higher... the cost of that payout would be lower (for an annuity from an insurance company).


Because of the way pension funds are valued and how they project solvency... this very phenomenon is going to cause many Govt and the remaining private pensions to rethink (and reorient) the pension offering to employees.

You can expect many more corporate pensions to be reduced or flipped to a defined contribution plan.


If protractive deflation occurs... pension plans (probably will) reduce pension payout. How... the last resort would be default and too the courts... because the old plan would be unsustainable. Obviously there will be no COLA (if it is in the plan).


Pension Plans are in uncharted territory. No reason to freak out now. But we might be freaking out later!

 

[stoutboy]

Annuities are almost always bad news. And there's no doubt about the fact that you CSRS guys got one sweetheart of a deal. The rest of us stuck with FERS can only dream...

 

[ziggy29]

A lousy 10-year market run plus historically low interest rates is exactly the time the "present cash value" of a pension is going to look unbelievably high.

 

[ziggy29]

Annuities are almost always bad news. And there's no doubt about the fact that you CSRS guys got one sweetheart of a deal. The rest of us stuck with FERS can only dream...

I think a lot of people with no pension at all would love to be "stuck with FERS" -- to say nothing about CSRS. Just sayin'.

 

[Purron]

Yes, CSRS is an awesome deal. However, it's important to note that those under CSRS don't get social security benefits and matching contributions to the TSP like those under FERS. Over a number of years, these matching TSP funds really add up. Also, FERS is a better deal for those who leave federal service before retirement. CSRS is the classic "golden handcuffs" plan.

Based on your CSRS annuity, I'd guess you would have been close to the top of the social security scale. Under FERS you would get about $25,000 per year from social security. Using the TSP annuity calculator, an annuity with this benefit would cost about $420,000.

 

[martyb]

I'll be retiring under CSRS in a couple more years. I'm one of the last few to get in under the old retirement plan before the switch to FERS. Hopefully nothing will be changed with regards to CSRS before I retire. I don't know how to figure the value of my pension, because of the constantly changing (usually for the worse) annuity rates. The last time I tried to do that, I think I figured it was gonna be somewhere in the 1.25m range, but as mentioned above, that's dependent on the current state of things when you do the math. I don't think there's a one & only way to calculate it...it's fluid. While I'm happy to have the CSRS, I don't think I'd be unhappy with FERS, if I had it. I say that with the assumption that I'd be smart enough to max my TSP contributions for most of my career...I don't know that would have been the case. As it is, I max now, including the catch-up part, but I've only been maxing it for a few years. When TSP was first opened & then extended to CSRS people, there was a restrictive cap as to how much we could contribute. I had a goal in mind for my TSP balance but unless the markets really crank up, I don't think I'm gonna get there. Also...now that I'm so close to the end, I keep thinking maybe I should be pulling back from the markets & moving into the G fund to preserve what I have.

 

[stoutboy]

I still would rather be in your shoes. FERS+TSP+SS will keep me from having to eat pet food and for that I am grateful. It could even fund a decent retirement for most people IF they max out TSP every year and IF the markets pull out of this ten-year slump, and IF people are saving additionally in an IRA and other taxable savings.

But those are big ifs. We FIRE-types are preaching to the choir with all this save save save. I sincerely wonder if many of my colleagues are taking the necessary steps.

I'll be retiring under CSRS in a couple more years. I'm one of the last few to get in under the old retirement plan before the switch to FERS. Hopefully nothing will be changed with regards to CSRS before I retire. I don't know how to figure the value of my pension, because of the constantly changing (usually for the worse) annuity rates. The last time I tried to do that, I think I figured it was gonna be somewhere in the 1.25m range, but as mentioned above, that's dependent on the current state of things when you do the math. I don't think there's a one & only way to calculate it...it's fluid. While I'm happy to have the CSRS, I don't think I'd be unhappy with FERS, if I had it. I say that with the assumption that I'd be smart enough to max my TSP contributions for most of my career...I don't know that would have been the case. As it is, I max now, including the catch-up part, but I've only been maxing it for a few years. When TSP was first opened & then extended to CSRS people, there was a restrictive cap as to how much we could contribute. I had a goal in mind for my TSP balance but unless the markets really crank up, I don't think I'm gonna get there. Also...now that I'm so close to the end, I keep thinking maybe I should be pulling back from the markets & moving into the G fund to preserve what I have.

 

[Purron]

I still would rather be in your shoes. FERS+TSP+SS will keep me from having to eat pet food and for that I am grateful. It could even fund a decent retirement for most people IF they max out TSP every year and IF the markets pull out of this ten-year slump, and IF people are saving additionally in an IRA and other taxable savings.

But those are big ifs. We FIRE-types are preaching to the choir with all this save save save. I sincerely wonder if many of my colleagues are taking the necessary steps.

Have you seen the price of pet food recently? Seriously though, both CSRS and FERS retirees get a great deal on health insurance - a big bennie no matter how you slice it.

 

[jazz4cash]

What employee contributions were/are required for CSRS/FERS?

 

[grumpy]

My CSRS contribution was 7.5% of gross pay.

 

[martyb]

My CSRS contribution was 7.5% of gross pay.

Actually it's 7% of gross.

 

[stoutboy]

That's true. The fact we can keep our health insurance is huge.

Have you seen the price of pet food recently? Seriously though, both CSRS and FERS retirees get a great deal on health insurance - a big bennie no matter how you slice it.

 

[martyb]

That's true. The fact we can keep our health insurance is huge.

It is a good thing. I've got another plan though. Once I turn 60, if I make it that is...my military reserves pension will kick in. I'll also then be eligible for Tricare. So...at 60, I'm planning to suspend my FEHB plan (not cancel it) and go onto Tricare, along with my wife. Although I know the cost for Tricare will probably go up, currently I would be paying less than $500 a year if I were on that plan. The location where I'm planning to retire has a big VA hospital, and because there's a large military base, many of the Drs & specialists in the area accept Tricare. At least for now....that's my plan!

 

[Amethyst]

Is a military reserve pension amount the same as a military service pension?

I know someone who retired from the military as an O-4, then joined the reserves and was promoted all the way to O-6. He's fully retired and over 60 and I wondered if he really is pulling in a full O-6 pension....

Tricare really is a good deal. I have a relative who is very overweight, has many diabetic complications, and sees doctors and specialists constantly. She married a military retiree, so all her care, even extensive dental care, is free. Sometimes I think she might take better care of herself if they had to pay for it...that's a touchy subject, though.

Amethyst

It is a good thing. I've got another plan though. Once I turn 60, if I make it that is...my military reserves pension will kick in. !

 

[ziggy29]

Tricare really is a good deal. I have a relative who is very overweight, has many diabetic complications, and sees doctors and specialists constantly. She married a military retiree, so all her care, even extensive dental care, is free. Sometimes I think she might take better care of herself if they had to pay for it...that's a touchy subject, though.

Uh-oh. Someone just took a peek into Pandora's Box....

 

[stoutboy]

Uh-oh. Someone just took a peek into Pandora's Box....

Yes, because as we all know, people who pay out of their own pocket for medical expenses, (or who have no health insurance at all), are much, much healthier than those with health care.

 

[ziggy29]

Yes, because as we all know, people who pay out of their own pocket for medical expenses, (or who have no health insurance at all), are much, much healthier than those with health care.

Hey, she just peeked into it. Let's not spring it wide open.

 

[Amethyst]

Yes, I believe I have the right to mention thoughts that I have been thinking about a person I know very well.

I'm not making assertions about the lifestyle choices of the vast majority of people. Sadly, there are no guarantees, and even the most careful, best-eating, non-smoking, healthy-weight, exercising people can get sick and need lots of care.

A.

 

[packrat44]

Yes, CSRS is an awesome deal. However, it's important to note that those under CSRS don't get social security benefits and matching contributions to the TSP like those under FERS. Over a number of years, these matching TSP funds really add up. Also, FERS is a better deal for those who leave federal service before retirement. CSRS is the classic "golden handcuffs" plan.

/QUOTE]

IMHO not having to pay into Social Security far out ways the benefits that might be received.

 

[stoutboy]

IMHO not having to pay into Social Security far out ways the benefits that might be received.

Spoken as one blissfully unaware of the economic situation for the vast majority of older Americans before SS came into being...

 

[packrat44]

Spoken as one blissfully unaware of the economic situation for the vast majority of older Americans before SS came into being...

I am well aware of that situation and also well aware that the government does not manage money very well. I would have preferred to have paid into a program similar to CSRS during my career rather than SS. Much better return on the money with less risk of reduced benefits.

 

[stoutboy]

Considering that even today, Social Security (and Medicare) make up the greatest component of retiree income for approximately 2/3 of SS recipients, I would have to say that the government does a better job of managing money than most individuals can. The CSRS you speak of, and the FERS of which I am a part, are also government-managed.

Now there is no doubt that some individuals can make out alright on their own managing money. You are likely one of them. I hope I am as well, as evidenced by my participation in this FIRE forum. But unfortunately, many will not. That's what SS is designed to do. And don't forget, the intention of SS was never to be the sole, or even primary, source of retirement income. That's something far too many Americans don't understand.

I am well aware of that situation and also well aware that the government does not manage money very well. I would have preferred to have paid into a program similar to CSRS during my career rather than SS. Much better return on the money with less risk of reduced benefits.

 

[packrat44]

Stoutboy,

I do not deny SS serves a much needed role. My only point is that the funds one would put into CSRS (or the early railroad retirement system) would return more money to the individual than if it were put into SS. Do I think that is fair? No! Part of the payments into SS effectively is a welfare tax and I do not believe that some people should be exempt from paying their fair share.

 

[jdw_fire]

Stoutboy,

... Part of the payments into SS effectively is a welfare tax and I do not believe that some people should be exempt from paying their fair share.

i did a couple of quick internet searches and found that in 2006 (the latest year i got numbers) there were more people paying into SS (159.7 million) than filing federal income tax returns (138.4 million).