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The MyFEDBenefits team has kept a close eye on the government’s proposed retirement policies over the past 2 years. Though the changes aren’t done yet, it looks like retirement benefits may be a sticking point in the 2019 proposed budget. It’s time that we can start to use an annuity calculator to see how some of these changes will affect retirees.

In particular, the High-5 plan to determine retirement annuity has the potential to reduce the average worker’s benefits regardless of how much they save each year.

Here’s how you can determine your expected income under the new plan and use an annuity calculator to track how much future workers are expected to lose.

Part of the proposed budget for 2019, the High-5 plan to determine retirement annuity has the potential to reduce the benefits for the average federal worker regardless of how much they save each year.Click To Tweet

What’s the Difference Between the High-3 and High-5 Plan?

The current federal annuity calculator uses a High-3 plan to determine what employees receive. This takes the average of your last 3 years of income, and then pays out a set percentage of it. For CSRS, you receive 56.25% of your income average. For FERS, you receive 30% of your high three.

For example, if you earned $65,000 this year, $62,500 last year, and $60,000 the year before, your High-3 would be $62,500.

The CSRS payout would be around $35,156, and the FERS payout would be $18,750 (depending on which one you receive).

However, if you want to calculate your High-5, you would need to add your salaries to the previous 2 years before that. For the sake of this example, let’s assume your earned $57,500 four years ago and $55,000 five years ago. Your new average of the five years is $60,000.

This $2,500 drop in average income as a result of the High-5 adds up.

The CSRS payment drops to $33,750 while the FERS payment drops to $18,000.

With the High-5 plan, you receive less even though the work you put in never changed. This is why so many federal retirement advocates oppose embracing the High-5 rule.

Not sure what all of these proposed changes mean for you? Contact MyFEDBenefits today to speak to one of our federal benefits specialists and get the help you need to plan for retirement.

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What Is the Purpose of The High-5 Change?

If it feels like the federal government is cutting your retirement benefits with this change, it is. In an effort to save money, the government is reducing the budgets of various agencies, issuing reduction in force (RIF) recommendations to lower labor costs, and cutting retirement benefits.

The goal is to start saving money by paying workers less when they retire. However, while the plan makes mathematical sense, the government financial leaders are having trouble working through the logistics of the High-5 plan, and most notably, who will be affected by the changes and when. 

Who Will Be Affected By These Changes?

The team at FedSmith doesn’t believe that current employees will be affected by the proposed High-5 changes. While Robert Benson admits that his theory is pure conjecture, he thinks that the federal government won’t see meaningful savings for a while.

“Because there are so many employees who have served so many years, planning on the status quo, it is possible the effective date will be several years after the law’s passage, and current employees will be [grandfathered in].”

Essentially, the federal government has two options: it can implement the High-5 rule immediately, and let retiring employees know that their annuities will be far less than they planned for, or it can wait for the government to recruit new employees. These new team members would follow the High-5 plan while older employees would stay on the High-3 policy.

While many people think this is fairer to existing employees who have been in federal service for several years, it means the government won’t really start saving until the newer employees start to retire. Alternatively, the government could make a plan to change the annuity calculator based on years worked, speeding up the High-5 adoption process.

Prepare Today With An Annuity Calculator and Other Tools

There is still a lot of speculation around the High-5 plan that leaves many people wondering whether it’s even going to happen. However, as these plans are formed, current workers need to be ready.

You can use various tools, like an annuity calculator, and other easy-to-use financial software to determine whether or not you have enough saved for the future.

Changes to federal retirement benefits have been part of the Congressional and Executive agendas for multiple years now. MyFEDBenefits works to bring you updates on benefits changes and context for how they can affect you. Keep following us for the latest news regarding your retirement and feel free to reach out with any questions you might have about the High-5 plan, using an annuity calculator, or anything else related to your federal retirement and benefits.

Contact us today so we can help you plan for your future.

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