The Foreign Service Journal, May 2016

20 may 2016 | the foreign Service journal Retirement Planning 101 FOCUS On Life after the foreign service John K. Naland’s 29-year Foreign Service career in- cluded an assignment as director of the Office of Retire- ment, as well as tours in Colombia, Mexico and Iraq. He twice served as president of the American Foreign Service Association and is currently president of the Foreign Service Youth Foundation. This is an updated version of an article that first appeared in the September 2007 Foreign Service Journal . W ho in their late 20s to early 50s, preoccupied with the demands of work, family and daily life, has time to plan for a retirement that is many years away? The answer is that we all had better make time for that if we want to be well-positioned to enjoy life after the Foreign Service. I know you’re all busy, so here is a quick guide for early- and mid-career employees who realize that retirement planning is important, but have not yet gotten started. Show Me the Money Many Foreign Service members have only a vague idea of what makes up their retirement package. That, obviously, makes it impossible to do even basic planning. So here is an overview. Life after the Foreign Service begins with planning. Here’s how to get started. By John K . Naland This article focuses on those of us who joined after 1983 and are thus enrolled in the “new” Foreign Service Pension System. Employees who fall under the “old” Foreign Service Retirement and Disability System should consult the Department of State Office of Retirement website (https://RNet.state.gov) for infor- mation on that plan. Once FSPS participants qualify for retirement, here is what we receive: Pension. Our annuity is based on our “high three” average salary and years of service. The salary is calculated by adding average basic pay (determined by multiplying each salary by the number of days that it was in effect) for our three highest-paid consecutive years and then dividing by three. Basic pay includes regular pay, domestic locality pay and overseas virtual locality pay, but excludes allowances, differentials and overtime. This “high three” salary is then multiplied by 1.7 percent for each of the first 20 years of service, plus 1 percent for each additional year. For example, an employee retiring with 25 years of service and a “high three” salary of $100,000 would qualify for an annual annuity of $39,000. That amount, however, provides no benefits to a surviving spouse after the annuitant’s death. Providing the maximum survivor benefits reduces the annuity by 10 percent to $35,100. Social Security. FSPS members pay into Social Security throughout their careers and thus qualify for Social Security benefits, which can begin as early as age 62 for those willing to take reduced payments in return for a longer benefit period. However,