The Five Biggest Retirement Decisions Feds Have To Make
The Five Biggest Retirement
Decisions Feds Have To Make
As a late career
Fed, you are pondering retirement. For some, this is a chance to discover new
hobbies and pursue things you didn’t have time for when you worked. For others,
it’s an opportunity to pursue a different career with the safety net of a
retirement income. And yet for others, it will be an opportunity to do a lot of
relaxing after a career in the federal government.
Regardless of your
circumstances, you have some big decisions to make during your retirement
years. Some of these decisions have to be made right away, while others are
several years down the road. Let’s take a look at what I believe are the five
biggest decisions a federal employee will have to make for their retirement.
·
WHEN TO RETIRE – The first decision to make is
when will the employee be ready to retire. This is a multi-faceted
question. The first hurdle is
eligibility. There is a sliding scale based on the year you were born which
dictates your minimum retirement age with the federal government. This entitles
you to an immediate retirement, starting within 30 days of when you stop
working. Below is a chart showing the Minimum Retirement Age:
Eligibility
Information
|
|
Birth Year
|
Minimum Retirement Age
|
Before 1948
|
55
|
1948
|
55 & 2 months
|
1949
|
55 & 4 months
|
1950
|
55 & 6 months
|
1951
|
55 & 8 months
|
1952
|
55 & 10 months
|
1953-1964
|
56
|
1965
|
56 & 2 months
|
1966
|
56 & 4 months
|
1967
|
56 & 6 months
|
1968
|
56 & 8 months
|
1969
|
56 & 10 months
|
1970 And After
|
57
|
There is also a Years of Service requirement to go along with your
Minimum Retirement Age:
Eligibility
Information
|
|
Age
|
Years
of Service
|
62
|
5
|
60
|
20
|
MRA
|
30
|
Once you have calculated when you are eligible to retire, you have to
determine if you are emotionally and financially ready.
For some, their identity is wrapped up in the career they’ve spent years
developing. They aren’t ready for that
part of their lives to change. There
would be a void left that would have to be filled with other activities. Financially,
potential retirees have to gauge their suitability for leaving the work
force. Can they cover their expenses
through their annuity, social security (or FERS supplement), and withdrawals
from the TSP or other investment accounts?
·
WHEN TO START SOCIAL SECURITY – The FERS (Federal
Employee Retirement System) supplement, a financial bridge to cover retirees
until they are eligible for Social Security, stops at age 62. At that time,
retirees will have to make an extremely important decision on whether they will
seek to draw reduced Social Security benefits early (age 62), at their full
retirement age (67 if born in 1960 or later), or at the maximum benefit age of
70. There is no universal right answer.
It is a subjective and personal decision made on economics, estimated life expectancy
and political beliefs. Some people would
rather wait and not claim the reduced benefits early and opt for the higher
payout at their full retirement age.
Others want to defer benefits even longer, in order to maximize their
payment. The longer you wait, the higher
the payout until age 70, after which your payment does not increase. Remember that your payout is higher, but you
have lots of payments to make up if you declined to receive lower payouts years
earlier. Finally, some believe the
current social security benefits system will have to be modified and is
unsustainable since the Social Security Trust Fund is set to be depleted by
2033 if changes aren’t made. Therefore, their strategy is to claim as early as
possible before to avoid facing reduced benefits. There is not a one-size-fits-all answer.
·
WHEN TO START WITHDRAWING FROM THE THRIFT SAVINGS
PLAN (TSP) – You don’t have to begin withdrawing from your TSP when you
retire. However, when you do, you have
to be strategic in the amount and way you start pulling out your money. As of
the date of this article, there are plans in the works to modify the existing
methods that are available, which are somewhat restrictive. Currently, you can select to pull the entire
amount out, select an annuity in exchange for the full value of the TSP, or
select monthly payments that can be changed once a year. You also have a one-time opportunity to make
a partial withdrawal from your TSP before electing one of the three methods
described above. Be smart and carefully
consider your options. Most people don’t want to outlive their TSP fund.
·
SHOULD YOU ELECT TO ENROLL IN MEDICARE PART B? –
The ability to enroll in the Federal Employee Health Benefits (FEHB) program is
one of the best retirement benefits available to federal retirees. It allows
them to participate in the same health insurance program they participated in
as employees, after they retire. The premiums are not paid with pre-tax money
as it was when they were working but it is still a great program for the money.
The real question is should the retiree sign up for Medicare Part B, also known
as doctor’s insurance. This is also a
personal decision. Medicare Part B is
not free. The fees are based on a
sliding scale based on income. Are you the type of person that prefers to pay premiums
and limit co-pays and out of pocket medical expenses? Or would you prefer to
not pay premiums every month and absorb the out of pocket costs? Please check
my extended article on Medicare and FEHB here.
·
SHOULD YOU DOWNSIZE, MOVE OR STAY IN YOUR HOME? –
As a retiree, the single most powerful thing you can do for your finances is to
control your expenses. I have worked
with postal workers that can retire on time and highly paid government
executives that have to work an extra year or two past their minimum retirement
age. Why? One could control his expenses in retirement and the other would
prefer to live a more lavish lifestyle after leaving government service. One option to consider in controlling your
expenses is moving or downsizing. If you
downsize in your current area, or move to a location where housing is more
affordable, this should reduce your monthly housing expense or put more money
in your pocket. When moving consider
what relationships you are leaving behind.
Are you leaving behind family? Or are you moving to be closer to family?
Do you have any relationships where you are moving to? Other options to
consider if you decide to stay home and need money for daily expenses and your
home is paid off are a reverse mortgage, a first mortgage or home equity line
of credit.
The opinions voiced in this article are for general
information only and are not intended to provide specific advice or recommendations
for any individual. Carefully consider your investment objectives, risk factors
before investing. Investing involves risk, including the possible loss of
principal. Diversification and asset allocation may not protect against market
risk. Nothing in this article is intended as legal or tax advice. Please
consult with your independent legal or tax advisor to seek advice based on your
particular circumstances. For a list of states in which I am registered to do
business, you can visit www.adviserinfo.sec.gov and
search for my name.
© 2018 Alexis Hongamen. All rights reserved. This article may
not be reproduced without express written consent from Alexis Hongamen.