As life zooms from one phase to the next, it’s easy to get caught up in the moment and rush from one busy instant to the next without stopping to evaluate what’s really been happening. Unfortunately, we often don’t realize anything is wrong until it’s too late. For example, we forget to top off the car with gas until we’re stuck on the side of the road with no filling station in sight. In personal finances this is often the case. We can assume that however we spend our money is wise, as long as there is a little left over each month. In light of retirement, is this really a good strategy? Since “an ounce of prevention is worth a pound of cure,” let’s examine four foundational financial principles to address this question and orient our personal finances in these hurried times.
It’s easy to speculate about the future and unknowingly operate based on these assumptions. When it comes to federal retirement you need to evaluate the expectations you’ve made and ask yourself if these beliefs are based on fact or fiction. Recently, Retirement Benefits Institute reviewed a couple of the false assumptions or retirement “myths” as we like to call them. To review our second retirement myth, click here. Now, let’s jump to our third retirement myth.
For successful federal retirement to become a reality, confusion must be banished and wise discernment should be used. One of the most obvious decisions in determining when to retire is selecting the best day to do so. While there are many important considerations between retirement eligibility and retirement date, for this blog the assumption is that the federal employee does have the necessary age and years of service to retire. For information on retirement eligibility, click here. Although there may be a wide range of reasons to pick a retirement date, like a long-planned vacation, a significant occasion, or because one is simply ready to go; there are some guidelines that may help in this decision making process. Below are three things to consider when choosing the best day to retire.
Upon reaching retirement, one of the most pivotal questions a federal retiree will have to ask is, “What should I do with my TSP?” The TSP is unique from a FERS pension or social security benefit because rather than being a set monthly payment, you have access to a large “pool” of money. When it comes to TSP funds in retirement, you have four basic choices: leave the money in the TSP; withdraw part of the TSP (including monthly, quarterly, or annual installment payments); withdraw all TSP funds; or convert the TSP funds into a life annuity. A life annuity turns your “pool” of money into monthly payments for the rest of your life – and possibly beyond. The TSP life annuity is an intriguing option, but is it right for you?
When planning for federal retirement, it can be easy to buy into ideas one hears. Certain “facts” are mentioned at the coffee station and all too often are simply accepted as true. An effective retirement plan cuts through these surface level beliefs and attempts to examine what’s really in store once federal employment ceases. In a recent post, we looked at the retirement myths of having a guaranteed decrease in living and leisure expenses in retirement. For a quick refresher, click here. Let’s continue our discussion with a widely accepted belief about taxes in retirement.
Federal employees who serve as Air Traffic Controllers (ATCs) enjoy somewhat different retirement benefits when compared to typical federal employees. Although the basic elements of a pension, the Special Retirement Supplement, Social Security, and the TSP remain the same, an ATC’s pension is calculated differently. Plus, ATCs can typically access SRS and the TSP earlier. An ATC employee can retire sooner and is even subject to a mandatory retirement age of 56; there is no such restriction on regular FERS employees. Some ATC retirees may even be eligible for a slightly different pension calculation known as Vision 100. Below, we’ll discuss what Vision 100 is, who is eligible, and how it differs from regular ATC retirement.
The Thrift Savings Plan (TSP) is a critical part of a successful retirement goal for FERS retirees. Understanding how to access your TSP in retirement is key, but you also have ways to obtain your funds while working. One way to retrieve TSP funds while employed is through TSP loans. As the name implies, a TSP loan is simply borrowing money from your retirement account. Before taking a TSP loan, the full impact of withdrawing retirement funds early should be considered, as you will have to repay the loan with interest. Extenuating circumstances may bring about the necessity for you to dip into the TSP before reaching retirement. Let’s examine your options for acquiring a TSP loan.
Phased Retirement: How You Can Participate
In 2014, OPM created an opportunity for full-time federal employees to work a part-time schedule while receiving federal retirement benefits known as Phased Retirement. This allows managers and administrative staff to lighten their heavy workloads, all while training others to one day take their places.
Retirement Myth #1:
My cost of everyday living and leisure spending will be less in retirement.
When helping federal employees plan for retirement, one of the most common concerns we see is the desire to be debt free before retirement. The goal is to have one’s house, car, credit cards, and other substantial debt paid off before retirement. This supports the common theory that being debt free allows one to spend less in retirement. While being debt free is a great place to start, what about unknown expenses? Listed below are a few examples of unplanned costs in retirement.
As of July 1, 2020, the TSP has added new Lifecycle funds (L funds) to the existing five options. The TSP Lifecycle funds are professionally managed mixes of the G, F, C, S, and I funds that are balanced to meet investment goals over various periods of time. The objective is to strike an optimal balance between the expected risk and return associated with each fund. The closer to the target date the funds reach, the more conservative they become. The TSP L funds rebalance every quarter, saving investors time and energy. Recent changes to the TSP L funds introduced several new options: L 2025, L 2035, L 2045, L 2055, L 2060, and the L 2065.