Common Retirement Myths Exposed – Part 3

retirement mythsIt’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.

Retirement Myth #3: You should stop saving and investing in retirement.

The years while you’re working are frequently viewed as “a time period of savings.” You set goals to eliminate debt and send allotments to savings and Thrift Savings Plan (TSP) accounts. The working years are generally thought of as a time to build up the nest for use in retirement. As you transition into retirement, you enter into a period of spending in which you live off of your accumulated assets. So, once you reach retirement are you free to stop growing your nest egg and simply spend down your assets? The answer to this question depends on exactly how long will you live in retirement? Let’s do an exercise together.

time period of savings

The number of ‘Years in Retirement’ is an estimated period when you must sustain your lifestyle solely on your pension and assets. As shown in the chart below, we find in our training events that this number may range anywhere from 20-35 years, which in most cases is close to the same amount of years that an individual worked for the Federal Government.

plan for a long life

“Should I stop saving and investing in retirement to live exclusively on these funds?” The answer to that question really depends on the answer found in the above exercise. If you don’t continue to invest and decide to draw on your assets, is that sustainable for twenty or thirty years? This is a great question to look at with a financial professional and certainly deserving of your time.

While the future is uncertain, we can predict that you will have to live on your savings in retirement. Plan to invest carefully so that your money may grow and be protected throughout retirement. One savings vehicle that serves federal employees well is a Roth TSP/IRA account. This type of tax-advantaged account allows you to pay taxes on your contributions now while it grows tax free. You have immediate access to your contributions, but the gains may not be accessed until you reach age 59.5 and the account must have been open for five years. Once these two requirements have been met, you have complete access to your full funds and can withdraw from it tax-and-penalty free. This account helps federal employees with robust pensions have more control of an outside asset as needed while in retirement.