One of the most common realities of retirement is that you have the responsibility of picking the best date to retire. You may seek help in deciding when you will opt for FERS retirement. To help you out, we have mentioned the most common mistakes people make when choosing the best time to retire and how you can avoid those mistakes.
One thing to Know Before Picking the Best Date to Retire
Before you start thinking about picking the best date to retire, you should know exactly when your FERS pension would start. The answer to this question is the first day of the following month that comes after you retire.
Mistakes to Avoid When Picking the Best Date to Retire
Mistake Number 1- Not Knowing the Importance of Leave Ending Date
The most common mistake people make when they are picking the best date to retire is that they give up the annual leave that they have on books. In many cases, people get paid out for the leaves but sometimes the deserved money instead of leaves is not offered because people don’t realize that they need to retire by that leave ending date that year. The ending date will change every year so you must check OPM’s leave ending dates.
Mistake Number 2- Getting the Annual Leave Pay Taxed Heavily
When choosing the best date to retire, people often doesn’t realize that the money they get in exchange for the leaves is taxable as it considered as a part of your annual earnings. You may even get counted among the higher tax bracket because you saved more leaves and got a hefty compensation. A good way to deal with such a scenario is to pick a retirement date within the first few month of the year when the work earnings will be fewer and your leave payment will be taxed at a lower rate. You can also consult with a tax expert in this regard.
Mistake Number 3- Not Using the TSP Waiver Right
Many people plan to use the money from TSP when they retire but they are often not too clear about the age restrictions, which is a big mistake. You must be at least fifty nine and a half years old when you start taking money from an IRA or TSP. If you are younger than the said age, you will need to pay an early age withdrawal penalty as well as some normal income taxes. The whole deal could get very expensive.
There is an exception to this rule for TSP if you separate from or retire from a service in the year in which you turn fifty five or older, you can make withdrawals without any penalty. It’s known as a waiver.
Another related mistake people mistake is that they lose the waiver. You lose the waiver if you transfer the money available with TSP to an IRA. So, you should keep the money with TSP as long as possible and benefit from the waiver.
Mistake Number 4- Not Having Enough Savings for Essential Expenses Immediately Post Retirement
People expect OPM to start providing the FERS pension on the first day of the month after they retire and this is a mistake that you can avoid. You should know that the time needed by OPM to process your retirement application can vary a lot. So, you should pick the best date to retire only when you are sure that you have enough savings to take care of your regular expenses for a few weeks (about four to six weeks).
So, before you start planning your retirement party, you should consider the leave balance, learn how to avoid getting the leave money taxed, decide when you will start using TSP and also ensure that you have a good amount of savings to keep you self -reliant until your retirement application is processed by the OPM.
When you take these precautions, you will pick the best date to retire like a pro and not lose even a bit of your hard earned money. One of the realities of retirement is that you need to make smart decisions and it’s possible to select the best date for FERS retirement or any other retirement if you read resources articles like this one.