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December 3, 2020

Federal Employee Retirement and Benefits News

Category: Articles


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Can You Retire on an Average Monthly Earnings of $1,374?, by Bill Hoff

According to a recent publication, Social Security recipients receive about $1,519 as monthly benefits from Social Security. Recipients older than 65 years experience a deduction of $144.60 from their monthly benefits, and this deduction is for their Medicare Part B premiums. After the Medicare premium deduction, retirees depending on Social Security benefits now have monthly benefits of $1,374.

With these monthly benefits, can you pay for all your expenses? Is it enough for you to retire on $1,374 every month? If you rely on Social Security during retirement, you need to answer these questions to live a comfortable life after retirement. It would help if you made an effective retirement plan that gives you more than just Social Security benefits.

Why are average monthly benefits low?

If you are still receiving monthly income from your job, you can check your My Social Security Account online for your Social Security statement; you will notice a projection that will benefit you in the long run. The reason is that Social Security assumes that your future earnings will be at the same rate as your current earnings. Social Security projects that your earnings will remain constant until you reach the federal retirement age (FRA). Social Security projection is not exactly deceiving you, but its projection is too generous for a financially stable future.

The projection gives you some hope because of the following reasons. Firstly, you can claim your benefits at age 62, which is below the FRA. When you collect your Social Security benefits earlier than the federal retirement age, your monthly benefits will be permanently reduced for the rest of your life. Permanent reduction implies that you will not receive the full benefits as your statement projects.

Secondly, your Social Security benefits calculation is based on your highest thirty-five years of income in the workforce. If you retire early for any reason, your statement projection may not be feasible because you will miss some of your high-income years. Early retirement can affect your future projected earnings, which will reduce the benefits you will receive.

Why the statement protection may get worse

In addition to those reasons above, Social Security will reduce further even with its present low benefits level. If the government does not interfere, the benefit trust will be empty by 2035, which will reduce the average monthly benefits by 20%. Moreover, the projections were made using data from 2019 before the pandemic affected the United States. This implies that the economic meltdown was not taken into consideration when the projection was made.

What you need to do about Social Security

Firstly, you must not make the benefits your only source of income when you retire. The stronger you build your retirement plan, the easier it becomes to fill the gap in Social Security, regardless of what causes the gap.

Secondly, you need to know that the earlier you start your plan, the easier it will be to cover the Social Security gap. You will gather more wealth when your investment compounds over a long period. If you have limited time before you retire, you will rely more on your savings instead of growing your contributions. Depending on the type of lifestyle you want to live during retirement and the duration of retirement that you anticipate, you can estimate the total amount of money you need to save if you’re going to actualize your retirement goals.

When you want to make your retirement plan, you can use the thumb rule to get started. Under this rule, you can spend about 4% of your portfolio during your first year after retirement, and you can increase your withdrawals yearly after the first year. If you have a balanced portfolio, this withdrawal strategy will make your savings last for a minimum of thirty years. Using this rule means that you will need your annual shortfall approximately twenty-five times if you want your money to last longer.

You should start saving earlier so that it is easy to achieve your retirement goals. If you save for a more extended period, you will be putting aside less money every month. Funding your retirement account is the most crucial step you need to take before you are forced to figure out if you can retire on a monthly benefit of $1,374.

Retirement Planning: Here’s How You Can Better Position Yourself, by Todd Carmack

A few days ago, I saw a post on one of the social media platforms that read, “30 is the new 50.” And that’s the truth. People are living longer and thriving well into their ‘80s. Many who turn 65 are no longer having a hard break, like before. Instead, these people are transitioning to another phase of life, with expended experience and a renewed sense of purpose.

This phenomenon has given retirement a whole new meaning. But to prepare for the transition to the retirement phase, you need an improved understanding of your finances. 

One major concern of people transitioning is to ensure they don’t run out of money. Those who have diligently saved to their retirement accounts and lived within their means often have little to worry about in this regard. The steps you take can make or break your financial security as you retire. 

The first mistake most people make is focusing too much on making money instead of spending money (burn rate). At the same time, it’s important to change how you spend money during retirement. The process may not be as it seems. It’s challenging to go from spending a specific amount you are accustomed to and tracking every penny you spend. Not being able to stick to your spending plan in retirement will put pressure on your resources and sense of independence.

To ease this pressure, you should make these lifestyle and spending adjustments before entering the retirement phase. It would be best to shift your thinking from being a conscious saver to become a conscious spender. The transition will become easier once you get a hold of where you spend your money.

Another way to avoid running out of money is to look at where your money is invested. If most of your money is invested in the stock market, you may have to be drawn into monitoring the market volatility to know your investment position. This can increase stress and anxiety while preventing you from enjoying the thing you like. 

When withdrawing money as income during retirement, you typically do this every month. But when the market experiences a downturn and you make the same withdrawal, you are eating into your investment value. When you sell when your investment value is down, you eliminate the money that should earn you more money. Therefore, it becomes extremely difficult to make up for the difference. Hence, you can run out of money much faster than expected.

An important aspect of your financial planning should be to ensure you have a diversified and balanced portfolio, such that even when the market fluctuates, you’ll have other assets to draw money from. With this, you will be able to give your stock investments the time it requires to stabilize. 

Consider Your Values

Finally, as you move to the retirement stage, you need to consider more than money. You must consider what your legacy would be. How do you ensure your family is taken care of? Do you want to leave money behind for any charity, organization or cause? Do you want to spend your later years making a difference? This may be by volunteering, coaching or picking up a new hobby.

When thinking about your legacy, it’s important to consider your values, as they determine your priority and the standard upon which you measure how your life is developing. Your values should be the foundation upon which you develop your goals and actions.

When your actions and behavior reflect your values, you will experience a sense of satisfaction and contentment. As you draw closer to the transition phase, thinking about money’s true purpose is a great way to start.

How Does the New Bill Affect Your Retirement Account?

Employees are encouraged to save for retirement to have a large nest that can last them during their later years, especially since Social Security isn’t sufficient to sustain seniors. However, the laws around retirement savings are a bit restrictive. Take required minimum distributions (RMD), for example. Though they are not imposed on Roth IRA accounts, every other tax-advantaged retirement plan requires that the saver start making withdrawals once they hit age 72.

The RMD is calculated based on the life expectancy for the year and the account balance, and neglecting to make the withdrawal is a big deal. Individuals who fail to make the withdrawal risk face a 50% fine on the funds that aren’t withdrawn. If a retiree who is required to withdraw $5,000 for the year takes only $3,000, he/she will face a 50% penalty on the balance of $2,000.

Thankfully, the new bipartisan legislation in the house promises a lot of benefits for seniors. The bill referred to as the Securing a Strong Retirement Act of 2020 seeks to make essential changes that will give retirement savers more flexibility.

1. Increase the Age for RMD

RMDs are typically problematic. It creates a tax burden for retirees who are forced to make withdrawals they don’t need from their traditional retirement plans. RMD can also determine whether to pay taxes on your Social Security benefits or not. Making an RMD means losing out on the tax-advantage growth on the money in your retirement plan.

Currently, all retirement plans outside the Roth IRA are required to take RMD starting from age 72. However, with the new bill, the age for RMD will be moved upwards to 75, giving retirees more time to allow their money to grow. The bill also seeks to exempt retirement savers with less than $100,000 in their 401(k) or IRA account from taking RMDs entirely.


2. Increase Catch-Up Contributions

People over age 50 are allowed catch-up contributions to their retirement account. The general contributions limit is up to $19,500 for 401(k) and $6,000 for IRA. For 2020, individuals over age 50 were allowed to save an extra $6,000 as catch-up contributions to 401(k) and $1,000 to IRA. This brings their total contribution limit to $26,000 and $7,000 for 401(k) and IRA, respectively.

According to information from the IRS, these contribution limits will remain the same for 2021. However, the Safe Act bill seeks to increase the catch-up contributions for workers over age 60 up to $10,000. This is aimed at giving prospective retirees ample opportunity to save more to their retirement account.

The bill was just recently introduced in the house and has not been passed into law, so there’s no need to get overly excited. It’s, however, encouraging to see lawmakers fight to make life easier for retirement savers.

Protect Yourself, Your Family And Your Retirement With Federal Employee Group Life Insurance Alternatives

Without the requirement of any underwriting statement, all Federal Employees have access to the Federal Employee Group Life Insurance. This life insurance serves as a competitor to traditional Death Benefit Protection, designed for young employees. Since the insurance does not require any medical underwriting, employees without significant health concerns may also not find this life insurance beneficial. Because once they are 45 years, the insurance cost will increase exponentially for their remaining years of service, even until they retire.

For each participant, the Federal Employee Group Life Insurance cost will increase by 2066% between ages 30 and 65. This 2066% rise also applies to chain smokers and marathon runners. People without other insurance options need to use the FEGLI if they want to provide a legacy for their relatives. However, more than ninety percent of federal employees have multiple alternatives that will protect them, their family, and retirement at the same time.

When you are evaluating your coverage, you should consider these three factors if you want to know whether the FEGLI is the best fit for your life and career.

Qualification through the underwriting process.

Suppose you want individual protection, which depends on your age, lifestyle habits and health status. In that case, you must pass through the underwriting process.

The time limit for the protection need.

Most federal employees use the FEGLI coverage in their 50s and 60s, but not every employee needs life coverage. When you want to define your time limit, you can compare your current FEGLI coverage cost with the projected coverage cost when you are 65.

Determine your life insurance need.

The third factor requires you to identify what you want to use your life insurance for so that you can get maximum protection from your insurance.

The Federal Employee Group Life Insurance Program was made to offer a traditional death benefit to federal employees. The program is among the most prominent policies in the world. The program is designed as an innovation of the Q-tip industry.

We now have current life insurance strategies, known as Accelerated Living Benefits Riders, which come with excellent features. It protects the insured even while they are alive. Despite being alive, some health conditions like stroke put one in a critical medical emergency. During this period, the individual's need for money increases, while income decreases as the individual recovers. If you are in this condition, how will you pay your bills? With the Accelerated Living Benefit Riders, you can accelerate the use of your death benefit even when you are alive if you have been in a critical medical condition.

The FEGLI only gives you a death benefit, and you cannot access the coverage while you are still breathing. If you have a critical medical condition, you have no option but to take a hardship withdrawal from your TSP.

Suppose that you don't have enough emergency funds and sick leave. Taking the hardship withdrawal from your TSP will cost you some money as taxes and an additional early distribution penalty of 10%. Taxes and other reductions to your TSP will eventually affect your retirement plan if you don't have any alternative than taking the hardship withdrawal.

Due to the rapid growth in medical innovation, many people are re-evaluating their need for a life insurance policy just in case they live after their present ailment. You can take a flexible approach, whereby you combine both the living benefit rider and life insurance. This flexible approach works as a single policy and guarantees payments of the death benefit to your beneficiaries. This available flexible policy helps you cover the cost of aging concerns, like nursing home care. It also addresses critical medical conditions such as stroke, heart attack and cancer while giving a death benefit legacy to your relatives. Your family can receive the death benefit only if you have not accelerated it before your demise.


It’s High Time You Think About Your Life Insurance Policy

Suppose you are still using the life insurance policy you bought more than a decade ago. In that case, you may end up paying more money for the insurance policy coverage. Therefore, you must change your old policy with another new policy. Replacing your outdated insurance policy is essential, especially if you are still healthy for your age level. Because, with your right state of health, you can get similar coverage at a lower price than your previous life insurance policy.

The first step you must take if you are considering changing your insurance policy is to examine your current need for another policy. Your current stage of life determines how much you need a life insurance policy. Suppose you have grown-up children and live independently. In that case, you will need lesser coverage because your existing insurance is more than enough to cater to your current family lifestyle. On the other hand, if your family’s lifestyle is a bit high, you might need more coverage if your existing insurance cannot maintain your current lifestyle.

The second step revolves around your decision about the type of life insurance policy that best applies to you. When you use Term Insurance, you will have coverage at a lesser cost for a specific number of years. But when you doubt if your life insurance need will ever expire, it is better to go for a permanent life insurance policy. However, it is more expensive than Term Insurance. Permanent life insurance policies are also called “universal life,” “whole life” or “variable life” insurance.

After making the right decision, the next thing is to find an experienced agent that can help you shop the market for the best deal. Don’t make the mistake of choosing an amateur agent because this can cost you extra money if you get a low deal from the market.

You need to beware of the termination of your old policy before the new policy becomes effective. You must ensure that your new policy is active before you cancel the old policy. If you don’t want to owe taxes when you cancel your old policy, you can tell your agent to arrange a tax-free exchange for the new policy. Once this happens, you can cancel your plan without paying taxes.

Three Easy Ways You Can Effortlessly Grow Your Retirement Fund, by RICK VIADER

Every one of us dreams of retiring with sufficient money to pay our bills and enjoy a comfortable retirement. But saving for retirement is more difficult than it seems. It requires sacrificing other luxuries to be able to meet your retirement goals.

However, the good news is that there are simple steps you can take to increase your retirement savings and better position yourself financially for retirement. It includes the following. 

Get a Full 401(k) Match

If you are among those fortunate to have access to 401(k) through work, and your employer offers a match, ensure you contribute the maximum amount required to take advantage of the match. For instance, if your employer matches up to 5% of your salary and you earn $50,000 annually, you would have an extra $1,800 saved up to your 401(k) account each year from the match. That will be an additional $54,000 saved up in twenty years.

That’s not all. Remember, the amount in your 401(k) account grows. So if your 401(k) account has a return of 7%, it means that the $1,800 you receive from your employer will grow to about $170,000 over thirty years.

Invest in stocks

Most retirement savers fear investing in stocks due to market volatility. They worry that they might incur a great loss and may never recover from it. But investing in stocks is one of the best ways to grow your retirement fund. If you are not retiring within the next few years, then consider investing in stocks, as you’ll have ample time to wither the effect of any market downturn. A stock-heavy portfolio may be risky, but it will help you grow your savings more efficiently. 

For instance, from the illustration above, the $18,000 from an employer 401(k) match was able to grow to $170,000 at a 7% return rate. Imagine if the return rate was 4% (which is the typical return for more conservative investments), which means you would have only earned about $101,000.

If you aren’t experienced with stocks and are worried you might pick the wrong stocks, consider investing in index funds. They provide a simple way to invest in diverse stocks and capitalize on broad market gains without having to engage in extensive research. Index funds also have relatively lower fees, so you don’t need to be afraid of it eating into your returns.

Delay Social Security

You are entitled to Social Security benefits once you hit the age of 66 or 67, depending on your birth year. However, you are allowed to delay withdrawing your benefits, and for each year your Social Security is delayed, it increases by 8%. 

This, however, ends once you hit age 70. So if you wait until age 70 before taking your Social Security, it will grow by 24%. Best of all, there isn’t any investing risk attached, as the increase is guaranteed.

The more money you are able to retire with, the more comfortable you’ll live in your retirement years. Apply these three strategies to grow your retirement fund without breaking a sweat.

The 2021 Limits for TSP Investments Will Remain Unchanged, by Dennis Snoozy

The standard maximum elective deferral contributions limit to TSP accounts will remain unchanged for 2021. The amount for 2020, which is $19,500, will also be the limit for next year. Similarly, the catch-up limit for individuals aged 50 and above will also remain unchanged at $6,500. The catch-up amount was set-up to enable employees close to retirement to save more to their TSP for the year.

No separate election will be required for individuals eligible to make catch-up contributions. Once they’ve maxed out their standard limit, any other contributions will spill over and be automatically designated as catch-up contributions. This is, however, not the case for 2020. So anyone making catch-up contributions will still need to elect them specifically.

The standard contribution and catch-up amounts are for personal contributions only. It doesn’t include employees’ contributions under the FERS or transfers made by previous employers into the Thrift Savings Plan from retirement savings accounts. 

For persons investing in the traditional tax-deferred and Roth pre-taxed accounts, each limit applies to the combined totals for both account types.

The figures are set by the IRS and are adjusted for inflation, just like 401(k) and other employer-sponsor retirement plans. Inflation did not rise high enough to trigger an adjustment for either. 

Retirement Planning Can be More Frustrating Than a Rubik’s Cube, by Bill Hoff

The complexity of the Rubik’s cube makes it more difficult and highly motivating. It took Erno Rubik about a month to solve the cube puzzle, and it took thirty-six years for some mathematicians to figure out how to solve the same puzzle in twenty moves. Basically, there are 43,252,003,274,489,856,000 ways to arrange the squares.

Unfortunately, retirement planning has become a Rubik’s cube for most Americans. Several factors, ranging from stock market volatility to health issues, long-term care, and housing costs, impact most Americans’ ability to save, creating an unsolvable puzzle.

During the outbreak of the COVID-19 pandemic, America suffered economic damage, aside from health issues. Many lost their jobs and were placed on the unemployment insurance scheme. While the food banks were facing unprecedented demands, there was also an eviction crisis threatening society. The possibility of retirement has been worsened, all thanks to cashed-out savings and lost jobs.  

Amidst these issues, the retirement security of working Americans was already weak before the pandemic peaked. 

Higher Risk, Fewer Rewards

A recent report by the National Institution on Retirement Security entails the struggles of Americans regarding retirement. The report showed that it was not easy for a worker to manage all the risks independently. The burden of higher risks is seen in the move from defined pensions with a beneficiary to defined contribution plans like 401(k)s.

Only one-third of working Americans participated in the defined benefit plan, even in the corporate pension plan’s prime period. However, the burden of saving and investing was taken off the shoulders of those who participated in a pension. 

With a defined benefit plan, risks like interest rate risks, longevity risks, and market timing risks are borne collectively rather than individually. This is one of the strengths of a defined benefit plan that makes it appealing. 

Two issues were mentioned in the report—the first being low-interest rates. Low-interest rates are good for borrowers but never good for savers. In the 1980s, retirement savers could expect double digits of their returns for ten years from a Treasury bond; but today, the interest drastically reduced to 1%. This forces retirees to either invest in riskier assets or lose their income during the drawdown stage.

Another issue is the late start in saving for retirement. The report calculates a savings projection beginning at age 25 and a second projection beginning at 40. In a late-start scenario, the employee makes 78% of their total contributions for retirement but loses 60% of the investment returns. Contributing at an early stage will make the retirement systems efficient. Unfortunately, two-thirds of Millennials haven’t saved anything for retirement.

Long-term care costs further complicate the burden of retirement. The majority of older Americans will need long-term care in their later years. One in seven will spend more than $250,000, while about half will never pay for the services rendered. 

Today, the single largest payer as regards long-term care costs in the United States is Medicaid. Many families still struggle with Medicaid coverage because it’s a time-consuming and complicated process. 

Long-term care shouldn’t be burdensome and complicated. And this is exactly what Washington State is currently pursuing. As of 2022, Washington workers will be paying $0.58 for every $100 earned via a payroll deduction. After meeting the requirements target, the worker is entitled to a benefit worth $100/day for a year with a totality of $36,500 in today’s dollars. This starts in 2025. 

The benefit cap rises with inflation, and it can be used on anything ranging from long-term care such as nursing home stays and home modifications. This will likely reduce Medicaid as more people choose home-based stays.

Other challenging parts of the puzzle are healthcare and housing costs, which are rising continuously. Seniors typically have higher healthcare costs as they age due to developing health conditions. The rise in costs is more of a challenge for retirees living on a fixed income.  

Then again, more and more Americans are retiring with mortgages. About 46% of older Americans had mortgage debt in 2016, according to a report by the Harvard Joint Center for Housing Studies. This compared to 24% thirty years ago. Fewer near-retirement Americans between the ages of 50-64 years old tend to own a home than those age 65 and older.

Despite the experts’ suggestions on how to solve the retirement puzzle, retirement is getting harder by the day. Many risks rose as a result of the COVID-19 pandemic outbreak. Many older Americans were unable to meet up with their yearly target for retirement. In this aspect, the policymakers need to take a step toward building forward-looking solutions, which will enable Americans to be self-sufficient while they age. If these measures are not considered, older Americans will be forced to turn to government programs and their families to meet up their most basic needs. That will be a costly, burdensome, and unsustainable approach to follow.

The Coronavirus May Speed up the Shortfall in Social Security, by Todd Carmack

The CBO (Congressional Budget Office) always reflects a pessimistic outlook regarding benefits. However, the latest report the office released on the solvency of the Social Security program hit differently. The report estimates that there may not be enough funds to pay full benefits for the “old age” part of Social Security by 2031. This is different from what was contained in the Social Security Trustees’ annual report, which said that would not happen until 2034.

Why is There a Difference in Predictions?

The coronavirus pandemic and the accompanying economic crisis – that’s why. The report from the Social Security Trustees was created before the COVID-19 era and was released in the pandemic’s early period.

On the other hand, the CBO report was created after the coronavirus’s economic impact became evident and was released in early September. It considered three major items that came as a consequence of the economic downturn we are facing today.

1. Lower Payroll Taxes

Payroll taxes fund the Social Security program, and fewer payroll taxes means there’s less money available to run the program. Payroll taxes are taken out of employees’ salaries in Social Security-covered employment (this is about 94% of the workforce).

Unemployed people don’t pay payroll taxes, and with the rise in unemployment all through the year, fewer people are paying the taxes and less money is going to Social Security. 

2. Increased Social Security Applications

Several individuals are within Social Security age but haven’t started making withdrawals because they were still working. Due to the coronavirus’s effect, some of these individuals lost their jobs and applied for the program – meaning that more money will be coming from Social Security than before. 

3. Low-Interest Rates

The Federal Reserve has decided to keep interest rates low for a long time due to the economic downturn. This will affect the Social Security program’s income since the funds for the program are invested in treasuries. With the treasury rate now lower than it was months ago, there’s less money going back to Social Security.

So Why is Social Security Talked About so Much? 

Because it’s one of the three primary sources of income for FERS retirees. If Social Security turns out to pay less than it’s expected, retirees should be able to cover the difference with other income sources like the TSP.

From what we’ve seen so far, if nothing is done to shore up funds to Social Security, benefits may be cut by 20% or thereabouts. The U.S Congress can come to the program’s aid, but as we’ve seen, they seem more interested in endless political debates.

Rather than anticipate the intervention of Congress, retirees should do whatever they can to boost their TSP savings so they’ll have something to fall back on in the worst-case scenario. Look through your budget and find ways to reduce spending and set aside more for retirement. 

Ensure you contribute up to 5% to earn the full employer match. If you’re already maxing out your contributions, consider keeping additional funds in a taxable or IRA account. This way, you’ll be more prepared if Congress fails to show up with a solution for Social Security.

Is it Beneficial to Stay at Your Job Past Age 65?

Over the years, more and more people are working past their 65th birthday. The numbers seem to increase every year. One notable federal employee is Millie Parsons, who retired from the FBI at the age of 88, after over 62 years of service. Emil Corwin started working at the Food and Drug Administration at the age of 74 and retired 22 years later at age 96. He died a month prior to his 108th birthday.

Not everyone can work as long as Parsons or Corwin, but it’s very common for people to stay employed past age 65.


According to a recent Northwestern Mutual study, 46% of Americans expect to work past age 65. About 18% of Generation X and the same number of Baby Boomers expect to work past age 74. Interestingly, more than half of the respondents say they’ll do that by choice.

A significant reason why people are working longer is that people are living longer. Data from the 2010 census showed that over 53,000 Americans are over 100 years old, and the number has only increased since then.


There are over 100,000 federal employees aged 65 and older as of 2018, compared to 30,000 twenty years ago. Working beyond age 65 allows you to build a larger retirement nest and maximize Social Security and federal employee retirement benefits.


Social Security

Working beyond age 65 allows you to put off taking your Social Security benefits – and take full advantage of delayed retirement credits. Individuals born in 1943 or later have their Social Security earnings increase by 8% every year they delay the benefit until the full retirement age of 70. 

You can also claim Social Security while still employed. There’s no earning limit, provided you’ve reached the full retirement age (FRA). If you’re below the FRA, $1 will be deducted from your Social Security for every $2 you earn from your employment each year until you clock full retirement age. In the year you reach FRA, $1 will be deducted from your Social Security for every $3 you earn.

Under the Civil Service Retirement System, a special provision allows federal workers to receive Social Security benefits without being impacted by the Government Pension Offset or the Windfall Elimination Provision. This applies if you aren’t receiving federal retirement benefits and continue working past FRA.


Health Insurance

Working past the age of 65 allows you to save tax-free money to a health Flexible Spending Account (FSA). The limit for contributions to an FSA account increased to $2,750 in 2020.

You can delay enrolling for Medicare Part B without inviting the 10% penalty for every twelve months you refuse to enroll in the program.

If you’re covered by group health coverage from your employer or your spouse, you qualify for a special enrollment period when the current employment and coverage end. You have eight months during this period to sign up for Medicare Part B.


Life Insurance

While employed, irrespective of your age, it’s possible to increase your Federal Employees Group Life Insurance (FEGLI) level during an open enrollment period or when you experience a qualifying life event. Additionally, the amount of Basic Federal Employees Group Life Insurance and Option B Coverage increase when your salary rises.

While the premiums you’ll have to pay for optional FEGLI coverage will increase with age, the coverage will, however, remain the same irrespective of your age. If you’re age 65 or older at retirement, your post-retirement FEGLI reductions will start immediately after your separation.


Thrift Savings Plan

When you clock age 59 ½, you can start making withdrawals from your TSP account even if you’re still employed. You will, however, have to pay taxes on some portion of your withdrawal unless you transfer or roll it into an IRA or another eligible employer plan.

You can continue contributing to your TSP account regardless of your age – provided you are employed. Once you reach age 70½ and get off federal service, your account will be subject to the IRS required minimum distributions (RMD). This law requires that you take out a specific portion of your account annually based on your life expectancy.


Finally, you must pay attention to your tax planning before retirement. Take out time to understand the consequences of the available choices regarding TSP withdrawals, retirement benefits, Social Security, and lump sum annual leave payments.

Things To Do Five Years Before Retirement

When you are in your twenties, thirties, or forties, you typically are not serious about your retirement. When you start reaching your fifties or sixties, you start paying closer attention to your retirement savings. You may start the maximum contributions to your Social Security, research Medicare, play with some retirement planning calculators, or even pay close attention when you meet your financial advisor.

It would help if you asked yourself these serious questions with more sincerity each day. Have I managed to save enough for retirement? Are my retirement accounts used in the best way to give me the best future? How much more time do I need to pay for long-term care? Do I need a trust? Should I pay off loans? How to convert your 401(k) account into a retirement paycheck? This list of retirement-related questions never ends. 

While people of any age may spend time thinking about their dream retirement, the most panicked questions appear five years before someone hopes to retire. The good news is that no matter your financial state today, there is still room to improve your retirement financial security. 

Those who want to retire comfortably can look at our year by year to-do list for a better future.

When you have Five Years Until Retirement

This is the first step and the most difficult one for those who never planned for retirement. You need to control your future financial condition from where you stand today for your economic well-being in retirement. How much money have you contributed to funding your retirement income? Get information on how much money you will receive from your Social Security benefits. If you have any pension or other income sources, collect data on all sources of your income? Estimate if all these sources of income would be enough to maintain your standard of living in retirement?

Whether you are prepared or not, this is the right time to get serious about your retirement planning. If you are not sure and need financial help, you can consult a financial planner. You still have time to maintain your retirement. You may increase your savings rate, and you may find some amazing tax planning strategies that will help you keep more income for your retirement. 

When you are left with Four Years Until Retirement

Suppose we assume that we have taken the steps mentioned in the When you have Five Years Until Retirement. If you haven’t, you can go back and take that step. You can now review your retirement readiness to be a year closer and ready to think of your longer-term goal. We are talking about the time beyond the initial years of retirement. 

Think of questions like Where will you live in retirement? Where will your grandchildren live? Do you want to stay at home forever or want to go to some retirement community? Do you want to relocate after you leave your workforce? You don’t need to make these choices now, but you still need to think and plan. 

We are discussing year-to-year retirement planning as we get older, so you shouldn’t forget that your plan should include money to pay for long-term care. Did you know that the 2019 median cost of a California long-term care facility is $127,750 per year or $350 per day? For those reading my article, thinking that this money is a lot, you are not wrong. Before you run out of your money and take a long-term care insurance policy, think seriously about it. Your financial planner can guide and help you find other assets or sources of income to pay for this expensive care. For example, if you have $500,000 to around $2.5 million in retirement assets, you can check LTC coverage, especially as a married couple. With this asset value, you can take some risk and self-assurance. 

This is the best time to try your luck with your estate planning. You should, at least, set up a will and health care directive. If you have more assets beyond retirement accounts, you can look for a living trust. Estate planning requirements vary from state to state. The probate cost and rules are quite strange in California.

When you have Three Years Until Retirement

When you have three years until retirement, this is the time you should start thinking of what your retirement will look like? Are you dreaming of endless days sipping cocktails on some exotic beach? Do you have a bucket list that you wish to complete? Are you looking forward to spending more time with the grandkids or spending winter months at some warm place? It is easy to dream big. But what will your everyday life look like after retirement? Do you have any passion that you can now pursue? Are your dreams going to be fulfilled when you retire? There are endless possibilities. 

You won’t have to work 40 hours, or more, each week and have more time. Skipping daily commutes and raising children will allow you to get more time than you would think. That means you have more time to learn new things, take classes, and pursue passions like painting, dancing, and even volunteering. 

This is the perfect time to think of your housing in retirement. Will you stay in the same home, downsize, remodel, or move to a smaller location? Note that it is easier to pay off debt when you are employed. If you need money to make changes to your home, this is the perfect time to do it. 

When you have Two Years to Go Until Retirement

Retirement brings some of the fantastic tax planning opportunities knocking on your door. You need to look at these strategies before you leave your workforce closely. Many people see their taxable income dropping in the year after retirement. Even if your income is declining, you may see some benefits like zero percent capital gains rate in some years.

If your taxable income takes you into a much lower tax bracket, you may get Roth IRA conversion benefits. This process may be complicated, so we recommend you consult a financial planner. 

In this year only, you should recheck all the numbers on your retirement plan. You also need to think about things that you would do after retirement, like how you will pass your free time once retired.

When you are in the Final Year before Retirement

When you are so close, you are ready to feel the excitement of the next chapter of your life. This is an excellent time to enjoy when you should start reducing your spending and expenses. You need to check if there are any dates that you need to mark. For example, when you are 59 ½, you are excused from paying an early withdrawal penalty, you are eligible for Social Security at 62, and you are eligible for Medicare at 65. You may be keeping a check on pension dates or 401(k) contributions. You may find a date when your car loan will be paid off.

If you take retirement before the age of 65, you will need to focus on your health insurance. If you are lucky enough, your employer may opt to continue offering you medical Insurance coverage. Others may look for other sources until they reach 65, and the rest of the people closer to retirement may get health care benefit via the Affordable Care Act.

Congratulations, you completed this to-do-list! Hopefully, your dedication to saving for retirement over the past few decades will be paid off when you enter the retirement you deserve.

One in Five Baby Boomers and Retirees are Dependent Upon Social Security

According to a nationwide survey, one in five Baby Boomers or older retirees has no second income source other than Social Security. That can result in debt-related problems or their financial dependence on their children, which can impact their children’s ability to save for his or her future.

If you think you are sailing in the same boat and can’t manage your finances for your retirement, check these pointers to cope with the situation. 


How much will Social Security cover in retirement?

According to the Social Security Administration, the Social Security program was designed to replace 40% of the average worker’s pre-retirement income. Social Security may cover more or less than this percentage for you, but it will not completely fund your retirement. 

The nationwide survey stated that the average retiree got $1,380/month from Social Security, which is $16,560/year. From the Bureau of Labor Statistics data, we know that the average household driven by an adult age 65 or older spends a little more than $50,000/year on an average; that means a $1,380 monthly Social Security benefit will not be able to cover 100% of their household expenses. 

It might end up covering a little more than one-third of your expenses when you spend a little less than $50,000 per year, but it is not a good idea to depend on Social Security alone. If you’re struggling to manage your finances, and you don’t have any other source of income, here are a few tips: 


Do not forget to get the maximum from your Social Security. 

If you are delaying your Social Security program, you are reducing the number of checks unknowingly. You are reducing your benefits and increasing the size of checks until you reach your maximum Social Security benefit at age 70. This advice may not fit your situation if you’re already claiming your Social Security benefits.

But there are many more ways to maximize your Social Security benefits, like including your spouse in your plan and making sure that they are claiming benefits. It doesn’t matter if your spouse worked or not, you can still claim a spousal benefit on your work record if you are getting Social Security benefits.

You can also become eligible for Supplement Security income if your income is very low. This will give you additional money each month to cover some of your expenses. You can go to your local Social Security office or go online to apply for these benefits. 

Do some research on other types of financial assistance.

Look for other government programs that may help you pay for food, energy bills, and medical expenses. These programs differ from location to location and have their eligibility criteria. 

Do some research on other types of financial assistance programs for seniors or low-income workers to check if you are eligible for signup or not. This can help you to increase your funds a little further.


Look for a job.

If you have tried all options and nothing works out for you, you can try returning to work, perhaps even part-time, to increase your funding from your Social Security. You may change your work area and choose something that interests you, or you can start your own business.

You can also look for some upfront work and get some passive income source at the same time. You may rent out property or start some online courses or ebooks. Think about things that you like and would love to work on and then look for ways to evolve and turn it into a source of income.

Things may look complicated if you’re already retired and are struggling with your finances. But this isn’t the end of the world, and you still have options. Try your luck and implement some of our suggestions to see what kinds of suggestions work best for you. 

The Emergency Fund is The Best Protection for Your TSP.

Suppose you are among those people who are still financially buoyant during this period. In that case, you should increase the amount of money you keep for your retirement. Participants of the Thrift Savings Plan should save as much as possible in their TSP. 


Even though some people are still employed, many people are now unemployed. What should be the fate of these categories of unemployed people?


Members of the uniformed services and federal employees are not financially affected by the pandemic, but many of our relations are working on a salary reduction. In contrast, many have lost their jobs because of the pandemic. How do you expect someone who recently experienced a financial crisis to save more for retirement? Or can they even proceed to keep the same amount they saved before the pandemic?


Firstly, every one of us should always put some amount of money aside in case of an emergency. This money should be saved in a separate account that you will not use for other expenses. Many financial experts’ most common suggestion is that your emergency fund should cater to your expenses for at least three to twelve months. Federal employees may not have the emergency fund that will keep them for three months because they regularly paid their furloughs.


Since COVID-19 has caused the economy to melt down, the impact may not be felt by federal employees. Still, their relatives who are not working with the government are affected by the pandemic. Your spouse may have been out of work for the last three months, and we are still counting. I will advise that you save at least six months worth of your expenses in the emergency fund.


In addition to your TSP, if you benefit from an employer-matching contribution and want to start saving for an emergency, you should put 5% of the contribution into the TSP before contributing to your emergency fund. This is because you will not want to leave out the free money you will receive from the matching contribution. You should put your emergency fund in a safe place, where you can access it easily.


Ensure that you set some money aside for an emergency because it will prevent you from spending your TSP funds during the emergency period. When there is no emergency, you can still use the money for retirement and other expenses. The recent crisis caused an increase in the number of withdrawals from the TSP. A recent study shows that emergency fund participants make fewer withdrawals from their retirement plan than those without emergency funds.

You should note that savings, in general, occur gradually. If you start your savings now, you will achieve your financial goals over time. Right now, you may say that you are not financially capable of saving for an emergency. Still, you should check your budget and cut out some expenses that will give you some money to save for an emergency. The projection is that we will not witness another economic meltdown soon, but forecasts have failed in the past. It is now time that you set aside some money for an emergency.

Is This The Right Time To Dump Your 401k Plan?

One of the best places people deposit their savings for retirement is the 401(k) plan sponsored by their workplace. People favor this type of 401(k) plan because it offers them the opportunity to save automatically because the money will be deducted directly from their paycheck.

Under the 401(k) plan, you will not be encouraged to make unnecessary withdrawals from your retirement savings due to the plan’s withdrawal restrictions. When you don’t withdraw from your savings, it will grow to a considerable sum within a short period of time. Your investment in the 401(k) plan will also increase when you defer your taxes.

Regardless of the benefits of the workplace-sponsored 401(k) plan, you can still gain a lot by dumping your 401(k) plan for a taxable account.

Potential dangers to the 401(k) plan 

The COVID pandemic’s impact on the global economy reduced the number of people who turn their savings into a 401(k) plan. The main reason for the downturn in the number of 401(k) plan contributors is that many companies have suspended their workers’ contributions. Simultaneously, the tax rates on income will be higher due to the enormous stimulus disbursed by the government. 

A survey done in April shows that about 17% of organizations have suspended their employers’ matching contributions. This suspension is due to the pandemic. The Retirement Research Center also gives the number of companies that have suspended their employer’s matching contribution. According to their findings, the total number of people affected is 410,313 participants, and this number accounts for only 0.69% of participants on a 401(k) plan in America.

One of the most important features of the 401(k) plan is the employer-matching contribution. This contribution involves a free deposit, which covers up for some of the deficiencies with the 401(k) plans.  

If the employer-matching contribution stops, you can continue to fund your savings in the 401(k) plan using your paycheck. But saving with your paycheck requires you to pay taxes. When you contribute, you pay taxes, but the earnings from your savings will increase without taxes. You should note that tax deferment is not useful if the tax rates on income rise before your retirement because you will pay more taxes when you retire.  

Saving for retirement in a taxable brokerage account

There are various plans where you can place your retirement savings apart from the 401(k) plan. These plans include the Roth IRA, the traditional form of an IRA, and the taxable account. The IRAs have lower caps of contribution, and this is a major disadvantage. If you are under the age of 50, the maximum amount you can save in your IRA in 2020 is $6,000, but if you are above age 50, you can save up to $7,000 in your IRA. 

There’s no limitation to the amount of money you can save in a taxable account, but there is no tax perk for your savings. These tax perks are the deferrals on your income and the deductions made from your savings. The tax perks will result in more taxes over time.

When you pay your taxes, you have the right to spend your money as you like since your withdrawal has no taxes over them. The free will to withdraw is not feasible with the 401(k) plan because your withdrawal from the 401(k) plan is like your monthly income, and this involves payment of taxes.

The taxable account allows you to retire any time, even at age 50, because you are not on the government’s retirement timeline. But before you make a decision, you should make sure that you save enough money that will suffice during retirement. Participants on the 401(k) plan can only make a withdrawal that is free from a penalty when they are 59 years old.

Also, when you save in the taxable account, you may decide not to withdraw under the IRS mandate. When you don’t withdraw your taxable account savings, you are leaving your money to grow. But in the 401(k) plan, you must make taxable withdrawals once you reach age 72 if you don’t want to be penalized.

Can I use a taxable account for my retirement savings? 

Despite the numerous benefits of the taxable account, it does not apply to everyone. People that still have access to an employer match should not stop their 401(k) plan, because doing so will make them lose a lot of free money. Suppose you can not abstain from spending your savings. In that case, the 401(k) plan is your best option because the penalties for early withdrawal will limit you from spending your savings. The 401(k) plan will always give you some savings when you retire.

Saving for retirement in a taxable account is good, especially when the 401(k) plan is not favorable. With the taxable account, you will pay taxes on your savings annually, and this will make your money grow because of the discipline. Retirement savings in a taxable account allow you to retire at your free will.

How Does Federal Social Security Disability Retirement Work?

Under CSRS and FERS, Employees are eligible for disability benefits if they are disabled and cannot perform their jobs efficiently. However, to be eligible to apply for disability retirement, a CSRS employee must have completed a minimum of five years of creditable civilian service. A FERS employee must complete at least 18 months of federal service.

Due to CSRS’s closure to new employees a few years back, anyone who left and later returned to the workforce as an offset CSRS employee would have completed the required five years of service. Thus, the latter provision is now debatable.

Applicants for disability retirement would need to fill out the standard form 3112 and send it to the Office of Personnel Management. Some agencies help their employees with this process. In addition to the form, the agency must attest that the individual can’t provide efficient services in their current position, even when necessary adjustments are made to the working conditions; and that there’s no other vacant position within the agency and the employees commuting area that’s of the same grade and pay (note that there may be additional conditions from collective bargaining agreements).

FERS employees and CSRS offset must apply to Social Security for disability retirement since it covers them. The SSA standards for determining disability are different and more complex. To be considered disabled, an individual must be very disabled that they can’t engage in any form of substantially gainful employment.

If a FERS employee under age 62 is considered disabled, they will receive 60% of the high-3 minus Social Security disability benefit, which they are entitled to for the first twelve months. After that, the amount is reduced to 40%, minus 60% of Social Security benefits.

For a CSRS employee, they’ll receive 40% of their high-3 years of average salary or the amount that results from increasing their actual years of service from the date of the disability to age 60. As such, a 40% calculation is the guaranteed minimum they’ll get.

Whether you are a FERS or CSRS employee, if your earned benefit calculated based on your years of service exceeds these amounts, then that’s what you’ll get. As a FERS employee, if you can work from the onset of the disability to age 62, your whole benefits will be recalculated.

How To Protect Your Assets During Retirement

The professional liability insurance, which federal employees with supervisory or managerial duties buy if they are sued for activities beyond their official responsibilities and the government doesn’t defend them in court, may no longer be needed by retirees. The need for professional liability insurance has decreased because federal employees now buy other types of liability insurance. Therefore, the need for other liability insurance increases.

The need for other kinds of liability insurance will increase because most retirees can no longer cope with financial losses incurred through liability suits since they do not have more working years in the workforce.

Firstly, make sure that you include ample liability coverage in your insurance for homeowners. Suppose any of your relatives accidentally inflict an injury to your home guest or a guest trips on your house steps. In that case, this ample liability coverage necessitates that your insurance company will pay for the damages, per your policy limit. It will be better to maximize this coverage, which implies that you will buy at least $300,000 worth of liability insurance if you want to have its optimal benefit.

When you buy auto insurance, you need to maximize this ample liability coverage because it gives you protection. Suppose you cause an auto accident, the liability coverage that protects you in case of auto accident consists of two distinct policies:

1. Property damage insurance: This insurance will cover all the expenses if you damage someone else property.

2. Bodily injury insurance: This insurance will pay for the damages you or your family member caused to other people in society.

Three numbers represent liability coverage for auto insurance. For example, your auto liability coverage can be 50/100/25. The interpretation of this number is that your liability coverage is up to $50,000 if you cause injuries to one person, up to $100,000 for injuries caused to many people in one incident, and up to $25,000 if you damage property.

Although state laws require you to have a minimum auto liability insurance level, it is better to pay more for your liability coverage. You might consider paying for an auto liability coverage of 150/300/50. You can also try other types of liability coverage if you want to get additional protection. Other types of liability coverage that will give you extra protection include medical payments and uninsured motorist.

The 4% Rule is Dying – Here’s Why

How much money should you withdraw from retirement savings each year? Many years ago, there would have been one answer to this question; 4%. Now, the days of relying on this system are coming to a close. By the time you retire from the working world, you might live by another system. 


What’s the 4% Rule? 


In the 1990s, the financial world was turned upside-down when Willian Bengen, a financial advisor, assessed inflation rates and financial market returns in the 66 years leading up to 1992. Despite the complex equations and calculations that went into the research, Bengen announced a rather simple system for all retirees. He said that the best way to make savings last through retirement was to withdraw 4% in the first year and then adjust for inflation. 


Bengen came to this conclusion after finding that 4% was the optimum withdrawal rate for portfolios that contained bonds and equities in equal measure. Even as the world experienced booms and crashes, 4% (adjusted for inflation) allowed portfolios to last for at least 30 years. It wasn’t just Bengen because many financial analysts have confirmed this rule with calculations and studies of their own. 


Why is the 4% Rule Dying? 


If Bengen’s rule has been reaffirmed and validated by others, why are experts recommending against the system? For one thing, life expectancy is increasing, and some people need more than 30 years of funding in retirement. However, this isn’t the most significant problem because Bengen showed many scenarios where retirement balances were lower at retirement than after 30 years. The more pressing problem with the 4% Rule is the uncertainty of external conditions. In other words, future ups and downs. 


Covering 66 years, Bengen’s research included the stock market crash of the 1970s and the Great Depression at the end of the 1920s. Yet, if 2020 has shown us anything, it’s that new lows are entirely possible. In fact, the low bond yields earlier in the year broke all lows seen in Bengen’s research. If we remember, Bengen used a portfolio where half was actually made up of bonds. 


Earlier in the year, we also saw a sharp 30% decrease after the sell-off back in March, which proved to be the fastest drop on record. On March 16th, the S&P 500 experienced a huge dip, and this sits third on the list of most significant single-day drops. With these new market conditions and life expectancy extending, the 4% Rule is under threat. 


What if you’re planning for retirement at the moment? Well, being ‘almost certain’ that your money will last isn’t good enough. Therefore, you need to consider what happens in the worst case, and the 4% Rule might not address these worst-case scenarios. 


Save More or Spend Less 


In retirement planning, reducing the withdrawal rate estimates means one of two things: 


• Saving more while working

• Spending less while retired 


To withdraw $50,000 in the first year, your target savings starting point increases by around $400,000 when changing to a 3% withdrawal rate rather than 4%. Let’s say you want to withdraw $100,000 in the first year; you need over $800,000 more for a 3% withdrawal rate compared to a 4% withdrawal rate. 


On the other hand, those unable to increase savings by this much will need to rely on living a more frugal life in retirement, bringing its own problems. For one thing, financial advisors will never recommend hoping for the best and cutting back as much as possible in retirement. If you were to have $2.5 million in savings, lowering the withdrawal rate from 4% to 3% means you’ll get $75,000 rather than $100,000 in the first year. 

Three Social Security Mistakes

The majority of senior workers depend mostly on Social Security benefits immediately after they retire. They believe that Social Security benefits will take care of all of their expenses after retirement. Suppose you have this belief that Social Security benefits will suffice during retirement. In that case, you should beware of these three mistakes that can prevent you from having enough money to spend after retirement.

Claiming your Social Security benefits early.

The basis for the calculation of your Social Security benefits is your history of past earnings. The average monthly earnings of your 35 years of work history are used to calculate Social Security benefits. Still, in case of inflation, there may be some adjustments to your monthly income. When you have a record of 35 years in the workforce, you can claim your Social Security benefits when you are 67 years of age, which is the federal retirement age. 

You can claim your Social Security benefits earlier than the FRA, but your Social Security benefits will be permanently reduced. Conditions such as unemployment and emergency expenses may require you to claim your Social Security benefits earlier. Suppose you don’t have any expenses that require urgent finances. In that case, you should leave your Social Security benefits until you reach the FRA because doing this will leave you with a lot of money in the future.

Claim your Social Security benefits when you are above 70 years of age

You’ll have access to the entire amount of monthly benefits when you reach the FRA. Still, suppose you leave your Social Security benefits until when you are above 70 years of age. In that case, you will receive more benefits per month. The reason is that each year you delay your Social Security benefits beyond the FRA, you will get an 8% increase to your Social Security benefits. When you’re 70 years old, you shouldn’t delay claiming your Social Security benefits because your benefits will not grow again. You could lose a considerable sum of money if you don’t claim your Social Security benefits at age 70.

You must know that for six months, you will be paid the retroactive benefits by the Social Security Administration. If you don’t claim your Social Security benefits when you are 70 years old, you will lose a lot of money. Moreover, there is no need for delaying your Social Security benefits until when you are above age 70. Save the date so that you won’t forget nor exceed the time limit.

Failure to claim the spousal benefits 

Suppose you want to claim your Social Security benefits based on your record of earnings. In that case, you may delay your benefits beyond the FRA because your monthly benefits will increase if you don’t claim them earlier. Suppose you are not working, and you want to claim your spousal benefits. In that case, there is no need to delay your Social Security benefits past the FRA since the benefits will not increase if you leave them unclaimed.

Generally, it is not fair to delay your Social Security benefits past age 70 when you retire, and there is no need for delaying your spousal benefits beyond the FRA.

Your Social Security benefits will pay for some of your expenses during retirement. Your Social Security benefits can cover your essential needs or other personal finances. However, you must avoid the above mistakes to gain from your Social Security benefits. 

Coronavirus Disruption: How to Plan Your Financial Health and Retirement

We recently spoke to an expert about the challenges employees face due to the coronavirus pandemic and the resulting employee benefits and retirement planning trends. Here’s a preview of our discussion.

 Are Employers Adopting the CARES Act to Support Employees?

In one way or another, the pandemic has affected Americans in all walks of life, and the CARES Act was created to bring relief to employees from this financial crisis. The act loosens the regulatory knots as regards taking contributions from one’s 401(k) account. It allows eligible retirement account owners to make penalty-free withdrawals up to $100,000.

Available data, however, shows employees are reluctant to take advantage of the law. A recent Bank of America survey shows that only about 8% of account owners took a CRD from their 401(k), and 85% of those withdrawals were less than $25,000.

One reason for employee lack of interest is the long-term implication of borrowing from their retirement funds. While the 401(k) may be the only option of getting cash for most employees, dipping their hands in the fund to cover short-term needs may cost them in the future.

The need for a holistic financial guide in this hostile economic environment cannot be overstated. Employers are equipped to address this essential need by providing a comprehensive solution that will cut across all employees. 

How Have Retirement Planning and Employee Benefits Evolved Since the Pandemic? What Benefit Offerings do You Think Will Become Prominent?

The coronavirus has greatly stressed employees requiring more focus to do their job. They’re faced with the challenge of working remotely, as well as being teachers and caregivers to their kids.

A recent Workplace Benefits Report found that employees’ physical and mental well-being outrank their financial concerns overall. Also, just under half of the employees rated their finances as good or excellent compared to previous years.

This shows the need for benefit offerings that support other aspects of the employee’s well-being. These could include tools and programs that support day-to-day responsibilities like caregiving, as well as long-term emotional support.

Programs that help employees manage their finances and achieve their goals will also be of great use considering potential economic impacts.  

A recent Bank of America survey showed that healthcare costs ranked top as a concern amongst employees. The survey showed that out-of-pocket costs increased by 23% in the past four years, and employees spend an average of $2,138 on out-of-pocket healthcare costs.

This shows the importance of a tool like the Health Savings Accounts (HSA), which allows saving for future healthcare expenses. The survey further revealed that employees are aligned in this thinking, with 67% of eligible employees already enrolled in the program.

How Are Employees Handling Expedited Retirement Timelines This Period?

Many Americans are re-evaluating their retirement plans due to the current financial crisis. Some are delaying their retirement due to the uncertainty, while many others are pausing retirement contributions. Some are retiring early due to job loss or other factors.

Those facing expedited retirement timelines can take advantage of the CARES Act to get the funds they need. While this isn’t advisable due to the long-term consequences, it can provide immediate relief for many. Employees facing short-term expenses due to unemployment can also look at this option.

Regarding healthcare costs, HSA contributions and withdrawals are tax-deductible, which offers the potential to grow tax-free. This makes it the perfect tool for employees to save funds for various medical expenses and qualified healthcare expenses. 

What Should Employees Consider in Deciding Whether to Delay Retirement?

The foundation of deciding whether to delay retirement is to perform a holistic analysis of your long-term goals and finances. Determine the impact of delaying retirement on your savings goals. It’s also important to talk to your spouse and family to ensure your goals align.

Also, consider speaking with a financial advisor to know your current financial position and options.

Contribute to Your TSP, Or Pay Off Your Mortgage?

For people near the official retirement age, withdrawing from their TSP account to pay their mortgage is a big concern. But for young workers who may not retire soon, is it advisable that they save more in their TSP, or should they pay their mortgage first? Note that making the right choice will have a significant influence on your financial stability in the future. 

Before you make a decision, you need to consider the following.

Never miss a matching fund

Anytime you receive your salary, you should make a minimum contribution of 5% to your TSP. When you do this, you will maximize the matching contribution you enjoy from your agency. 

Save for emergencies

One thing that will maintain your financial health during a rainy day is your emergency fund. This fund should not be the money that you will spend on vacations; it should serve as savings for emergency purposes only. It would help if you had your emergency fund available and accessible before you pay off your mortgage or save more in your TSP. The total amount of money in your emergency fund is in proportion to your condition. Still, many financial planners suggest that your emergency fund should cover your expenses for between three and twelve months.

Your emergency fund offers you two benefits. It will support you financially. It also allows you to maintain your cost of living during an emergency without spending from your TSP.

Determine what you need during retirement

Your retirement plan should cover everything you will need during your retirement period. The retirement plan should contain the amount of money you will need in retirement and the amount of money you will contribute to the TSP. It may not be easy to know the exact amount of money that will suffice during retirement. It is still easier to understand how much income you will receive from other fixed sources, such as pensions.

When you know the expected amounts from fixed sources, you can now determine the amount of income you will need to fill your retirement plan gaps. Once you have this insight, it will be easier to estimate your actual need during retirement.

Lastly, pay your mortgage

You should commence the payment of your mortgage once you have taken care of other factors. Payment of mortgage comes after retirement savings because retirement may be difficult for you if you have fewer funds in your retirement savings, even without a mortgage. Still, if you have enough retirement savings, it will be more comfortable.

In the real sense, you may need to pay off your mortgage before saving for retirement because of certain factors. These factors include the investment return on your TSP, where you are making the investments (whether Roth IRA or a traditional IRA), and the tax bracket will also influence your decision.

When you want to choose, you should know that the tax law may change anytime soon. Generally, it is good to pay your mortgage early, as long as doing so will not affect your financial health. It would be best to decide based on your present condition and your goals during retirement because making the right decision now will give you a comfortable retirement.

Not affiliated with The United States Office of Personnel Management or any government agency