Taking retirement is one of the most significant decisions of a working person’s life that he or she makes, and should be taken seriously. To enjoy your retirement to the fullest, it is crucial to plan your secure retirement wisely. If you are one of those planning to retire this year, then you are in the right place. We have done some research and come up with a checklist that federal workers need to consider before taking retirement.
How will you spend your time after retirement?
Initially, this step may seem time-consuming, but it is worth it! Many people are so excited to retire and get the freedom of time, but once they retire and become schedule-free and work-free, they start feeling unproductive, bored, and, at times, depressed at home. Proper Scheduling of hours is important to enjoy activities and social gatherings so that every retired person feels productive and happy. Having a plan from the beginning that can guide you and help you to spend your day will give you a new life, or as we call it, free-life experience. Doing this will help you analyze your expenses based on your daily spending.
Get an estimate of your benefits from your retirement agency.
Don’t forget to get an estimate of your federal government system benefits before applying for retirement. This would help you self-check your benefits, validating results with your advisor.
Once you get your estimate go for a trial run
Once you get your benefits and monthly income estimates from your retirement agency, go for a trial. Try to live on your after-retirement income estimates for one month or at least six months to get a rough idea of how your life would be after retirement. This test will give you a real-life idea of your financial condition. If you face any difficulty, then you still have time to improve your mistakes.
Make maximum contribution to your TSP.
Before investing your hard-earned money, tax shelters should be your one-stop choice. Federal employees always get the advantage of making the maximum contributions to their TSP, but this is only possible when you are working. In case of early retirement, or mid-year, you must contribute maximum to your TSP account before taking retirement. Don’t forget that you can contribute 100% of your pay to your TSP and Roth TSP.
Contribute to your Roth IRA
Another tax shelter that employees can look for is Roth IRAs. Do you know that only earned wages can be contributed to a Roth IRA, and your retirement income is not part of your earned wages? That means you can only add to your Roth when you are working. I have come across many retirees who regret not contributing to a Roth while they were working.
Make use of a Flexible Spending Account (FSA)
If you are making any contribution to your FSA, then you must use that money before taking retirement.
Move money out of your TSP for the right reasons.
This is another big decision about your retirement that needs the utmost care. There are different advantages of securing money in an IRA and having money in TSP. There is nothing wrong with moving your money from your TSP to another fund, but you must make the right decisions. TSP and IRAs both function differently before you reach 59 1/2. The most common thing that is proven beneficial is a fixed annuity. This article will give more information on this subject and my views on them.
Make proper survivor’s annuity decision.
In the worst case, if you die a week into retirement, have you ever given a thought as to what kind of income your spouse will be left with? Who will provide that income? Should you take the full survivor annuity? Spend some time thinking about this and make sure your survivors get sufficient income to live their lives.
Evaluate your options with Federal Employee’s Group Life Insurance Plan(FEGLI)
Just like other financial plans, FEGLI-federal employee’s group life insurance plan’s premiums go up with age. You can continue the FEGLI plan into retirement if you’ve had this plan for the last five years. Though this plan is costly, consider your options with FEGLI and other private insurance plans.
Do you think you really need long term care insurance?
Long-term care insurance is when a family needs to spend all of their assets on care only. The problem with this plan is that all of your assets may be spent on the spouse’s care, and the healthy spouse may be left with nothing to live on. Most states’ rules require spending on assets down to around 100k before they extend any assistance. Long-Term Care (LTC) Insurance is a great way to support both your assets and your healthy spouse’s lifestyle. Some people think that LTC insurance is not for them; however, I must mention here that it is a blessing for a married couple and should not be ignored.
Work on your Social Security collection strategy
There are tons of options available online when you come to check the right social security collection strategy. One of the significant factors that might impact your Social Security collection strategy will be timing. There will be noticeable differences in benefit if you collect your Social Security benefits at age 70 versus 62. With this, you will need to evaluate the impact of your Social Security collection strategy on your spouse. Working on your collection strategies will help you to get maximum household income.
Investment allocation evaluation is important.
One of the fears that scare every retiree is running out of money after retirement. Do some homework and try to analyze what kind of drawdowns you have seen in your past. If you have an investment allocation of 60/40, what is your expected reduction in a bear market, and are you fine with that? Try to give some time and find what allocation and investments will provide you with the best source of income in retirement.
Monte Carlo analysis can be a good idea.
Monte Carlo analysis is something that shows you ways of not running out of your money in retirement. This analysis considers 1,000 random simulations that give results depending on different types of sequences of return, and at the end, what your likelihood of success will be in terms of percentage.
Do home repairs prior to retirement.
You may think that you have plenty of time to make home repairs after retirement, but you probably would end up using your money on repairs, so it is advised to make home repairs beforehand. Remember that retirement savings are for you, not for your home repair or any other household repair.
Invest in new cars
There may be big expenses waiting for you in retirement, like buying a newer model of your favorite car. You must evaluate your spending before retiring.
Consider a Roth conversion.
If you retire this year, then converting to a ROTH may or may not be a good idea for you, but it is something that you must evaluate annually. I have other articles discussing various reasons for converting to a Roth and options if you would benefit from one or not.
Get Federal Health Plan for five years.
The Federal health plan is one of the advantageous plans that a federal employee enjoys and continues to enjoy even after their retirement—but only when you have had at least five consecutive years before departure. There may be some exceptions, but if you are close to five years and can stay at work, then you are advised to complete your five years to get the maximum benefits of FEHB in your future.
Set and Follow your budget
You must set your budget before retiring. Not following your budget is one of the easiest ways to see a financial crisis.
I hope that this checklist is useful to you. The checklist has many things that I usually recommend to my clients. If you find yourself entangled with this list and your retirement decision in general, do not waste your time; look for a specialized federal retirement advisor instead!