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September 25, 2023

Federal Employee Retirement and Benefits News

Retirement Cost Analysis

Retirement Cost Analysis

retirementTo maximize the enjoyment of your retirement with as little financial stress as possible, you will want to do a thorough projection and analysis of your living costs during retirement. This article discusses the analysis of these costs.

You will want to review all of your pre-retirement costs and project your post-retirement costs so that you and your spouse will be able to determine what you need for basic living, what will be left for leisure, travel and the like, and if you will need or want to work part-time in retirement to supplement your retirement income.

Projecting your retirement living expenses will take some time and effort, and it will be more complicated depending on how far away you are from retirement. Do you know what type of lifestyle you want? Do you want to move to another state or even another country? Do you want to play golf a lot? That can be expensive. Or travel around the country or around the world?

To get a sense of your costs, examine your current yearly spending against what you think those costs will be in retirement. Here are some examples of expenses that may change in retirement:

Housing Costs

Many people assume their mortgage will be paid off by the time they retire. But housing costs do not always decline in retirement. Some people will take out a line of credit on their home for remodeling, and some people will buy a second home in their favorite location and state. And others will sell their home and move into a smaller space, such as a condominium, which may cost less and require less upkeep.

Health-Care Expenses

For many Medicare-qualifying retirees, health-care insurance isn’t outrageous. A good additional insurance plan (to cover what Medicare doesn’t) costs over $200 a month for an individual, more for a couple. Prescription drug plans are an additional cost. And be aware of your health-care expenses if you retire early and cannot participate in your former company’s group insurance plan until Medicare kicks in at age 65. And when figuring out your costs, long-term-care issues, such as hiring in-home care or living in a nursing home should be taken into consideration.

Recreation Spending

One of the greatest joys of retirement living is doing things you were not able to do while you were working or raising children, such as traveling across country or to anther country, learning new hobbies, etc. But these things cost money, so it’s wise to look closely at your recreational spending.

It’s important to take your children into consideration if you are developing your retirement budget. By the time most people retire their children are living on their own. However, what if one of your adult children needs to move home or you want to help one of your children with a down payment on a new home?
Elements of Your Retirement Costs

Items to include in your retirement expense projection include: transportation costs, which include vehicles (purchase price or monthly payments), gasoline, and insurance; gas & electric utilities; home heating oil; water & sewage costs; garbage pickup (if there is a cost attached to it); cable and Internet access; life insurance payments; home care (e.g., lawn care, home cleaning service); homeowners’ insurance; clothing expenses; groceries; eating out; travel & hotels; credit card spending; entertainment (movies, theater, etc.); taxes; the monthly bills for cable television, Internet access, and cellular telephones. Everything adds up.

Federal Employee Retirement Benefits Analysis

When contemplating retirement, you’ll want to pull together all of your receipts, pay statements, loan documents, credit card balances and bank account information. There are many things to consider for both CSRS and FERS employees.

Retirement planning can be overwhelming and is a big undertaking, but if you take the time to properly plan, you can retire comfortably. Any Federal employee who is planning for retirement should, addition to costs, consider such questions as:

  • Do I understand my complete federal benefit package and how the benefits impact me now and how the benefits will impact me into the future?
  • Does FEGLI provide my family unit with enough life insurance coverage to meet both our current and our future needs?
  • Is the FEGLI coverage cost effective vs. private insurance alternatives?
  • Have I determined my FERS/CSRS retirement annuity so that I have a clear understanding of my retirement income? Is it going to be enough?
  • Am I missing out on “free money” benefits inside my Thrift Savings Plan that could help supplement my retirement income?
  • Do I fully understand how my Social Security benefits will coordinate with my retirement benefits?  Are there any consequences with earning too much?

The Bottom Line

Overall, there are so many issues and factors to consider that it would be very helpful to consult your agency’s HR department for assistance in calculating retirement costs and coordinating costs with future benefits. The assistance of a qualified financial planner would also be an excellent idea.

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