Five Important Retirement Decisions Feds Have To Make

As a federal employee late in your career, it is likely that you are contemplating retirement. This may be the opportunity to pick up new hobbies and pursue passions you may not have had time for while you were actively working. But, for some, it is a different kind of opportunity, one where they will finally be able to relax after a long career in the federal government

Whichever category you may fall into, there are some big choices to make over the span of your retirement years. Some of these decisions are more pressing and must be made as soon as possible, while others won’t need your attention for a while

Here we will look over what are possibly the five biggest decisions an employee of the federal government must make for their retirement.

When You Will Retire

When will you be ready to retire is the first decision to make. This question has multiple layers:

The first obstacle to overcome is eligibility. Based on the year you were born, there is a sliding scale which dictates your minimum age of retirement with the federal government. You are entitled to an immediate retirement, starting within thirty days of when you stop actively working.

Along with the Minimum Retirement Age, there is also a Years of Service requirement:

Eligibility Information

Age    Years of Service

62                  5

60                  20

MRA             30

After you have calculated your age of eligibility, you have to establish if you are ready both financially and emotionally for retirement.

Some people have their entire identity consumed in their careers because they have spent years developing and cultivating their careers. They may find that they are not prepared for such a large part of their lives to change. They will have a void in the place of their work that they will need to fill with other activities.

Potential retirees have to weigh their financial preparation for parting with the workforce.  Will they be able to meet their expenses through annuity, social security (or FERS supplement), and withdrawals from the TSP or other investment accounts?

When to Start Social Security

The Federal Employee Retirement System (FERS) supplement, a financial stopgap that covers retirees until they are eligible for Social Security, stops at age sixty-two. It is then that retirees will have to make the important decision as to whether or not they will draw reduced early Social Security benefits (age sixty-two), at their full retirement age (sixty-seven if born in 1960 or later), or at the age of seventy, the maximum benefit.

The answer is different for everyone, and as such, there is no one right answer. It is a personal choice made generally considering ones estimated life expectancy, economics, and political beliefs. Some would feel it best to wait and not claim early and receive the reduced benefit rate, instead, choosing to wait until their full age of retirement for a higher payout. Others would rather defer benefits even longer, as a means to maximize their payment. The longer the wait, the higher the payout. After age seventy your payment does not increase.  Your payout is higher, but remember, you have plenty of payments to make up if you declined to receive lower payouts in earlier years.

It is also believed by some that the current social security benefits system requires modification and is unsustainable since the Social Security Trust Fund is set to be depleted by the year 2033 if changes are not made. Their strategy is then to claim as early as possible to avoid facing dwindling benefits.

When Should You Start Withdrawing From TSP

When you retire you do not have to begin withdrawing from your TSP.  when you do, however, you have to be strategic in the way you start pulling out your money as well as the amount.

As of the date of this article, plans are being crafted to adjust the current methods that are available, which are slightly restrictive. You can, at present,  choose to pull the entire amount out, select an annuity in exchange for the complete value of the TSP, or select monthly payments that can be adjusted once a year.

There is also a one-time opportunity to make a partial withdrawal from your TSP before selecting one of the three methods outlined above.  Be vigilant and take care in considering your choices. You likely do not want to outlive your TSP fund.

Should You Enroll in Medicare Part B?

One of the paramount benefits of retirement available to federal retirees is the ability to enroll in the Federal Employee Health Benefits (FEHB) program. It allows retirees to continue to take part in the same health insurance program they participated in as employees after they retire. It is an excellent program for the cost, even though the premiums are not paid with pre-tax money as it was when they were employed.

The fees for Medicare Part B are based on a sliding scale based on income. It is not free.

Do you prefer to pay premiums and limit co-pays and out of pocket medical expenses? Or would you rather not pay premiums monthly and cover the out of pocket costs?

To Stay in Your Home, Move, or Downsize

Possibly the most powerful thing you can do for your finances as a retiree is to retain control over your expenses. For instance, there are Postal workers that can retire on time and highly paid government executives that have to work an extra year or two in excess of their minimum retirement age, because one could control their retirement expenses while the other would prefer to live a more lavish lifestyle after leaving their government job.

Consider the option of controlling your expenses by moving or downsizing. You can downsize in your current area, or move to a location where housing is more affordable. This may reduce your monthly housing expense and possibly put more money back in your pocket.

If you make the choice to move, consider what relationships you may be leaving behind, like family. Consider the possibility of moving to be closer to family. Will there be people with whom you have relationships where you are moving?

A reverse mortgage, a first mortgage or home equity line of credit may be some other options if you decide to stay in your home and your home is paid off, and you need money for daily expenses.