Thousands of federal personnel have retired since the COVID-19 pandemic began in March 2020. Many more eligible employees plan to retire during the following eight years.
Employees who are eligible to retire must be financially prepared to do so. With enough planning, an employee may do more than fantasize about a pleasant and financially secure retirement.
No one can know what the national economy and investment landscape will be like in 10, 20, 30, or more years. Hence, all employees who plan to retire in the next eight years should know what to expect financially after they retire and what should be done to complete the necessary tasks to prepare better for their retirement years.
Here are three recommendations to help employees who plan to retire within the next eight years:
1. Recognize and comprehend the link between investment risk and investment return and how it applies to TSP investing.
Unfortunately, risk connotes something negative for some TSP members. However, because the TSP is a long-term tax-advantaged savings plan, the “risk/return” ratio cannot be overstated. There is no doubt that investing in the stock market is risky. Investing in the TSP’s three stock funds (the C, S, and I funds) carries a certain amount of investment risk.
However, by taking the risk of investing at least half of a TSP portfolio in the C, S, and I funds, a TSP participant will be rewarded with a better investment return over the long run. Participants in the TSP should also be mindful that inflation may be disastrous to a long-term portfolio like the TSP. Stock investments have proved over the years that they can outperform inflation in the long run.
TSP participants are consequently advised to avoid attempting to dodge the current-year stock decline by investing in the so-called safe US Government Securities G fund. While invested in AAA-rated short-term US Treasury securities, the G fund doesn’t outperform inflation in the long run.
2. Decisions on Social Security.
The majority of government employees are entitled to monthly Social Security retirement benefits. The three most frequently asked questions about Social Security retirement benefits among employees and retirees are:
(1) At what age can I apply for my monthly retirement benefit, and are there any benefits to deferring the commencement of my payments?
(2) Do I qualify for any of my spouse’s, former spouse’s, or deceased spouse’s Social Security payments, and if so, under what conditions?
(3) Will my Social Security monthly income be reduced if I stop working in my late 50s or early 60s and wait until my late 60s to begin receiving Social Security benefits?
Individuals fully insured for Social Security can apply for retirement payments as early as age 62. However, if they choose to begin receiving benefits at age 62, their monthly amount would be permanently reduced. Delaying the start of their monthly Social Security retirement benefit increases the individual’s monthly payment by 7 to 8% each year they postpone their benefits beginning at 62 and continuing until 70.
Employees who will retire within the next eight years and are near their 62nd birthday are advised to delay obtaining Social Security benefits as long as possible (preferably until age 70). A guaranteed 7 to 8% rise in monthly benefits should keep up with the current cost-of-living increases. Married couples where both spouses are eligible for Social Security payments should seek counsel on coordinating their benefits. That covers which spouse should apply for benefits first and the choices available to the surviving spouse if the first spouse dies.
3. Even with the right to maintain FEHB health insurance, out-of-pocket health care costs will continue to rise.
After retirement, federal employees are entitled to maintain their FEHB health insurance coverage, with the federal government continuing to pay, on average, 72 – 75% of the FEHB program health insurance premiums. However, this doesn’t imply that a federal retiree can expect to pay the minimum out-of-pocket for health care during their retirement.
For instance, FEHB health plan rates, like other health insurance premiums, will continue to rise. Retirees are urged to enroll in Medicare Part A (Hospital Insurance) at no cost and Medicare Part B (Medical Insurance) with a monthly payment paid by the retiree (depending on the retiree’s income). If married, a federal retiree and spouse can reduce out-of-pocket health care costs by enrolling in an FEHB health plan and Medicare Parts A and B.
For over 20 years, Jeff Boettcher has helped his clients grow and protect their retirement savings. “each time I work with my clients, I’m building their future, and there are few things that are more important to a family than a stable financial foundation.”
Jeff is known for his ability to make the complex simple while helping navigate his clients through the challenges of making the right investment decisions. When asked what he is most passionate about professionally, his answer was true to character, “Helping my clients – I love being able to solve their problems. People are rightfully concerned about their retirement income, when they can retire, how to maximize their financial safety and future income.” Jeff started Bedrock Investment Advisors for clients who value a close working relationship with their advisors.
A Michigan native, Jeff grew up playing sports throughout high school and into college. While Jeff is still an ‘aging’ athlete, Jeff will take more swings on the golf course than miles running these days. He creates family time, often with weekly excursions to play golf, a hobby he shares with his three young children.
Investment Advisory Services are offered through BWM Advisory, LLC (BWM). BWM is registered as an investment advisor and only conducts business in states where it is properly registered or is excluded from registration requirements. We are currently either state or SEC-registered in the following states: Arizona, Florida, Illinois, Kansas, Louisiana, Michigan, New York, Oregon, Texas, and Washington. Registration is not an endorsement of the firm by securities regulators and does not mean the advisor has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation.
Although we make great efforts to ensure the accuracy of the information contained herein, we cannot guarantee all information is correct. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that a portfolio will match or exceed any particular benchmark. Any comments regarding guarantees, safe and secure investments, guaranteed income streams, or similar refer only to fixed insurance and annuity products. They do not refer, in any way, to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by BWM Advisory, LLC. Guaranteed lifetime income is available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC-insured. Not affiliated with the U.S. Federal Government or any government Agency.