Questions You Should Answer Before You Decide to Retire, by Leslie “Kathy” Hollingsworth

Most workers in their early fifties start thinking about throwing in the towel, as they should after many years of service to their country. The fact is that some people are not ready for retirement even when they reach their MRA (minimum retirement age). The reason for this is finances because a retiring worker has to make adequate financial plans before retirement. For workers under the FERS, there are three primary sources of income after retirement. They are pension payments, withdrawals from workers’ TSP accounts, and Social Security benefits. These three sources are there to help federal workers transition smoothly from paid employment to retirement. Having these sources does not entirely insulate retirees from financial crises. That is why it is essential to make plans before taking the big step. 

Here are some questions that will help you ascertain if you are financially ready for retirement or not:  

 How hefty are your expenses? Will the income you are expecting be enough to cater to your needs until you die?  What about taxes and inflation on market prices? Have you thought about emergencies, especially a possible need for assisted living facilities? Have you considered that your investments can take a drastic plunge at any point in the future?  Are you going to remain in paid employment after retirement? Have you factored in the need to wait for a while before claiming your Social Security benefits to avoid reductions? Have you thought about only your gross income? Aren’t you forgetting deductions and tax retention? What about your spouse (if married)? Will the income be enough for both of you? What if someone dies? How does the other partner survive?Do you have others who depend on you for financial support? Have you made provisions for other dependants? For more clarity, let’s take Peter, a federal employee under the FERS, as an example. Peter has worked for 32 years and currently earns $100,000 annually. After all deductions and taxes, Peter receives about  $2,290 every two weeks. His highest pay in three consecutive years is $95,000.  If Peter decides to retire at age 57, here is what he can expect. First, he would be entitled to 35% of his high three from the FERS yearly. That’s $33,250 every year (about $2,770 each month). After deductions, Peter would be left with about $2,100 per month. The first sum of $2,770 would be Peter’s monthly gross income, while the $2,100 would be his net income. Peter would also get supplemental benefits, approximately $1,600 from the FERS. Tax deductions would drop the benefits to about $1,250. Then, Peter would be left with about $3,350, which is less than his current income of about $4,600 monthly. The next thing is to consider Peter’s Thrift Savings Plan account. If he has been able to save $350,000, and he starts removing the deficit of $1,250 from the account each month, he will deplete the money in less than ten years. The duration won’t be that long, but there is a 3% average return on the investments. There are some options open to Peter if he does not wish to withdraw from the account monthly, but nothing will make up for the deficit. The question now is, at age 57, is Peter ready to retire? He might be if he is prepared to make a few adjustments. Peter might have to cut down on some expenses, such as moving to a more economical area or region. He might have to forgo some retirement plans, such as an expensive vacation or hobby. There is also a probability that he would remove more from his TSP account because he will not be receiving COLAs until age 62. He could also take up another form of employment, but with that, he would lose the supplemental benefit. But on the flip side, he would have more time to add to the $350,000 in his TSP. Peter must also prepare for the possibility of paying for an assisted living facility. From Peter’s story, it is clear that you have to think about retirement plans critically. However, if you still want to plunge ahead, you might consider making lifestyle changes that would keep you frugal enough to spend the rest of your life without having financial crises. Above all, ensure you start saving early and try to meet up with the 5% of bi-weekly pay savings. This will make you eligible to receive an additional 5%  from your agency.