We are experiencing unprecedented times in modern America. The coronavirus pandemic has burst the economic bubble and left many Americans concerned about their jobs and income. However, history has shown us that now is the time to be proactive and prepare for future growth. Here is a brief overview of 5 things every federal employee should be thinking about to prepare for retirement.
Thrift Savings Plan (TSP)
The market has been volatile throughout the coronavirus pandemic of 2020, and we expect the volatility to last for a minimum of 6 months. Many federal employees have seen significant decreases in their TSP accounts. What’s the most important factor here? DON’T PANIC!
Some federal employees are rushing to withdraw funds and move investments, and the TSP Modernization Act has made this easier. A provision of the nearly $2 trillion stimulus package would waive the 10% tax on early 401(k) and TSP withdrawals up to $100,000 for people impacted by the coronavirus outbreak in some way. This would be retroactive to Jan. 1, 2020, effectively giving them three years to either pay the tax or reimburse their plans. However, historically the U.S. economy has continued to grow, and most advisors are suggesting that investors stay the course and continue to invest in their TSP as usual. Now is the time to find a financial advisor that has experience helping federal employees and determine the best course for your retirement.
Get to know your retirement benefits.
It takes years of experience and expertise to fully understand the complex and nuanced retirement benefits system, and it’s essential to know how to utilize these benefits when you need them most. Considering the age a which you can retire, survivor benefits, COLAs, the cost of retiring early, health insurance, and more, are all complicated concepts that have a significant impact on your overall retirement picture.
You can also take advantage of some of the lesser-known benefits such as Federal Workers Compensation, Social Security Disability Insurance (SSDI), and Federal Disability Retirement. Many federal workers aren’t aware that they can utilize these benefits in their current status and are missing out on the long-term health and security these benefits have to offer. If you are an injured or disabled federal employee, now is a great time to get a consultation to see if you can qualify for these benefits.
Whether you are retiring soon or have decades of federal service remaining, it’s critical to understand how much income you can expect from social security at retirement and the tax implications associated with that income. Do you know the best time to claim social security benefits? For many young federal employees, social security may look very different or be non-existent when you are at retirement age. Working these factors into your retirement planning can make sure you have what you need at retirement.
One of the most costly expenses throughout retirement will be healthcare. Many federal employees don’t understand what their options are after retirement and how to keep their insurance affordable. Considerations like your spouse’s coverage, Medicare, life insurance, and long-term care should also be a part of your retirement plan. Planning for these costs now, and understanding how to get the most value is priceless in retirement.
Only utilizing your TSP to invest for retirement is a common mistake. While the TSP is a safe bet for the future, it doesn’t have the flexibility and potential of some investment opportunities in the private sector. In fact, there are some private sector investment opportunities only available to current and former federal employees. For instance, fixed index annuities are a low yield, low-risk investment that can protect your money while giving you some income. We suggest speaking to a financial advisor that specializes in retirement planning for federal employees to take full advantage of all of your options.
Though the current financial climate is chaotic, we hope you take advantage of this time to prepare for your future. Our team is committed to helping federal employees through these difficult times and challenging questions. Please reach out to us a Schedule a FREE Consultation and see how we can help you prepare.