You deserve to enjoy financial security during your retirement years. The best way to ensure that happens is to start planning now.
Harris Federal Law Firm encourages you to ask yourself these three questions:
- When do I plan to retire?
- What will my expenses be when I retire?
- What will my income be when I retire?
The following are guidelines that can help you to find the right answers for your situation. Because our firm focuses primarily on obtaining federal disability benefits for our clients, our guidelines are aimed at federal employees. However, even if you are not a federal employee, you may still find the following useful.
When Do You Plan to Retire?
According to a 2014 Gallup poll, the average actual age at which Americans retire is 62, while the average age at which non-retired Americans expect to retire is 66.
What is your expected retirement age? Is that five, 10 or 20 years from now?
Your answers will shape how you go about planning for your retirement. For instance, if your target retirement age is only a few years away, you may consider investing in high-growth, high risk stocks. On the other hand, if your target age is many years away, you may be better off investing in low-growth, low-risk bonds.
Of course, many factors can go into picking an age for retirement, including the type of retirement you are considering: Disability, early, voluntary or deferred.
The Office of Personnel Management (OPM) indicates you should pick a retirement age that is at least five years away due to the fact that you must carry life and health insurance coverage for at least five years before you retire – or else you risk losing that coverage.
Timeline: When to Take Action
Planning for retirement can be a scary time. Many questions surround people as they start to think about retirement; Can I even afford to retire? When should I retire? Can I still have insurance coverage? Do I have to elect beneficiaries?
While it’s never too early to start planning for your retirement, the following timeline will help you understand what to do and when.
Five Years Before Retirement
In order to carry over any health and life insurance when you retire, you must carry coverage continuously for the five years immediately before retirement. Your annuity must begin within 30 days, and you must maintain coverage for the 5 years immediately leading into retirement.
One Year Before Retirement
It becomes more critical at this point to double check your benefits and ensure that all your personal and work information is correct. The following are key to ensuring a smooth transition into retirement:
- Confirm that you are eligible to receive a retirement benefit.
- Decide on the date you want to retire and tell your supervisor.
- Ask about any other benefits you may be eligible to receive, including your TSP.
- Confirm your Official Personnel Folder (OPF) is complete and your insurance coverage is documented.
In addition to checking the aforementioned in your OPF, be sure to check for the following: The beginning and end date of employment, any effective dates of promotions (used for your High-3 salary), the dates of pay change where retirement deductions were not withheld, any part-time or intermittent employment, and any military service dates.
Also, make sure that you have any beneficiaries designated. If there is not designation made, your benefits will be paid out in the following order: 1. Widow/widower, 2. Children in equal shares, 3. Parents in equal shares, 4. Appointed executor/administrator of your estate, and 5. Next of kin under the laws of the state in which you reside in when you die. By the same token, if you don’t provide a monthly benefit for survivor benefits, your survivor will not be able to continue with their FEHB.
Two Months Before Retirement
Hopefully, at this point, all of your designations have been made, and it’s just time to dot a few I’s and cross a few T’s. Your benefits can be calculated when your exact retirement date is chosen. Additionally, withdraw from your TSP (if you choose to do so) because it could take up to 8 weeks to process your withdrawal.
What Will Your Expenses Be When You Retire?
You need to sit down and carefully prepare a list of all monthly expenses that you expect to have during your retirement years. Your list could include:
- Mortgage or rental payments
- Car payments
- Public transportation costs
- Utilities
- Grocery/food expenses
- Health care costs
- Entertainment costs
- Clothing costs
- Family care costs
- All debt payments (credit card, personal loan, etc …)
What kind of life do you plan to lead as a retired person? Do you want to travel or take up new hobbies? Will you need to care for other family members, including your children and/or grandchildren? If so, what will be the costs?
Where you plan to live is important to consider as well. For instance, your expenses could be greatly reduced if you decide to move from a home to an apartment or from a metropolitan area with a high cost of living to a rural area where it is less expensive to live.
Also, make sure to account for inflation, which tends to rise by at least 3 percent each year. You can check out these online retirement-planning calculators to help you factor in inflation:
You also have to factor in state and federal taxes. Check out this Bankrate.com blog article that has a list of the 2014 IRS Tax Brackets.
The key is to be comprehensive. Make sure you include every possible expense in your list. Otherwise, you risk not being adequately prepared for your retirement.
What Will Your Income Be When You Retire?
Once you have your list of projected retirement expenses, you need to figure out how you will pay for all of those expenses. What will your income be? What will be the sources for your income?
If you are a federal worker, the following are the most likely sources:
- Civil Retirement System (CSRS)
- Federal Employee Retirement System (FERS) – For federal workers who first entered covered service on or after January 1, 1987
- Social Security
- Veterans Pension
- Thrift Savings Plan
- Stocks and bonds
- Individual retirement accounts (traditional or Roth IRA)
- Other income (rental, part-time job, etc …).
Generally speaking, your eligibility for CSRS or FERS retirement benefits will be determined by your age, numbers of years of creditable service and whether you meet other special requirements for the type of retirement you are planning. Please check out the links above to learn more about how your basic CSRS and FERS annuity will be calculated (generally, it depends on your years of service and “high-3” average salary).
If you reach full retirement age, or age 62, you can claim full Social Security benefits. If you collect benefits before age 62, the amount could be reduced until you reach full retirement age. If you wait to claim benefits until age 70, the amount you collect could be increased significantly. Check out the Social Security Administration’s calculator to estimate the amount of benefits you could receive.
In addition to age and your numbers of days of active service, your financial need will determine whether you are eligible for VA pension benefits.
The Thrift Savings Plan (TSP) is an important federal employee benefit that you should learn about from the moment you start working for a federal agency. It operates like a 401(k) plan. Once you become eligible for TSP, your agency will contribute an amount equal to 1 percent of your basic pay each period. However, you can make more “pre-tax contributions,” which means that the amount is taken out of your paycheck and reduces your tax liability. Also, your agency will match your contributions dollar-for-dollar up to the first 3 percent you contribute, and it will match your contributions 50 cents-to-the-dollar for the next 2 percent. Your TSP could end up contributing heavily to your retirement income.
Finally, you should also account for the income your spouse will contribute to your collective retirement income. By that same token, you will then have to factor in your spouse’s monthly expenses, too, which are different than your own expenses.
Planning Your Budget
If your projected retirement expenses come out to being more than your projected income, don’t panic. You may simply need to plan on retiring at a later age and taking steps to prepare yourself for retirement.
In the meantime, you should focus on putting more into your savings, paring down your debts and finding ways to reduce your monthly expenses while you are still working.
What is important is that, by simply reading this article, it means you are seriously thinking now about your retirement instead of letting it sneak up on you or ignoring the matter altogether. You can start planning today and find yourself in a much better position to enjoy your retirement when it arrives in a coming year.
What if Disability Affects Your Plans?
In the event that an injury or illness affects your job duties and you can no longer work, you may be eligible for a disability retirement. Of course, there is no way to plan for this happening, however knowing your options should this arise can help you plan for your next steps. Our team at Harris Federal Law Firm can help you if you find yourself in a situation like this. If this sounds like what you’re facing, please give us a call at 877-226-2723 or fill out this inquiry form for a FREE consultation.
