One of the benefits to being a federal employee is the reliable retirement plan. But of course, nothing in life is ever 100 percent guaranteed. We hope that everything will go as you have planned, but you should familiarize yourself with some of the common risks to federal retirement and take the steps to mitigate them.
Outliving your money. This is a very real risk that applies to everyone, not just federal workers. The average lifespan is steadily increasing, with more people living to age 90 or even 100 than ever before. Have you considered the risk of outliving your money? If not, make that a part of your planning as you move forward.
The cost of health care. A longer life doesn’t necessarily mean a perfectly healthy life! The longer you live, the more likely you will incur serious medical expenses. Since the cost of health care is increasing at roughly double the rate of inflation, make sure your retirement budget includes room for significant out-of-pocket expenses. Remember, Medicare won’t cover everything you might need. Long-term nursing care is an increasingly common, and large, expense faced by many retirees. How would you pay it?
Inflation. Aside from the cost of health care, prices of a variety of goods and services rise nearly every year. You will notice a significant decrease in your purchasing power over the course of a 20-year or 30-year retirement. Can your expected retirement budget handle the strain?
Taxes. You might assume that you will enjoy a lower tax rate during retirement, due to your income being much smaller. In most cases you would be right. But what happens when policy changes force new or higher taxes? Nothing is guaranteed, and you might not be able to count on low taxes for the entire course of a retirement that spans two decades or more.
Risk of loss. The market doesn’t always perform as we hope, and this can leave a retiree’s future looking very uncertain. When you calculated your fixed withdrawal rate (if you went with that option), did you include the risk of asset loss? If your principal shrinks faster than expected, you might be tempted to risk more of your money to regain losses. Schedule an appointment with us, and we can help you stress-test your retirement income.
