Most of us can’t wait to retire, but the prospect of living on a fixed income can be somewhat less than exciting. Luckily, federal employees do enjoy one of the most comprehensive retirement systems in the country. But of course, you will feel concerned about the risks, just as much as anyone else. Here are a few things to keep in mind.
Inflation and your spending power. When planning for retirement, many people make the mistake of looking at their expected budget, comparing that to their expected income, and then making a decision. But we should all keep in mind that inflation erodes purchasing power over time. In fact, even when inflation rates remain relatively low, you can expect the cost of many goods and services to just about double over a 20-year period. So consider the fact that your spending might change over the course of your retirement.
Healthcare. Even during times of very slow inflation, the cost of healthcare often does not follow the same trend. Currently, we know that rising prices in the healthcare sector outpace general inflation. With that trend not expected to slow down any time soon, we all need to allow room in our budgets for out-of-pocket medical expenses.
Long-term care. One of the largest healthcare expenses faced by many retirees is the cost of nursing care in a specialized facility (or in-home care, when that is an option). While rates vary according to type of care needed, as well as geographic regions, long-term care currently ranges from about $3,638 per month (for assisted living facilities) to $7,698 per month for a private room in a traditional nursing home*. While we all hope we never need this type of care, it becomes a reality for many retirees, and is therefore another expense to consider in our long-term budget plans.
Considering how greatly budget can vary in retirement, it’s no wonder that the most common retirement advice most people hear is, “save all that you can”. That’s one reason we are excited about rising contribution limits for Thrift Savings Plans. While your annuity and Social Security will provide a significant portion of your retirement income, withdrawals from your TSP can be helpful in creating more room in your budget.
Remember, in 2019, you can save a maximum of $19,000 in your TSP, with an additional catch-up contribution of $6,000 if you’re over age 50. As the new year begins, make sure to increase your TSP contributions a bit, so that you can take advantage of the maximum (and reap the greatest possible tax advantages for doing so).
If you have questions about hedging against retirement income risks, or about your TSP in general, please give us a call.
