As a federal employee approaching retirement, understanding all the options with your benefits is critical. By understanding your benefits, you can put together an income strategy for a successful retirement. You’re probably familiar with the three main pillars of income for retired federal employees: Social Security, FERS pension, and TSP. Each of these puzzle pieces has its unique role that fits into the larger overall picture of retirement.
SOCIAL SECURITY
Social Security is based on your average 35 years of work history and weighted by the years you made the most income. You’re first eligible to start taking social security at age 62, and the payment amount increases each year you defer your benefit. If you turn on social security anytime between Age 62 and your Full Retirement Age (FRA), there’s a limitation on your earned income. If you start your benefit between 62 and FRA, and your income exceeds the annual earnings test ($19,560 in 2022), your benefit may be reduced. Depending on when you were born, your Full Retirement Age (FRA) is between 66 and 67. Deciding when to start social security might be easy if you plan on working past your FRA. If you wish to retire earlier, though, more decisions may be weighed.
How much income this piece of the puzzle contributes is determined by the age you elect to turn on the benefit. When it comes to Social Security, you must be present to win. Talking to a financial planner can help you weigh the pros and cons of when to start drawing your benefit.
FERS PENSION
Your Federal Employee Retirement System benefit (FERS) will be a significant source of your income when you retire. If you are wondering how much money this piece of the puzzle contributes to your income, you need to know how it is calculated. The way the FERS basic benefit is computed is based on your length of service. The highest average basic pay you earned during any three consecutive years of service is known as the “high-3”. The FERS basic benefit is 1% of your high-3 average pay multiplied by your years of creditable service. If you were at least age 62 when retiring and had at least 20 years of service, your annuity is 1.1% of your “high-3” average salary multiplied by your years and months of service.
TSP
The Thrift Savings Plan (TSP) is the final piece of the retirement puzzle. It is a defined contribution plan, meaning that the retirement income you receive from your TSP account depends on how much you and your agency contribute to your account during your working years. In addition, accumulated growth of contributions will affect the TSP portion of your retirement income.
You may think that if your TSP account earns around 3% a year and you only take out 3% a year, your TSP funds could last you as long as needed. However, many don’t consider that the Required Minimum Distributions (RMDs) from your Traditional TSP funds will increase every year (starting at age 72). If you continually take out percentages larger than your account earns in a year, you risk not keeping pace with the withdrawal rate.
If the TSP piece of the puzzle seems confusing, it is best to work with an advisor that understands all the aspects of this benefit and one that can provide a solid strategy for your retirement income.
HAVE A DEDICATED ADVISOR RESOURCE
While some of the sources of income in retirement are straightforward, some of the benefits for federal employees can be quite confusing. Additionally, there may be situations arise that you didn’t anticipate. That is why having a dedicated resource that specializes in federal retirement benefits is valuable. Realizing that you don’t have to make tough decisions on your own, having an ongoing relationship with an advisor can help provide insight. The advisor can help guide you through any issues or questions that you may have. Consider this another important piece of the puzzle in your income strategy.
READY FOR THE NEXT STEP?
If you are looking for guidance in mapping out your income strategy, Benchmark Financial Group is here to help. It all starts with gathering your information, discussing your goals, and preparing a plan so that we can help you maximize your income in retirement. To get started, schedule an appointment today with Benchmark Financial Group by filling out the form online or calling David Raetz at 913-534-8256 to discuss your financial needs. Benchmark Financial Group is happy to help you navigate your options and determine the best path to move toward your financial goals.
*Securities and Advisory Services Offered Through CreativeOne Securities, LLC Member FINRA/SIPC and an Investment Advisor. Benchmark Financial Group, LLC and CreativeOne Securities, LLC are not affiliated.
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