Robust Retirement Benefits are a major variable that sets federal employees apart from others entering retirement. These benefits differ from those in the private sector, including a pension (based on years of service), Thrift Savings Plan (TSP), and FERS Supplement/Social Security. Even with these robust benefits, preparing for retirement when the economy is unpredictable requires careful planning. Below are a few key strategies and considerations every federal employee preparing for retirement should consider.
1. Stay Informed About Policy Changes and Their Impact
Federal benefit programs like pensions and Social Security may be a topic of reform. It is crucial to:
- Monitor updates: Changes in legislation may influence pay adjustments and cost-of-living adjustments (COLAs), Stay attuned to communications from the Office of Personnel Management (OPM) and reputable federal employee advocacy organizations.
- Understand potential changes in tax laws: These could impact the taxable portions of your income, such as withdrawals from your TSP or other retirement accounts. Consulting with a tax advisor versed in federal benefits is highly recommended.
- Account for inflation risks: Rising inflation may erode the purchasing power of pensions or cash reserves. Keep an eye on whether COLAs for federal annuities and Social Security keep pace with inflation and adjust your retirement plan accordingly.
2. Build a Diversified Income Stream to Weather Market Volatility
Market unpredictability can be nerve-wracking for retirees or those near retirement. Here’s how federal employees can structure their income to remain financially resilient:
- Understand your core retirement benefits: Federal employees have three primary sources of income – the Federal Employee Retirement System (FERS) or Civil Service Retirement System (CSRS) pension, TSP, and FERS Supplement/Social Security. Unlike TSP, pensions and Social Security are less impacted by stock market volatility.
- Maintain a cash reserve: Set aside emergency/opportunity money in a liquid, low-risk account. This allows you to avoid withdrawing from stocks or mutual funds during a down market.
- Utilize the G Fund in your TSP: The G Fund, unique to federal employees, is considered one of the safest options in the TSP. It provides a stable return (based on U.S. Treasury securities) without the volatility of market-based funds. During uncertain times, consider increasing allocations to the G Fund for added security.
3. Keep Asset Allocations Flexible and Revisit Your TSP Strategy
Economic downturns are not the time to ignore your retirement accounts. Federal employees often invest heavily in the TSP but should periodically review and rebalance their portfolios to meet retirement goals.
- Diversify investments: Spread your TSP savings across multiple funds to balance risks and returns. For instance, you can combine the G Fund with other C, S, or F Funds for growth potential while retaining a safeguard.
- Consider lifecycle funds: The TSP Lifecycle (L) Funds automatically manage and adjust your portfolio to become more conservative as you near retirement. This can help you maintain a stable investment strategy while mitigating risk during an election-related economic downturn.
- Reassess risk tolerance: Given economic and political uncertainty, reevaluate how much risk your retirement accounts can comfortably withstand. If markets dip, you want to avoid panic-selling investments – a common mistake that locks in losses.
4. Eliminate Debt and Hard Expenses
Carrying debt into retirement undermines financial security, especially in an unpredictable economy where rising interest rates could increase repayment costs. Consider these strategies:
- Pay off high-interest debt first: Focus on credit card balances or consumer loans, as these are typically tied to fluctuating interest rates. Consolidating debt under a fixed-rate loan may also provide relief.
- Downsize or reevaluate housing expenses: Large mortgages or other housing-related costs may place unnecessary strain on your retirement income. If needed, consider downsizing to a more affordable home.
- Streamline discretionary spending: Evaluate and adjust your lifestyle to ensure your retirement budget is sustainable. This might mean dining out less frequently or trimming other non-essential expenditures.
5. Plan for Unforeseen Healthcare Costs
One of the largest and most unpredictable expenses in retirement is healthcare. As a federal employee, you benefit from the Federal Employees Health Benefits (FEHB) program, which can play a vital role in managing medical expenses in retirement.
- Maintain FEHB Coverage: If you plan to keep your FEHB coverage into retirement, coordinate this with Medicare once you turn 65. Understanding the interaction between Medicare and FEHB can help minimize out-of-pocket costs.
- Prepare for Long-Term Care Expenses: Consider enrolling in the Federal Long Term Care Insurance Program (FLTCIP) or setting aside funds to cover potential long-term care needs that may not be covered under standard health insurance.
Need a guide to help you navigate retirement?
With so many options and choices to navigate, consider finding a resource to help guide you. Benchmark Financial Group can help! It all starts with gathering your information, discussing your goals, and preparing a plan so that we may help you maximize your income in retirement. With the right strategy, you may get your income equal to or exceed your pre-retirement net income. 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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