As a federal employee, you already know that you will enjoy three sources of retirement income someday (Social Security, your annuity, and withdrawals from your Thrift Savings Plan). But having income is one matter; having enough income is the real challenge for most retirees.
Have three sources of income sounds great, of course, but what about inflation? The purchasing power you enjoy in the beginning of your retirement could be eroded by inflation if your income doesn’t keep pace with your living expenses.
That’s the idea between regular cost of living adjustments, which usually (but not always) happen each January. Social Security issues a COLA for beneficiaries, and your FERS annuity will receive an adjustment based upon those figures. But it’s not always exactly the same as the Social Security COLA. For example…
- If the COLA for Social Security is under 2 percent, then FERS annuities are bumped by the same amount
- If the COLA for Social SEcurity is between 2 and 3 percent, FERS annuities receive a raise of 2 percent
- And if the COLA for Social Security is over 3 percent, the FERS annuity increase will be 1 percent less than the Social Security COLA
The bottom line is that when Social Security issues a COLA, your FERS annuity payments will increase, too – but not always by the exact same percentage.
That leaves us with TSP withdrawals. If you chose a TSP annuity option, those payments can indeed increase each year (although not by more than 3 percent). Otherwise, you will be responsible for managing your withdrawals, adjusting for inflation, and estimating your life expectancy.
We can help you evaluate those options. Give us a call, and together we can discuss different TSP withdrawal schedules, along with other retirement income strategies.
