April 29, 2011
This week, I took my car in for its 35,000 mile checkup, which included an oil change, tire rotation and safety check. While waiting for the service to be completed, I realized that taking care of my vehicle so it will last for many years is a lot like preparing for retirement (which I also hope will last for many years). There are things to be done periodically to make sure you stay on track to meet your retirement goals. Sometimes you need to make minor adjustments along the way.
Let's look at the major "service points" in a typical federal career.
When you have five years of civilian federal service you are vested for a retirement benefit. This means that even if you resign, you will receive such a benefit (under either the Civil Service Retirement System or the Federal Employees Retirement System) either immediately (if you're already 62 or older) or at a later date that is dependent on the amount of service you had when you left.
Here are some things you should do at this point in your career:
Ten to Twenty Years
- Set a preliminary retirement goal. Do you know when you will be eligible to retire? The Office of Personnel Management has details on the eligibility rules for retirement.
- Use this quick calculator to find out how much your CSRS or FERS retirement will be worth when you retire.
- Make sure you're contributing at least 5 percent of your basic salary (including locality pay) to your Thrift Savings Plan account, since your agency provides matching contributions up to this amount. The match is done on a biweekly basis, so be sure to contribute every pay period. If you're not sure how to diversify your savings among the TSP's investment options, consider using a life-cycle fund that has a date closest to the year you plan to start using your investment.
- Use the TSP's ballpark estimator to see if your overall retirement savings are on track.
- Get an estimate of your Social Security retirement benefit.
- Ask your human resources office some questions about the details of federal retirement issues. For example, do you understand how your federal civilian and military service will be used toward retirement eligibility and computation of your future retirement annuity benefit? Do you know what happens if you decide to work part time instead of full time? What if you go on leave-without-pay status? Do you know what a military service credit deposit is for? Do you owe any money to the retirement fund for your past federal civilian service? It pays to find the answers to these kinds of questions early.
- Plan to save as much of your sick leave as possible. This is your short-term disability protection. You earn 104 hours of sick leave per year. After 10 years of service, this adds up to six months of "insurance."
- If your agency offers a new employee seminar to help you understand your benefits and to learn how to set retirement goals, plan to attend.
The midcareer period is a good time to make adjustments and reevaluate your goals. By this time, you may have bought a house, gotten married and started a family. Your retirement plans may be different from when you were first hired. You may now have new objectives such as saving for college, reducing debt, or saving for a house.
During this time of your career, you are likely climbing the career ladder and probably have some idea of where your salary might be headed. So redo the five-year checkup, adding your new goals and new numbers. If your agency offers a midcareer retirement planning seminar, take the opportunity to review your goals and gain a better understanding of your benefits. Here are some additional things to look at during this career checkpoint:
- Increase your retirement savings as you receive promotions and other pay increases. If you're maxing out your TSP contributions, consider making "catch-up" contributions in the year you turn 50. You also can invest up to $5,000 ($6,000 if you're 50 or older) in an individual retirement account, using after-tax dollars that will either grow tax-deferred (traditional IRA) or tax-free (Roth IRA). The TSP will offer a Roth option sometime during the second quarter of 2012.
- Consider meeting with a financial adviser if you are uncertain about how to set retirement goals and how to stay on track to achieve those goals. Here are some questions to ask when interviewing a financial adviser.
- Keep your beneficiary designation forms up to date. These include life insurance, TSP, CSRS retirement, FERS retirement and unpaid compensation.
- Compare the cost of Federal Employees Group Life Insurance with private term life insurance policies.
- Consider your need for health insurance in retirement. There are requirements you must meet to keep your Federal Employees Health Benefits Program coverage.
Thirty or More Years
Now you are at the pre-retirement stage. It's time for a reality check. Are you meeting your savings goals? Will your retirement income be enough to afford the lifestyle you desire? Even if you're eligible to retire, have you considered the benefits of working a few more years?
Here are some things to do at this stage:
- Use the online calculator to check the size of your benefit, which is based on your length of service and your high-three average salary.
- Request a retirement estimate from your human resources office. If possible, get two estimates for different potential dates, so you can see the effect of working longer. The estimate also will include a review of your official personnel records to make sure all of your service is properly documented and that it is all creditable for retirement eligibility and computation of your benefit. If any discrepancies are found, you will be notified so you'll know what you have to do to receive credit for your past service.
- Consider when to apply for Social Security. There is a big difference in the size of benefit you will receive at age 62, compared to waiting until your full retirement age (65-67, depending on your year of birth) or later.
- Using the TSP's calculator, estimate how much income your savings will provide. If you want more flexibility to be able to make periodic withdrawals from your retirement savings when you need the money, you may wish to transfer your TSP balance to an IRA so you can access the money on an as-needed basis.
- Reevaluate your life insurance needs. You will be able to maintain some or all of your FEGLI in retirement if you have carried that coverage for the last five years of your career and will be retiring on an immediate CSRS or FERS annuity. But you probably don't need the same coverage as you did 10 or 20 years ago. Consider dropping some life insurance and using the extra money to purchase long-term care insurance. There's an open season for such insurance under way right now that runs through June 24.
So when was the last time you took your retirement plan in for service? Maybe it's time for a checkup. While you're at it, you can begin to make plans for your life after retirement. Be sure to keep in mind that without your good health, the money you have saved will not be enough. So you might want to go in for a health checkup, too.
Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.
For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.
April 29, 2011