Earlier this year, I presented a webinar for the Federal Long-Term Care Insurance Program called “Retirement: It’s Not Too Early (or Late) to Think About It.”
During the webinar, I discussed five tips for planning for your retirement. I thought I’d share them here.
Think about retirement from the first day on the job. If your goal is to retire financially secure and at an age when you will be young enough to pursue other interests, then it is never too early to consider how you will achieve that objective. It’s very important to understand the workings of Social Security, a retirement savings account and a pension benefit long before you plan to reap the rewards from them. And it’s also important to understand how these benefits work together. If you are a federal employee who’s been covered under the Civil Service Retirement System or Federal Employees Retirement System for at least five years, you’re already vested in a benefit that will provide a lifetime stream of income. The more service you have and the higher your salary, the more valuable this benefit will be for you at retirement.
Take the Thrift Savings Plan seriously. This may seem obvious, but 14 out of 100 FERS employees do not contribute to the TSP and there are close to 1 million outstanding TSP loans at any given time. More than half the TSP’s total balance is invested in the government securities G Fund and almost one-fourth of all TSP accounts are invested 100 percent in the G Fund. This tells me more work needs to be done for employees to understand how to invest to meet their long-term financial goals. The TSP is the one benefit that is totally in your control: how much you save, where you invest the money and how you use it. That much control can be a blessing and a curse. It’s good to be able to make decisions about investing your money, but it can be a bit frightening if you don’t fully understand things like diversification, the magic of compounding, risk tolerance and rebalancing. The TSP website is an excellent resource to become educated about the investments available in the plan and how they work.
Know what’s in your official personnel folder. To get credit for all your federal service, your personnel records must provide proper documentation. You should keep your own copies of these records. That way, if anything turns up missing, deleted, lost, shredded, flooded, burned or otherwise destroyed, then you have your own records to show where and when you’ve worked. Treat these records as you would any other important documents that you maintain in your home -- preferably storing them in something fire-safe and easy to locate.
Also, remember that your service computation date for annual leave purposes may not be the same as your service computation date for retirement. To check on this, contact your human resources office to speak with a retirement specialist who can answer questions about your past federal service and help you find missing documentation. You also may request a retirement estimate from your benefits office if you are within five years of retirement eligibility. The estimate will include a review of your personnel file to make sure there are no discrepancies and all your past service will be creditable toward your retirement benefit.
Think about the what-if situations. No one wants to contemplate death, disability or the potential need for long-term care. But you should consider several questions in the retirement planning process: In the event of your untimely death, do you know how your family would be protected? How much life insurance do you have? Will your family continue to be covered under the Federal Employees Health Benefits Program? Do you understand the value of Social Security benefits for surviving spouses and children? What would happen to the money in your TSP account? You can find help answering these questions in two previous columns: Summer Assignment (July 15, 2011) and Thinking the Unthinkable (June 11, 2010).
Federal employees have both long-term and short-term disability protection. The short term is simply sick leave. After 10 years of federal service, you will have earned six months of sick leave. If you are fortunate to be healthy enough to be able to save up a few months of accumulated sick leave, this can be an invaluable hedge against the loss of income due to a short-term illness or accidental injury. For long-term or permanent illnesses and injuries that could affect your ability to remain employed, both CSRS and FERS have disability retirement provisions and Social Security includes disability benefits.
Long-term care can be very expensive, or burdensome if provided by family members. Many federal employees who have accumulated retirement nest eggs in the TSP, along with government pensions and Social Security benefits, will not meet the poverty threshold for Medicaid and will be left to pay for such care from their own funds. Here’s more information about the federal long-term care insurance program.
Understand Social Security’s role. Whether you’ve paid into Social Security for only a small portion or your entire career, it’s important to understand the role it will play in your retirement. FERS employees who have been paying into the system should know what they’re going to get out of it. You can find out how much you would receive from Social Security at age 62, your full retirement age (65-67, depending on your year of birth) and at age 70 using this online estimator.
If you’re under CSRS, you still may qualify for a benefit from Social Security if you’ve accumulated 40 credit of coverage -- the equivalent of about 10 years of Social Security-covered wages. This benefit could provide a little extra pocket money every month, or it could be a substantial source of retirement income. Here’s more information on how your CSRS retirement benefit might affect Social Security benefits.