Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

The High Cost of Health Coverage

Last week, we looked at some expenses to watch out for in retirement.  This week, let’s explore one area in which you can be almost certain your costs will increase over time: health care.

There are several reasons why this is the case:

  • Many Americans are going to live a long time. According to the Social Security Administration, about one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
  • Advanced technology, administrative expenses, hospital costs, lifestyle choices and chronic disease conditions continue to drive health spending upward -- more so even than doctors’ salaries, according to the Physicians Foundation.
  • Costs of long-term care continue to rise. According to a 2014 Genworth study, the average annual cost of a semi-private room is $80,300 per year. For single bed rooms, the price goes up to an average of $91,250 a year. The cost of care varies throughout the country.

There are two types of health care expenses you should consider as you enter retirement: Medically necessary care and personal care.

Medically Necessary Care

This the type of care needed to prevent and treat illnesses and diseases. Fortunately, most...

Let’s Get Real About Costs

There’s a common belief that retirees can live on a lot less money than active employees. The truth, unfortunately, is more complicated.

The good news about retirement is that some of the deductions from your earned income go away. You won’t be saving for retirement, so you won’t have funds withheld from your paycheck for Thrift Savings Plan investments (or other retirement savings plans). In addition, you will no longer contribute the required retirement contributions to either the Civil Service Retirement System (7 percent of salary for most feds) or the Federal Employees Retirement System (0.8 percent for most feds). Also, you won’t have to pay the wage taxes for Social Security (6.2 percent up to $118,500 in 2015) and Medicare (1.45 percent on all wages and an additional 0.9 percent for those with wages greater than $200,000).

But retirees do pay other taxes. Most retirement benefits, including CSRS and FERS benefits, are taxable on the federal level. So are most withdrawals from your retirement savings. (Roth IRA and Roth TSP savings can be withdrawn tax-free in most cases.) Some people don’t pay taxes on Social Security retirement benefits...

Get Counseling

Some agencies provide their employees with top-notch retirement counseling. Such agencies typically respond to requests for retirement estimates in a timely fashion. They allow employees to request estimates for several different retirement dates and offer to update those estimates as the employee gets closer to retirement. And they provide a variety of training opportunities for employees to learn how to take control of the retirement planning process.

Other agencies, unfortunately, do not put a high priority on retirement counseling these days. I know some federal employees who have been told they can’t request a retirement estimate until they’ve already submitted their application to retire. What? How can you plan for retirement without knowing how much your Civil Service Retirement System or Federal Employees Retirement System benefit will provide as a replacement of your salary? That’s like buying a car and not knowing what the payment will be until after you take it home.

Some agencies also fail to provide all of their employees with access to pre-retirement seminars or other training opportunities. With wait lists and restrictions on attending classes, it sometimes takes years to finally get enrolled. I’ve had retirees attend pre-retirement seminars after they...

8 Reasons Your Retirement Estimate May be Inaccurate

I’ve written several times in the past about the importance of getting a retirement estimate from your agency well in advance of your planned retirement date.

The only problem is that sometimes these estimates don’t accurately predict what you can expect in retirement. Here are eight of the most common causes of an inaccurate retirement estimate.

1. Improper Documentation

If a portion of your federal career has not been properly documented in your electronic official personnel folder, then your agency will not be able to accurately account for your complete length of service needed to compute your retirement benefit. It is your responsibility to ensure that your eOPF contains the records that document your federal career.

When is the last time you looked at your eOPF? You should see a record of beginning and ending dates of every period of federal employment as well as records of military service and any other service that may be potentially creditable towards eligibility and computation of your federal retirement benefit. If you notice there are missing records that would document your career more accurately, contact a retirement specialist at your agency.

2. Sheer Complexity

Your estimate should be prepared by an...

How to Estimate Your Retirement

The Office of Personnel Management determines exactly how much each federal employee will get in retirement benefits when the time comes to leave federal service. But that process can take a long time. Currently fewer than 70 percent of new retirement claims received by OPM are processed in less than 60 days. And once your application has been processed, it’s too late to make sure you understand just how much money you’ll have in retirement.

That’s why it’s important to get an estimate of your benefit long before you actually go out the door. You can get one from your agency, whether you’re under the Civil Service Retirement System or the Federal Employees Retirement System. I’m often asked to review a CSRS or FERS retirement estimate to see if I can detect anything that might be missing or subject to question before an employee moves forward with his or her plans for retirement.

In addition to requesting such an estimate--which is a very important part of the retirement planning process--you can get informal estimates in a variety of ways:

  • You can do your own estimate simply by using old-fashioned math: Compute your high-three average...