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Advice on how to prepare for life after government.
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Managing Your Retirement Money

The Thrift Savings Plan has been around for more than 27 years, so by now many federal employees who have been contributing since the beginning have sizeable nest eggs for their retirement years. In many cases, money invested in the TSP is the largest asset, besides a home, that a federal employee has control over. For many employees, the time is nearing to make the biggest decision of all: what to do with this money after they retire.

For those under the Federal Employees Retirement System, the basic retirement benefit and Social Security represent income streams that will last a lifetime. In many cases, they will cover day-to-day living expenses. But TSP savings have the potential of making the retirement years much more comfortable.

For many, the TSP has represented a significant learning experience over the years, requiring them to:

  • Figure out how much to save out of each paycheck.
  • Understand how to manage risk and volatility in the stock market and use bonds to offset some of the risk.
  • Determine how to diversify between the varieties of TSP investment options based on the time horizon of when the money might be needed in the future.
  • Understand the role retirement ...

More Best Dates to Retire: Middle of the Month

Last week, I presented my annual Best Dates to Retire column and calendar, and generally described some of the best times to consider ending your federal career. They’re often at the end of a month (or the first few days following the end of a month).

Sometimes, though, the end of the month may not provide as much of an advantage as the middle of the month for those under the Federal Employees Retirement System, or even those under the Civil Service Retirement System who are retiring with less than 25 years of service. This is because for most FERS employees and some CSRS employees, one month of retired pay is worth less than two weeks of salary.

Let’s look at this from the FERS perspective. To compute your FERS retirement benefit, multiply your high-three average salary (the highest average basic pay -- including locality pay -- over any three years of your career) by 1 percent (or 1.1 percent if you’re retiring at age 62 or later with at least 20 years of service). Even a 40-year career under FERS is only going to be worth 40 percent of your high-three average salary.

Suppose your salary is ...

Best Dates to Retire 2015

Download the Calendar: Best Dates to Retire 2015

Are you financially ready to retire? Consider all your potential sources of retirement income: Will they provide enough money to cover your expenses for the next 20 to 30 years or more?

Are you mentally prepared? Are you looking forward to your life after retirement, rather than dreading the loss of your identity?

If you can say yes to being both financially and psychologically ready for retirement sometime next year, then it’s time to begin assessing your options, which are highlighted in the new Best Dates to Retire 2015 calendar. (And if you’re really ready to go and are thinking about retiring this year, check out the Best Dates to Retire 2014 column from last year.)

Whether you are planning to retire now or in the future, there are some general principles you should take into account. For example, you should consider retiring at the end of the leave year to accumulate the maximum leave accrual. That way, you’ll get a generous lump sum annual leave payout. But don’t be in too big a hurry: You’ll accumulate additional retirement benefits if you postpone leaving for six months ...

One Big Advantage of Retiring

I’ve met some very good federal retirement specialists over the years. One of them, Denise, recently wrote to let me know she won’t be there the next time I lecture at her agency. She’s not retiring from her job; she’s just retiring from her long commute by transferring to another federal position closer to home and at a lower grade.

Commuting issues are among the top reasons many federal employees look forward to retirement. Here’s what Denise told me about her daily travails:

I was commuting 4 ½ hours each day (no telework available unless expecting inclement weather), five days a week. In commuting 22 ½ half hours every week (providing there were no Metro delays, no traffic issues, or weather to impact the traffic), I found that not only was I missing out on life, I was not living a quality life. I was exhausted, cranky and basically spent more time commuting then I did with my family Monday through Friday. I also found out that I developed mild high blood pressure for which I now take medication.

Many thought I was crazy for taking a downgrade. I did the math; my downgrade actually gave me ...

Taxes: Past, Present and Future

Generally, I keep this column limited to the basics of federal retirement benefits, but sometimes I like to dig a little deeper. This week, my inspiration comes from the following comment on my May 1 column, The 4 Keys to Boosting Your Savings:

May I suggest a similar column illustrating historical tax rates? I realize that with the deficit and expanding demands of our government services because of the exponentially growing public demand and deteriorating infrastructure, taxes can only go up.

That made me curious, so I looked online and found historical rates dating back to 1913 listed in nominal and inflation-adjusted (2013) dollars. For example, in 1948 there was a 91 percent tax bracket, applying to income that exceeded $1,905,344 (in 2013 dollars). But income between $95,267 and $114,321 (in 2013 dollars) was taxed at a marginal rate of 38 percent. The lowest tax rate that year was 20 percent, applying to the first $19,053 of income.

In 1937, tax rates went as high as 79 percent, but income between $95,664 and $127,552 (in 2013 dollars) was taxed at the marginal rate of only 10 percent. That leads me to conclude that ...