Uncertain Times

How changes in policies, programs and the economy could affect your retirement security.

Amid natural disasters, the threat of terrorism and financial instability in our world, it's hard to approach the retirement planning process with a sense of certainty these days. Last week, I wrote about a survey undertaken by the MetLife Mature Market Institute and the Scripps Gerontology Center at Miami University that was detailed in a report titled Best-Case Strategies for a Flexible Retirement.

The study described how life events and experiences can affect retirement planning. More than half the people surveyed said they had experienced a change in their lives that had an impact on their potential financial security in retirement. The study included a dozen such challenges. Some are not as common in the federal government as they are in the private sector, but others are universal:

  • Declining or stagnant work income or loss of job.
  • Loss or erosion of pension. So far, pension benefits under the Civil Service Retirement System and the Federal Employees Retirement System are intact. But the Obama administration this week proposed that employees contribute more toward their benefits, and additional changes could be on the way.
  • Catastrophic illness or disability.
  • Loss of health insurance or escalating health care costs.
  • Death of a spouse.
  • Caregiving demands.
  • Financial problems of children or other family members.
  • Investment losses.
  • Loss or erosion of Social Security or Medicare benefits.
  • Outliving one's retirement income.
  • An unexpected combination of scenarios, each of which individually might not present a problem.
  • An unexpected windfall -- the one scenario that most of us would welcome.

Major Threats

The study identified four major issues that could threaten the retirement plans of even those who were the best prepared. On the whole, these are factors that most federal employees don't have to worry about -- yet: Tenuous health care coverage. Most federal employees keep their health insurance when they retire and enjoy the same coverage and benefits they had during their working lives. The government continues to pay its share of the premium, and federal plans work very well in tandem with Medicare after age 65. But Congress could change the way premiums are calculated under the Federal Employees Health Benefits Program. To take just one example, a voucher program could result in a set payment by the government for health insurance with the remainder of the cost to be borne by the enrollee. And it's possible the U.S. Postal Service could leave FEHBP, affecting the overall strength and stability of the program.

Long-term care costs. Although federal employees have a long-term care insurance program available to guard against catastrophic expenses, many employees and retirees have not purchased a policy and are more afraid of the cost of the insurance than of the potential cost of long-term care.

The vanishing or eroding defined benefit pension. Gone are the days of a single-benefit pension plan, unless you are among the minority of federal employees who remain covered under CSRS. FERS, however, also has a basic benefit or defined benefit, plus a defined contribution (the Thrift Savings Plan) and Social Security. But now, many fear that Congress could take away the defined benefit portion of FERS, as has happened in many private sector retirement plans and even many state systems. As we saw this week, retirement benefits clearly are on the table in deficit reduction negotiations.

The vagaries of the stock market. For federal employees, the importance of investing varies based on length of service and salary. If an employee works long enough, he or she can achieve retirement security with the basic government retirement benefit and Social Security. But most people don't want to work that long. For them, savings are an important part of making sure they have sufficient retirement income. The TSP has the benefit of being a low-cost and relatively simple way to invest for the future, but the amount saved and the choice of investment options are completely up to the individual employee. Since the stock market is unpredictable, but still the best hedge against inflation, it is important that federal employees -- especially those covered under FERS -- gain an understanding of personal investing.

The MetLife/Scripps Gerontology Center study concluded that "best-case strategists" for retirement planning have a sense of self-reliance, expect the unexpected, set and live by personal financial rules, do the math and start as soon as possible. In my experience, many federal employees fall into this category. But if you're among those who don't feel confident about your future retirement scenario, a good place to start planning is at the pre-retirement or midcareer planning seminars offered at most federal agencies. It's never too early -- or too late -- to focus on your future.

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 Mondays at 10 a.m. EDT on federalnewsradio.com, or on WFED AM 1500 in the Washington-metro area.