These resolutions could lead to a more financially secure retirement.
The start of the new year brings with it the possibility of improving your retirement readiness. With that in mind, here are some items you might want to put on your to-do list.
Put away more in savings. There was a generous federal pay raise this year of 3.1%. That may present an opportunity to increase your Thrift Savings Plan investments. The elective deferral limit for this year is $19,500. Over 26 pay periods, that works out to a $750 payroll deduction. The limit applies to the combined total of traditional and Roth contributions. The maximum amount of catch-up contributions that can be contributed annually by participants in their 50th year or older is now $6,500.
Since we are already a few pay periods into this year, you may have to adjust your withholding accordingly. The TSP provides a helpful fact sheet for computing this amount. Beginning in 2021, you will no longer need to make separate elections for catch-up contributions.
Consider rebalancing your TSP. Even if your portfolio delivered great returns last year, you may want to make sure you’re properly diversified among three stock index funds (C, S, and I) as well as the G and F funds. Have you considered using the L (lifecycle) funds? In 2019, 43% of TSP participants took advantage of the hands-off approach these funds offer, up from 37% in 2018.
Watch for guidance on the SECURE Act. This law, which took effect Jan. 1, changes rules regarding minimum distributions from retirement plans. The TSP hasn’t issued guidance on implementation of the law yet. In the meantime, this Forbes article covers the basics.
Watch some videos. Among the new videos on the TSP YouTube channel are The Real TSP! and TSP Post-Service Withdrawals, hosted by TSP educators. Whether you’re new to government, are currently serving the country in the United States or abroad, or are already into your retirement years, these podcasts have something for you.
Learn the latest Social Security numbers. The maximum taxable wage limit for 2020 is $137,700, up from $132,900 in 2019. This is the amount of your income that is subject to the 6.2% Social Security tax. If you are under the full retirement age for Social Security, the earnings limit for 2020 is $18,240. Your Social Security benefit will be reduced by $1 for every $2 you earn over the limit. This is why most people don’t apply for Social Security at age 62 if they are still working.
Beginning the month you reach your full retirement age, there is no earnings limit. This means if you are working, you can file for Social Security retirement or hold off on applying to earn delayed retirement credits. The same earnings limit applies to Federal Employees Retirement System retirees who receive the FERS annuity supplement.
Pay attention to Medicare premiums. The standard Medicare Part B premium in 2020 is $144.60 per month. Most people pay the standard amount. If your modified adjusted gross income as reported on your IRS tax return from two years ago is above a certain amount, you must pay the standard premium and an Income Related Monthly Adjustment Amount.
If you or your spouse are still working at age 65 and carrying health insurance through current employment, remember that you can delay enrollment in Medicare Part B without a late enrollment penalty. There’s an eight-month special enrollment period starting the month after you or your spouse’s employment ends.
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