If You’re Feeling Pessimistic, Do Something

In these days of high inflation and increasing fears of a recession, it’s easy to start feeling pessimistic about your future retirement. The key to financial security after you retire is to create streams of income that you won’t outlive and to have sufficient savings to weather the future financial emergencies that will arise—just as they did while you were working. 

Here are some things to put on your to-do list before you retire that might help you feel more secure about your life after retirement:

Be sure you have enough years of service to maximize your federal retirement benefit and replace a significant portion of your pre-retirement income. Remember, your retirement benefit is subject to federal (and possibly state) taxes.

Calculate your retirement benefit or request an estimate from your human resources office. Be sure to understand the components that factor into the benefit, whether you’re under the Civil Service Retirement System or the Federal Employees Retirement System. These include the high-three average salary, creditable service and multiplication factors that vary depending on your retirement coverage. Attend a pre-retirement or mid-career retirement planning seminar to learn how to compute your benefit. Be sure to consider potential reductions for such items as providing a survivor benefit or a former spouse’s entitlement to a portion of your retirement and survivor benefits. 

Consider your Social Security benefit. The best way to maximize this other lifetime income stream is to delay receiving it. Everyone has the same eight-year window to claim Social Security retirement benefits, from 62 to 70. At the earliest age, this may result in a permanent 30 percent reduction. At 70 you get the full benefit.

Educate yourself on all aspects of personal finance: budgeting, saving and investing.  Become familiar with the wide variety of online tools that can help you. The Thrift Savings Plan offers a wealth of information to help you become a smarter investor of your retirement savings.

Consider the “what-if” difficult situations you might face during your career and how you would handle them: 

• What if you become disabled?
• What if you have to provide care for a family member?
• What if you are offered early retirement?
• What if you face an untimely death; will your family be protected?
• What if you decide to change careers and leave before becoming eligible for immediate retirement?
• What if you should need long-term care in the future?

Be sure to choose a financial adviser (if you decide to work with one) who puts your interests first—preferably one who works mainly with federal employees and retirees who is familiar with the array of federal retirement benefits. A good adviser will have the expertise to not only help you accumulate assets, but to also help you better understand the tradeoffs between short-term investment volatility and long-term growth potential in retirement. Use FINRA’s BrokerCheck tool to help you.

Create financial strategies to bridge the gap between your retirement income and your spending in retirement, if necessary. This could involve changing your savings withdrawal strategy or supplementing your retirement income with part time employment.