Crafting your perfect retirement exit strategy
These pre-retirement tasks can help ensure a smooth transition.
Most of the work that I’ve done over the past 39 years has been assisting federal employees separate from federal employment and move into their life after retirement.
As you might expect, there are some employees who have a smooth transition and others hit a few roadblocks that slow down the process.
When it comes to financial readiness, there are some individuals who are overly concerned that they won’t be able to afford to retire, yet they will deposit more money in their bank accounts every month than they brought home in their net salary.
Then there are others who are very confident that they can afford to retire even though their net pay in retirement will be thousands of dollars less than their net salary.
So that you can avoid the dreaded phrase, “I’m living on a fixed income, and I can’t _______ (fill in the blank with “go out to eat,” “go on a vacation,” “remodel our kitchen,” etc.), here are some tips that may help you prepare and be sure that you are ready for this important life event!
Follow These Steps
Your retirement from federal service typically begins with applying for your FERS Basic Retirement Benefit. This will provide you with a lifetime stream of income and continuation of your federal insurance benefits if you meet certain qualifications. We’re talking about the paperwork, folks! Luckily, there isn’t a lot of it, but the forms you must deal with can be very important and require careful review so that you can make wise choices for some critical decisions.
The forms you may need along with supplemental information:
- FERS Application for Immediate Retirement: SF 3107 https://www.opm.gov/forms/pdf_fill/sf3107.pdf
- Applying for Immediate Retirement - FERS - Pamphlet
- Designation of Beneficiary - FERS (if needed, update this form, and include with retirement application)
- Continuation of FEGLI Form SF 2818
- Designation of Beneficiary Form - FEGLI (if needed, update this form, and include with retirement application)
Supplemental information, if applicable to your situation:
- Marriage certificate
- W-4 P Federal Tax Withholding
- Notarized consent of current spouse for partial or no survivor election (not needed for full election), if applicable
- Records of FEHB coverage under Tricare or spouse’s FEHB coverage if applicable
- Court orders such as a divorce decree or property settlement if they give a survivor annuity or a portion of your retirement benefits based on your federal employment.
- Military Documents such as DD 214; documentation of retired pay and award letter
- RI 79-9 Application to cancel or suspend your FEHB coverage may be needed if you are covered by military health insurance and want to suspend your FEHB coverage.
- RI 92-19 Application for Deferred or Postponed Retirement that can be used in lieu of the SF 3107 if you will not be applying for your FERS retirement at the time of your separation from federal employment.
Here are some tips provided by the Office of Personnel Management in their Retirement Quick Guide:
- Sign all forms. Missing signatures are one of the most common reasons for processing delays.
- Download your personnel records if your agency uses eOPF and you want your own copies. You will lose access to eOPF once you retire.
- Complete payments for any open service credit accounts for FERS and CSRS eligible deposit or service redeposit. Honorable post-1956 Military Service deposits must be paid in full before you retire.
- Check Supplemental Documents. Include all documentation required for your retirement application such as marriage certificate, military service records, court orders, etc.
- Once you have retired, be sure to sign up for OPM’s Retirement Services Online (Set up this online service after receiving your CSA (Civil Service Active) number from OPM).
Remember that there is no guarantee that your transition will be slow or fast regardless of how prepared you think you are since there are so many variables that can get in the way to slow down the process. Everyone should have enough cash on hand to cover living expenses for up to six months following your separation from federal service. This “emergency fund” may include your lump sum payment for annual leave that you will receive from your payroll provider.
If any of the following apply to you, be prepared for your retirement to take longer than average to finalize:
- Court orders such as a divorce decree or property settlement. These require an additional step and are sent to the Court Order Benefits Branch for review.
- Retirement under the provisions for Law Enforcement Officer, Firefighter, Air Traffic Controller, Capitol Police, Supreme Court Police, or Nuclear Materials Courier. These cases require specialized computations.
- Past or active workers’ compensation claims.
- Experience as a part-time or intermittent federal employee.
- Federal service at multiple federal agencies.
- Missing documents and forms, or incomplete or incorrect information in your retirement application.
- Moving without updating your address with OPM.
Tips for a Financially Secure Retirement
Compare your net income while working with your estimated net income you will have in retirement. Here are some steps to compute these amounts:
a. Convert your biweekly net income to a monthly amount by multiplying your net income by 26 pay periods and dividing the total by 12 months and compare with the total of your net sources of retirement income from Social Security, TSP, and the FERS Basic Retirement Benefit.
b. Obtain an estimate of your Social Security retirement benefit (if you are old enough to qualify). Create a MySocialSecurity account to receive an estimate of your future benefits.
c. Estimate income that you will receive from your Thrift Savings Plan in the form of:
- Installment payments (monthly, quarterly, or annually)
- Life Annuity (through the TSP annuity provider)
- Partial distributions as needed.
- Transfer to an IRA (allowing additional options for distribution)
Consider the amount of federal and state income tax you may be required to pay based on the amount of your pre-tax withdrawals. Before you request a withdrawal or distribution, make sure you understand your options, the effects on your TSP account, tax rules, and other details. These TSP booklets offer comprehensive information: Distributions and Tax Rules about TSP Payments. You may use financial planning tools that are available from the Securities and Exchange Commission.
d. Request estimates of your retirement income from the FERS Basic Retirement Benefit:
Your HR office can provide an annuity estimate for your FERS basic benefit and the FERS Special Retirement Supplement if you are eligible for this additional benefit.
Consider reductions to your annuity amount for survivor elections, former spouse entitlement, age reduction for the MRA + 10 retirement option, as well as any changes in your work schedule (i.e. part-time, intermittent, or excessive leave without pay more than six months in any calendar year).
Compute and estimate monthly withholdings for taxes and insurance that will be deducted from your monthly gross annuity.
2. If your net income in retirement is projected to be significantly less than you have in net income while employed, consider your options:
- Can you realistically live on less income in retirement than you have while you are employed? Start by projecting your anticipated expenses such as healthcare costs, living expenses, travel, and other expense plans or commitments.
- Pay down any debt you may have prior to retirement, especially high-interest consumer debt.
- Create a budget that supports the retirement lifestyle you want to live. Review and make any necessary adjustments to your budget as life circumstances and goals change.
- Increase your TSP allotment to allow for larger distributions in retirement. This will also serve a dual purpose of reducing your net income while working to help you experience living on less income before it becomes a reality.
- Project your retirement to a later date. Delaying for a year or two can substantially increase your financial security by increasing your FERS benefit, your retirement savings, and the value of your Social Security benefit.
- Explore post-retirement work opportunities to allow delayed distributions from the TSP and to avoid reduced Social Security retirement benefits that would be payable if you apply when you are younger than your full retirement age.
You may need professional assistance to be sure that you are prepared for retirement. This may include working with the following professionals:
- Retirement specialist who works in human resources at your agency who can provide retirement counseling including preparing retirement estimates for your retirement date; information that may help you make decisions regarding
- your best date to retire, continuation of insurance benefits, and survivor elections; and they can ensure that your service history is properly documented and creditable for retirement eligibility and computation.
- Certified Public Accountant who can help you consider the tax implications of financial decisions and assist with other tax-related issues, such as preparing annual tax returns. Some CPAs are also certified by the AICPA as personal financial specialists (PFSs), which means they have met AICPA’s education requirements for providing financial planning services, including assessing your overall financial situation, developing a budget, setting goals for saving and investing, and developing a plan for monitoring your progress and reaching your goals.
- Estate Planning attorney to be sure your assets will be passed on to your heirs according to your wishes and in the most tax efficient way.
- Financial adviser: Another professional you may wish to consult is an investment professional. Use BrokerCheck to help you make informed choices about brokers and brokerage firms-and provides easy access to investment adviser information. Working with an adviser can help you evaluate your retirement decisions, especially the decision as to whether you are financially ready to retire!
Learn more about working with financial professionals at the Financial Industry Regulatory Authority which is a government-authorized not-for-profit organization.