The Danger Of A Retirement Income Gap
Stock market volatility. A sudden spike in the inflation rate. Healthcare expenses that are not covered by FFEBA or Medicare insurance. Once you retire, any one of these scenarios can throw you into a financial tailspin. If you’re hit by all three, you may end up living every retiree’s worst nightmare - outliving your money.
What Is A Retirement Income Gap?
A Retirement Income Gap is the difference between all your sources of retirement income and all of your living expenses. As a federal employee with a FERS annuity (pension), the Thrift Savings Plan (TSP) plus Social Security, you should be able to look forward to a financially-secure retirement. Then again, if you don’t plan for unexpected expenses, you may end up with a retirement income gap when you need it the most: in your golden years.
Uninsured Long-Term Care In A Facility
According to LongTermCare.gov, a person turning 65 today has a near 70% chance of needing some type of long-term care when they’re older that’s not covered by health insurance. The latest 2023 statistics from the World Population Review reveal that the average private room in a nursing home is $10,104 per month while a semi-private room is $9,167 monthly. Paying out of pocket for uninsured long-term care can trigger a retirement income gap.
“Ask yourself this: will you be able to cover your monthly expenses if inflation hits 9% when you’re retired?”
Inflation Hits Retirees Hard
The traditional advice is to include a 4% yearly inflation rate when planning your retirement. Then again, when inflation hit a record high of 9% in 2022, can you imagine how hard it hit retirees who only planned for 4%? When you’re retired, you’ll spend a larger portion of your fixed income on the cost of goods and services that are always driven up by inflation. Ask yourself this: will you be able to cover your monthly expenses if inflation hits 9% when you’re retired?
Strategies To Prevent A Retirement Income Gap
It’s crucial to identify a potential retirement income gap while you’re still working so you have the time to do something about it. Here are three strategies to think about:
- Work longer to get the FERS 10% Bonus. If you retire at 62 (or older), with at least 20 years of creditable service, your FERS pension gets a 10% bump.
- Make TSP Catch-Up Contributions at age 50. Catch-Up Contributions plus the agency match can rapidly grow your TSP.
- Delay Social Security until 70 to maximize your benefit. Delayed retirement credits increase your Social Security benefit by 8% each year until age 70.
To learn more, connect with an FRC® trained advisor.
