Top Pitfalls To Avoid When Planning Your Federal Retirement
Surveys of federal retirees reveal a number of common errors made when planning their retirement. Here are the top three pitfalls to avoid.
Not Planning For The Delay Of Your First Full Pension Check
When planning your federal retirement, you need to consider that your first full FERS annuity (pension) check will likely be delayed for several months. Don’t make the mistake of assuming this delay only applies to a deferred or postponed retirement. All FERS workers who apply for an immediate retirement have to plan to use savings or other income to cover their expenses for as long as six months once they separate from service.
Around the third month into your retirement, you’ll start receiving 80% of your full net annuity. Known as interim payments, these checks usually continue for the next two months. Around the sixth month into retirement, you’ll receive the full amount of your net annuity plus retroactive pension owed with interest.
The big danger of filing at age 62 is that the amount of your benefit will be reduced by as much as 30% for the rest of your life.
Filing For Social Security Early At Age 62
The fear of Social Security “going broke soon” has driven some federal workers to file for benefits early at age 62. The reality is that Social Security will never “go broke” because it’s a pay-as-you-go system. Since workers and employers will continue to pay Social Security taxes, this federal retirement benefit will not run out of money.
The big danger of filing at age 62 is that the amount of your benefit will be reduced by as much as 30% for the rest of your life. Depending on your financial situation, a better option may be delaying your Social Security until age 70 to increase your monthly benefit by 8%.
Not Understanding Your TSP Distribution Options
A common myth among federal employees is the belief that you’re required to start taking payments from your Thrift Savings Plan (TSP) immediately upon retirement. Not true. You can leave your entire balance in your TSP account until you become subject to Required Minimum Distributions (RMDs) at age 73.
If you want to start taking TSP distributions at retirement, you can choose monthly, quarterly or annual installment payments at a fixed dollar amount. Fixed installments can be withdrawn from your Traditional balance first or from your Roth balance first.If you’re worried about outliving your TSP, you can have the TSP calculate your installment payments based on the IRS Life Expectancy tables.
Consider working with an FRC® trained advisor who understands your federal benefits and can help you avoid any pitfalls that threaten your financial security in retirement.
