Key Takeaways:
- Federal employees can significantly benefit from expert retirement advice to ensure they’re making the most of their FERS pension, TSP, and Social Security benefits.
- Understanding the complexities of federal retirement programs and healthcare options can ease your transition into retirement, helping you avoid costly mistakes.
Why You Need Expert Advice for Retirement
If you’re nearing retirement, you’ve probably realized that planning isn’t as straightforward as it seemed when you started your federal career. Between navigating your Federal Employees Retirement System (FERS) benefits, maximizing your Thrift Savings Plan (TSP), and figuring out how Social Security fits into the equation, there’s a lot to juggle.
- Also Read: Federal Workers, Here’s How to Make the Most of Your FEHB Benefits in Retirement
- Also Read: Special Retirement Rules for Federal Workers—How FAA and Law Enforcement Employees Get a Unique Deal
- Also Read: Postal Employees, Here’s What You Need to Know About Your Retirement Benefits Before You Walk Out the Door
Choosing the Right Financial Advisor for Federal Employees
So, how do you find the right advisor to help you? The first thing to consider is whether the advisor specializes in federal retirement benefits. Not all financial planners are familiar with the specific details of FERS, the TSP, and the various health insurance options that federal retirees need to think about.
You’ll want to look for someone who understands how to integrate your federal benefits into your broader retirement strategy. This includes knowing the ins and outs of FERS annuities, which offer both immediate and deferred retirement options, as well as how to time your Social Security benefits to maximize your income.
Make sure you ask potential advisors if they’ve worked with federal employees before and what their process is for analyzing federal benefits. It’s also a good idea to choose someone who stays up-to-date with the latest changes in federal retirement policies.
Get the Most Out of Your FERS Annuity
Your FERS annuity is one of the main pillars of your retirement income, so understanding how it works—and how to make the most of it—is crucial. In 2024, the Cost-of-Living Adjustment (COLA) for FERS annuities is 2%, lower than last year’s 7.7% adjustment. This COLA is important because it helps your pension keep pace with inflation over time.
If you’re planning to retire before 62, it’s important to note that FERS retirees under 62 don’t receive COLA unless they fall into special categories like law enforcement. Many financial advisors suggest delaying retirement until at least 62 to avoid this gap and take advantage of the 1.1% annuity multiplier for retirees who work past that age.
An advisor who specializes in federal retirement can help you decide whether retiring early or waiting a few more years makes more sense for your long-term financial stability.
Maximizing Your TSP in the Final Years of Service
Your TSP plays a major role in your overall retirement picture, and 2024 brings new opportunities to maximize your contributions. The TSP contribution limit has increased to $23,000 this year, with an additional $7,500 available for catch-up contributions if you’re 50 or older.
Many experts recommend increasing your contributions as you approach retirement, especially if you haven’t been maxing out your TSP in previous years. If you can afford it, contributing the full amount this year will give your savings a final boost before you transition into retirement.
A good advisor can also help you decide how to allocate your TSP funds as you near retirement. While many federal employees shift to more conservative investments like the G Fund as they get closer to retirement, others prefer to maintain some exposure to higher-growth options like the C Fund. The right strategy depends on your risk tolerance and long-term goals.
Coordinating FEHB with Medicare for Healthcare Savings
One of the biggest perks of federal employment is access to the Federal Employees Health Benefits (FEHB) program, which you can carry into retirement. However, healthcare costs are rising, and in 2024, FEHB premiums have increased by 13.5%. This makes it more important than ever to evaluate how you plan to manage your healthcare costs in retirement.
For many federal employees, coordinating FEHB with Medicare can help reduce out-of-pocket expenses. Once you turn 65, enrolling in Medicare Part B can provide additional coverage that complements your FEHB plan, potentially lowering your overall healthcare costs.
Expert advice is particularly valuable here, as understanding how Medicare and FEHB work together isn’t always straightforward. Some retirees choose to keep both, while others opt for Medicare and drop their FEHB plan. A financial advisor who knows the details of both programs can help you make the best choice based on your health and financial situation.
Social Security Timing: Avoid Common Mistakes
Timing is everything when it comes to Social Security, and it can be a bit more complicated for federal employees. Under FERS, you’re eligible for Social Security benefits in addition to your pension. The key decision you’ll need to make is when to start claiming benefits.
In 2024, the Social Security taxable earnings limit is $168,600, and if you’re still working while claiming Social Security, you’ll want to be aware of the earnings limit, which is $22,320. Earning above this limit before full retirement age could reduce your benefits.
Delaying Social Security past your full retirement age will increase your monthly benefit by about 8% each year, up until age 70. If you don’t need the income right away, waiting could give you a significant boost in benefits.
An advisor can help you map out the best timing for claiming Social Security based on your financial needs, retirement goals, and overall health.
Avoiding the Pitfalls of Early Retirement
Early retirement is tempting, but it comes with some financial trade-offs that you should be aware of. If you’re thinking about retiring as soon as you hit your Minimum Retirement Age (MRA)—which is between 55 and 57—you’ll face a 5% reduction in your annuity for every year you retire before 62.
The reduction can add up quickly, so waiting until age 62 or later can significantly boost your retirement income. If you’re considering early retirement, it’s worth sitting down with an expert to review how the reduced annuity would impact your financial future.
Expert Advice Can Make All the Difference
Planning for federal retirement can feel overwhelming, but with the right guidance, you can make the most of your benefits and enjoy a smooth transition into retirement. From your FERS annuity and TSP to healthcare and Social Security, there are many moving parts that need to fit together. Seeking expert advice from someone who understands federal benefits can help you navigate the complexities and avoid costly mistakes.
