Key Takeaways:
- 2024 brings significant changes for federal employees and retirees, from pay raises to healthcare premiums—stay informed to make the most of your benefits.
- The rising cost of living and legislative shifts could impact your retirement plans, making it essential to reassess your financial strategies this year.
How Do Federal Pay Raises in 2024 Impact Your Retirement?
One of the most important updates for federal employees in 2024 is the 5.2% pay raise. This across-the-board increase is the largest in over four decades, providing a much-needed boost as inflation continues to impact household expenses. If you’re still working, this pay raise not only puts more money in your pocket today but also positively affects your
high-three average salary, which determines your retirement pension.
For those of you approaching retirement, this increase could make a substantial difference. The high-three average is calculated based on your highest-earning three consecutive years of service. A higher salary in 2024 will bump up your high-three, resulting in a larger pension once you retire. Now might be the perfect time to ensure you’re maximizing your contributions to your Thrift Savings Plan (TSP) to take advantage of the increased income.
Even if you’re already retired, pay raises for current employees play a role in keeping federal retirement systems solvent. Plus, if you’re part of the Federal Employees Retirement System (FERS), these salary increases can indirectly impact cost-of-living adjustments (COLA) in the future. So, while you may not directly benefit from the raise, it helps to strengthen the federal workforce and maintain a well-funded retirement system for all.
What You Should Know About 2024 COLA
The cost-of-living adjustment (COLA) for 2024 has been set at 3.2% for CSRS retirees and 2.2% for those under FERS. While this is smaller compared to the previous year’s COLA, which was an eye-popping 8.7%, it still helps offset inflation for retirees living on a fixed income. However, with rising healthcare costs and other expenses, it’s crucial to evaluate how much of a difference this smaller increase will actually make in your day-to-day financial planning.
If you depend heavily on your pension, this year’s COLA might not be enough to cover increasing living costs, particularly in healthcare. Reviewing your monthly budget now and making adjustments where needed can help stretch your retirement income further. Additionally, retirees who receive Social Security benefits will see a similar COLA increase this year, so it’s essential to factor that into your financial planning as well.
Healthcare Costs: FEHB Premiums on the Rise
Another major shift in 2024 is the increase in premiums for the Federal Employees Health Benefits (FEHB) program. Premiums have risen by an average of 7.7%, with some plans experiencing even steeper hikes. This increase could significantly impact both active employees and retirees who depend on FEHB for their healthcare coverage.
If you’re retired and relying on FEHB, it’s more important than ever to consider how these rising premiums will affect your monthly expenses. For those of you nearing age 65, enrolling in Medicare Parts A and B and integrating that coverage with your FEHB plan could help alleviate some of the financial burden. Many FEHB plans now offer incentives, like premium reimbursements, for retirees who enroll in Medicare.
Additionally, you may want to review your plan during open season to ensure you’re getting the best coverage for your needs at a manageable price. Switching to a different FEHB plan or considering Medicare Advantage options could be beneficial, depending on your specific healthcare requirements.
Maximize Your Thrift Savings Plan (TSP) Contributions
If you’re still actively working, 2024 is the year to maximize your contributions to the Thrift Savings Plan (TSP). The contribution limit has increased to $23,000, with an additional $7,500 catch-up contribution for those aged 50 and older, bringing the total to $30,500 for the year. This is a prime opportunity to boost your retirement savings before you stop working.
The TSP offers several funds to choose from, including the G Fund, which provides a low-risk option for those nearing retirement, and the C Fund or I Fund, which may offer higher returns for employees willing to take on more risk. The increased contribution limits give you more flexibility in deciding how much to allocate to each fund, depending on your risk tolerance and retirement timeline.
For retirees, withdrawing from your TSP during market fluctuations can be tricky. It’s essential to monitor the economy closely and consider adjusting your withdrawal strategy to preserve your savings. Moving some of your assets to more stable funds, like the G Fund, could provide a buffer against market volatility while still ensuring that you have enough income to meet your retirement needs.
Government Shutdowns: How They Could Affect Your Benefits
With the constant possibility of government shutdowns looming, federal employees and retirees must be prepared for potential disruptions. While federal retirees typically receive their pension payments even during shutdowns, active employees might experience furloughs and delayed paychecks, which could affect those planning to retire soon.
Government shutdowns can also cause delays in processing retirement paperwork. If you’re planning to retire this year, it’s crucial to submit your paperwork well in advance to avoid any complications that a shutdown might cause. Additionally, programs like FEHB and TSP typically continue unaffected during a shutdown, but other services, such as changes to your retirement plan or processing of new benefits, could be delayed. Staying informed and proactive will help minimize any potential issues.
Legislative Changes to Watch in 2024
Legislation affecting federal employees and retirees is constantly evolving, and 2024 is no exception. Several bills are being considered that could impact everything from retirement benefits to healthcare costs. While nothing has been finalized yet, it’s important to stay updated on these developments, as they could influence your financial planning.
One key area under discussion is healthcare reform, with lawmakers exploring ways to control costs and improve coverage options for federal employees and retirees. Any changes to the FEHB program could directly affect your premiums, coverage, and out-of-pocket costs, so keeping an eye on legislative updates is essential.
Another topic gaining attention is potential adjustments to FERS and CSRS retirement benefits. Proposals to modify how pensions are calculated or changes to retirement eligibility rules could significantly alter your retirement plans, especially if you’re nearing the end of your federal career.
Preparing for the Road Ahead: Staying Informed Is Key
As we navigate 2024, federal employees and retirees must stay informed about the ongoing changes affecting their benefits. Whether it’s the impact of a pay raise on your high-three salary, adjusting to smaller COLA increases, or managing rising healthcare premiums, being proactive will help you make the most of your benefits.
This year presents both challenges and opportunities. Taking steps now to reassess your healthcare options, maximize your TSP contributions, and stay updated on legislative developments can help ensure a smooth transition into retirement. Keeping an eye on the bigger picture will allow you to adjust your strategies as needed and protect your financial future.
