Key Takeaways:
- Federal employees and retirees should be prepared for increased healthcare costs and a smaller cost-of-living adjustment (COLA) in 2024 to maintain financial stability.
- With changes in pay raises, TSP contributions, and rising health insurance premiums, it’s critical to stay proactive in retirement planning this year.
Federal Employee Pay Raises in 2024: What It Means for Your Retirement
Federal employees received a pay raise of 5.2%
- Also Read: Divorce and Federal Benefits: How Splitting Assets Can Reshape Your Retirement Plans
- Also Read: Postal Employees, Here’s How Your Retirement Plan Is Changing—What You Need to Do Now
- Also Read: Thinking About Your TSP? Here’s What Federal Workers Can Do to Grow Their Nest Egg Fast
For those nearing retirement, this raise will be a key factor in determining your high-three average salary, which is used to calculate your pension. A higher salary translates to higher retirement benefits, making this raise particularly significant if you plan to retire soon. Additionally, with increased pay comes an opportunity to contribute more to your retirement accounts, including the Thrift Savings Plan (TSP). Maximize your savings by considering the effect this increase could have on your future finances, especially if you’re still working.
If you’re already retired, this pay raise could indirectly affect the calculation of future cost-of-living adjustments (COLA) and other retirement benefits, helping you stay ahead of inflation.
2024 COLA for Retirees: A Smaller but Essential Adjustment
The cost-of-living adjustment (COLA) for federal retirees in 2024 is 3.2% for those under the Civil Service Retirement System (CSRS) and 2.2% for those under the Federal Employees Retirement System (FERS). This year’s COLA is significantly lower than last year’s 8.7% adjustment, reflecting a decrease in inflation. While a smaller COLA may seem disappointing, it still provides a crucial increase to your retirement income, ensuring that your purchasing power keeps pace with inflation.
However, even with this adjustment, retirees might still face challenges in managing expenses, particularly in areas like healthcare, where costs are rising faster than inflation. The COLA will be applied to your retirement benefits starting in January 2024, and though it may not fully offset increased costs, it’s designed to help manage the gap between rising prices and fixed income.
If you are a FERS retiree, it’s important to note that your COLA is slightly smaller than that of CSRS retirees. This is due to a formula in which FERS retirees receive a reduced COLA when inflation exceeds 2%. For example, in years like this, when the consumer price index (CPI) increases by more than 2%, FERS retirees receive 1% less than the full increase. Nonetheless, this adjustment is still a welcome boost for those living on a fixed income.
Health Insurance Premiums: What You Need to Know About FEHB Changes in 2024
Health insurance costs are one of the most significant expenses retirees face. In 2024, premiums under the Federal Employees Health Benefits (FEHB) program are increasing by an average of 7.7%. This rise in premiums affects both federal employees and retirees, making it more important than ever to review your healthcare coverage options during open season.
Open season, which typically runs from mid-November to mid-December, provides the opportunity to evaluate and change your health insurance plan based on your current needs. If you are nearing retirement or already retired, now is the time to assess whether your current plan still meets your healthcare requirements. With fewer plans available this year and premiums rising, it may be worth considering switching to a more affordable plan or adjusting your coverage to include better benefits for chronic conditions or prescription drugs.
For retirees, integrating your FEHB plan with Medicare can help reduce healthcare costs. Many FEHB plans offer premium reimbursement incentives for retirees who enroll in Medicare Parts A and B. This combination of benefits can provide more comprehensive coverage while helping to manage rising medical costs. If you are already eligible for Medicare, review how your current plan integrates with it and explore options that can help minimize out-of-pocket expenses.
Maximizing Thrift Savings Plan (TSP) Contributions in 2024
The Thrift Savings Plan (TSP) remains a cornerstone of retirement planning for federal employees. In 2024, the TSP contribution limit has increased to $23,000, providing an excellent opportunity for federal workers to maximize their retirement savings. If you are age 50 or older, you can also take advantage of an additional $7,500 in catch-up contributions, bringing your total allowable contributions to $30,500 for the year.
For federal employees nearing retirement, this increase in contribution limits is a key opportunity to boost savings in the final years of your career. With the higher contribution limit, you can invest more in TSP funds, ensuring that you have a well-diversified portfolio tailored to your risk tolerance and retirement goals. If you’re within five years of retirement, it’s especially important to reassess your TSP allocation, shifting from riskier investments to more conservative options that preserve your savings as you approach retirement.
The TSP also offers several lifecycle funds that automatically adjust the investment mix based on your target retirement date, helping you manage risk without constant oversight. Whether you’re still working or already retired, maximizing your TSP contributions this year will enhance your financial security in the long term.
Medicare and FEHB: Understanding the Best Options for Retirees
As healthcare costs continue to rise, many retirees are exploring ways to combine Medicare with their FEHB plan to optimize coverage. In 2024, several FEHB plans offer premium reimbursement incentives or enhanced coverage for retirees who enroll in Medicare. This integration can provide a powerful solution for managing healthcare expenses, particularly for those facing high prescription drug costs or chronic health conditions.
Medicare Parts A and B typically cover hospital stays and outpatient services, while your FEHB plan can help cover the gaps, such as prescription drugs and additional out-of-pocket costs. However, it’s crucial to review your specific needs during open season and decide whether to adjust your coverage based on any changes in health conditions or rising healthcare costs. For retirees, combining both programs offers comprehensive coverage that ensures you’re well protected as healthcare expenses increase.
In some cases, retirees opt to enroll in Medicare Advantage plans that offer additional benefits like vision and dental care, which are not covered by Medicare. Understanding how your FEHB plan interacts with Medicare will allow you to make informed decisions about your healthcare coverage and manage costs effectively.
Key Legislative Changes Impacting Federal Benefits
Federal benefits are always subject to legislative changes, and 2024 is no exception. Several proposals are currently being discussed in Congress that could affect pensions, retirement savings, and healthcare costs for federal employees and retirees. Staying informed about these potential changes is critical, as they may influence the structure of federal retirement benefits in the years to come.
One key area of legislative focus is pension reform, particularly changes to the Federal Employees Retirement System (FERS) that could impact how pensions are calculated. Though no major reforms have passed yet, staying aware of these discussions can help you plan more effectively for your retirement.
Additionally, the prospect of future government shutdowns remains a concern, as such events could temporarily delay retirement payments and other benefits. While most benefits like FEHB remain intact during a shutdown, knowing how to navigate potential delays is essential for managing your finances during times of uncertainty.
Navigating Retirement in 2024: A Proactive Approach
As 2024 unfolds, federal employees and retirees face numerous changes, from increased health insurance premiums to smaller COLA adjustments. While the pay raise for federal employees is a welcome relief, retirees will need to carefully plan to maintain their financial stability in the face of rising costs. By reviewing your healthcare coverage, maximizing TSP contributions, and staying informed about legislative changes, you can ensure a secure retirement in the years to come.
