10 Strategies for Federal Employees Planning to Retire Before 2030

The COVID-19 pandemic began in March 2020, and since then, hundreds of federal workers have retired. Over the next eight years, many more eligible employees plan to retire.

The following list of 5 tips can assist workers who want to retire in the next eight years in getting ready for their retirement:

1: Be honest about your income and financial requirements in retirement.

Many retiring employees adopt a “bottoms-up” strategy when estimating their projected retirement income needs. Some workers use their present spending to determine how much money they will need for retirement. Other workers estimate their cash flow requirements for retirement using a balanced proportion, such as 70-80% of their present gross annual wage. However, considering both usual and exceptional expenses that can be encountered after retirement is a more realistic and helpful strategy.

For instance, will there be enough money saved to cover travel costs, which are frequently a top concern for retirees, especially in the early years of retirement? Will there be enough money during stressful and challenging economic times to aid suffering relatives (for example, adult children who are raising their own small families)? Will there be enough cash to cover emergencies and potentially even higher federal and state income taxes?

2. Recognize the full financial ramifications of leaving federal service “soon” than “later,” especially before age 62.

Upon achieving their minimum retirement age (MRA), federal employees who are insured by the Federal Employees Retirement System (FERS) are eligible for early retirement with a minimum of 30 years of FERS service (age 55 to age 57, depending on which year they were born). They also had the option of retiring at age 60 with 20 or more years of FERS service.

While retiring in one’s late 50s or early 60s may sound enticing to some workers, these workers should think about a few concerns and factors, including the following:

• Contributions to the Thrift Savings Plan (TSP) are prohibited after retirement.

• A retiring FERS employee‘s FERS annuity is determined by utilizing a 1 percent per year of service accrual factor, regardless of how many years they have worked under FERS (at least 20).

• FERS annuitants are not entitled to cost-of-living adjustments (COLAs) until they turn 62. Therefore, FERS employees who leave their jobs before turning 62 will get the same FERS annuity payment with no COLA (lasting anywhere from 1 to 6 years, depending on what age an employee retires).

3. Acknowledge that the era of low yearly inflation is over.

After several years of below-normal inflation, the US will see its highest level of inflation in 41 years in 2022. In June 2022, the consumer price index for urban workers (CPI-U) was 9.1%. The low inflation rates of the previous five to seven years are not likely to reoccur, even though experts do not anticipate it staying this low for many years.

Some federal employees assume they will be able to cover their expenses in retirement years using their retirement income by simply looking at their current annual salary.

They are unaware of how negatively above-average inflation might impact their retirement income. Specifically, how high inflation may impact the cost of food, healthcare, and energy.

4. Making decisions regarding Social Security.

The majority of government workers qualify for monthly Social Security retirement benefits. However, the central issue for most is deciding on the best time to file their claim to maximize their benefits.

People “fully covered” under Social Security can apply for their retirement payments as early as age 62. However, their monthly income will be permanently decreased if they choose to begin receiving their benefit at age 62. The individual’s monthly income will increase by 7 to 8% for each year they postpone the commencement of their benefits, starting at age 62 and continuing until age 70.

5. Recognize the connection between investment risk and return and how it relates to TSP investing.

There is no denying that investing in the stock market carries risk. Putting your money in the three stock funds – the “C,” “S,” and “I” funds – with the TSP has clear investment risk.

But if a TSP participant is willing to take the chance of investing at least half of their portfolio in the “C,” “S,” and “I” funds, they will be rewarded in the long run with a greater rate of return.

Participants in the TSP should know that inflation can severely harm a long-term portfolio like the TSP. However, stock investments have proven over the years that they can offset the effects of inflation in the long run.

To avoid escaping the current-year stock decline, TSP participants are cautioned against moving into the ostensibly “secure” US Government Securities G fund. Although the G fund is invested in short-term US Treasury securities with a triple-A rating, it cannot permanently offset the impact of inflation.

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After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.

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