Jen delves into items 1 to 4 from her ’10 more ways to ruin a federal retirement’ list.
Hello again readers and thank you for joining me in our discussion of “Ten More Easy Ways to Ruin a Federal Retirement.”
As I mentioned in my flyover article, these ways individually may not torpedo your retirement dreams, but combinations of them can make a dent in those outcomes. So, let’s dig in with our first four.
1. Unrealistic Retirement Date
OK, this is a loaded point so allow me to clarify. Initially, any retirement date can be realistic provided it complies with the FERS (or CSRS) rules. But the earlier the date, the more robust your planning and execution for building your retirement assets must be. Think of it like a seesaw - the lower your retirement age, the higher your retirement assets need to be.
A retirement date can become unrealistic if your retirement assets are insufficient to fill the gaps created by the lower pension.
I get it, life intrudes. We have unexpected expenses, health surprises, kids need help or move back home. All these things can limit your ability to build up your TSP balance. But please, be willing to consider adding a few years to your federal service if that does happen. My mantra is this - if you wish to retire at Minimum Retirement Age (MRA), you MUST have another MRA… Massive Retirement Assets.
I’m not trying to take your joy. I want to be sure that you have the comfortable third act that you richly deserve. Have a plan. Stick to it. Adjust if circumstances knock you off plan.
2. Never Catch Up
OK this is a two-fer. Don’t miss it and don’t rely on it.
Uncle Sam gave us all a great retirement gift with the creation of the catch-up provision in qualified retirement plans. Beginning at age 50, we can put additional money into TSP, 401ks, or IRAs. For 2023, that is $7500 for TSP and $1000 for IRAs. Take advantage of this!
But Jen, there’s no match on it.
Respectfully, that does not matter. More retirement assets (Another MRA) are always better.
But you said don’t rely on it.
Fair point. By that I mean don’t contribute less in your 40s because you will be able to catch up in your 50s. Always maximize! (And I’m resisting the temptation to turn ‘maximize retirement assets’ into yet another MRA).
3. Slip on Social Security
This is primarily for FERS employees and is a cousin of unrealistic retirement data. All too many times, folks get locked in on age 62 for social security claiming age.
Here me now: age 62 is CLAIMING EARLY!
If you are born after 1943, your full retirement age (FRA) for social security is from age 66 to 67. Any earlier ages result in a permanent reduction to your benefits FOR LIFE!
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I’m not saying that claiming before FRA is always a mistake. Certainly, infirmities and family situations can impact the decision. The point I wish to make is that you need to do the work on this. You need to build a plan for using this resource in coordination with FERS and TSP. When FERS was introduced, it was explained as a three-legged stool with the legs being FERS pension, TSP withdrawals and social security payments. At STWS, we submit that there needs to be a fourth leg: strategy.
Four is better than three.
4. Lax on Leave
Jen, you got to be kidding me. You have rules for leave?!
Rules, maybe not. Interesting ideas that you may not have considered, absolutely.
Unlike many private sector companies who have moved to a general paid time off category for all leave, feds still have both sick and annual leave. I have a strategy for how you might want to use them.
By the time you have worked for at least three years, you will accumulate 20 days (160 hours) of annual leave per year. This will rise to 26 days (208 hours) after 5 years. If you do not use the time in a year, you may carry over unused hours. You may accumulate up to 240 hours of annual leave before entering use-or-lose territory.
So here is my suggestion, if you typically use 10 days as vacation days (or just need some break days), you will have between 10 and 16 days of leave remaining. If your practice has been to take these days at the end of the year rather than “lose” them, please consider using those days throughout the year in lieu of sick leave.
What?!! Jen, you want me to burn vacay when I’m sick?
Actually, I want you to realize that accumulated sick leave will increase your pension for life. If you added 10 days per year over a 30-year career, you would have 300 days of additional sick leave. That’s almost a year added to your pension, with COLAs for life.
And yes, I know that this is probably an extreme example. I just want you to consider the value of maximizing sick leave by strategically using your use-or-lose annual leave first. If you get to December and didn’t use any for sick days, go for it and use that annual leave for a long winter break.
So there are my first four. Stand by for my next article where I will go deeper into three more of the “Ten More Easy Ways to Ruin a Federal Retirement.
Thanks for reading.
**Written by Jennifer Meyer, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. *****The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.***