You worked hard as a public servant to earn your retirement – so make sure you avoid these crucial mishaps!
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OK. I admit it. The title seems glib. But this is something that needs to be covered.
In my 20+ years as a CFP, I have seen a lot of retirement plans fall short because of things that seem small but have a big impact. So, it is with this in mind that I offer this list. (Full disclosure, when I began planning for this article, I came up with over 20.) Here are the first 10. I will cover them in summary here and follow up with in depth articles expanding on each.
1. Just Show Up.
Gone are the days of being able to have a successful financial life and retirement by just “putting in my time”. This especially applies to the risky notion of Minimum Retirement Age. You will need a good strategy to make the most of your benefits.
2. Cover Expenses First and Save if You Can
Noooooo! Flip that. You need a wedge between your income and your lifestyle. In all my time the folks who ended up the best created that wedge and maintained it over time. Not only did they not live beyond their means, but they also always lived slightly below. That way raises, and bonuses moved them ahead. This is a cornerstone.
3. Borrow Against Tomorrow
Ok. This is a two-fer. TSP loans need to be an absolute last, last, last resort. (Better yet, don’t do it). But I find that this practice comes from a flawed cash flow plan. Hear this now. Debt is not your friend. It may be a tool, but it is not a solution. Managing and ultimately eliminating installment debt is a cornerstone that I see over and over again in financially successful people.
4. Silo Save
TSP is great. But it is not a plan. The most successful folks I have seen in retirement have built up assets in traditional plans like TSP, but they also have money in non-retirement assets. And no, I don’t just mean a few thousand in a savings account. Once you have maximized TSP, start sneaking some money away into a regular investment account. Do it with an advisor, do it on your own, I don’t care. Just do it and keep doing it.
5. Underfund TSP
Don’t roll your eyes at me. I meet with folks just like you every day and believe me, the ones who maximize their contributions are in the minority. If you have any notions of retiring before 65, you will need a big TSP balance. Period.
6. Lose Your Balance
Sorry. That one was too easy, and I’m not talking about market fluctuation. This refers to the allocation in your TSP. Even if you have set up a reasonable asset mix across the 5 core funds in your TSP, you can’t just set it and forget it. Now I’m not talking about excessively trying to steer. If you have determined that you should have 40% in C fund based upon your age and risk tolerance, don’t forget to look at it in a year. If it’s now 48% you need to do something other than smile. Time to redistribute the excess into the other funds (yes the ones that didn’t do as well). I know that may seem counter intuitive. But this article is not called “follow your intuition to retirement.”
7. Bad TSP Strategy
I hear that sigh. 20% in each core fund or a little bit in all funds (YES including all the lifecycle funds) is not a recipe for success. Neither is all in C (Because it’s been doing great!!). Your asset allocation should accurately reflect your ability to tolerate risk, in good times and bad. Trying to time the market or worse, jumping in and out of funds based upon “what’s happening” is a path to tears. Remember, you will need a big balance.
8. Forget Your Umbrella
I know, that was a gimme. I’m not talking about getting wet. I’m talking about having insufficient liability protection. Nothing can derail your retirement plans faster than a mishap followed by a judgment that goes against you. Check your auto and homeowners limits today and get a quote on an excess liability umbrella. Seriously. Do it.
9. Ignore Long Term Care Risk
Ok. It’s a boring topic and the plans keep raising premiums (Even the Fed plan). But it is still an issue. You need to take a stark view of your resources and obligations and have a working strategy in advance. Will you seek in home care? Might you need a facility? Ask the hard questions NOW! (Hint: TSP balance is not a cure all.)
10. Mishandle FEGLI
The Federal Employee Group Life Insurance Plan is as good an employer plan as you will find. But that does not mean perfect. For example, an employer plan, of necessity must charge all employees the same rates based upon age for optional coverage (the unsubsidized part). That means smokers and nonsmokers, people in great health and people who are not- all pay the same. As a result, these plans become much more expensive as we age. No joke. Taking the time to shop and compare with private sector options could save tens of thousands of dollars over your career. A penny saved… can go to your retirement.
Well, there you go, my first 10. I promise to follow up and flesh them out in my next articles. (And yes, I will be sure to cover the rest of the 20+.) Thanks for reading and I’ll see you next time.
**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.***
