- Learn the importance of managing income in the first several months after retiring from the federal government
- Expanding the gap between TSP withdrawals and why you need a rainy day fund
- Financial planning for federal employees can help ease transition from in-service to retired
As federal employees approach their retirement date, they should start thinking about getting their retirement income “ducks” in a row. For FERS retirees, these income sources should include TSP savings and possibly other retirement savings accounts like traditional and Roth IRAs, the FERS pension (and maybe a military pension, too), and then social security plus other income sources such as rental properties or non-retirement investment accounts.
The pension, TSP, and Social Security income supports what has been called the ‘three legged’ stool of a FERS retirement, but at Serving Those Who Serve we believe there is a crucial fourth leg – strategy. One thing is for sure, though, all of these income sources don’t distribute payments at the same time and a good financial plan can help develop a “rhythm of income.”
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Some helpful pointers and reminders for feds gearing up for retirement include:
- FERS Pension Interim Status – Don’t forget that it takes OPM over a month, and sometimes as long as 9 months, to process your retirement application. In this timeframe, federal retirees will get interim checks that will be 60% to 70% of the full amount. This is why it is a good idea to have a cash reserve to cover 3 to 5 months of expected expenses. But what about unexpected expenses?
- Rainy Day Fund – In addition to the cash reserve to make up for the reduced interim checks, an emergency reserve is also a good idea. This is where the payout from unused annual leave can come in handy if you haven’t used that to fund the cash reserve for expected expenses mentioned above. The first few months of retirement is also a good time to evaluate what monthly expenditures can be trimmed to free up some spending money.
- Managing the Thrift Savings Plan – If possible, wait as long as you can be starting take money from the TSP. Whether you keep your savings in the TSP or move it over to an IRA, a solid financial plan should be crafted to ensure your qualified withdrawals incur the least amount of tax liability while not derailing one’s investment strategy.
- Social Security – If you’re retiring early, or at least before you decide to claim social security benefits, then you’ll need something to supplement this income in retirement. For feds who retire before age 62, the special retirement supplement (SRS) is available for some, but there are things to keep in mind, including the earnings test and knowing which types of retirement are eligible to receive SRS payments.
Financial Planning for Federal Employees
For federal employees approaching retirement who decide to seek the advice of a financial planner, there are few things to watch out for when it comes to picking a good advisor. The first is to look for a fiduciary – meaning they have to act in the best interest of their clients. While advisors who have earned a Series 66 certification have several fiduciary duties, an advisor who is also an Accredited Investment Fiduciary (AIF®) adheres to a stringent code of ethics and has demonstrated a deep knowledge of how to practice as a fiduciary.
Next, a “fed-focused” financial advisor should have the only certification recognized by FINRA that pertains to federal employee retirement benefits: the ChFEBC℠ (Chartered Federal Employee Benefits Consultant) designation. But in addition to this, a Certified Financial Planner (CFP®) can be more helpful to feds when it comes to designing a resilient financial plan and attaining that “rhythm of income” discussed earlier.
Schedule a no-obligation consultation with a Serving Those Who Serve advisor today! – https://stwserve.com/meet-with-us.
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Until Next Time,
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**Written by Benjamin Derge, Financial Planner, ChFEBC℠ 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 Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
