Government Employee Retirements Are Surging.
One of the biggest benefits of federal government employment is the ability to retire at a relatively young age. If you’ve had a long career with the federal government, it’s possible that you can retire with a full pension in your late 50s or early 60s.
According to recent data, a record number of government employees are taking advantage of that opportunity. According to data from the Office of Personnel Management, more than 100,000 federal employees filed for retirement in fiscal 2018. That’s a 24 percent increase from the number of retirees the previous year.1
What’s driving the increase in retirements? There are a few factors. One is simply demographics. The federal workforce is older than the private sector workforce, so retirement filings are to be expected. The record-high stock market levels could also be a factor as many employees choose to leave their career with their Thrift Savings Plan (TSP) balance at an all-time high.
The uncertainty regarding government work in general could also be a contributing factor. The recent shutdown put a strain on many families. In this highly politicized environment, more shutdowns are possible.
And of course, there is the pay freeze on federal employee salaries. Many workers delay retirement so they can increase their average salary, which in turn increases their retirement annuity payment. With salaries frozen for the foreseeable future, however, there may not be incentive to delay retirement.
Are you considering retirement? It’s a big decision that involves many different factors. Below are a few of the biggest issues you may want to consider as you make your decision:
Perhaps the most important factor to consider is your projected income in retirement. You’ll need to be certain that your projected income is sufficient to meet your retirement expenses.
As a government employee and participant in the Federal Employees Retirement System (FERS), you can expect income from three different sources: your FERS annuity, Social Security and withdrawals from your TSP and other retirement assets.
Your FERS annuity payment is based on a few factors, including your age, length of service and an average of your three highest-earning years. By working longer, you can increase your length of service and your age, which could increase your payment. Also, if you’re in line for a promotion, you may be able to increase your average salary.
You can also boost your Social Security payment by delaying retirement. While you can file for benefits as early as age 62, it often pays to wait. The older you are when you file for Social Security benefits, the higher your payment is likely to be.
And finally, if you work longer, you give yourself more years to contribute to your TSP and other retirement accounts. That could boost your savings and your future income. Of course, while there are benefits to delaying retirement, that doesn’t mean it’s the right choice for everyone. Work with your financial professional to project your future income and determine if now is the right time.
Health care is another important retirement consideration. As a federal employee, you can retain your coverage through the Federal Employees Health Benefits (FEHB) Program in retirement as long as you’re eligible for an immediate annuity when you retire. However, you have to pay premiums for the coverage.
At age 65, you become eligible for Medicare. You may want to review Medicare Advantage policies to see if they provide more effective coverage than FEHB. Medicare Advantage policies are offered by private insurers and provide the base Medicare coverages, along with enhanced protection.
Whether you use FEHB or Medicare, it’s likely that you’ll face out-of-pocket costs for your health care in retirement. In fact, Fidelity estimated that the average 65-year-old couple in 2018 would spend $280,000 on out-of-pocket health care expenses in retirement.2 Be sure to include those costs in your budget and plan accordingly.
Finally, consider your lifestyle and how you’ll spend your time in retirement. What do you want to do with your free time? Will you spend it with family or perhaps pursuing a new hobby? Or will you return to work in the private sector, possibly even as a consultant?
Many retirees leave their career as soon as they’re eligible, without any plan for the future. They often find that they miss the purpose and social connection that came with work. It’s not uncommon for new retirees to grow anxious and even depressed as they adjust to their lifestyle. Take some time and think through why you’re retiring. You may want to leave work. However, it’s important to know why you’re leaving and what you plan to do in the future.
Ready to plan your retirement? Let’s talk about it. Contact us today at Benefit Resource Partners. We can help you analyze your assets and income and develop a strategy. Let’s connect soon and start the conversation.
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