Is there a ‘Goldilocks’ rule to federal retirement?

Randy Silvey, president Silverlight Financial, explains some of the considerations federal employees to keep in mind as they decide when is the right time to re...

Thousands upon thousands of current federal employees are quickly approaching that long anticipated day. The day they can expect to receive farewell cards, a last in-office party and of course, the cake with some heartfelt sentiment inscribed on its apex like, “Congratulations on your retirement, It’s about time!”

Some can hardly contain their excitement and are ready to bolt straight away. Others feel anxiety about leaving and believe they should stay put. Which group has it right?

The best retirement porridge comes from waiting just the right amount of time before digging in.

  • Leave too soon, (too hot) risk suffering severe financial burns during retirement years, a time in life in which we are least prepared to recoup from financial catastrophe.
  • Wait too long, (too cold) risk wasting years working, which could have been spent enjoying a hard-earned (just right) retirement.

I know this is probably said and felt by every maturing generation throughout history. But “we live in strange times.” I am 53-years old and so many things seem incredibly astonishing to me. Such as:

  • U.S. education ranks 14th worldwide.
  • Kids today know more about gigabits than chigger bites.
  • Our national debt now exceeds $19.5 trillion. It has grown by over 1,900 percent since 1982, which was the first year the U.S. saw a $1 trillion debt. (Figures according to U.S. National Debt Clock)
  • Surgeries performed remotely and/or by robots.
  • A person can make phone calls, calculate a waiter’s tip, implement bank activities and play arcade games on a little box not much bigger than a credit card. “Beam me up, Scotty!”
  • And of course, the age-old complaint: today’s music is awful and has no heart. Anyone else long for the days of Led Zeppelin, ZZ Top and Fleetwood Mac?

Another transformation in the world today is that a federal job is no longer widely considered a good career.

Years ago, “Government jobs = safe … reliable … great benefits … decent pay … kinda boring.” A government position was considered a good job, supplemented with outstanding benefits. That doesn’t seem to be the prevailing thought anymore.

So what happened? What took the luster off of federal employment?

I’ve put together a few candidates for this sweeping change of opinion, feel free to add your own:

  • Wages have become stagnant.
  • Hiring freezes, which lead to the “Do more with less” mandates.
  • Constant attacks (by large media and elected officials) on federal employee integrity, work ethics and benefits. Feds have become political badminton birdies.
  • The perception that federal employees are unappreciated by the public, the media and Washington.

These issues (and I am sure you have many more) are creating a disturbing trend: federal employees wanting to leave service much too early, while their porridge is still scalding hot.

Goldie is one these federal employees. She is 57-years old, with 17 years of federal service, GS-11 and single.

Goldie is not enthusiastic about being a federal employee. She wants to retire now! However, Goldie is in no condition (financially) to simply stop working.

Goldie pointed most of her work frustration at upper management’s “bearish” candor about her advancement opportunities.

Goldie was under the impression she could leave at 57, enjoy her “full pension and maintain her lifestyle.” Goldie was unfortunately a victim of misinformation. For her, 57 was too early, in part due to her lackluster devotion to her Thrift Savings Plan (TSP).

The picture was bleak; it initially appeared she would need to work for at least 11 more years in order to just meet her “minimum” monthly retirement needs. However, after making a few strategic adjustments (contributing more to her TSP, making sensible alterations to her TSP sub-accounts, etc.) it now appears she may be able to retire in as little as five years.

Feds have very impressive retirement benefits. However, lack of understanding and poorly utilized retirement benefits are much too common among federal employees. Surprisingly, many virtually ignore their retirement during the “contribution” years, hoping it will miraculously turn out “just right.” All federal employees should understand, with just a little preparation and planning, pursuing a robust retirement doesn’t have to be a fairy tale.

So, how can concerned feds determine a suitable time for them to retire?

  1. Look at time-in-service. Less than 20 years may be a “red flag.”
  2. Age at retirement. Under 55 (CSRS) or 57 (FERS) may be another red flag.
  3. Be fully aware of retirement income sources.
  4. What will the monthly federal pension (annuity) be?
  5. FERS: learn if qualifications have been met, until age 62, to qualify for the CSRS (bridge) payment.
  6. FERS: review annual SSA benefits statement. What’s the estimate for 62 and at full retirement?
  7. What are the cash values of IRAs, TSP and old 401ks?
  8. Any inheritance, trust payments, etc.?
  9. MAKE A BUDGET! – The first three steps relate to finding an estimate of available retirement income. Step 4 is about finding how much income you will need. There are two methods I use with my clients.
  10. My preferred option is to add up all (necessary and recurring) expenses for the past year and divide by 12. That should give you a good idea what you need monthly to initially survive retirement.
  11. A common (easier) approach is to use current income and multiply it 80 percent. Most retirees spend a little less when they retire. It seems that the needed income is generally between 70 and 80 percent of when they were working.
  12. Partner up with a trusted advisor that fully understands federal retirement benefits. They should help you create a retirement plan that will determine when to utilize each portion of your retirement savings. Good plans will also account for long-term inflation and taxes.
    Note: Some advisers want to “manage” federal employee investments, but aren’t familiar with the intricacies of federal retirement benefits. That can be a recipe for bad porridge, no matter the temperature. It would be wise to avoid the “works with anyone” adviser. Seek a specialist in this field. An adviser’s true focus can generally be found on their website. If (on their website) they only address federal employee issues, they may be a good prospect.
  13. Put it all together — create and then stick to a comprehensive retirement plan. It will then be imaginable to pursue a sensible retirement date. Not too early, not too late, but JUST RIGHT.

Silverlight Financial donates (up to 10 per month) free/no obligation to Federal Retirement Readiness Reviews (FRRR). These reviews culminate with a no costs, one-on-one, hour-long phone meeting with founder, Randy Silvey. To personally request your FRRR email me.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss. For a list of states in which I am registered to do business, please visit www.silverlightfinancial.com.

Securities offered through LPL Financial, member (http://www.finra.org/) FINRA/(http://sipc.org/) SIPC.

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