‘Boomers’ fear inadequate retirement income. Is now really the right time for them to step down?

In 2013, the Government Accountability Office (GAO) estimated 30 percent of the federal workforce would be eligible (and therefore expected) to retire over a three-year span (that number has now been extended to include 2017). That would mean that they were expecting 150,000 to 200,000 per year to retire from federal service. Many government officials and media types predicted a virtual avalanche of federal retirement submissions that would leave the entire U.S. infrastructure in shambles.

Well, 2016 is over and for the most part, zilch. Not the mass exodus called for or any great impact on government services.

According to the GAO, in recent history (prior to 2013) the average annual retirement rate was between 2.5 percent and 3.6 percent. The feared rate of departure would be between 7.5 percent and 10 percent per year. According to OPM, in 2013, there were 65,258 retirements and in 2014, a slight increase to 68,616. The 2013 retirement rate was approximately 3.3 percent while 2014 was 3.4 percent.

Randy Silvey is president of Silverlight Financial.
Randy Silvey is president of Silverlight Financial.

Despite these unimposing departure figures, many fear a large exodus is still imminent. With the exit of a large number of experienced workers, it is predicted they will leave a massive void that could possibly cripple the federal government. It is thought these relinquished positions would be too demanding to be adequately filled by younger, less experienced staff.

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Hogwash! This appears to be another Washington/media mountain grown out of a very small molehill.

Consider, even if a large portion of the aging federal workforce were to leave, would that be an altogether detrimental scenario?

Granted, nothing replaces experience.

However, the pros could easily outweigh the cons in this type of transition. Is it possible the old-school (“experienced”) thinking may be unintentionally stagnating and limiting needed renovations?Ideally, moving forward, the core of the federal workforce will be more educated and tech-savvy. This may allow for money-saving innovations that “boomers” just aren’t equipped to consider, let alone implement.

The real challenge in the future may not be replacing leadership, but in replacing blue-collar and clerical positions with more technical occupations. As tasks become more automated, fewer management levels will likely be required. Plus, the post “boomer” fed will likely be required to possess proficiencies, few would argue, the younger generations are better prepared to handle.

Observable change — boomers are becoming more and more disgruntled and certainly are cognizant of several good reasons for them to head out the door. Such as:

  • The markets have helped many retirement accounts recover from their 2007 and 2008 lows.
  • Being tired of dealing with budget cuts.
  • Tired of being embarrassed and demoralized by the “sound bite” media and public assaults waged by Washington officials.
  • Pay freezes (or minimal pay increases) that show little sign of thawing.
  • Seeing good jobs being outsourced to contractors.
  • Fed up with the “do more with less” mantra.
  • Furloughs.
  • Hiring freezes.

The list could go on and on. Yet, these dedicated public servants just aren’t leaving in significant numbers!

For crying out loud, why not???

Why aren’t they trading in their keyboards, cubicles and ergonomic chairs for cruise ships, mojitos and sunny beaches?

Don’t get me wrong, I would never encourage anyone to retire who is not financially and/or emotionally prepared to do so. However, when it’s time to move on… just move on!

Step down and enjoy a long and fruitful retirement. There are plenty of eager young prospects ready to take on the mantle passed on by our outstanding (if aging) federal workforce.

What would cause feds to continue to hang around, if they could be enjoying beaches, gardening, travel or some couch potato indulgences? MONEY! More precisely, the fear of not having enough.

Penny Dollar (not her real name) was a real federal employee. Penny was a 60-year-old, GS-13 that worked for the Treasury Department for 32 years. Penny developed her ideal retirement vision. In addition to enjoying time with family and being more involved in her women’s church group, Penny had dreams of traveling to exotic destinations during retirement. But, she had a nervous knot in her stomach whenever she thought about her retirement finances. Penny was concerned that she wouldn’t be able to even handle her most basic financial needs in retirement. However, Penny was in much better shape than she knew.

Over the years, Penny worked hard at contributing to her Thrift Savings Plan. But, Penny was uninformed concerning options within her federal retirement benefits.

When Penny learned how to properly utilize her full federal retirement benefits (along with enacting some prudent wealth management), she was able to retire six years earlier (age 60 not 66) than she had planned.

Three steps Penny’s took:

  1. She decided to take off the blinders and to secure an active role in her retirement planning, first by becoming educated on the subject. Fortunately, one of the first things Penny learned was that as a qualified FERS employee, she not only was eligible for a federal pension (annuity) but, also a supplemental income (often referred to as the SRS or Bridge payment) until she turns 62. The pension was estimated to be much larger than she anticipated and the SRS, in her mind, was “found” money.
  2. Next, she developed a “real” comprehensive retirement budget. Many, if not all of us, THINK we know how to budget. However, very few really understand (in retirement terms) what a budget is until they begin a life of “fixed” income. The trick is (while still working) to mentally create a personalized dream about what retirement should look like, then work diligently to finance that dream. That will provide a good estimate as to the amount of monthly income needed during retirement.
  3. Finally, she located an advisor to help her create an income/distribution plan based on needs, wants, wise investment choices and longevity.

With a little guidance and directions, she now brings home enough to meet her needs, plus a surplus of nearly $3,200 per month. She even enjoys the bonus, from saving all those years, of having $526,000 in reserves, from her TSP account.

While Penny is a uniquely wonderful lady, her lack of knowledge and understanding about federal retirement income benefits and proper planning, unfortunately, is NOT unique.

It’s this lack of knowledge that caused the government officials and media types to miscalculate the projected departure rate. Unfortunately, they understand how the federal retirement benefits work better than federal employees do. They recognize that many of those staying in place today could easily lead financially comfortable retirements… right now!

Official training concerning federal retirement income benefits is not getting through to the average federal employee. Many that I meet believe the TSP and their pension(s) are one in the same (they are NOT). Yet, as Penny shows us, when all available income sources and planning options are explained and understood, a federal boomer’s desire to retire may be embraced sooner than expected.

FYI — Penny checked in with me a couple of weeks ago. She had just begun a three-week trip with friends to visit Hawaii and Australia.

Note: This is a hypothetical situation based on real life examples. Names and circumstances have been changed.


 

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 Randy Silvey is registered to do business, please visit www.silverlightfinancial.com. Securities offered through LPL Financial, member FINRA/SIPC.

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