As a federal employee, retirement can be an exciting time. It's a time when you can finally step back and enjoy the fruits of your labor. However, there are some things you should know before taking the plunge. Here are five things that every federal employee should know about retirement.
Understand Your Retirement Benefits
As a federal employee, you're eligible for retirement benefits through the Federal Employees Retirement System (FERS). FERS is a three-tiered retirement system that includes a basic benefit, Social Security, and the Thrift Savings Plan (TSP). Before retiring, it's important to understand how these three components work together to provide retirement income.
Your basic benefit is calculated based on your years of service and high-three average salary. Social Security provides a basic benefit as well, but it's calculated based on your lifetime earnings. Finally, the TSP is a tax-advantaged retirement savings plan that allows you to contribute a portion of your salary each year.
Plan for Healthcare Costs
One of the most significant costs in retirement is healthcare. As a federal employee, you may be eligible for healthcare coverage through the Federal Employees Health Benefits (FEHB) program. However, this coverage may not be enough to cover all of your healthcare needs.
To prepare for healthcare costs in retirement, consider enrolling in Medicare. Medicare is a federal health insurance program that covers people who are 65 or older or who have certain disabilities. You may also want to consider purchasing supplemental health insurance to help cover any gaps in coverage.
Consider Your Retirement Date
The date you retire can have a significant impact on your retirement income. If you retire before you're eligible for Social Security, you may need to rely on your basic benefit and TSP savings until you reach age 62. However, if you wait until you're eligible for Social Security, you'll receive a higher monthly benefit.
In addition, retiring at the end of the year can have tax benefits. If you retire in January, you'll receive a full year's worth of income in that tax year. However, if you retire in December, you'll only receive one month's worth of income, which could lower your tax bill.
Decide What to Do with Your TSP
When you retire, you'll need to decide what to do with your TSP savings. You can leave your money in the TSP, transfer it to another retirement account, or withdraw it as a lump sum or in periodic payments.
If you're considering withdrawing your TSP savings, keep in mind that you'll need to pay income taxes on the amount you withdraw. You may also face a 10% early withdrawal penalty if you're under age 59 1/2.
Create a Retirement Budget
Finally, it's important to create a retirement budget to ensure that you can afford the lifestyle you want in retirement. Consider all of your retirement income sources, including your basic benefit, Social Security, and any other retirement savings you have. Then, create a budget that includes all of your expenses, including housing, healthcare, and leisure activities.
By understanding your retirement benefits, planning for healthcare costs, considering your retirement date, deciding what to do with your TSP savings, and creating a retirement budget, you can make the most of your retirement as a federal employee.