A financially stable retirement depends on knowing what to do – and what not to do – with your benefits, money and assets. Here are some common pitfalls to watch out for (and what to do about them).
We all look forward to retirement as a rewarding and pleasurable time of our lives.
A financially stable life in retirement depends on knowing what to do – and what not to do – with your benefits, money and assets, as your federal career winds down.
Pitfall #1: Underestimating Your Taxes in Retirement
The tax consequences in retirement can be overwhelming when you consider all of the benefits you have available to you. Many people do not fully understand how they’ll be taxed in retirement. You may think that your tax burden will be less when you retire.
Many federal employees wholeheartedly believe that they will be in a lower tax bracket in retirement than they are right now. What actually ends up happening, is that most people end up in the exact same tax bracket that they are in right before they retire from federal service.
Tip: Recognize that taxes are very real in retirement. Take the time to work with your tax professional or financial planner and put a tax strategy in place, so you’re not blindsided by any larger-than-expected tax obligations.
Pitfall #2: Not Understanding How Your Benefits Change in Retirement
Many of your federal benefits have served you very well while you were working; however, these benefits change upon your retirement. Many federal employees fail to understand the effects of their elections of benefits at retirement and how one can affect another.
For example, many people don’t understand how FEHB works in retirement and that in order to keep it in retirement, you must have it prior to retiring for 5 years and be eligible for an immediate pension.
Tip: As a federal employee, you’re responsible for all of the elections that you make. So, be sure that you have the information you need regarding how your benefits will change in retirement before making any important decisions.
Pitfall #3: Expecting Your Pension Payment Right Away
Some federal employees may expect their pension payments shortly after retiring. In reality, it could be anywhere between a couple of months to 6 months in most cases but could be more. The reason for this delay is that OPM is adjudicating your retirement benefits during this time.
Tip: Plan on not receiving your full pension payments until 9-12 months after you retire. You should ensure that you’ve planned to cover your expenses with other sources of income in that interim.
Federal employees nearing retirement can benefit from avoiding these common pitfalls. If you understand the circumstances, situations and events you may encounter in retirement, you’ll have a better chance of avoiding these kind of “snags.”
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ABOUT THE AUTHOR:
Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed Federal Retirement Impact Workshops, she and her team empowers employees to make confident decisions as they plan for the days when they no longer have to work.
As the developer of dozens of highly-regarded retirement planning materials for federal employees and the creator of the FedImpact Webinar and the FedImpact Podcast, Chris has also analyzed the challenging retirement scenarios for thousands of federal employees – helping them to avoid costly mistakes, and highlighting opportunities for them to gain greater financial security in their retirement years.
Chris’ candid and straightforward nature allows employees to get the answers they need, and to understand the impact these decisions have on their retirement. After all, if what you thought was true wasn’t, when would you like to know?