Retirement planning is no easy task. Factors like salary, debt and expenses all affect your ability to save. There’s also no one-size-fits-all solution to realizing the vision of your golden years.
Generally, the right plan is about timing, opportunity and avoiding mistakes that can destroy your retirement. With that in mind, here are four common mistakes to avoid.
Mistake #1: Not Saving Enough
This may seem like a no-brainer, but having enough savings is obviously important to your retirement planning. Would it surprise you to know that 21 percent of Americans have nothing at all saved for their retirement? Or that a third of Americans have less than $5,000 saved?
If you didn’t start saving early in your career, it’s not too late to start. You even have a built-in tactic available to you: use pay raises (or step increases) to help beef up your savings.
As retirement nears, you’ll also want to make sure that you’re maximizing your Thrift Savings Plan (TSP) account contribution and decreasing your debt and spending. How much do you have in your TSP? Can you challenge yourself to contribute more? How can you max out the TSP at $20,500 per year? How can you get the full catch-up contribution of $6,500 per year (available in the year you turn 50)? Wherever you’re at today, how can you step up your game just a little bit and make that work in your budget? Even small increases to your savings and TSP contributions can add up to big savings over the long-term.
Mistake #2: Underestimating Your Taxes
Taxes can be the carbon-monoxide of a financial plan. If not properly planned for, taxes can be the silent killer to the grand visions that you may have for your retirement. Most federal employees mistakenly 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. But how could this happen? Didn’t I just take a big pay cut to retire?
It’s easy to see why this confusion can occur. In retirement, instead of pulling your full salary, you’re going to be pulling in a pension that is typically much less than the salary you have today. However, the idea of being in a lower tax bracket assumes that you’re not pulling money from any other accounts which are taxable (like the Thrift Savings Plan, an IRA or a 401(k) . Plus, as a federal retiree, you’ll now be taxed on the money you use to pay your FEHB premiums (something you didn’t have to do while you were working!).
Get clear on how taxes affect you in retirement.
Mistake #3: Ignoring Long-Term Care
You may be in perfect health right now, but you don’t know what the future may bring. The harsh reality is that everything you’ve planned for in retirement could be wiped out if you don’t address long-term care and have a plan when it happens. No one wants to admit they will need long-term care. However, according to a recent report, 70% of adults over the age of 65 will need some kind of long-term care.
That’s why it’s important to figure out how to pay for any long-term care you’ll need down the road. The longer you live, the greater the likelihood is you are going to need care. Don’t assume that your family will take care of you, so you don’t need long-term care (LTC) insurance. Very often, the health and finances of family caregivers are negatively impacted, so you should discuss the full toll it will take on them—financially, physically, and emotionally, before assuming that box is checked.
As a federal employee, you have the Federal Long-Term Care Insurance Program (FLTCIP) option available to you (as well as other private-sector LTC products) to help you plan for your LTC needs. The bottom line is that a long-term care event could devastate your financial plan, so you can’t afford not to have something in place.
Mistake #4: Using A DIY Approach
With so much information online, it may seem like you can handle all of your financial planning decisions on your own. However, working with a financial professional who tailors their practice to working with federal employees is essential to the decision-making process. They will help you to navigate the complexities of government programs, articulate your goals clearly, anticipate planning challenges and help you to make better decisions based on your true needs.
If you’re ready to get serious about planning for your retirement from federal service, register to attend a workshop today!