Federal employee retirement can feel overwhelming. You are so close; the finish line is in sight. With 2023 coming to an end, you have just a few months left until you retire in 2024.
Emotionally, mentally, and physically, you are so ready to retire. But are you ready financially?
The first year or two of retirement can be challenging. Sentinel Financial Planning is helping you prepare ahead of time with this step-by-step checklist to follow in 2023, starting with your overall retirement plan.
REVIEW OR CREATE YOUR RETIREMENT PLAN
If you haven’t done so already, now is the perfect time to review or create a retirement plan. This should include everything from exactly when you will retire to how you will spend your time. Take the time to think about what you want retirement to look like for you. Will you be retiring with a spouse? Do you want to work part-time, volunteer, or travel the world? The answer to these questions will influence the rest of the tasks on this list, so it’s important to be both intentional and realistic about your plans.
DECIDE WHEN TO COLLECT YOUR SOCIAL SECURITY BENEFITS
Deciding when to take Social Security benefits is one of the biggest questions you will have to answer. Depending on your age when you retire, you could be looking at reduced Social Security benefits (age 62), full benefits (age 67), or maximum benefits (age 70). If you plan to collect Social Security later than age 62, plan how to make up the income lost from FERS annuity supplement.
CREATE A REALISTIC RETIREMENT BUDGET
Once you’ve assessed your Social Security benefits and decided when to claim, it’s important to take a look at all other sources of retirement income and create a realistic budget. With your newfound free time, it can be easy to overspend without realizing it. But since your income is fixed, a realistic budget that you can hold yourself accountable to is one of the best things you can do in the months leading up to the big day. Overspending, even for a short period, can shave years off the longevity of your assets.
CONSIDER SAVING MORE
If you are earning more income in the year leading up to retirement and you don’t necessarily need it for daily expenses, consider contributing more to your Thrift Savings Plan (tsp). These accounts have increased contribution limits for taxpayers over the age of 50 and contributing more can be an effective way to boost your nest egg while reducing your taxable income before new rules go into effect.
DETERMINE YOUR WITHDRAWAL STRATEGY
Many retirees mistakenly assume that how and when they withdraw from their retirement accounts doesn’t matter as long as they have a sizable amount saved. They also falsely believe that they will always be in a lower tax bracket in retirement. These assumptions can result in inefficient withdrawals that increase your tax liability unnecessarily and greatly reduce the longevity of your portfolio. The timing of withdrawals makes all the difference and it’s a key component in safeguarding your retirement nest egg.
REVIEW YOUR LIFE INSURANCE NEEDS
The Federal Employee Group Life Insurance (FEGLI) is part of your benefit package as a federal employee. This is great during your working years, but the cost and coverages may change at retirement, and if you only have group insurance your family may be left unprotected. Whether you have a mortgage and want to make sure your family is covered, or you want to provide an inheritance, be sure to review your life insurance needs, as well as any existing policies you have in place. If it makes sense, consider keeping your FEGLI coverage or look for a private insurance policy.
TAKE ADVANTAGE OF THE FEHB PLAN
Another important step to take before retiring is to utilize any healthcare benefits offered by your employer. Maintaining good physical and mental health is a key component to a happy and fulfilling retirement. Make sure you are up to date on your physicals, check-ups, and prescriptions before retiring, especially if you have already met your deductible for the year.
If you have an FSA, consider spending down the account, and if you have an HSA, consider paying for expenses out of pocket to keep the funds growing tax-deferred.
REVIEW YOUR MEDICARE OPTIONS
Once you turn 65, you will be able to enroll in Medicare. Depending on your age at retirement, be sure to mark your calendar for this important milestone.
EVALUATE YOUR LONG-TERM CARE NEEDS
Long-term care is a woman’s issue. It’s estimated that 70% of today’s 65-year-olds will need long-term care services at some point in the future. Without proper planning, these costs can quickly spiral out of control. The year before retirement is the perfect time to assess your needs and consider long-term care insurance to supplement what you can afford to spend out of pocket if you’re not enrolled in the Federal Long-Term Care Insurance Program (FLTCIP).
REVIEW YOUR ESTATE PLAN
Take the time to review your estate plan and make sure everything is in order. You should have basic estate planning documents like a will, durable power of attorney, and healthcare power of attorney. These documents ensure your wishes are clearly communicated and a trusted individual can act on your behalf if something were to happen. If your estate is more complex and you have significant assets to leave behind, consider utilizing a trust in your estate plan as well.
PARTNER WITH A FINANCIAL PROFESSIONAL
After decades of working, you know it’s time to retire. But do you feel prepared? Whether you’re already a client or need to partner with a trusted financial professional, I’m here to help you get where you want to go. Schedule a free introductory 30-minute phone call or email me at mark@sentinelfp.com.
ABOUT MARK
Mark Humphries, CFP® is the owner and financial advisor at Sentinel Financial Planning, a boutique, veteran-owned and operated investment management and financial planning firm. He helps federal government employees, military members, and business owners manage their investments and plan for retirement. Mark is a former military service member and federal employee. He has over 10 years of financial industry experience and is familiar with the Federal Employee Retirement System (FERS) and the Thrift Savings Plan (TSP).
Before the financial industry, Mark was enlisted in the U.S. Marine Corps. While serving he became familiar with the challenges military service members and their families face, especially during deployments. In addition to the CERTIFIED FINANCIAL PLANNER™ designation, Mark holds a bachelor’s degree in business administration from the University of Central Florida and a master’s degree in personal financial planning from Kansas State University.
Outside the office, Mark enjoys time with his family, the outdoors, and collegiate sports. Additionally, he is a member of the National Association of Personal Financial Advisors, XY Planning Network, Anne Arundel County Pension Oversight Commission, Naval Academy Primary School Board of Trustees, and Warrior Events Board of Directors. To learn more about Mark, connect with him on LinkedIn.
