Sarah has been looking forward to this day for over 2 months! It’s Thursday afternoon and she’s on the phone with HR going through her FERS Retirement Application. But she gets stuck on how to handle the income tax for FERS pension, so she asks a question about what she should do. The specialist responds that she cannot give advice and can’t answer the question.
Sarah looks through her notes from the retirement training she attended, hoping to figure out what to do. She can’t find the answer. Frustration is setting in. Since she waited too long to do her retirement planning, she doesn’t have a plan to follow.
Right now, though, she’s legitimately pressed for time. She’s scheduled to retire in 3 weeks and this HR appointment took 2 months to get. She muddles through the application wishing she felt more in control of the process. Is she making the right choices? What about TSP? The excitement she was feeling has been replaced with worries. She’s not sure she should even retire.
Where do you think Sarah went wrong? On the phone with the retirement specialist when she believed they would tell her what she should do? When she waited to do her retirement planning until she was actually retiring? Or back at the last retirement training when she assumed that if she basically understood the benefits, that everything would be fine? I would say that Sarah’s retirement plan went wrong way before that. But it wasn’t her fault. Sarah’s no different than many Federal employees. She simply believed the Three Big Myths about planning for retirement.
The first myth is that the retirement specialist at HR will be able to help you make retirement decisions. If you believe this myth, when you get ready to retire, you simply announce your retirement and assume that the specialist will walk you through each step while explaining which option is best for you.
Unfortunately, that’s not how it works. The retirement specialist is not an advisor. Their primary role is to gather the information needed for your retirement application. That’s it. They are not authorized nor trained to provide retirement advice.
The reality is that you alone are responsible for knowing what your options are and which benefits you’ll select—you need to be prepared to answer each question as well as spot any errors on your retirement application.
Do this instead. First, get a thorough understanding of all seven FERS benefits—how each one is calculated, its usefulness in retirement and the consequences if you don’t select it. Then, try to complete a mock FERS Retirement Application for yourself. That way, you’ll uncover any spots where you need answers in advance, such as determining your income tax withholding for FERS pension with the help of a tax professional.
These are vital decisions that you might live with for a long time to come. Mistakes can be costly and sometimes impossible to correct down the road. Which brings us to the Second Big Myth.
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If you’re like most people, you were excited because you landed a Federal job—and you signed a mountain of forms in that first week. It was a blur. Someone mentioned something about retirement, but you figure that you’ll tackle that in a bit. You want to focus on learning the new job right now.
Besides, you’ll figure it out soon enough, right?
Zoom. Five years go by, then 10, and now 15 years. You attend a retirement party for a colleague and silently wonder how they did it. How did they know when it was safe to retire? When did they know they saved the right amount in TSP? Oh, to have been a fly on the wall during their HR meeting…
That night you resolve to have something to show for a lifetime of Federal service. You search online for “how to plan FERS retirement.” OPM’s website is one of the first things you come across. Looks promising, but as you dig deeper, the terminology starts to get confusing. Next, you head over to TSP’s website. They’ve got calculators and a whole bunch of information. But the same thing happens and you’re still not sure what to do first. Or next after that.
The reality is that retirement can end up unintentionally on the back burner again. That’s just what people do when stuff is too complicated to figure out. Procrastination is cruel. You can end up underprepared and feeling unsteady about your ability to retire.
Do this instead. Begin your retirement planning right away—no matter the stage of your career. Don’t let the complexity of FERS together with planning derail your retirement. Treat planning as a process with the primary purpose to estimate a TSP savings goal for enough money to last you for your lifetime. The amount you’ll need from TSP each year in retirement starts off with the difference between what you want to spend and what you receive from FERS pension, Social Security and/or other retirement income. Refine that TSP savings goal each year during your career. This leads us to the third Big Retirement Myth.
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So, you’ve finally got a spot in a retirement class at work. Phew, this should really help you be ready for retirement. You get there a little early so that you get the “best seat in the house.” Maybe you hope you’ll get to ask the trainer a few of those burning questions you’ve had for a while.
The class gets started. The trainer might start by showing you a drawing with a three-legged stool. They tell you that this is your FERS retirement: FERS, Social Security, and TSP. Seems simple enough, right? The morning lecture continues, and you’re taking fast and furious notes.
By 3 pm, your brain feels like it’s going to explode but you still haven’t learned about retirement planning. Then the trainer wraps up the class with the last benefit. It’s done. Shouldn’t they teach you about how to plan retirement? Like how you can figure out how much you’ll need in TSP for starters?
The reality is that there’s this pervasive belief that if you know the benefits that you’ll automatically know what to do when it comes time to retire. It doesn’t work that way because most people need a plan to follow. We can’t just hear information and figure out what to do by ourselves.
What a lot of people don’t realize is that most retirement trainers only study the benefits—but the problem is that they don’t actually study retirement planning. This means that you’re lectured about the benefits, and then you’re left to come up with a retirement plan on your own.
Do this instead. Source out a FERS training that focuses on the FERS benefits AND teaches you a retirement planning method that helps keep you on track for years to come. Don’t hesitate to invest—yes, with your own money—in a retirement training that meets the criteria above. You’re making decisions that might last for 30 years, shouldn’t you have a plan to follow?
Your FERS benefits can take outstanding care of you in retirement, but it isn’t likely to happen by chance! You’ll need to develop a solid understanding of each of the 7 FERS benefits and how each can take care of you in retirement. But don’t stop there. Next, you’ll need to have a retirement planning framework or process that helps you get the most from FERS and Social Security, plus set a TSP savings goal. Finally, identifying the important prep steps you’ll need to complete over the course of your career, so you’ll know when it’s time to cross the “finish line.”
This will help you go from procrastinating and worrying about retirement to knowing how smart you were to work for the government because you have a great retirement waiting for you.
© 2020 The Monroe Team, Inc.
FERS Blueprinttm is an educational division of The Monroe Team, Inc. DUNS Number: 032 057260. CAGE Code: 735L3. NAICS Code: 611710 Educational Support Services. Woman-owned, small business.
FERS Blueprinttm is not affiliated with, endorsed or sponsored by the Federal Government or any US Government agency. FERS Blueprinttm is educational only. No specific financial, retirement nor tax advice is being offered. The material presented is as current as possible, but is necessarily generalized. Facts and opinions are based on research and experience, but are not endorsed by the Federal Government. It is recommended to consult with your personnel office and/or the Office of Personnel Management (OPM) Retirement Office, Thrift Savings Plan, Social Security, Medicare, Internal Revenue Service, your legal, tax and/or other advisor(s).