Retirement is meant to be one of the most fulfilling and enjoyable times in life.
In order to secure a financially stable situation in retirement, one must know what to do – and what not to do – with things such as benefits, money and assets.
Below is a concise list of reminders to ensure success and avoid difficulties down the road of retirement.
1. Understanding Your Taxes in Retirement
A common misconception is thinking that once retired, the retiree will be moved into a lower tax bracket or simply pay less in taxes. The tax reality in retirement can be daunting when considering all of the benefits you will have available to you. With this in mind, you will be taxed in retirement.
While many federal employees truly think that they will be in a lower tax bracket in retirement than they are right now, the truth is most people end up in the exact same tax bracket that they are in right before they retire from federal service.
Takeaway: Remember that taxes are very real in retirement. Be sure to set aside time to work with your tax professional or financial planner in order to establish a tax strategy, so you are not surprised by any larger-than-expected tax obligations.
2. Remembering Your Benefits Change in Retirement
Many of the federal benefits that served you throughout your federal career working will change upon your retirement. Oftentimes, federal employees do not understand the effects of their elections of benefits at retirement and how one can affect another.
For example, people commonly fail to understand how FEHB works in retirement and that in order to keep it in retirement, a federal employee must have it before retiring for 5 years and also be eligible for an immediate pension.
Takeaway: As a federal employee, be sure that you have the information you need pertaining to how your benefits will change in retirement before making any important decisions. You are ultimately responsible for your own elections.
3. Do Not Expect Your Pension Payment Right Away
Some federal employees might anticipate to receive their pension payments quickly after retiring. The truth is, it takes anywhere from up to 6 months for payments, and in most cases even longer. This delay is because the OPM is adjudicating your retirement benefits for a period of time.
Takeaway: Prepare for and plan on not receiving your full pension payments for at least 6-9 months after you retire. Be ready to cover your expenses with other sources of income during that waiting period.
Federal employees nearing retirement can benefit by being aware of these common pitfalls. If you understand the circumstances, situations and events you may encounter in retirement, you will have better prospects of preventing unwanted financial troubles.
If you would like to learn more about how to maximize your retirement benefits, please reach out to us at Federal Benefits Service and speak to a licensed professional. Also, become a member today for weekly updates, TSP market watch advice, as well as video tutorials and online classes surrounding the optimal federal employee retirement process.