The five years before retirement are probably the most critical there are in terms of getting ready for the big event. Here’s a quick list of some things to do when you believe you are five years away from retirement.
Meet with HR to verify creditable service.
You don’t want any surprises when you are 90 days away from retiring. Verify that your eligibility date for retirement is correct. Another reason is to make sure any military service you want to get credit for is has been added. Make sure your file is as it should be.
Envision what retirement “looks like” for you and if you will be emotionally/mentally ready for that.
Some people’s identity is very interwoven with their work. Are you going to be ok not having that be part of your life five days a week? Will your retirement be composed of leisure activities like golfing and gardening or will you volunteer and be active in clubs? Some people like having every day be like the weekend, while others like structure and somewhere to go every morning. Envision yourself in your new life.
Review your Social Security statement.
This is actually something you should have been doing all along, not just 5 years before retirement. However, it is imperative to check at this juncture since you could be close to claiming benefits. The statements are no longer mailed to most so you will have to create an account and check online at the Social Security website. The only statements still mailed out are to those individuals 60 and over and have not created an online account at ssa.gov. This is an opportunity to catch any mistakes and start mapping out your strategy to claim benefits. Your benefits are tied to your highest 35 years of income when you contributed to social security. So if you can replace some lower income years early in your career with higher income years now, you stand to take home more in benefits.
Maximize your savings until you retire.
You are probably at your earnings peak in these last 5 years. Save as much as you can, because you won’t have the paycheck to fall back on once you are retired. You can save up to $24,000 per year in the Thrift Savings Program (TSP) if you are 50 or older with catch-up contributions. You can make catch-up contributions only through payroll deductions. To make catch-up contributions, you must submit a Catch-Up Contribution Election (Form TSP-1-C, or Form TSP-U-1-C for members of the uniformed services) to your agency or service.
Assess your insurance needs.
You can probably do away with disability insurance in retirement since the purpose is to replace employment income, and you’ll be no longer working. Most retirees also do without life insurance if no one is dependent on your income for support. You can contact a financial professional for advice if life insurance is part of your investment portfolio. Look into Federal Long-Term Care Insurance to see if this is an option you would consider. This is for care you would need when you can no longer perform everyday tasks. Also, determine what your healthcare strategy will be going forward. Are you going to keep your Federal Employees Health Benefits (FEHB) and pair it with Medicare? There is a lot to consider.
Determine how much money you need.
This is the big one. Project your monthly expenses and then determine if the combination of Social Security, the Thrift Savings Plan, your CSRS/FERS annuity and any outside investments will get you to where you need to be. One strategy to determine your future monthly expenses is to go over what you spend now, eliminate bills you won’t have in retirement and those bills you can cut back on. Then add new bills you think you’ll have in retirement. This can give you an estimate as to what you’ll need.
Alexis Hongamen founded FederalRetirementAdvice.com to exclusively help civil servants with their financial planning and investment needs. As a 25 year federal employee & a Chartered Retirement Planning Counselor, he consults about financial matters of concern to government employees and retirees.
