Last week I pointed out a few things that can mess up your retirement, either in the short or long term. This week I want to bring up issues that if not dealt with ahead of time can cause you to clap your hand to your forehead and say, “If only I had …”
First, let’s go back to a point I mentioned last week because it is so important. With few exceptions, you can carry one of the government’s most valuable benefits, Federal Employees Health Benefits (FEHB) program coverage, into retirement only if you have been enrolled for the 5 consecutive years before you retire or from your first opportunity to enroll. (Note: The main exception, itself rare, is that if your agency offers you an opportunity to retire early, you only have to be enrolled in the FEHB program when the offer is made.)
Double-check your eligibility to keep FEHB and then triple-check it. Then give it a little time and check it again. This is no joke. If you retire without that eligibility, you’ll get a temporary extension with no government share toward premiums and then, as I said last week, you’re on your own.
If you are someone who will lose their health benefits, you may want to postpone your departure until you can carry that coverage into retirement.
Once you’re sure you’ll have the health insurance protection you’ll need, be sure your retirement income will provide the financial protection you’ll need. Two of the most common mistakes I see involve overestimating how many years of service will be included in your annuity calculation, especially for:
• Refunded service—If you ever left government, took a refund of your retirement contributions, and returned to government service, that refund could have a significant impact on both your eligibility to retire and in your annuity computation. Since the rules differ for CSRS and FERS on whether you either need to or can redeposit the money to get credit for that time, you’ll need to meet with one of your agency’s retirement counselors to determine which rules apply. Only then can you decide which option is best for you.
• Military service—If you are a CSRS employee who served in the armed forces before October 1, 1982, you won’t have to make a deposit to get credit for your active duty service to have it used in the computation of your annuity. If you served after that date, you will. If you don’t make that deposit, are retired, and eligible for a Social Security benefit at age 62, your annuity will recomputed downward by 2 percent for every year (5/12th of 1 percent per month) that is covered by that period of service. The rules are different for FERS employees. If you are one of them, you only have one option. Make the deposit and get credit for that time or not make the deposit and get no credit for that time.
Also, ask yourself this: Will your final annuity and the nest egg in your Thrift Savings Plan account be sufficient to let you to live the life you want to live in the future? That TSP account may be a nice number but how will it translate into income, and for how long? There are calculator functions at www.tsp.gov to help that analysis; you may be surprised at what you find.
Be sure you have an accurate picture of your annuity, taking those possible reductions into account. Also be sure to know how electing a survivor benefit will reduce your benefits and remember that if you are covered by FERS, with rare exception you won’t receive a cost-of-living adjustment (COLA) on your annuity until you reach age 62.
The value of that annuity—plus Social Security if you will be eligible for it– will be less, often much less, than what you took home in salary. Yet you will still have basic expenses to cover, such as house payments or rent, health and life insurance premiums, federal and state taxes, etc. Experience is a great teacher, and it tells us that retirement living costs more than we think it will.
Doing the necessary arithmetic may mean that you have to postpone your retirement until the numbers add up, but failing to do it may mean you’d need to go back to work to make ends meet.