Top 10 Retirement Mistakes
Avoid these common pitfalls to ensure a secure and prosperous federal retirement.
1. Misunderstanding FEGLI Costs
Life insurance costs through the Federal Employees' Group Life Insurance program increase significantly as you age, often becoming unsustainably expensive later in retirement.
Solution: Review your coverage and costs at key ages—45, 50, and 55—to determine if private insurance or reducing coverage offers better value.
2. Taking a Social Security Bridge
Many retirees decide to retire early and 'bridge' the gap to Social Security by spending down their Thrift Savings Plan assets too quickly, depleting their principal.
Solution: Coordinate your FERS supplement and TSP withdrawals with your Social Security strategy to ensure your portfolio remains sustainable.
3. Underestimating Survivors Benefits
Failing to properly provide for a spouse through the survivor annuity can lead to a significant loss of income and the potential loss of FEHB health coverage for the survivor.
Solution: Carefully evaluate the cost-benefit of different survivor annuity options to ensure your spouse is protected without over-sacrificing your current pension.
4. Tapping Your TSP Too Early
Withdrawing large sums from your TSP early in retirement without considering the tax implications can push you into a higher tax bracket and trigger avoidable penalties.
Solution: Develop a strategic withdrawal plan that accounts for required minimum distributions (RMDs) and minimizes your overall lifetime tax burden.
5. Miscalculating Sick Leave Credit
A common misconception is that accrued sick leave can be used to reach your Minimum Retirement Age (MRA) or satisfy the years of service required for eligibility.
Solution: Remember that sick leave only counts toward your total service credit for pension calculation purposes, not for retirement eligibility itself.
6. Forgetting Medicare Part B
Many federal employees do not realize how Medicare Part B interacts with their FEHB premiums, often leading to paying for overlapping coverage they don't need.
Solution: Conduct a thorough evaluation of your health needs around age 65 to see how Medicare coordination can actually lower your out-of-pocket costs.
7. Overlooking State Taxes
Not all states treat federal pensions equally. Moving to a state that taxes federal annuities while living on a fixed income can have a major impact on your budget.
Solution: Research the tax laws of any state you plan to relocate to and factor those costs into your long-term retirement budget.
8. Ignoring Inflation
Even with COLA adjustments, a fixed retirement income can lose significant purchasing power over a 20-30 year retirement if your portfolio isn't positioned for growth.
Solution: Keep a portion of your TSP invested in growth-oriented funds (like the C, S, and I funds) to help your assets keep pace with rising costs.
9. Incorrect Beneficiary Designations
Outdated beneficiary forms (SF-2823 and TSP-3) often override your current will, potentially leaving benefits to ex-spouses or deceased relatives.
Solution: Perform an annual review of all your beneficiary designations to ensure they reflect your current marital status and family wishes.
10. Failing to Plan for Taxes
Most of your retirement income, including your FERS annuity and TSP withdrawals, is fully taxable at the federal level and often the state level.
Solution: Project your future tax bracket now and utilize Roth TSP options where available to create tax-free income streams for the future.
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