Though the requirements for retiring with an immediate annuity under FERS are straightforward, it’s important to figure out when you’re truly ready to retire.
As a FERS participant, if you have enough years of creditable service, you can retire relatively young. Depending on your birth year, you’re eligible to retire from age 55 to 57 with 30 years of service. Or, you can retire at age 60 with a minimum 20 years of creditable service under FERS. However, even though you can retire, should you?
Are You Financially Prepared?
Have you crunched the numbers to get a solid estimate of your income and expenses in retirement? As a FERS worker, you have three sources of income: your annuity (pension), Social Security benefits plus your Thrift Savings Plan (TSP). Though this puts you on track for a financially-secure retirement, if you don’t have a good idea of what your retirement expenses will be, you may end up with an income gap.
Are You Carrying Debt Into Retirement?
Outstanding debt can be a huge drain on your financial security in retirement. If you can pay off your mortgage, great. But a mortgage is considered “good debt” because property appreciates in value. High-interest credit cards are considered “bad debt” and it’s wise to do all you can to pay them off before you retire. Because, when you’re only making minimum payments, you’re racking up more interest, year after year.
“When your TSP loan balance is added to your taxable income, it may bump you into a higher tax bracket and make a larger portion of your Social Security benefit taxable.
Do You Have An Outstanding Balance On A TSP Loan?
If you’re closing in on retirement yet still paying off a TSP loan, do whatever you can to pay it off before you separate from service – even if it means working longer that you had planned. You only have 90 days to pay off the entire loan after you retire.
If you’re unable to pay it off within this window, the TSP considers the amount you owe as a distribution from your account and you’ll have to pay federal income taxes on the outstanding balance. When your TSP loan balance is added to your taxable income, it may bump you into a higher tax bracket and make a larger portion of your Social Security benefit taxable.
Do You Have A Rainy Day Fund For Emergencies?
Far too many federal retirees haven’t put enough aside for emergencies. In fact, many use their Thrift Savings Plan (TSP) as their rainy day fund — during their working years and in retirement. If you have to work longer to put money away for emergencies, it’s worth it.
