If you’re set to retire in five to 10 years, this is the time to start nailing down a plan that provides financial security in retirement. Even though the federal government has provided you with exceptional benefits, if you don’t have a financial plan in place you can still find yourself encountering money problems later in life. Here are some questions to consider.
Has The 80% Rule-Of-Thumb Led You Astray?
You may have heard that you only need to replace 80% of your income when you retire. This is based on the theory that your debt will be lower because you’ve paid off credit cards and downsized your home. However, if you retire in your mid-50s under FERS, does the 80% rule apply to you when you still have dependent kids and college loans to pay? Think about it — can you really afford to live without 20% of your income?
“Some retirees may need 100% of their retirement income to cover their expenses while others may only need 50%.”
Have You Calculated Your Retirement Income?
In addition to your FERS annuity, what’s your plan for your Social Security? Will you file early at age 62 and receive a reduced benefit? Or, will you delay until 70 to maximize your benefit? Have you decided when you’ll start taking distributions from your Thrift Savings Plan (TSP)? Without a clear idea of the income you can count on in retirement to cover expenses, you run the risk of running out of money.
What Will Your Fixed Expenses Be In Retirement?
Fixed expenses include your mortgage, property taxes, food, clothing, utilities, cell phone, internet and TV services. Add in premiums for healthcare and other types of insurance. Then there’s the debt you carry into retirement: car loans, college loans and credit cards. Will your retirement income be enough to cover it all?
Have You Planned For Income Taxes?
You may be shocked to learn that as much as 90% to 98% of your FERS annuity is subject to income taxes. Depending on your combined income in a given year, up to 85% of your Social Security may be taxable, too. And 100% of TSP distributions are also subject to taxes. Do you have a tax plan for retirement?
Everyone’s financial situation is different. Some retirees may need 100% of their retirement income to cover their expenses while others may only need 50%. If you’re five to 10 years away from retirement, the time to find out where you stand is right now. Connect with an FRC® trained advisor who can help you crunch the numbers.
