As a federal employee covered under FERS, your retirement benefits provide the opportunity to be financially secure once you’re no longer working. However, there are some common misconceptions about retirement planning that may put you at risk.
Miscalculating Your Longevity
Believe it or not, underestimating how long you will live can be the biggest threat to your financial security in retirement. Studies show that men and women tend to underestimate how long they’re likely to live. In fact, data collected by the Society of Actuaries suggests that a 65-year-old man in average health has a 35% of living to age 90 while a woman’s chances are as high as 46%. If you plan your retirement around the assumption you’ll pass away by age 80, where will that leave you if you live until age 90?
“Without LTC insurance, the out-of-pocket cost of a semi-private room in a nursing home can be $7,000 per month or more depending on where you live.”
Not Purchasing Long Term Care Insurance
According to LongTermCare.gov, someone turning 65 today has a near 70% chance of needing some type of LTC services in the future. Another government study indicates that approximately one-third of today’s 65 year-olds may never need long-term care but 20% will need it for longer than five years. Keep in mind that FEHB and Medicare do not cover non-medical custodial care provided in assisted living facilities and nursing homes, or by in-home health aides. Without LTC insurance, the out-of-pocket cost of a semi-private room in a nursing home can be $7,000 per month or more depending on where you live. When seniors require 24-hour custodial care at home, most agencies charge $200 to $350 per day. If you don’t plan for the possibility of needing long term care, the cost can potentially wipe out your nest egg.
Ignoring The Need For Tax Planning
Many retirees are shocked to find how much Uncle Sam taxes FERS, CSRS and Social Security income. Since your traditional Thrift Savings Plan (TSP) is funded with pre-tax income, withdrawals will be subject to federal taxes, too. Then there are state income taxes to consider. Some states tax retirement benefits while others don’t. Without a retirement tax plan, you may find yourself in the same tax bracket you were in during your working years. Add to this, though current tax rates are relatively low, you can’t assume rates will remain low for the next 20 to 30 years.
Think about touching base with an FRC® trained advisor who understands your federal benefits and can help you avoid these common errors. Together, you can plan for financial security that lasts a lifetime.
