When it comes to retirement planning, a good portion of mainstream advice doesn’t apply to federal employees covered under FERS. Why? Because your federal benefits provide a level of financial security that workers retiring from the private sector cannot depend on.
The Difference Between A Federal and Private Sector Retirement
Since the majority of private sector employers have replaced traditional pensions with 401(k)s and similar plans, most non-federal workers only have one source of guaranteed income for life: Social Security.
Under FERS, you have two sources of guaranteed lifetime income: your annuity and your Social Security. And both benefits qualify for Cost of Living Adjustments (COLAs). You also have your Thrift Savings Plan that provides advantages similar to a 401(k) at considerably lower fees. Over time, the money you save on TSP fees earns returns.
Mainstream Advice On When To File For Social Security
For private sector workers, the average retirement age is mid-to-late 60s. This is likely because the Social Security Administration has gradually increased the Full Retirement Age (FRA) to age 67 for those born in 1960 or later. For most non-federal workers, the mainstream advice for Social Security is to apply for benefits when they reach their FRA.
Federal workers have more options. When you retire on an unreduced annuity at age 55 to 57, you also qualify for the FERS Supplement. The FERS Supplement is designed to fill the income gap between your relatively young retirement age and age 62, which is when you first become eligible for Social Security.
Mainstream Advice On When To File For Social Security
For private sector workers, the average retirement age is mid-to-late 60s. This is likely because the Social Security Administration has gradually increased the Full Retirement Age (FRA) to age 67 for those born in 1960 or later. For most non-federal workers, the mainstream advice for Social Security is to apply for benefits when they reach their FRA.
Federal workers have more options. When you retire on an unreduced annuity at age 55 to 57, you also qualify for the FERS Supplement. The FERS Supplement is designed to fill the income gap between your relatively young retirement age and age 62, which is when you first become eligible for Social Security.
“This type of mainstream advice was designed for private sector workers who don’t have the benefit of a lifetime pension in addition to Social Security.”
Other Retirement Planning Advice That May Not Apply To You
One mainstream rule-of-thumb is to sell your home and downsize to lower your monthly expenses. This may make sense for private sector retirees who are concerned about running out of money in retirement. With three sources of retirement income, you may be in a better financial position to keep your home especially if you earn more on your TSP and other investments than your mortgage interest rate.
Then there’s the 80% rule – saving enough to replace 80% of your pre-retirement income. Or, the 4% withdrawal rule. This type of mainstream advice was designed for private sector workers who don’t have the benefit of a lifetime pension in addition to Social Security. Planning a FERS retirement is more complex because you have more options.
When you work with an FRC® trained advisor, you get the specialized retirement advice you need from a professional who fully understands the ins and out of your federal benefits.
