Half of the retirees surveyed by EBRI said their overall expenses in retirement are higher than what they expected. Conversely, current workers tend to believe their expenses will be lower. This is only one example of how pre-retiree perceptions may not hold up to the reality of retirement.
Perception: Income Taxes Will Be Lower In Retirement
The 80% rule assumes that, since there won’t be certain deductions from your income in retirement, you’ll only have to replace 80% of your current earnings when you retire. And this should put you in a lower tax bracket, right?
The Reality: You May End Up In A Higher Tax Bracket
Depending on how much retirement income you receive from various sources, when combined it may exceed what you earned during your federal career. Remember – 100% of distributions from your traditional Thrift Savings Plan (TSP) are taxable as income in addition to taxes on your FERS pension and Social Security.
Perception: FEHB Will Cover All Your Medical Needs In Retirement
Yes – Federal Employee Health Benefits (FEHB) plans cover a wide range of healthcare needs. And when FEHB is combined with Medicare in retirement, your coverage is even better. However, there is one major healthcare-related need that’s becoming a huge blind spot for pre-retirees and retirees alike.
“Unfortunately, FEHB will not cover non-medical custodial care and neither will Medicare.”
Reality: FEHB & Medicare Do Not Cover Non-Medical Long-Term Care
Statistics show nearly 70% of people turning 65 today will need some sort of long-term care (LTC) when they’re older. And with life expectancy on the rise, LTC in a nursing facility is even more likely. Unfortunately, FEHB will not cover non-medical custodial care and neither will Medicare. Without LTC insurance, out-of-pocket costs for a room in a nursing facility can be as high as $10,000 per month or more.
Perception: You Don’t Need Help Planning Your FERS Retirement
A CNBC.com article reports that the vast majority of pre-retirees have not consulted a retirement advisor and likely won’t work with one any time soon. Though current statistics for federal workers aren’t available, there’s a good chance an even higher percentage of FERS workers feel the same.
Reality: Your FERS Retirement Has A Lot Of Moving Parts
Should you retire at your Minimum Retirement Age (MRA) or work longer to qualify for the FERS 10% Bonus? Should you choose the 50% FERS survivor benefit for your spouse or will the 25% survivor benefit be enough? And what’s the best strategy for your TSP – rollovers or distributions? Planning your FERS retirement is complicated – don’t risk making a costly mistake. Connect with an FRC® certified advisor to get help.
