M.Dutton & Associates | M.Dutton & Associates

How to Come Up with a Financial Plan for a Secure Retirement in 2024

Posted on April 1, 2025April 2, 2025 by Marvin Dutton

Key Takeaways

Developing a comprehensive financial plan for retirement in 2024 involves assessing your current financial situation, setting clear goals, estimating expenses, and creating a diversified investment strategy.
Regularly reviewing and adjusting your plan, maximizing retirement account contributions, and planning for healthcare costs are essential steps for ensuring financial security.

Planning for retirement is a critical aspect of financial management, ensuring that you can maintain your desired lifestyle and cover essential expenses once you stop working. As 2024 approaches, it’s essential to revisit and refine your retirement strategy to account for current economic conditions, changing personal circumstances, and new financial tools. This guide will walk you through the steps necessary to create a comprehensive financial plan for a secure retirement.

Assessing Your Current Financial Situation

Reviewing Assets and Liabilities

The first step in creating a retirement plan is to assess your current financial situation. Begin by listing all your assets, including savings accounts, investments, real estate, and retirement accounts. Next, catalog your liabilities, such as mortgages, loans, credit card debt, and any other outstanding obligations. Understanding your net worth will provide a clear picture of your financial health and help identify areas that need attention.

Analyzing Income and Expenses

Examine your current income sources, including salary, rental income, dividends, and any other earnings. Simultaneously, track your expenses to understand where your money goes each month. Categorize your expenses into essential (housing, utilities, groceries) and discretionary (entertainment, dining out). This analysis will help you identify potential savings opportunities and ensure you have a realistic view of your spending habits.

Setting Clear Retirement Goals

Defining Your Retirement Lifestyle

One of the most critical steps in retirement planning is setting clear goals. Define what your ideal retirement looks like. Do you plan to travel extensively, downsize your home, or start a new hobby or business? Understanding your desired lifestyle will help determine how much money you will need.

Establishing Financial Targets

Set specific financial targets to achieve your retirement goals. These targets might include the amount of savings you need, the expected returns on investments, and the desired income level during retirement. Use retirement calculators and tools to estimate these figures based on your current savings rate, projected expenses, and expected lifespan.

Estimating Retirement Expenses

Calculating Essential Expenses

Estimate your essential expenses in retirement, including housing, healthcare, food, utilities, and transportation. Remember to factor in inflation, which can significantly impact the cost of living over time. Healthcare expenses, in particular, tend to rise faster than the general inflation rate, so plan accordingly.

Accounting for Discretionary Spending

Consider discretionary spending, such as travel, entertainment, and hobbies. While these expenses are not mandatory, they play a crucial role in maintaining your quality of life. Ensure that your retirement plan accommodates these desires without jeopardizing your financial security.

Building a Diversified Investment Portfolio

Understanding Risk Tolerance

Building a diversified investment portfolio is essential for protecting your retirement savings from market volatility. Start by assessing your risk tolerance, which depends on your age, financial goals, and comfort level with investment risks. Younger individuals can typically afford to take more risks, while those closer to retirement should focus on preserving capital.

Diversifying Investments

Diversify your investments across various asset classes, including stocks, bonds, real estate, and cash equivalents. This strategy helps mitigate risk and ensures that poor performance in one area does not significantly impact your overall portfolio. Consider working with a financial advisor to create a balanced portfolio that aligns with your risk tolerance and retirement goals.

Rebalancing Regularly

Regularly review and rebalance your portfolio to ensure it remains aligned with your goals. Market fluctuations can shift your asset allocation, increasing risk or reducing potential returns. Rebalancing involves buying or selling assets to restore your desired allocation and maintain your investment strategy.

Maximizing Retirement Account Contributions

Taking Advantage of Employer-Sponsored Plans

Maximize contributions to employer-sponsored retirement plans, such as 401(k) or 403(b) accounts. These plans often offer tax advantages and employer matching contributions, which can significantly boost your savings. Aim to contribute at least enough to receive the full employer match, as this is essentially free money for your retirement.

Utilizing Individual Retirement Accounts (IRAs)

Consider contributing to Individual Retirement Accounts (IRAs), including Traditional and Roth IRAs. Traditional IRAs offer tax-deductible contributions, while Roth IRAs provide tax-free withdrawals in retirement. Evaluate which type of IRA aligns best with your financial situation and retirement goals, and contribute the maximum allowable amount each year.

Catch-Up Contributions

If you are 50 or older, take advantage of catch-up contributions to boost your retirement savings. The IRS allows additional contributions to retirement accounts for those nearing retirement age, helping you make up for any shortfall in savings.

Creating a Withdrawal Strategy

Understanding Required Minimum Distributions (RMDs)

Develop a withdrawal strategy that balances your need for income with preserving your retirement savings. Begin by understanding Required Minimum Distributions (RMDs), which mandate withdrawals from certain retirement accounts starting at age 72. Failing to take RMDs can result in significant tax penalties, so plan your withdrawals accordingly.

Sequencing Withdrawals

Sequence your withdrawals to minimize taxes and maximize the longevity of your savings. Consider withdrawing from taxable accounts first, followed by tax-deferred accounts, and finally tax-free accounts like Roth IRAs. This strategy can help manage your tax liability and ensure a steady income throughout retirement.

Managing Withdrawal Rates

Adopt a sustainable withdrawal rate to avoid depleting your savings too quickly. A commonly recommended approach is the 4% rule, which suggests withdrawing 4% of your retirement savings annually, adjusted for inflation. However, your withdrawal rate should reflect your specific financial situation, market conditions, and life expectancy.

Planning for Healthcare Costs

Estimating Medical Expenses

Healthcare is a significant expense in retirement, and planning for it is crucial. Estimate your medical expenses, including premiums for Medicare or private insurance, out-of-pocket costs, and potential long-term care expenses. Use tools and resources to project these costs based on your health status and expected lifespan.

Exploring Insurance Options

Evaluate your health insurance options, including Medicare, Medicare Advantage, and supplemental insurance plans. Determine which plans best meet your healthcare needs and budget. Consider long-term care insurance to protect against the high costs of extended care services, which can quickly deplete your retirement savings.

Incorporating Social Security Benefits

Maximizing Social Security

Social Security benefits are a vital income source for many retirees. Understand how to maximize your benefits by considering factors such as your full retirement age, the impact of delaying benefits, and how working during retirement affects your payouts. Delaying benefits can significantly increase your monthly payments, enhancing your financial security.

Coordinating Benefits with Other Income Sources

Coordinate your Social Security benefits with other retirement income sources to optimize your overall financial plan. Consider how Social Security fits into your broader retirement strategy, and use it to complement your savings and investment income.

Considering Long-Term Care Insurance

Evaluating the Need for Long-Term Care

Long-term care insurance can provide financial protection against the high costs of extended care services. Evaluate your need for long-term care based on your health status, family history, and financial situation. Consider the potential impact of long-term care expenses on your retirement savings and whether insurance is a suitable solution.

Comparing Long-Term Care Policies

Compare long-term care insurance policies to find the best coverage for your needs. Consider factors such as benefit amounts, coverage periods, waiting periods, and premium costs. Look for policies that offer inflation protection to ensure your benefits keep pace with rising care costs.

Reviewing and Adjusting Your Financial Plan Regularly

Monitoring Financial Progress

Regularly review your financial plan to ensure it remains aligned with your goals and circumstances. Monitor your progress toward your retirement savings targets, and adjust your plan as needed to stay on track.

Adapting to Changes

Be prepared to adapt your financial plan to changes in your life, such as health issues, changes in income, or significant market shifts. Flexibility is crucial to maintaining a secure financial future, so regularly reassess your plan and make adjustments as necessary.

Seeking Professional Advice

Consult with financial advisors to get expert guidance and ensure your plan is robust and comprehensive. Advisors can help you navigate complex financial decisions, optimize your investment strategy, and provide peace of mind as you approach retirement.

Final Thoughts

Creating a financial plan for a secure retirement in 2024 involves a thorough assessment of your current financial situation, setting clear goals, estimating expenses, and building a diversified investment portfolio. Maximizing retirement account contributions, developing a withdrawal strategy, planning for healthcare costs, and incorporating Social Security benefits are essential steps to ensure financial security. Regularly reviewing and adjusting your plan and seeking professional advice will help you stay on track and achieve a worry-free retirement. By taking these steps, you can enjoy your golden years with confidence and peace of mind.

Three Critical Facts About Divorce and Federal Pensions You Can’t Ignore

Posted on March 25, 2025March 27, 2025 by Marvin Dutton

Key Takeaways

Divorce can significantly impact your federal pension and other retirement benefits, so understanding the rules is crucial to protecting your financial future.
Court orders play a critical role in dividing pensions and determining the fate of other retirement benefits like health insurance and Thrift Savings Plan accounts.

Understanding the Basics of Federal Pensions and Divorce

When a federal employee or retiree goes through a divorce, their federal pension often becomes a central point of negotiation and court rulings. Federal retirement benefits are considered marital assets, meaning they can be divided during divorce proceedings. The division of these assets is not automatic; it requires a court order known as a court order acceptable for processing (COAP) to direct how the pension will be split.

If you are a federal employee covered under the Federal Employees Retirement System (FERS) or the older Civil Service Retirement System (CSRS), it’s vital to understand how your pension benefits could be divided. A divorce agreement must specifically address the federal pension to ensure clarity and compliance with federal regulations.

How a Court Order Affects Your Pension

Court Order Acceptable for Processing (COAP)

A COAP is a legal document that provides the Office of Personnel Management (OPM) with instructions on how to divide your pension. Without a COAP, your former spouse will have no legal claim to your pension benefits, regardless of any informal agreements made during the divorce.

For the COAP to be valid, it must meet specific federal requirements. It’s not enough for a divorce decree to mention a pension split; the COAP must include details like the percentage or dollar amount your ex-spouse will receive. Failing to include clear terms could lead to delays or disputes during retirement.

Impact on Survivor Benefits

If your former spouse is designated as a survivor, they may be entitled to receive a portion of your pension after your death. To preserve these survivor benefits, a court order must explicitly outline the designation. Survivor benefits also come with a cost, which will reduce your monthly pension payments, so it’s important to weigh this decision carefully.

Health Benefits: What Happens to FEHB Coverage?

One of the most overlooked aspects of divorce is the impact on health insurance coverage under the Federal Employees Health Benefits (FEHB) program. Spouses lose eligibility for FEHB coverage once a divorce is finalized, but they may qualify for Temporary Continuation of Coverage (TCC) for up to 36 months. TCC allows them to retain health insurance at their own expense but does not include any government contribution toward premiums.

For you, as the federal employee or retiree, the divorce does not affect your own FEHB coverage, but you need to ensure your plan is updated to reflect the change in dependents. You may also need to reassess your plan options during Open Season to account for the new household structure.

The Role of the Thrift Savings Plan (TSP) in Divorce Settlements

Division of TSP Accounts

The Thrift Savings Plan (TSP) is another significant retirement asset subject to division during divorce. Like your pension, a TSP account can be divided under a court order. However, this requires a Retirement Benefits Court Order (RBCO) rather than a COAP.

The RBCO must specify the percentage or fixed dollar amount your former spouse is entitled to receive. Once approved, the TSP will process the order and distribute the funds accordingly. It’s essential to note that the distribution may be taxable to the recipient unless rolled over into another retirement account.

Loan Balances and Account Adjustments

If you’ve taken a loan from your TSP, the outstanding balance may affect the division of the account. Courts often treat the loan as a liability and adjust the division of the remaining balance accordingly. Make sure your RBCO accounts for any TSP loans to avoid disputes.

Social Security and the Windfall Elimination Provision (WEP)

For FERS employees, Social Security benefits can also factor into a divorce settlement. Your former spouse may qualify for spousal or survivor Social Security benefits based on your earnings record if you were married for at least 10 years. These benefits do not reduce your own Social Security payments.

However, if you’re a CSRS retiree, the Windfall Elimination Provision (WEP) could reduce your Social Security benefits if you earned Social Security credits from other non-CSRS employment. Keep in mind that WEP does not affect spousal or survivor benefits.

Steps to Protect Your Financial Future

1. Understand Your Benefits

Review your retirement benefits, including your pension, TSP, and Social Security, before starting divorce negotiations. Access your OPM statements and consult your agency’s benefits office if needed.

2. Work with Professionals

Dividing federal retirement benefits is complex, so consider hiring an attorney and financial advisor experienced in federal divorce cases. They can help ensure your interests are protected and that all court orders comply with federal regulations.

3. Update Beneficiary Designations

After your divorce is finalized, update the beneficiary designations on your pension, TSP, and life insurance policies. Federal law generally honors the most recent beneficiary designation on file, even if it’s outdated.

4. Monitor Your Pension and TSP Accounts

Keep track of any changes to your pension or TSP after divorce. Ensure that all court-ordered distributions are processed correctly and that your retirement plans align with your new financial situation.

Key Timelines and Deadlines to Remember

Court Order Submission: Submit your COAP or RBCO as soon as the divorce is finalized to avoid processing delays.
TCC Enrollment for Health Coverage: Your ex-spouse has 60 days from the divorce date to apply for Temporary Continuation of Coverage.
Beneficiary Updates: Update beneficiary designations promptly to prevent conflicts in case of unexpected events.
Open Season Changes: Use the next FEHB Open Season to adjust your health plan based on your post-divorce needs.

Your Retirement, Your Control

Divorce is a challenging life event, but it doesn’t have to derail your retirement plans. By understanding how your federal benefits are affected and taking proactive steps, you can maintain control over your financial future. Ensure you have the proper court orders in place, keep your beneficiary designations updated, and work with knowledgeable professionals to navigate this complex process. Your retirement should remain secure, even during times of change.

How Your Ex-Spouse Could Walk Away with Half Your Federal Retirement—And What to Do About It

Posted on February 25, 2025February 27, 2025 by Marvin Dutton

Key Takeaways

Federal retirement benefits can be split with your ex-spouse, but there are steps you can take to protect your interests.
Understanding the legal aspects of divorce and federal retirement is crucial for protecting your future financial stability.

What Happens to Federal Retirement in a Divorce?

Divorce is never easy, and when you’re a federal employee or retiree, it can be even more complicated. Your federal retirement benefits, like your

Federal Employees Retirement System (FERS) or Civil Service Retirement System (CSRS), could be at risk of being divided with your ex-spouse. Depending on the terms of the divorce settlement, your ex could end up with a significant portion of your hard-earned retirement savings. The key here is understanding how federal retirement plans work in the context of divorce and knowing the legal mechanisms in place.

In most cases, the division of federal retirement benefits is determined by a court order. The court will decide whether your ex-spouse is entitled to a portion of your benefits based on the length of your marriage and other factors. This process is referred to as a Court Order Acceptable for Processing (COAP). It allows for the division of your retirement and even survivor benefits, so you’ll want to be prepared when going through a divorce.

What Is a Court Order Acceptable for Processing (COAP)?

A COAP is a legal document issued by a court that spells out exactly how your federal retirement benefits will be divided after a divorce. This can include your pension, survivor benefits, and even the Thrift Savings Plan (TSP). The Office of Personnel Management (OPM) is responsible for enforcing COAPs, which means they will make sure your retirement benefits are split according to the court’s order.

Here’s the tricky part: if your ex-spouse is entitled to a portion of your retirement, the OPM will send those payments directly to them, leaving you with the remaining portion. The COAP will specify what percentage or dollar amount your ex-spouse will receive, and once the OPM processes the order, it’s out of your hands. This is why it’s so important to ensure that your divorce settlement is clear and that you understand exactly what is being awarded to your ex-spouse.

How Much Could Your Ex-Spouse Get?

How much your ex-spouse is entitled to depends on various factors, including how long you were married during your federal service. A common method used by courts to divide federal retirement benefits is the marital share, which is based on the length of your marriage while you were employed by the federal government. For example, if you were married for 15 of the 30 years you worked, your ex-spouse could potentially claim 50% of the retirement benefits earned during those 15 years.

The court will also look at the laws of your state, as divorce laws vary by location. Some states follow a community property system, while others use equitable distribution. In community property states, the court tends to divide assets equally, while in equitable distribution states, the division might not be exactly 50-50 but will be based on fairness.

How to Protect Your Federal Retirement Benefits

Now that you know the risks, what can you do to protect yourself? Fortunately, there are a few strategies that can help safeguard your retirement from being overly impacted during a divorce.

1. Negotiate a Fair Settlement

One of the best ways to protect your federal retirement is by negotiating a settlement with your ex-spouse that is mutually agreeable. Instead of letting the court decide, you and your ex-spouse can come to terms on how to divide your assets. You might negotiate to keep more of your federal retirement in exchange for other assets like a home or a car.

2. Consider a Postnuptial Agreement

It’s not uncommon to think that prenuptial agreements are only for the rich or famous, but they can be a powerful tool for federal employees. If you’re already married, a postnuptial agreement could help protect your federal retirement by clearly defining how assets, including your retirement benefits, will be divided in the event of a divorce.

3. Keep Track of the COAP Process

Make sure you stay involved in the COAP process. The court will issue a COAP to OPM, but you need to review the document to ensure it accurately reflects the terms of your divorce settlement. Misunderstandings or errors in the COAP could result in your ex-spouse receiving more than they are entitled to. Stay vigilant, and don’t hesitate to seek legal advice if you notice something that seems off.

4. Survivor Benefits Can Be Negotiated

Survivor benefits are another aspect of your federal retirement that could go to your ex-spouse after a divorce. These benefits allow a surviving spouse to receive part of your retirement after you pass away. If you want to retain survivor benefits for a current spouse or other family members, you’ll need to address this in the divorce settlement. Again, a COAP can be used to assign or eliminate survivor benefits for an ex-spouse.

How Does the Thrift Savings Plan (TSP) Factor In?

The Thrift Savings Plan (TSP) is similar to a 401(k), and it can also be divided in a divorce. Your TSP can be subject to a Qualified Domestic Relations Order (QDRO), which directs the TSP to divide your account and transfer a portion to your ex-spouse. The rules for dividing a TSP account are slightly different than those for your pension, but it’s important to be aware of them nonetheless.

TSP funds can be split by a percentage or by a specific dollar amount, depending on what the court orders. Like your pension, these funds can be substantial, and if you don’t pay close attention to your divorce settlement, your ex-spouse could walk away with a significant portion.

Take Action Before It’s Too Late

Divorce is hard enough without losing half of your retirement. Understanding how the legal process works and being proactive about protecting your federal retirement benefits can save you from future financial headaches. By negotiating a fair settlement, staying involved in the COAP process, and protecting assets like survivor benefits and TSP, you can help ensure that you keep more of your hard-earned retirement for yourself.

Don’t wait until it’s too late to take action. If you’re going through a divorce or thinking about it, consult with an attorney who understands federal retirement benefits to ensure that your interests are protected.

Protect Your Future and Stay Prepared

Your federal retirement is one of your most valuable assets, and you’ve worked hard to build it over the years. Taking proactive steps to protect those benefits during a divorce is essential. By being aware of COAPs, negotiating smart settlements, and addressing survivor benefits early on, you can ensure that your financial future remains stable—even after a divorce.

The Dental and Vision Coverage Debate: Is FEDVIP Worth It for Retirees?

Posted on February 19, 2025February 21, 2025 by Marvin Dutton

Key Takeaways

Dental and vision care are critical aspects of retirement planning, but choosing the right coverage depends on your unique needs and priorities.
FEDVIP offers comprehensive options, but retirees must weigh the costs and benefits to determine if it’s worth it.

Understanding FEDVIP and Its Role in Retirement

As you transition into retirement, one of the key decisions you’ll face is how to handle your dental and vision care. The Federal Employees Dental and Vision Insurance Program (FEDVIP) provides a range of options for federal employees, retirees, and their families. While it can offer robust coverage, you’re likely wondering if it’s the right fit for you.

Retirement often means balancing your income with your healthcare needs, so understanding what FEDVIP brings to the table is essential. Let’s explore the pros and cons, along with key factors to consider before enrolling.

What Does FEDVIP Cover?

FEDVIP offers separate plans for dental and vision care, allowing you to customize coverage based on your needs. Here’s a general breakdown of what you can expect:

Dental Coverage Highlights:

Routine cleanings, exams, and x-rays.
Restorative treatments like fillings and crowns.
Orthodontic care (often with age limitations).
Surgical services such as extractions.

Vision Coverage Highlights:

Routine eye exams.
Eyeglass lenses and frames or contact lenses.
Discounts on laser eye surgery.
Coverage for specialty lenses.

While these benefits are attractive, the extent of coverage varies by plan, and understanding these nuances is vital when deciding if FEDVIP suits your retirement lifestyle.

Costs: What You Need to Know

One of the most significant factors influencing your decision is cost. As a retiree, you’ll need to budget carefully to ensure you’re not overpaying for coverage you might not fully use. FEDVIP premiums are competitive but vary based on the level of coverage and the specific plan you choose. Beyond premiums, you should also factor in:

Deductibles: These vary significantly among plans and determine your out-of-pocket costs before benefits kick in.
Copayments and Coinsurance: Routine services often require a small copayment, while more extensive treatments might involve coinsurance percentages.
Annual Maximums: Most dental plans include a cap on benefits, which can range from a few hundred to a few thousand dollars annually.

For vision care, out-of-pocket expenses for frames, lenses, or contacts might surprise you if you don’t review your plan’s allowances carefully.

Comparing FEDVIP to Other Options

When evaluating FEDVIP, it’s essential to compare it with other available options, such as:

Medicare Advantage Plans

While traditional Medicare doesn’t cover routine dental or vision care, some Medicare Advantage plans include these benefits. However, these plans might not offer the same level of comprehensive coverage as FEDVIP, and their costs can vary widely.

Private Insurance Plans

If you’re not satisfied with FEDVIP’s offerings, private dental and vision plans may be an alternative. However, they often come with higher premiums or limited provider networks.

Paying Out-of-Pocket

For retirees with minimal dental or vision needs, paying out-of-pocket for occasional care might be the most cost-effective approach. Keep in mind, though, that unexpected treatments can quickly become expensive.

Factors to Consider Before Enrolling

To decide whether FEDVIP is worth it, ask yourself the following questions:

1. What Are Your Current and Future Needs?

Think about your recent dental and vision care needs. Have you faced significant treatments, or do you primarily require routine checkups? If you expect higher care needs in the future, having insurance might provide peace of mind.

2. Do You Have Dependents?

FEDVIP plans allow you to cover eligible family members. If your dependents have specific dental or vision needs, this can make FEDVIP more appealing.

3. Can You Afford It?

Review your retirement income and determine whether FEDVIP premiums fit into your budget. It’s also wise to compare these costs with potential out-of-pocket expenses for care without insurance.

4. Does Your Preferred Provider Participate?

FEDVIP works with a network of dental and vision providers. Make sure your current dentist, ophthalmologist, or optometrist participates in the plan you’re considering.

Key Advantages of FEDVIP

FEDVIP is a popular choice among retirees for several reasons:

Comprehensive Coverage

FEDVIP’s plans often include a wide range of services, from preventive care to advanced treatments, giving you peace of mind that most needs are covered.

No Waiting Period for Most Services

Unlike some private insurance plans, many FEDVIP options don’t require waiting periods for routine care, allowing you to use your benefits immediately after enrollment.

Portability

If you’re planning to move during retirement, FEDVIP’s extensive network ensures you’ll likely find providers no matter where you settle.

The Potential Drawbacks

While FEDVIP has its benefits, it’s not without limitations:

Limited Coverage for Major Treatments

Dental plans often include annual maximums, and coverage for orthodontic or cosmetic services might be minimal.

Separate Premiums for Dental and Vision

You’ll need to pay separate premiums if you want both types of coverage, which can add up over time.

Network Restrictions

If your preferred providers aren’t part of the FEDVIP network, you’ll face higher out-of-pocket costs or may need to switch providers.

How to Enroll in FEDVIP

Enrollment in FEDVIP typically occurs during the annual Federal Benefits Open Season, which runs from mid-November to mid-December each year. During this time, you can:

Compare plans and premiums.
Evaluate your needs for the upcoming year.
Enroll or make changes to your existing coverage.

If you miss Open Season, you can only enroll or make changes if you experience a Qualifying Life Event, such as marriage, divorce, or the birth of a child.

Making an Informed Decision

The decision to enroll in FEDVIP shouldn’t be taken lightly. By carefully evaluating your dental and vision care needs, reviewing costs, and comparing alternative options, you can determine if it’s the right choice for your retirement.

Remember, your health needs may change over time, so it’s wise to reassess your coverage annually. Additionally, stay informed about updates to FEDVIP benefits or premiums that might influence your decision.

Is FEDVIP Right for You?

Ultimately, the value of FEDVIP depends on your individual circumstances. If you anticipate significant dental or vision needs, appreciate comprehensive coverage, and value access to a broad provider network, FEDVIP might be worth the investment. However, for retirees with minimal care needs or tight budgets, alternative solutions could provide better value.

Take the time to weigh the benefits and drawbacks carefully. After all, your retirement years are about enjoying life—not stressing over healthcare decisions.

3 Major Retirement Planning Errors That Federal Employees Often Make—And How to Avoid Them

Posted on February 13, 2025February 21, 2025 by Marvin Dutton

Key Takeaways:

Overlooking federal retirement calculations can lead to financial shortfalls in your post-career years. Understanding how annuities, TSP, and Social Security work together is crucial.
Ignoring healthcare costs and federal benefits planning can leave you vulnerable to unexpected expenses in retirement. Planning for FEHB, Medicare, and long-term care now can save you headaches later.

One of the biggest mistakes you can make as a federal employee is assuming that your retirement annuity will be enough to sustain you without fully understanding how it’s calculated. The Federal Employees Retirement System (FERS) and Civil Service Retirement System (CSRS) each have unique formulas that determine your monthly pension, but many retirees miscalculate their expected income.

The “High-3” Average Salary Formula Matters

Your retirement annuity is based on your highest three years of average salary, often called your “high-3.” If you don’t accurately estimate this number or misinterpret how locality pay factors in, your expected pension may be lower than anticipated. In some cases, recent legislative proposals have aimed to exclude locality pay from high-3 calculations, which could significantly impact future retirees.

The FERS Annuity Formula

If you are under FERS, your annuity formula is straightforward but varies based on your age and years of service:

Standard formula: 1% x high-3 average salary x years of service.
Enhanced formula (if retiring at age 62 with 20+ years): 1.1% x high-3 average salary x years of service.

For example, if your high-3 is $100,000 and you retire at 62 with 25 years of service, your pension would be $27,500 per year ($2,291 per month). However, many retirees forget that their annuity is not adjusted for inflation until age 62, meaning the real value of your pension could diminish.

The CSRS Annuity Formula

CSRS retirees generally receive a more generous pension but do not qualify for Social Security benefits unless they have earned enough credits separately. The calculation is more complex and provides a higher percentage of income replacement. If you’re under CSRS, failing to account for the Windfall Elimination Provision (WEP) could also reduce any Social Security benefits you expect to receive.

How to Avoid This Mistake

Use OPM’s online calculator or consult a retirement specialist to determine your estimated annuity.
Keep track of any legislative changes affecting locality pay or annuity formulas.
Plan for inflation adjustments and avoid assuming your pension will remain sufficient in later years.

Neglecting Your TSP Strategy and Social Security Timing

Your Thrift Savings Plan (TSP) and Social Security benefits are essential to your retirement security, yet many federal employees mismanage their investment approach or claim Social Security too early.

The Role of TSP in Your Retirement Plan

TSP functions similarly to a 401(k) and is a primary source of supplemental income. Yet, common mistakes include:

Not contributing enough to get the full government match. (For FERS employees, this is an automatic 1% contribution plus up to a 5% match.)
Relying too much on the G Fund. While the G Fund offers safety, it may not provide sufficient growth over a 20- to 30-year retirement.
Failing to adjust investment allocations. As you near retirement, shifting too aggressively or too conservatively can leave you exposed to unnecessary risk or insufficient returns.

Social Security Timing Can Make or Break Your Retirement Income

For most federal retirees, Social Security is another income stream, but claiming it too early can reduce your lifetime benefits. If you start collecting at age 62, your monthly check could be reduced by up to 30% compared to waiting until full retirement age (FRA).

Waiting longer to claim can be a smart move, especially since Social Security benefits are adjusted for inflation annually.

How to Avoid This Mistake

Contribute at least 5% to your TSP to maximize government matching funds.
Diversify your TSP investments beyond the G Fund for better long-term returns.
Carefully evaluate the best age to claim Social Security to maximize your lifetime income.

Underestimating Healthcare Costs in Retirement

Many federal employees mistakenly believe that their healthcare costs will remain stable after retirement. However, medical expenses often increase as you age, and improper planning can lead to financial stress.

FEHB: Your Key to Health Coverage in Retirement

The Federal Employees Health Benefits (FEHB) Program is one of the most valuable perks of a federal career, and you can continue coverage into retirement if you meet the five-year rule. However, retirees often overlook key considerations:

Premiums increase annually. FEHB costs have historically risen by 10-15% per year, meaning your expenses could double over a 20-year retirement.
Your share of premiums may change. Legislative changes could reduce government contributions, increasing your out-of-pocket costs.
Retiree plans differ from employee plans. Not all plans offer the same benefits after you retire, making it essential to review options before leaving service.

Medicare: Enrollment and Cost Considerations

If you retire at 65 or later, you must decide whether to enroll in Medicare Part B. While FEHB provides excellent coverage, adding Medicare can reduce copayments and out-of-pocket costs. However, Part B comes with a monthly premium ($185 in 2025), which increases based on your income (IRMAA surcharges may apply).

Long-Term Care: An Often Overlooked Expense

Long-term care (LTC) is a major financial concern for retirees. Many federal employees assume FEHB or Medicare will cover these costs, but neither program covers extended nursing home care or home health services. Private long-term care insurance or alternative savings strategies may be necessary.

How to Avoid This Mistake

Evaluate your FEHB plan annually to ensure it meets your needs in retirement.
Consider enrolling in Medicare Part B to reduce long-term healthcare expenses.
Research long-term care coverage options before you retire.

Take Control of Your Retirement Plan Now

Retirement planning for federal employees requires careful attention to annuities, TSP management, Social Security timing, and healthcare costs. By avoiding these common mistakes, you can ensure a more financially secure and stress-free retirement. The key is to stay informed, plan ahead, and make adjustments as needed to protect your future income.

For personalized guidance on maximizing your federal retirement benefits, get in touch with a licensed agent listed on this website. They can help you navigate annuities, TSP allocations, Social Security decisions, and healthcare options to align with your retirement goals.