These are scary times for many Federal employees, particularly for those who are contemplating retirement in the near future. Federal salaries continue to be frozen—House Resolution 3835, extending the Federal (and Congressional) pay freeze through 2013, easily passed in that body and other legislation has been introduced to reduce the size of the Federal workforce, to increase employee contributions to retirement plans (Ian Smith noted in a recent FedSmith.com article that in passing HR 3630, the payroll tax cut extension agreement, Congress required Federal employees who start in or after 2013, and rehired employees with less than five years of creditable civilian service, to pay 3.1% of salary toward their FERS pension plan) and to go from high average three years of salary to high average five in calculating annuities.
In what is likely the best-case scenario, the White House is proposing an 0.5% raise for civilian Federal employees in 2013. And the Congressional Budget Office (CBO) recently weighed in with a survey indicating that Federal employees are being paid an average of 16% more than their private sector counterparts, a statistic which is not likely to lead to more generous Federal comparability increases in the near future.
What To Do?
My advice would be not to follow in my footsteps. I opted for early retirement with a buyout and a two-year lead time, primarily for the purpose of joining a close friend in a consulting and training enterprise. The problem was that I wasn’t really sure I wanted to retire, even with the buyout. The fact that I didn’t sign the final paperwork until the last hour of the last day may have hinted at my indecision. My friends who have made similar decisions – either to retire early or at full retirement age – knew they were ready to retire and, to the best of my knowledge, have not had second thoughts, or at least not after a brief period of adjustment.
Based on my experience, I would suggest that you not retire until you are very sure that you are ready to do so. Whether one is ready to retire often depends on a wide variety of factors, including personality, family, finances, health, the job you’re in, and outside interests.
Finances are obviously an important part of any retirement plan. Once again, I would advise you not to do what I did – which was essentially nothing: Given the fact that I knew I was going to take hits on both age and years of service, I was afraid that if I got an estimate it would scare me into not retiring. So, I didn’t get one. I had modified my Thrift Savings Plan (TSP) portfolio from all G funds to all C funds, meaning that 100% of my TSP was invested in equities – no government securities, no bonds, no money markets, nada. For several years, that decision made me appear, against all odds, to be a financial genius, since the stock market was in the midst of a long uphill run and it was hard to guess wrong. Even after I retired, and could no longer contribute, my TSP account was doing just fine without me.
It took a fair amount of time to effect changes in the mix of one’s TSP account, and some retired friends who had closed out their TSPs and were managing their own investments had done very well. They convinced me that I could do it, too. Wrong! I closed out my own TSP account, but that is where the similarities ended between me and my friends. I vastly overestimated both the amount of time I could/would devote to managing my investments and my own financial acumen.
Instead of mutual funds, I purchased individual stocks – an unmanageably large number of them as it turned out. And my investment focus was largely on high-tech stocks, since the NASDAQ seemed to be setting new highs every day and defying the conventional Wall Street wisdom of indices reverting to the mean at some point. I bought stock in companies without having the vaguest idea of what they produced or were designed to accomplish – and disregarded the fact that some of them which had never turned even the slightest profit had market capitalizations in the billions. But still my luck held – at least for a few months. The value of my investments was increasing so rapidly that I couldn’t wait for the monthly or quarterly reports – I had to get into my on-line accounts on a daily basis.
But then came Federal Reserve Chairman Alan Greenspan’s “irrational exuberance” line (I could have been the poster child for it), and the dot.com collapse. I had clung to the “trees grow to the sky” theory so long that my giant oaks had shrunk to the size of aspen shoots. My eagerness to see the financial reports turned to dread and denial – it was so long between visits to my on-line accounts that I had forgotten my user name and password on all of them. I can tell you that receiving weekly notices that you are eligible to join a class action suit against a company is not a good thing.
So, my nest egg, which at one point started to look like it belonged under an ostrich, had been reduced to one which could easily have been laid by a hummingbird. After that disaster, we moved our remaining funds, such as they were, to the management of a certified investment advisor, which led, slowly (based on my own stubbornness) but surely to a more diversified portfolio, albeit one which still experienced ups and downs. By the way, if you are looking for a second career, might I suggest investment advisor? If you win, they win, but if you lose, they still win, presuming they manage funds on a percentage fee basis.
If you are currently in the TSP, which is highly likely, I suggest that you stay there, since costs are low, the time it takes to make changes in your portfolio has been reduced, and there is an ever-expanding number of choices. However, I would still suggest that you talk to an investment advisor who specializes in retirement planning. Depending on your situation, you may, for example, be eligible for social security, which requires you to make choices as to when to begin drawing an annuity.
Another key consideration is how you feel about your job and your work environment. If you enjoy your work, your boss and your co-workers, why are you looking to retire? If the answer is that you want to spend more time with your family, you may have a future in politics. If you feel more like pursuing other interests, from volunteer work to traveling and a million other possibilities, than continuing to work at your job, and have the financial ability to do so, there is a good chance that you are ready to retire. On the other hand, if you don’t have many, or any, real outside interests, I would suggest that you either cultivate some or keep working. In my experience, retirees with outside interests tend to thrive, with many wondering how they ever managed to fit a full-time job into their schedule.