As with our health, prevention (i.e., preparation) is more valuable than a cure. Taking steps to stave off retirement failures is easier and more efficient than recognizing problems late in life and trying to figure out how to resolve them.
We all know the idiom by Ben Franklin – “An ounce of prevention is worth a pound of cure.” Most relate these words of wisdom to health. It may be of interest to note that (according to Ag news from North Dakota State) Franklin wrote these words while warning about home fire safety. Still, it is easy to see how this turn of a phrase could be used in relation to many subjects, including health and retirement.
A lack of long-term training and sufficient understanding plague feds on the topic of developing a comprehensive treatment for retirement. Apparently, many feds feel under the weather when they ponder how to approach their retirement preparations.
The result is all-to-often procrastination or even total disregard or abandonment of this critical subject. Unfortunately, when the issue of retirement planning gets ignored, the likelihood of requiring a late-in-life financial cure increases.
Cure
What is a “cure?” For our purposes, a cure is an action taken (post-retirement) to financially survive when there is more month than money.
Cures are rarely planned for or desired. They take many different forms and generally cost more than early diagnosis coupled with preventative measures. Depending on the person, they can cause damage emotionally and financially, to personal autonomy and to one’s self-esteem. Sadly, all-too-often many find themselves seeking unattractive cures that could have been avoided with just a little prevention.
Some Examples of What Cures Look Like
- Selling valuables and family heirlooms.
- Moving in with family (usually children).
- Making substantial (adverse) changes to lifestyle.
- Participating in marriages of financial convenience.
- Downsizing one’s home.
Frequently in my office, we see how years of fear, uncertainty, and unfamiliarity lead to crippling inaction. Many elect to do nothing rather than to make a mistake! Yet, when choosing to do nothing, a choice has still been made.
It’s difficult to think of many areas of life that take care of themselves when ignored. Federal retirement is no exception.
Prevention
Even simple steps can potentially provide impressive long-term results. To stave off physical complications that can arise from high blood pressure, many take high blood pressure medicine.
Much like physical health issues, our financial health can be augmented by early diagnosis and consistent application of preventative measures, such as:
Monitoring accounts
Review monthly TSP and other retirement account statements. At first, it may seem imperceptible, but over time it will become more and more clear how world events and market changes impact different allocations within those accounts.
Contribute to retirement accounts
ALMOST till it hurts. Remember, this is current you paying future you. Everyone should strive to place (AT A MINIMUM) 5% into their TSP, but beyond that, there should be a balance between now and the future.
Example: I always suggest splitting “extra” money in half, be it a bonus, grade or step increase or tax refund, half should go to retirement accounts and half is yours to do with what you want.
Locate and take ownership of Personal “Risk Tolerance”
This may be the single most important preventative measure you can perform. It is a measurement of the balance you feel you should have between investment risk vs. investment reward, then learning if your money is allocated to help you achieve that balance.
Many online tools can help with determining risk tolerance and the amount of risk/potential return your investments offer. Many of these services are provided free of charge. You may find the TSP tools helpful. On my website, I have a risk assessment tool I offer as part of a free (no obligation) two-step process to compare individual risk tolerance to existing investments.
Research benefits
It would be virtually impossible to have a healthy retirement plan if the understanding of the federal benefits is weak. Check out www.opm.gov to access information about federal employee retirement benefits. Also, talk to those that deal with federal retirement issues and pick their brains. Read, Read, Read. There are several sites including, of course, FedSmith.com, where much can be freely learned.
Case Studies
Ruth
Ruth (not her real name) is a 70-year-old fed that has been retired for 12 years. While working for the federal government, Ruth admits she ignored her retirement savings (TSP) and retirement preparations. She believed as a federal employee, her pension and retirement benefits would (somehow effortlessly) take care of all of her retirement income needs.
When she retired, her pension was sufficient to cover her monthly obligations, with approximately 10% excess (more than she needed). However, Ruth had not saved much during her career. She used the little she had to pay off credit items and to travel during the first few years of retirement.
Fast forward to today – Inflation and inadequate preparations have caught up to Ruth. She has already sold off her deceased husband’s two beloved classic automobiles, several family heirlooms, and precious jewelry. She no longer takes any form of vacation or trips, although physically she is in good health.
Recently, Ruth put her 3,400-square foot home up for sale so she could downsize into a 1-bedroom apartment. Ruth’s newest fear is that she will outlive the proceeds from this sell. She stated her next inevitable cure would be to move in with a child and their family.
Cuddy
Cuddy (not her real name) is also a 70-year-old federal employee that has been retired for 8 years. She will start taking money out of her IRA (which started out as her TSP) this year for the first time.
Through her career as a fed and the management of her IRA over the past 8 years, Cuddy has grown her retirement savings to over $1mm.
Cuddy admits she never really understood much about her TSP or retirement planning, so the obvious question was, how did she manage to do such a good job? She said it was “attentiveness!” She shared that she may not have known much, but she knew it was up to her to make sure her future was as stable as she could make it.
Cuddy followed her monthly TSP and IRA statements like a hawk, not always understanding what she was viewing, but intent on paying attention to HER MONEY! She asked questions, read articles, invested into her TSP as much as she felt she comfortably could, and learned from various sources what she could about the TSP and her federal retirement benefits.
The biggest difference between Ruth and Cuddy wasn’t salary, years of service or even lifestyle; those variables were all nearly identical.
By not focusing on preventative measures, Ruth probably retired too soon, didn’t save enough for retirement and then used poor distribution management of her TSP assets. Ruth is now left with only cure options at her disposal.
Cuddy made her future retirement income a prominent focus (prevention) throughout her life. Attentiveness combined with informed preparations have led her to potentially experience a very successful retirement. Nothing is guaranteed, yet there is little reason to assume Cuddy will ever require any cures. Ben would be proud!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss. Silverlight Financial, Infinity Financial Services and its affiliates do not provide tax, legal or accounting advice. This material is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. For a list of states in which I am registered to do business, please visit www.silverlightfinancial.com.
