Working for the federal government has lots of perks, such as competitive pay, good benefits packages, federal holidays off, and the chance to have a good work-life balance. Perhaps the most notable advantage to being a federal employee is the retirement package that comes with the job, especially given that many employers in the private sector don’t offer an employer-sponsored retirement plan.
While a federal pension gives you a retirement income, sometimes it just isn’t enough depending on your lifestyle, medical expenses, etc. The good news is that there are plenty of ways to bring in extra income on top of your pension that can help improve your quality of life in your retirement years. Here are three reliable ways you can supplement your federal retirement income.
Retiring as a Federal Employee
Assuming you have enough years of creditable service, your retirement income will likely come from the Federal Employee Retirement System (FERS). Under FERS, benefits come from:
- Basic benefit plan: Annual pension calculated based on the salary of your highest three consecutive years of service times a 1-1.1% pension multiplier.
- Social Security: Receive benefits based on the amount contributed during your working years.
- Thrift Savings Plan (TSP): Similar to a 401(k) in the private sector, deposits are made each pay period and invested with disbursements upon retiring.
Some federal employees with enough years of creditable service who retire before age 62 with normal immediate retirement may also be eligible for the FERS Supplement, which can help bridge the gap left by your missing Social Security income until you turn 62.
Ways to Supplement Your Federal Retirement Income
Everyone has different needs in retirement. For some, it’s the desire to have extra income to splurge on long-awaited vacations, while for others, it’s merely the need to cover medical and other unexpected expenses. Even though FERS can give you a solid retirement income, it may not be enough. In such cases, you’ll need to supplement your federal retirement income. There are many ways to do this, but here are three to seriously consider.
1. Get a Job
There is a growing trend in the US of retirees opting to go back to work in retirement. For many, they are financially motivated as they either want more retirement income or they lack confidence in their ability to pay for long-term care when the time comes. Whether you find a full-time job or a part-time position that offers more flexibility, getting a job after retirement is one of the best ways to bolster your retirement income.
Getting a job in retirement has many benefits, not just financial. It’s common for retirees to find that they feel isolated and miss the social interaction that naturally comes with working full-time. Once you retire, social interactions require a concentrated effort. By working, you can easily get the social interaction you need to maintain your mental health and stave-off age-related conditions like dementia.
Choosing to work after retirement also allows you to pursue new opportunities. You spent your entire working life in one specific field, but retirement gives you the chance to pursue a different position that would require fewer hours or a new career path altogether. It also gives you the opportunity to work in a job related to something you are passionate about, even if it is not as financially lucrative as your former position.
As you can see, there are many benefits to getting a job after retirement. It’s important to note that some jobs are simply better suited for retirees than other jobs. Good jobs for retirees include:
- Tour guides
- Pet Sitter
- House Sitter
- Teacher / College Instructor
- Substitute Teacher
- Event Staff
- Resort worker
- Seasonal Retail
These jobs will help keep you physically active, give you social interaction, and provide you with a paycheck to supplement your FERS retirement income to make you more financially stable. Additionally, these jobs can add structure back into your day and give you a sense of purpose once again.
Personally I love the idea of working at a National Park during retirement. Or perhaps being a fishing guide. But maybe you’d rather be in a classroom and working with kids. Think about where you want to spend your time and how you want to spend your time and this will help narrow down the best job choices for you.
2. Start a Business
If you’ve always wanted to start your own business but were never quite ready to take the leap, retirement can be a perfect time to finally make your move! The average life expectancy in the US is 78+ years, which means if you retire at 62, you have at least another 16 years to build your business and create your legacy.
When you decide to start a business after retirement, you’re in good company—a recent study from Guidant Financial found that Baby Boomers are the second largest number of small business or franchise owners. Part of the reason people decide to start their business after they retire is that they finally have access to the capital needed to start their new venture because of their retirement savings. Having the extra money in the bank certainly makes the decision to start your own business easier. But, it’s important to still be cautious about your investment.
You don’t want to spend all of your retirement savings on the new business. Instead of using your retirement assets, focus on using just money stored in savings or from investors to fund the new business. It is also recommended that you keep enough cash on hand to pay your living expenses for one to two years to protect yourself financially.
This being said, many financial benefits come from starting something on your own. The primary goal of starting any business in retirement is to bring in additional income. Increasing your income can help cover unexpected expenses, help you pay down debts, and bolster your savings, which can come in handy down the road.
Another less thought about advantage to starting a business after you retire is that it allows you to create generational wealth. When you start a business, it is essentially an asset that you can pass on to your children that will then bring them additional income. Additionally, starting a business gives you the chance to pass on your skills and keeps your mind sharp.
Keep in mind that starting a business doesn’t mean you have to slog through the paperwork and build a c-corporation with a board and executives. It could be as simple as freelancing and consulting in a one-on-one situation, taking on clients as you wish. If you think you might want to start a business to supplement your federal retirement income, here are some business ideas to explore:
- Tax Preparation
- Pet Sitting
- Real Estate Agency
The possibilities are endless, only limited by your own skillset and passions. You can even start small, and if it is something you enjoy, then grow it into something more. Choosing to start a business helps improve your financial security and gives you a sense of purpose once again after you retire.
I once knew a retiree who loved to mow grass so much that he decided to start a lawn mowing business to get more customers. Most retirees won’t choose this path, but you can start one for any product or service you can think of. You can setup the legal framework for your business online, and using website builder software allows anyone to easily make a website.
3. Become a Landlord
A third way to boost your retirement income is to become a landlord. This could be a viable option if you already own property, but you may decide to purchase additional property too. Being a landlord can give you a steady stream of income in addition to your federal retirement income, which again can be helpful for many reasons (such as paying down debt or building savings).
Even though becoming a landlord has its financial benefits, it isn’t something that comes for free. Managing a property can be hard work, and there are regular costs involved to keep your property safe and tenants happy. The good news is that if you’re willing to cut into your profits a bit, you can easily hire a property management company to help with these aspects of being a landlord.
When you decide to rent out your property, you must determine whether you are looking for a long-term tenant or if you’d rather your property become a short-term rental.
Long- Term Rentals
Opting for your property to become a long-term rental often means more reliable, steady cash flow since your tenants will typically sign a lease for at least 12 months. This also means you’ll have less turnover in tenants.
Short-term rentals (STRs) are where you rent out your home for less than six months at a time. This type of rental is becoming increasingly popular thanks to sites like Airbnb and VRBO. One of the biggest advantages of STRs is that they give you both term and price flexibility. This means if you want to live in your property for part of the year, you can easily do so. Or you can just rent out a part of your house instead of the whole thing (unused bedroom, basement, detached building). Another unique advantage to STRs is that you can interact with those you are renting to by acting as a host, giving you the chance to meet a wide variety of people from all over the world. However, there are downsides to STRs to carefully consider.
Many cities and some HOAs have tightened regulations around STRs, requiring extra paperwork or even banning them. Another problem is that STRs will give you inconsistent income, and you’ll be responsible for any property damage that comes with high guest turnover.
The good news is that because of the popularity of STRs, many property management companies offer various services to manage everything for you. Some give you a percentage of each booking while others give you a flat rate for using your property. Either way, the income from an Airbnb property can be substantial. If you want the flexibility to use your property but don’t want the work, opting to become an STR landlord with a property management company may be the best choice to bolster your retirement income.
Don’t Struggle in Retirement
Switching to a fixed income in retirement can be difficult, and many people can find themselves struggling to make ends meet. If you find that you are unable to cover your living expenses after you retire, then it is worth the effort to find other sources of income to supplement your federal retirement income. Getting a job, starting a business, and becoming a landlord are just a few of the ways that you can bolster your income in retirement. These efforts can help you live a bit more comfortably in retirement while also giving you the opportunity to pursue a second career and follow your passions., all you need to do is take the leap.