The Most Important Decisions You Make at Retirement

These are some important decisions federal employees will need to make at retirement.

Some decisions in life are forgiving and some are not. Some decisions have undo buttons attached while others are irreversible. Many of these irrevocable decisions are made all at the same time: Retirement! 

Here is a breakdown of what these decisions are so you can get them right. 

The Big Ones

What makes retirement such a critical time? As you leave work, you are making major decisions about your federal benefits and retirement investments that will impact the rest of your life. 

Retirement Application

About 1-6 months before retirement you are filling out the retirement application. You make two major decisions on this application. 

Survivor Benefits

If you are married then the survivor benefit decision is a big one. Basically, you are deciding if you want to pay money now so that your spouse can keep a piece of your FERS pension if you pass away first.

Here are the options: 

  • Full Benefit: Take a 10% reduction to your pension while you are both alive so your spouse would get 50% of your pension if you were to die first
  • Partial Benefits: Take a 5% reduction to your pension while you are both alive so your spouse would get 25% of your pension if you were to die first
  • No Benefit: You don’t have to leave a survivor benefit. If you don’t then there is no pension reduction but your pension would go away once you die. Also, your spouse would not be able to stay under your FEHB (health insurance) after you die without a survivor benefit. 

This is a major decision that will impact you and your spouse for the rest of your lives. 

Keeping Insurance?

Another big decision you make on the retirement application is what insurance to take with you into retirement. 

99% of feds want to keep FEHB (Health Insurance) into retirement so that one is an easy choice for most, and as long as you are eligible for a full retirement then you can start/pause/restart your FEDVIP (Dental and Vision Insurance) at any time now and in retirement. 

FEGLI (Life Insurance), however, is a harder choice for some as this decision is irrevocable, but please know that most parts of FEGLI are very expensive to keep into retirement. You can use OPM’s FEGLI Calculator to see what it would cost you. 

However, one of the most popular things to do with FEGLI at retirement is to take the 75% reduction option for Basic FEGLI which gives you free coverage at age 65+. This article explains all the details of how this works. 

TSP Decisions

You are retired now and have full access to your TSP! But this is a blessing and a curse. 

The blessing is that you can use your TSP to help fund a great retirement. The curse is that there are several ways to mess things up. 

Here are the two biggest things to watch out for:

TSP Annuity

There are several ways to get money out of your TSP. One of them is to take all or just a piece of your TSP and turn it into an annuity

What is an annuity? In a nutshell, it is when you give a lump sum of money to an insurance company that then guarantees you a monthly payment for the rest of your life.

For example, you give $300k to MetLife and they guarantee $1,500/month for the rest of your life. What is not to love about guaranteed income? 

Guaranteed income is great but the cost of the guarantee is the hard part. Whatever money you hand over to the insurance is no longer yours and most annuities are irrevocable. 

Long story short, you are locking yourself in for the rest of your life. 

Annuities are not inherently bad but I would be extremely cautious about making any decision that will limit your options for the next 30 years of your life.  

Big Withdrawals, Big Problems

The next thing to be careful about is when you need a lot of money from your TSP all at the same time. 

For example, you want $100k from your TSP to pay off the mortgage or to buy the boat, etc. Most people don’t realize all the financial implications that are involved. 

Number one, taxes. Taking money from the traditional TSP is taxable so a large withdrawal will normally skyrocket you into a higher tax bracket. 

Number two, Medicare. If you are 65+ then you are probably on Medicare and Medicare Part B premiums are based on your income. Since TSP distributions count as income, a large withdrawal could easily increase your Medicare Part B premiums by hundreds or thousands of dollars a year. 

Again, TSP withdrawals are not inherently bad. After all, your TSP is meant to be used and enjoyed. Just make sure you understand all the implications first. 

Final Thoughts

A lot of big decisions are made at retirement and this article is far from comprehensive. But doing your research (like reading this article) is a great way to help insure against making big mistakes around this life milestone. 

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.