At the speed of fright (and indeed confusion), many Feds are suddenly contemplating early retirement. With very little time, forces appear to be stacked against anyone seriously considering — or being forced into — one of the early retirement options being offered.
Unless those exiting federal service had previously planned on retirement in 2025, the thought of “what’s next” could weigh heavily on departing federal employees’ minds. Locating a comparable position with equivalent wages and benefits appears to be a significant challenge for many. Regardless of how emotionally ready some may have been to leave, it’s no secret that federal salaries and benefits are genuinely hard to top or even match.
However, to perhaps alleviate at least part of this angst, there are four steps you can take to gain an idea of how well you’ll handle this previously unforeseen and unplanned exodus.
Four retirement preparation steps
- Financial Assistance via a Retirement Readiness Review: If you’re an investment and planning mastermind , you might be able to skip this step. However, if you’re less comfortable planning for your long-term retirement success and making investment choices on your own, this step is listed first for a reason. Advisors and planners handle this aspect of retirement daily and are (hopefully) better equipped to guide the average person who doesn’t understand the intricacies of this world. However, (as much as possible) be selective about who you trust. It might be wise to seek out:
- An advisor with AT LEAST five years of experience. It may be unwise to entrust a newer advisor with your retirement savings and plan.
- Someone who focuses on federal employees and federal retirement systems. Believe it or not, your retirement plan is often unfamiliar to the advisor who swings a broad net in seeking new clients. To the non-fed familiar advisor, every retirement system looks essentially the same. Working with someone who doesn’t know what they don’t know may be ill-advised. Ask a few questions before trusting them with your financial future, such as:
- How long have they concentrated on federal retirement systems and federal retirees? Look for an answer of five years or more.
- Do they know the difference between CSRS and FERS retirement systems? A no should be a sign to move past this person.
- Do they know what the FERS supplemental income is? Again, a ‘no’ or an incorrect answer should indicate that this isn’t the right choice for you.
- Assess investments – This is a bit more challenging without conducting a risk assessment, which can usually be accomplished during the Retirement Review. Within the evaluation, you should be able to determine your comfort with investment risk. You should also be able to determine if your investments align with that comfort level in terms of the amount of risk they entail.
- Understanding retirement income – Hopefully, your HR department has been able to provide you with federal retirement income estimates, BEFORE you signed up for retirement.
- Note: I recommend that you not rely on your TSP savings for early retirement income calculations. Due to long-term inflation, you may need those savings as an additional source of income later in retirement.
- Understanding retirement income needs/retirement expenses – Do your best to estimate what your retirement expenses will be on the day you retire. This can be a bit of a moving target. If you encounter any issues with this step, please refer to #1 above.
- Note 1: The amount will likely be significantly different from the amount you need while working.
- Note 2: Inflation, both short-term and long-term, should be taken into account when understanding your retirement needs.
Preparation is key
Our 16th president, Abraham Lincoln, was reported to have said, “Give me six hours to chop down a tree, and I will spend the first four sharpening the axe.”
More than 2,000 years before that, Confucius is quoted as saying, “Success depends upon previous preparation, and without such preparation, there is sure to be failure.”
Both are intelligent takes (by two wise minds) on a well-known (if often ignored) principle that being prepared may lead to success, and a lack of preparation could herald otherwise preventable ruin!
Generally speaking, it would be preferable to begin preparations well in advance of retirement, something that could be tweaked and refined to potentially yield improved outcomes, given years of dedicated work and attention.
In the face of unexpected early retirement, thorough preparation is your strongest ally. By taking proactive steps now, you can navigate this transition with greater confidence and secure a more stable financial future.
Case study: Kathy Grievance (Not her real name)
Kathy is a widowed 60-year-old federal employee with 32 years of experience. She has recently received a promotion to the GS-15 level. When we first spoke, she was terribly distressed as she shared her thoughts, “…all government employees have to report to work in the office 5 days a week. I don’t know if I have it in me to do this day in and day out for much longer. Apparently, it doesn’t matter if I am doing my job. They don’t appreciate my commitment, respect me, or the things I do.”
For over 26 years, she had worked several positions within the Department of Treasury that required her to report to the office 5 days a week. Then, about five years ago, a few things began happening in Kathy’s life that changed everything for her:
- COVID-19
- Her husband of over 30 years passed away
- She accepted a promotion that “laddered” up to a GS-15 that allowed her to work from home 80% of the time
When we first met, Kathy was well on her way to a post-federal employment financial disaster. The initial part of our conversation involved debating the pros and cons of her potentially requesting the buyout that had been offered.
Kathy was far beyond her skis regarding this matter. She leaned into the decision to leave, presenting arguments such as:
- The physical daily drive – She lives in a small rural community, 40 minutes from the office. At this point in her life, the commute was more than she wanted to tackle daily.
- She felt unappreciated – Employees appreciate recognition for their efforts, which is a valuable benefit regardless of their employer, background, or ilk. However, the government seems to prioritize reducing the workforce rather than retaining its best and brightest. The goal is to eliminate 20% to 50% of the existing federal workforce, which could result in 480,000 to 1.2 million job losses for experienced employees.
- Free money – She could receive up to eight months’ worth of income without having to report to work at all.
Unfortunately for Kathy, her story is a stark reminder of the consequences of inadequate retirement planning, as outlined above. While her reasons seemed emotionally valid to leave her job, they did not add up financially to allow her a healthy retirement, leaving her unprepared to leave at this time.
She would have eliminated approximately 60% of her income (qualifying for her FERS pension and the SSA/FERS supplement) while only reducing her expenses by about 7% and would have needed to support her income with her TSP savings far too early in her retirement. Within as little as six years, she would have potentially depleted her savings and might have placed her home at risk.
She ultimately did not accept the buyout option. While she didn’t share any renewed warm and fuzzy feelings about staying in her position, she recognizes that she isn’t prepared to retire yet. She is now doubling down on her personal preparations and hoping her position will not face elimination, at least until she is both emotionally AND financially ready to leave.
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. Securities offered through Infinity Financial, member FINRA/SIPC. Investment Advisory Services are offered through Infinity Financial Services Advisory, an SEC Registered Investment Advisor.
