Retirement seems a distant rumor when a federal employee shows up for their first day on the job.
But eventually time passes and retirement comes speeding into view, whether you’re ready or not. So just when should federal employees stop thinking of retirement as a far-off dream and get serious about making sure they are on track to take care of their needs once their working years end?
It's hard to put a pin on an exact date of when you should sit down with a financial advisor as retirement nears. Here are five key moments when extra attention is warranted:
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Ages 49 and 54. Federal employees enrolled in the Federal Employees Group Life Insurance (FEGLI) see automatic increases in what they pay for group term coverage at age 50 and again at age 55 (and every five years after that). So they should review their situation at ages 49 and 54, before those increases take effect. If you've elected additional options above the basic life coverage your increases could be pretty steep. This is a great time to figure out if your elections are still the best coverage for you and your family.
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Five years from retirement. Review your health insurance coverage as a family and your spouse’s coverage specifically. If your spouse's coverage is cheaper while you're working as a federal employee, and that is where you are covered, that is fine. However, check into the details of what happens to your spouse’s coverage when they retire. If they are not allowed to keep coverage in retirement, there is going to be a gap in your coverage after you retire. You're going to want to fix that gap by getting coverage through the federal government. Note that you are required to have health coverage as a federal employee for the last five years before retirement if you want to maintain coverage in retirement.
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Age 59½. In most cases, the IRS allows you to move your retirement funds without penalty after age 59½. If you’re a federal employee putting money into the Thrift Savings Plan (TSP), then 59½ is the time to consider moving that money into an account that fits your retirement needs. There are many options available to federal employees, most of them better than the options if you leave your money in the TSP.
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Two years before retirement. With retirement closing in, do a full financial analysis and take a detailed look at your retirement income sources. Most federal employees have difficulty figuring out how their pension, Social security and other funds work together and what their final income per month will be from all sources. This is the time to figure out your retirement budget and get a picture of how much you will be making in retirement versus what you are making while you are working. This milestone is especially important to note because, this close to retirement, you don’t have much time left to make changes that would have an impact,.
Ideally, federal employees would begin making good decisions about retirement right from the start of their employment. But that never happens. So, at the minimum, sitting down with an advisor when you're vested at five years and know that you'll receive a pension is the next best time to make sure you're on the right track. If that has already passed and you've been working there for 10-plus years, yesterday would be the best time.
Galen Bargerstock is president and founder and Clinton Smith is CEO, both at Government & Civil Employee Services.