Common Retirement Mistakes Made by Federal Employees
Updated: Feb 24, 2021
As a postal or federal employee, you have high-quality federal benefits. In time, they will play directly into your retirement, whether you will be eligible to retire in the next 15 years or are a new career hire.
Among your many benefits are programs that directly affect your financial future. Tax-advantaged retirement savings plans, guaranteed-pension payouts, and cost-efficient life insurance coverage are just a few of those programs.
Your challenge is to ensure that you maximize what is available to you. Making smart choices early will help you reap rewards for the rest of your life. So, it’s important to weave your federal employee benefits into your complete financial picture to set yourself up for the most successful retirement possible.
To get there, you need to avoid the mistakes some federal employees make with their benefits and retirement planning. These slip-ups can cost you tens of thousands of dollars in lost benefits. And what's more, once these mistakes are made, they can't be reversed or changed.
Neglecting Your Personnel File
Do you know exactly what your personnel file says?
When you were hired you have may assumed that your file was set up correctly and the federal system knows your exact status and eligibility. Believe it or not, some federal employees who wait to review their files as they start to plan for retirement have found there was a mix-up when they were hired... And they were placed in the wrong federal retirement system.
Don’t be that employee. Routinely review your Official Personnel Folder (OPF) for accuracy. Pay close attention to Form SF 50 (Notice of Personnel Action). This form is updated every year and features important retirement-related details.
Want to know which retirement plan you’re in? Find Box 30 ("retirement plan") on that form and see if you are officially covered by the Civil Service Retirement System (CSRS), CSRS-Offset or the Federal Employees Retirement System (FERS).
Another important indicator is Box 31, “Service Computation Date” or SCD. While there are many intricacies to how this date is calculated, it generally refers to the date you started contributing to your retirement system.
Your SCD is one of the factors used to determine when you can retire and how much income from the CSRS or FERS annuity you will receive. You can see the value of confirming your SCD with your personnel office.
Failing to Maximize Your Thrift Savings Plan Contributions
If you are enrolled in FERS, your retirement income will largely depend on income from your Thrift Savings Plan (TSP). Are you maximizing your contributions to your TSP? Not starting your contributions early in your federal career or not maximizing your contributions could make you fall short on vital retirement income.
Like a 401(k) plan in the corporate world, your TSP sets a maximum regular contribution you can make. If you are over the age of 50, you can make additional "catch-up" contributions to accelerate your savings.
According to TSP.gov, your agency may offer a dollar-for-dollar match on the first 3% of pay you contribute. Afterward, you you are contributing less than 5% of your gross salary each pay date, you are missing out on "free" money your agency could be adding to your nest egg.
Who is Your Beneficiary?
You may know who you want to receive your nest egg upon your death, but have you filled out the proper forms?
Be sure to review forms for your Federal Employees Group Life Insurance (FEGLI) coverage, for your TSP account, and for your unpaid compensation and unused annual leave.
And have you have had life changes, as we all do—from marriage or divorce to new heirs added to the family? If so, are your wishes on how you want to leave your legacy accurate and up-to-date on your beneficiary forms?
Not Managing Your Health Benefits
One of the largest expenses for retirees is healthcare costs. Luckily, the federal government covers 100% of its retirees who meet eligibility requirements.
This primarily means that you have to have been enrolled in the Federal Employees Health Benefits (FEHB) program for the five years prior to retiring. Being covered by your spouse’s FEHB policy also qualifies.
Without this, you won’t be able to continue coverage into retirement, which could be a financial blow that seriously impacts your retirement lifestyle. There are a few exceptions to the government’s rule. But it’s in your best interests to investigate this now so that you are well-positioned for your future. You may also want to explore your options for Medicare, another source of potential health cost relief.
Failing to Prepare a Plan for Retirement
There is no question that the federal retirement system can seem complicated. How will your benefits fit into with other parts of your financial puzzle? You can’t know until you consult with someone who understands both your retirement system and what it will take to help you fulfill your overall financial goals for your golden years.
A great way to get started is by attending federal benefits seminars and workshops for retirees and pre-retirees. Another way to educate yourself on these matters of critical importance is by consulting with a retirement professional who is familiar with federal benefits.
Missing Out on a Federal Benefits Analysis
Advisors who are well-versed in federal employee benefits have access to software that can evaluate all of your individual data. Then they can calculate the income you can expect to receive, your precise income amounts from your pension and from Social Security (if it applies to you), and other helpful financial variables.
Think of it as being like driving cross-country without directions. You wouldn't do it, right? Then use this analysis to measure your progress and make any course-corrections necessary to help you get to your desired retirement "destination."
Need Help Figuring Out Your Federal Benefits and Retirement?
Good news - you don't have to figure out the complexities of your federal employee benefits — and how they will fit into your retirement plan — alone. Many people who have federal civilian or military employment have benefited from the guidance of a federal benefits-knowledgeable financial professional.