RELEASE: U.S. Office of Personnel Management Releases New “Quick Guide” to Help Federal Employees Prepare for Retirement
Washington, D.C. – The U.S. Office of Personnel Management (OPM) released the OPM Retirement Quick Guide, a three-page guide to voluntary retirement that walks federal employees through what to expect as a retirement application is processed and benefits are determined, including helping employees estimate when they can expect to receive their interim and first annuity payments. OPM Retirement Services (RS) developed the guide in partnership with the Lab at OPM, using human-centered design principles.
“OPM remains committed to helping federal employees transition from serving the American public to enjoying their hard-earned retirement,” said Kiran Ahuja, OPM Director. “The Retirement Guide will help employees better understand the retirement application process and ensure federal retirees and their families get the information and assistance they need during this important transition.”
The new three-page resource guide is designed to improve customer experience by:
Consolidating retirement-related information into an easily accessible three-page guide;
Helping employees understand the claims process and timeline, as well as estimate when they can expect to receive their interim and first regular monthly annuity payment;
Helping employees and the Federal Human Resources community submit complete and accurate retirement applications to cut down on delays; and
Improving customer experience by highlighting convenient, self-service support that expands the options for customer service beyond the RS call center.
The OPM Retirement Quick Guide shares important information and common misconceptions to demystify the federal retirement application process, including an estimated timeline of the retirement application process. It highlights circumstances that could result in a case processing delay, including court orders, incomplete applications, or cases that require special annuity computations related to certain positions.
“This is a wonderful guide for all federal employees to help prepare for retirement,” said Taiwanna Smith, the Benefits Officer for Department of Defense Civilian Personnel Management Service. “It provides essential information needed to fully comprehend the Federal retirement process. Employees and retirees will appreciate the countless hours saved trying to research information that is very important to them. It also features key information related to OPM Services Online which is an incredibly important tool for obtaining post-retirement information.”
View the new guide here.
Saving for retirement in your TSP with a federal annuity: How much is enough?
Planning for retirement with a federal pension is different from planning for retirement without one.
As you surely know, one of the most valuable benefits of federal employment is the prospect of a guaranteed stream of income in retirement. That is, a pension (annuity). At the same time, you might suspect that your pension alone will not be adequate to fund the retirement lifestyle that you desire. And so, you also regularly invest through your TSP account. But how much is enough?
Likely you have heard of the 4% rule. While the word “rule” is a bit of an overstatement, the general idea is that when an imminent retiree observes their nest egg, there is an amount that they can withdraw each year and, assuming common investment return assumptions, not run out of money before they die. That amount is 4% (adjusted for inflation).
This rule of thumb is based on 1994 research by Bill Bengen. While it has been poked and prodded over the years — at various times, commentators have suggested 3%, others 5% in some circumstances — there really hasn’t been a substantial deviation from the original figure.
Although not always obviously so, this “rule” underpins many popular online retirement calculators that illustrate how much you need to save each year during your working career to fund a comfortable retirement. The most simplistic “plug and play” calculators assume that your retirement will be funded by a combination of Social Security and your accumulated savings. For federal retirees, this poses something of a (good) problem. With a pension in the mix, surely it should be the case that you can save less in your TSP than the 4% rule assumes. How do you put a number on that?
In fact, we can employ the handy “4% rule” to back-of-the-envelope our way to a result. If your projected annuity is $40,000 a year, the “rule” tells you that you need to save $1,000,000 to achieve the same result. ($1,000,000 x 4% = $40,000) So you might then say, “Well, as I do have an annuity, I can plan to save $1 million less in my TSP than recommended by the simple calculators.” (Or you may be more conservative, and reduce your goal by, say, $750,000.)
That’s not a bad approach, but it does feel a bit…simplistic. A serious downfall of that method — and the 4% rule in general — is that it treats all your retirement spending as being equally important.
At some point, you may have completed an exercise to determine how much you will likely spend in retirement. Or you may have settled on the other common retirement assumption that your expenses in retirement will be 80% of what you spent while working. But if your analysis stops there, I’m afraid that you have only done half the work. And this brings us back to how planning for retirement with a federal pension is different from planning without.
Generally, your living expenses fall into two camps: must-have and discretionary. In retirement, the goal is to be able to cover all your “musts” with guaranteed income. For federal retirees, that means Social Security and your pension. A more nuanced calculation of your TSP goal would be to first determine your non-discretionary expenses (housing, food, medical care, transportation, etc.), and subtract that from your projected guaranteed income stream. Ideally, the result would be a positive number. (Will you decide to work longer than originally intended to increase your annuity and make this so?)
Your TSP goal, then, would be the amount of money necessary to fund your discretionary spending, such as travel, a second home, or a more elevated day-to-day existence.
There is one other aspect to consider when a future federal annuity recipient is investing in their TSP. Simply put, can you take on more investment risk because you have a pension that, combined with Social Security, could cover all your non-discretionary expenses? Or should you take less investment risk because you already “won the game” and don’t need to generate an outsized rate of return to secure a happy retirement? There is no math answer to this question; it is a matter of your personal risk preference. That is, with a pension in hand, you may objectively have the capacity to take on more investment risk, but do you have the emotional desire to do so?
Does having a federal pension make it easier or harder to plan for your retirement? On balance, I think that most of us would vote “easier” because it removes much (but not all) of the risk of “getting it wrong.” But there are still critical decisions to be made, particularly how much to devote to your TSP savings during your working career. Understanding how you might use this nest egg in retirement could help you answer that question.
Financial coach and planner Lisa Whitley retired from the federal government in 2019. Her practice, MoneyByLisa, is a registered investment advisor.
4 things to do to get ready for your first year of retirement
Be strategic and be prepared.
According to a recent article in Moneywise, there are four things you need to do to prepare for in your first year of retirement. Below is their list, with some important modifications for the specific situation of federal employees.
Be prepared for an income adjustment. According to MoneyWise, many people need to adjust to far less money coming in and more going out. Thanks to a relatively generous federal retirement benefit, along with Social Security and savings in the Thrift Savings Plan (with agency matching funds), this may not be as big of an adjustment for federal workers. Many feds have spent their entire career in federal service, earning a lifetime stream of income.
Still, you need to look before you leap into retirement. Crunch the numbers to make sure your net retirement income reflects any reductions to your retirement benefit for part-time service, survivor benefit elections, former spouse apportionments and other factors. And remember that your benefit will have withholdings for various types of insurance, and federal (and possibly state) income taxes.
For new retirees, it can be a smart idea to meet with a financial adviser to help take stock of your situation, especially if you need to make big changes to adjust to your retirement income flow.
Prioritize your expenses. This one is near and dear to me. In my family, I live for the “wants” and my husband sometimes has to remind me there are “needs” that take priority. One of the ways to prepare for big expenses like travel and home renovations that may be on your wants list is to plan ahead and shop around. (This is good advice for needs, too.), For example, my husband and I put a date on the calendar every year to check in with our cable provider to see if there is a special deal happening that can lower our bill.
Insurance is also among the items on which you can save money by shopping around. According to data from Forbes, the national average cost for car insurance in 2023 is $176.50 per month. But depending on which state you live in, your driving history and the make and model of your car, there are some insurers that can offer you as little as $22.
Keep adding to your savings. Although retirees can’t add to their investments in the TSP, there are other ways to continue saving. If you’re working in the private sector after your federal retirement, you can participate in a 401(k) plan or put the maximum allowed in an IRA. And delaying withdrawals from your TSP account can increase your savings in the early years of retirement by allowing your balance to grow (or recover from recent losses in the market).
According to Investopedia, in deciding how much money to take from your retirement plans to supplement your other income, you should consider your safe withdrawal rate. That’s how much you can take out without running the risk of outliving your money. For many years, the rough guideline was 4% per year. The number that’s right for you will be influenced by your age, health and the diversification of your account between cash, stocks and bonds.
Have a Social Security strategy. I’ve written about Social Security withdrawal strategies in the past. Here are some recent articles:
According to the Social Security Administration, if you take your benefit starting at age 62, you’ll miss out on additional funds you’d reap at a later retirement age. If you wait until you hit your full retirement age (67 for those born in 1960 or later), SSA calculates you’d reap $1,000 instead of $700 per month. Further, you could receive delayed retirement credits of 8% per year if you wait until you turn 70.
In addition to setting your Social Security claiming strategy, it’s also important to consider the best time to begin receiving your government pension, especially for those under the Federal Employees Retirement System. If you’re considering retiring at the FERS minimum retirement age (57 if you were born in 1970 or later), be sure to do the math on your benefit. Waiting until 62, when more generous benefits kick in, along with higher cost of living adjustments, can make a big difference.
If you follow all of the above advice, you might just be able to fill both your needs and at least some of your wants.