The second in a three-part series from retirement expert Tammy Flanagan on one employee’s retirement experience.
This week, we continue with the story of Bob, a recent retiree. Last week, we focused on his pre-retirement preparation. This week, we’ll look at how the process of transitioning from employee to retiree unfolded.
Here’s a reminder of Bob’s situation:
- Marital status: single (divorced before his federal service)
- Retirement date: Dec. 31, 2021
- Age at retirement: 70
- Civilian federal service beginning date: July 1, 2012
- Military service: Air Force 1971-1975; receiving veterans’ benefits and health care from a service-connected disability
- Total service for retirement computation and eligibility: 13 years 9 months (includes around three months of unused sick leave credit)
- Federal Employees Health Benefits coverage: GEHA High Deductible Health Plan 341, self only coverage, $136.95 per month, $900 annual health reimbursement arrangement
- Agency at retirement: Federal Aviation Administration, Department of Transportation
The Processing Process
After Bob submitted his retirement application to the FAA human resources office, it was packaged together with agency paperwork and was sent to the Office of Personnel Management. As usual with the backlog of retirement applications at OPM, the process of finalizing his claim wasn’t completed until well after his retirement date. So he went into interim status for a time.
Here’s a timeline of Bob’s experience:
- Dec. 31, 2021: Retirement date
- Jan. 1, 2022: Commencing date of retirement under FERS
- Jan. 11: Final salary payment for pay period 26, ending Jan. 1
- Feb. 8: Lump sum payment for annual leave (including the 2022 pay adjustment)
- Feb. 22: First interim retirement benefit payment
- March 1: Second interim payment
- March 16: Retirement adjudicated and payment received for retroactive benefit to make whole the difference between the interim payments and the full annuity benefit payment
- April 1: First regular retirement payment, for the month of March (benefits are payable on the first business day of each month)
Bob said that the final estimate that he received from the FAA Benefits Operations Center, on Dec. 15, 2021, was exactly the same as the gross amount he is receiving now. The net amount is different, because his long term care and dental insurance premiums were not deducted from the estimate.
Bob applied for and started receiving his Social Security benefits as soon as he reached his full retirement age (in his case, 66), even though he was still employed full time. There is no longer an earnings limit starting with the month you reach your full retirement age, so you can receive your benefits regardless of your earned income.
Bob calculated the age when he would receive the total amount of benefits paid at full retirement age compared with waiting to collect a larger benefit payment by applying at 70. According to his analysis, that age was 82.5 years old. He concluded that if he didn’t live to that age, that would be unfortunate, but the good news would be that he made the correct choice of taking the benefit at 66 instead of waiting until 70.
Another advantage for Bob of filing for benefits at his full retirement age was that he was able to invest his Social Security benefit payments while he continued working another four years. As a result, he has a solid retirement plan that will allow him to have a lifetime stream of income even if he lives longer than 82.5.
Others may reach different conclusions. For some people, especially married couples, the benefit of one spouse delaying Social Security until age 70 can ensure a larger widow’s benefit amount. But remember, if you’re not working any more, you need to have enough retirement resources to fill the gap while you wait to claim Social Security.
By the way, Bob said he found the employees at Social Security to be very nice and professional. After he completed his application online and requested a start date of Aug. 1, a Social Security representative called him and explained that if he used his birthday in July as the start date, he would start getting his benefits in August instead of September.
Thrift Savings Plan
Likewise, Bob found the service at the Thrift Savings Plan’s Thriftline to be friendly and professional. For most of his career, he contributed 5% of his pay to the TSP to get the full agency match. He said his biggest mistake was keeping all of his investments in the G Fund toward the end of his career, because he believed that the Federal Reserve’s “quantitative easing” policy was artificially driving stock prices higher.
Bob doesn’t see any need to withdraw funds from his TSP account until he is required to start taking distributions in a couple of years. As the stock market continues to correct, he is moving 25 percent of his G Fund money to the C Fund, for the eventual rebound, which he thinks may take two to four years. Market timing is a tricky business, and Bob admits he doesn’t know when stocks will recover. That’s why having a diversified portfolio with a rebalancing plan that matches your investment goals and risk tolerance often makes the most sense.
Investors who aren’t comfortable shifting their TSP funds around on their own can take advantage of the plan’s life cycle funds, which are designed to automatically shift investments as you age and your risk tolerance lowers. Also, working with a trusted financial professional can help alleviate some of the anxiety of the ups and downs of your retirement investments.
Next week, in the last installment of this series, we’ll look at Bob’s decisions about carrying health insurance into retirement.