Things to Consider When Planning for Your Retirement as a Federal Employee

If you have been working for many years as a federal employee, you will be getting a pension, but this is not as simple as filing the right paperwork. You need to plan ahead for your retirement. There are many factors to look at to determine what the right approach will be to maximize your financial situation in your retirement years. The following are a few things that you will need to think about.

Taxes on your Federal Pension
The taxation on pensions is not high, but often people enter retirement are surprised that there are any taxes at all. The issues of taxes become important as it relates to the total amount of retirement income. This is especially important as it relates to social security benefits. Assuming you have a social security benefit, or if your spouse has such benefits, should you take your pension at the age of 62, should you then collect social security early or wait until age 65? If you are 65. should you delay collecting until a later age? You will earn interest on your social security benefits for each year you delay collecting. You will already pay tax on your pension, but when you collect social security on top of that, the tax implications must first be understood before a decision can be made.

Thrift Savings Plan Withdrawal Options
At the time of your retirement, which option will be best for you. There are many factors to consider. If you are not aware of the options, there are three. You can take a lump sum, you can withdraw monthly amounts or you can choose a lifetime annuity. What you choose can have tax implications, so you need to consult an expert about which option is best. A lump sum will mean the largest tax liability. If you want payments, you can specify a dollar amount to receive each month until the account is emptied. You can also receive an amount each month that is calculated based upon your life expectancy. Either monthly payment will usually place you in a lower income tax bracket. The last option is an annuity that will be paid to you as long as you live. There are certain restrictions that you must adhere to.

What About Your Spouse?
If you are married and file a joint tax return, then you need to consider your retirement as well as your spouse’s income. If you are older than your spouse, you will have to decide whether you are going to retire first, and if so, you will need to determine your tax filing status in the future. Will you need to make a change? Often, married couples try to retire together, but if this is your plan, then both your and your spouse’s retirement income needs to be planned together.

Federal Retirement benefits are an important part of your financial security in retirement, but you need to plan ahead for the best possible outcome for your benefits. Your pension, social security benefits, thrift savings plan, 401k, and any other source of income need to be looked at for the best possible income stream in your retirement years. This includes your spouse’s retirement money as well, if you are married.