FERS Stool vs FERS Recliner
Where will you sit in Retirement?
Who’s heard of the FERS 3-Legged Stool before? The 3 legs are the “foundation” of the generic FERS Retirement Plan that they preach during your initial training. Each leg equates to one of the 3 main streams of the FERS retirement income –specifically: the FERS Pension, Social Security, and Thrift Savings Plan. In this metaphor, your career is spent on your feet and your retirement goal is to build a seat as far off of the “ground” as possible. But keep in mind, the “seat” you build is the only place you can rest for the entirety of your retirement.
Of all of the seating options in the world, would you really choose to spend your retirement years perched atop a 3-Legged Stool? Are you content balancing on a 3-legged seat with no back for support, no cushions for comfort, and no recliner for that fulfilling relaxation?
Americans relying entirely on Social Security for their retirement income have only a thin picnic blanket buffering them from poverty, an incredibly small margin for error separating them from the ground. For FERS employees that did not adequately fund their TSP, they find that in retirement they are stuck trying to balance 2 income sources – which is about as stable as a bike that isn’t moving. This is why it is so important to be an active participant in planning for your retirement. You, as the FERS retiree, are accountable for providing at least one of those stool’s legs in order to complete the (over-simplified) retirement plan they preach.
But what if you were given the blue print to build a FERS Retirement Recliner… would you prefer sitting in that over the 3-legged stool?
The over-all standard of care for elderly Americans is improving exponentially which means we are enjoying retirement much longer than at any other time in human history (a trend that will continue to compound upon itself). Baby Boomers are largely the first generation retiring with this expectation of compounding longevity, which makes our seating choice all that much more important.
So how do we improve the design?
First, we need to add a Tax Free Bucket to the equation as the 4th leg of your stool. Life is not predictable, tax rates a quarter century from now even less so, so make sure that the tax treatment of your investments and your personal beliefs about future tax rates actually agree. A stool with 4 legs is already a major improvement in stability over the 3-legged approach. This “fourth leg” is added through investment strategies that yield tax-free distributions in retirement. It is a coordinated blend of the Roth TSP, a Roth IRA, and Cash Value Life Insurance - the proper mix of which will depend on many factors such as; current vs future tax bracket, personal views of future tax rates, current health, and household income level. But with the current National Debt and political unrest in the coming elections, it may be more critical than ever to prepare for higher tax brackets down the road.
This 4th leg adds stability to the stool but it still is not providing the comfort or support of a chair. So next we need to add a back to this stool!
The back of the chair represents the proper insurance coverages to protect your family through life’s unknowns. Insurance products are utilized to protect the things we value because they create highly-leveraged emergency funds! The majority of bankruptcies in the US are still caused by Medical emergencies, even for households with health insurance, because of the secondary issues (such as bills) that accumulate during recovery. There are many different types of policy designs and many of these coverages are meant to protect you from only one very specific concern, such as: FLTCIP (Federal Long Term Care Insurance Program) to Nursing home care, Short Term Disability to work related injuries, FEGLI Life Insurance to passing away, or a Cancer Policy to a cancer diagnosis. These policies cannot be utilized for any other reasons than what they’re designed for. There are also life insurance policies that utilize Living Benefits - which allow one policy to provide broader protection by stretching the same premium dollars that provide the Death Benefit to also allow the owner access to Death Benefit funds during the owners lifetime (in the event of a qualifying emergency). This allows Life Insurance to provide flexible coverage, helping if the owner passes and also available to help in similar ways to many of the policy designs previously mentioned.
The chair back insures the things we care most about- from our cars and homes to our health and our wealth - so that none of life’s surprises can knock you off the back of your stool anymore.
Now that we have a FERS Retirement Kitchen Chair, we have achieved support, so next we tackle comfort. How do we build a more comfortable retirement? We invest in it. We make sure that we never drop our TSP contributions below the Government match (5%) because that is giving up free money! We leave our retirement savings for retirement, not a new kitchen or a time share in Bocca Raton. We need to pay our future-selves first. Additional cushioning is available in the TSP Catch-Up contributions that you qualify for after age 50. Adding an IRA to the equation is the throw pillow to your FERS Recliner, adding very flexible cushioning for lumbar support. Sounds simple, right? But to actually commit to this blueprint we need to invest beyond the dollars and cents - we need to invest emotionally in the future so that we don't resent saving for it. We need to invest time empowering ourselves with financial education so that we can have our investments working towards our dreams and fully leverage our FERS benefits to maximize their application. As Americans we are not known for delayed gratification but the next time you're debating an extra vacation remember that a comfortable retirement is the longest vacation conceivable. Cushioning.
But Tom, we were building a retirement recliner, what else could there be? How can my retirement numbers get any better? Well, once we have a Holistic Retirement Plan in place AND all of the cushioning that we could ever want then at that point the numbers do not need to get any better. But your retirement still can…
The relaxation of kicking back in your FERS Recliner is not found from any magical investment balance. In fact, its not found in an investment at all. Fulfillment. Thats the cherry on top. Even the longest vacation in paradise will eventually lose its luster if we do not have something to engage us. The point of achieving financial independence is not so that we can “clock-out” for the next 30 years. The point is to establish the freedom that allows us to chase our passions, or create a new ones, without regard for the fiscal reward. The point is to free up our energy so that we can give it back to our loved ones or to our community or to charities. The point is to fund beyond just our lifestyle, so that after all of the adventures of our Golden Years we are still able to give to something larger than ourselves, to leave a legacy. The way to finding retirement fulfillment is not just having the biggest bank account, its having the biggest impact. Whether that impact is on your family or your community or humanity as a whole- as a Federal Employee you have a huge head start towards the financial freedom that enables you to make just such an impact… and that’s the secret to a secure and fulfilling retirement.
So now that you have the blueprint to build the FERS Recliner, the most important question to ask yourself is, “Where do I want to sit for the 30 years of MY retirement?”