Here is a list of genuine mistakes that we have seen Federal Employees make when they’re about to retire from Federal Service. More importantly, we will also tell you how you can potentially avoid them.
What This Article Will Not Do
This article will NOT waste your time telling you that as you prepare to retire, you need to start learning how to budget.
If you are considering retiring, your spending habits are what they are. If you’re a few years out from retiring from Federal Service then Budgeting 101 isn’t where we are going to start to prepare you for retirement.
You are not going to retire and erase the 20+ years of spending habits that you have developed. Do you need a spending plan in place during retirement – absolutely! Are you going to become the world’s best budgeter suddenly in retirement… probably not?
This article will also not tell you that the biggest mistake Federal Employees make is saving for retirement too late in their lives.
What good is that information?
If you are preparing to retire, what good is it to know that you should have started earlier? You cannot go back in time and change that. We will not waste your time berating you that you should have started planning for retirement sooner.
What we can do is develop a plan to move forward that doesn’t include pointing out things that you cannot change.
What This Article Will Do
This is the most critical list of mistakes that Federal Employees make as they prepare for retirement.
This article is written by Financial Planners with decades of experience working with hundreds of federal employees to help them maximize their benefits and plan for retirement.
Here is what we promise that this article will do:
- Provide information specifically to Federal Employees in the Federal Employee Retirement System (FERS) and,
- Include actionable advice on what steps you can take to avoid these mistakes potentially.
But we want something from you in return…
We are passionate about providing financial advice for Federal Employees.
As you read this article, if you feel we are providing value and that someone you know may benefit from reading this same publication – SHARE IT!
We want to be able to reach as many people as we can, and we rely on word of mouth to do so.
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Critical Mistakes Federal Employees Make As They Prepare for Retirement
Here are the real, honest to goodness most classic missteps that we see Federal Employees make when they are preparing to retire from Federal Service. This list of retirement mistakes that Federal Employees make is explicitly tailored to Federal Employees.
This list is so vital that you will want to read, re-read and maybe even keep it for future use.
As Financial Planners who specialize in working with Federal Employees, we have seen people make these mistakes so often we have lost count over the decades we’ve been helping FERS Employees with their retirement plans.
These can be mistakes that could cost you your retirement. Because we’ve seen the impact these have, we are also telling you how you can potentially avoid them so you can learn how to navigate the retirement system to your benefit.
Please read them all to know what to avoid.
3. Forgetting to Check Your Beneficiary Designations
Wait, wait, wait… we know that this sounds simple, but before you dismiss this as common knowledge, did you know that as a Federal Employee, you have FOUR separate Beneficiary Elections to make?
Reviewing beneficiary designations is so important, that our financial planning firm does this with our clients, annually. Normally, designations do not change frequently but we are not checking for that: we are checking to make sure that the beneficiary designation you THINK that you have on file is the one you ACTUALLY have on file.
During one of these reviews, Micah was meeting with clients, Bob and Sue,[SIDE NOTE: all our clients are named Bob and Sue. Well, not in real life but in our writing and storytelling. Why? because we value confidentiality and want to keep the names of the people we work with anonymous. Except for Bob and Sue’s, 🙂 ]
and as he was reviewing one of their four FERS beneficiary designations that we checked he saw the name “Judy” where he should have seen “Sue”.
“Honestly, my first thought was that I had really messed up and had been calling Sue by the wrong name during the entire meeting, how embarrassing! But as I looked over the other paperwork, I was relieved to find that this was not the case. My client’s wife’s name was Sue but who was Judy?” Micah wondered.
“Bob had been married once before but I distinctly remembered what his first wife’s name was – it was not Judy. As they chit chatted I was calmly racking my brain for “Who is Judy?” and why is she inheriting 100% of Bob’s TSP when he retires?”
The chit chatting began to die down and the energy in the room changed – they knew Micah had reviewed looking over their paperwork and had a question. We have to ask a lot of tough, personal questions when we meet with clients but asking them who another woman is – not one of our favorites.
“So, I turned the piece of paper around to have Bob and Sue and brought my finger down to the line reading, “Judy XXXX 100% Primary Beneficiary” and asked, “who is Judy?”.
Bob’s face turned red and Sue was visibly angry.
“It was a heated moment to say the least!” Micah remembers.
Bob swore that he did not know who Judy was and had never heard of her a day in his life. He had been happily married to Sue for just over 9 years and faithful the entire time.
“I believed Bob and we scheduled a phone call with the TSP office to determine who Judy was and why she was going to inherit Bob’s TSP”, Micah explains.
What we discovered in our phone call was that the day Bob submitted his beneficiary change form updating Sue, just after they married, so did another federal employee. Their social security numbers were VERY similar with one digit being off. Judy’s information got inputted on Bob’s paperwork because of a clerical error.
Bob and Sue had been receiving statements and logging into his TSP for almost a decade. This error had been there for 9 years and no one, not even Bob and Sue, had questioned it.
What would have happened if Bob died?
Assets transfer by title first. What that means is beneficiary designations trump all other subsequent designations or requests that you make like creating a Will or Living Trust or getting married. If Bob had died, when Sue went to make a claim with the TSP office she would not have received a single dime.
The funds would have been transferred into the name of the beneficiary on file.
Now, could we have had this reversed and help Sue? We think so. We think that Sue could have hired an attorney, filed with the probate master at her local court and challenged this transfer but it would have taken months if not years to accomplish a contingent on the state that Sue resides in.
More importantly to us though – what would this have done emotionally to Sue if Bob predeceased her? What would she be left thinking?
This error went unnoticed for 9 years and these are educated, organized people who just did not see it because in their minds, when they got married, it was “done”.
They filled out the form, then turned it in and it was completed. Mental check mark.
You need to review your beneficiary designations, as a Federal Employee, and do it regularly.
The four different forms you need to fill out are for:
- FERS/CSRS Pension (often called your “annuity”)
- Thrift Savings Plan (TSP)
- Federal Employee Group Life Insurance (FEGLI)
- Last Federal Paycheck
When you begin working for the Federal Government, you fill out most of this paperwork with your Human Resource (HR) department. These designations should be reviewed annually, not just when you go to retire.
Often we find that people forget to update all four when a life event occurs like marriage, divorce, or even death.
As a financial planning firm, this is one of the very first items that we tackle for our federal employee clients. We want to see all four of your beneficiary elections as they are recorded in your official personnel file (OPF). Even if you swear up and down they are turned in and done, our firm is still going to insist on seeing them.
Why? because forms get lost! Files get scanned, and paperwork gets misfiled or sometimes even accidentally shredded (this is the Federal Government after all…). We want to know without a doubt that this is taken care of. Not just for you, but for your heirs as well.
Beneficiary forms are not updated when you complete new enrollment paperwork for benefits. Meaning, if you were married, divorced, or widowed, that doesn’t mean your beneficiary designations changed. You are 100% responsible for making sure that they are as they should be.
We have even come across a situation where one federal employee looked at their TSP statement and didn’t even recognize the person listed as their beneficiary! We called TSP together, and the lady on the phone was quite embarrassed when it turned out to be a data entry mistake. TSP had made the error when entering the information into the system. Can you imagine what would have happened if we hadn’t caught this mistake?
A course of Action: Contact your Human Resource department and ask for copies of all four of your beneficiary designations as they are listed in your Official Personnel File.Are you making these mistakes? Find out. Sign up here to get 7 critical retirement mistakes federal employees make.
#2 Expecting Pension Check to Arrive in 30 Days After Retiring
During your employment with the Federal Government, you have been paid regularly every couple of weeks. When the budget is funded, and no one is furloughed, of course.
When you apply for retirement under the FERS, your retirement becomes “effective” within 30 days.
However, that does not mean your pension check arrives within 30 days.
That is going to take a little time for the Office of Personnel Management (OPM) to process. Before you get too upset with OPM, keep in mind that they have to audit all of your working history – it takes a little time.
There is such a dramatic change in perspective as well as spending habits when you go from “punching a clock” for decades to being retired when every single day is going to feel a lot like a weekend.
You may have become conditioned to balancing your checkbook, online or an actual check register, every two weeks between paychecks. This does not mean that you were living “paycheck to paycheck” necessarily. Only that you were accounting for your credits and debits every two weeks.
When you apply for retirement under the FERS, you may be under the assumption that you will receive your pension (OPM refers to this as your annuity) like clockwork.
It will not work like clockwork.
OPM has done a phenomenal job of processing applications just as quick as possible. Still, their processing time has several variables that have to be taken into consideration like:
- how many other applications were received at the same time;
- whether your Official Personnel File is in good order;
- if you had enough credible service throughout your working history;
- how responsive your HR department is,
- and so on.
The other unpleasant surprise is that the first check is typically 80% of your full pension.
It takes a few months for OPM to process your paperwork. While OPM is making their final pension calculations, they will send you an interim check that is what they estimate as 80% of your pension.
As soon as OPM finishes their assessment, they will process your retirement, and you will receive the pension you qualify for. You will also receive a “catch up check,” which will provide you with the difference between your interim checks and what your full pension should have been.
“How long does it take for Federal Employees to receive their retirement pension?”
It can be challenging to predict exactly how long you’ll have to wait for your first pension check and your full pension checks to arrive.
The timeline is contingent on how organized your OPF is and how busy your HR department and OPM are at the time you file for retirement.
The longest wait weI’ve seen was a federal employee who had to wait 8 months before their interim checks started coming. Eight months. If you retired in January, could you make it to September without your federal pension?
So, what should you do? Do you have adequate cash reserves in place before you apply for retirement to cover this unexpected time frame?
A Course of Action to Consider: If you’re considering retiring in the next few years, let your Human Resource agency know. A good HR department will use that time frame to start auditing your Office Personnel File. HR can work towards having it in good order to mitigate any questions OPM has if you let them know about your plans in advance.
A Course of Action to Consider: do you have enough money in savings to bridge the gap between the time you stop working full time to when you receive your full pension from OPM? For our clients, we want to see one to two years of living expenses in savings or checking (not in investments) to help them through this time.
#1 Not Knowing the Difference Between SCD vs. RSCD
Most federal employees are familiar with what their Service Computation Date (SCD) means and how to find the date. Your SCD is what your Human Resource agency uses to calculate your leave accrued. Each time that you receive a leave and earnings statement or an SF-50 form, you will see your SCD date. Your SCD is not used for retirement purposes.
When it comes to your federal retirement, it is your Retirement Service Computation Date (RSCD) that matters.
Service Computation Date (SCD) and Retirement Service Computation Date (RSCD) do not mean the same thing.
Take Bob and Sue for instance, both had been working for the Federal Government since they graduated from university. Bob was the first hired under the Fish & Wildlife as a biologist and had been working for the Federal Government for three years. Enjoying the security of a federal job as well as the idea of being eligible for a retirement pension, he encouraged Sue to apply with the National Park Service.
Sue was first hired on a seasonal basis and worked four summers in the local National Park. Once a full time Government Service (GS) position opened, Sue applied and was accepted. She enrolled in the Federal Employee Retirement System (FERS). As Sue completed her paperwork with her HR person, she indicated her hire date as the first time she was employed by the Federal Government, as instructed.
Sue verified her Service Computation Date on her Earnings and Leave Statement and went about her career. As meticulous planners, both Bob and Sue wanted to ensure that they remained in public service long enough to receive the maximum pension benefits possible. As they prepared to retire, they carefully calculated their date to be eligible to retire as well as their anticipated pension income under FERS.
Bob knew that Sue wouldn’t be eligible under FERS to retire until three years after he was, since Sue didn’t start working for the Federal Government until after him. Once those three years had passed, Bob and Sue submitted their retirement applications to their respective HR’s and retired from federal service.
They had planned that in their retirement: they would spend the first few years camping and hiking at all the parks and rivers they had never got to really enjoy during their careers. Bob and Sue, as we mentioned, were great planners and knew that their retirement checks from OPM would not be immediate. They had anticipated OPM taking at least 6 months before they received their full pension amounts and had money set aside in savings to cover the difference.
Bob and Sue ceremoniously loaded up their Subaru and off they went to live their retirement dream. They would start at Zion National Park in Utah and make their way to Chaco Culture National Historical Park. They made their arrangements to be “off grid” and picked up the house.
Three months into enjoying their retirement, Bob and Sue received a letter from OPM at their residence. Their mail was being checked by Bob’s sister. During one of their calls to Bob’s sister to check in, she mentioned “oh by the way you got a letter from OPM”.
Bob asked his sister to open it, assuming it would be an update on when their pensions would become effective. What he was not prepared for was for the letter to report that after a careful auditing of Sue’s Official Personnel File they showed that Sue was not eligible for retirement. Her early years working for the National Park Service in which she was not contributing to the FERS did not qualify her for retirement eligibility.
OPM’s letter stated that Sue would need to return to work immediately less her time off be considered a break in service.
Sue and Bob disputed OPM’s findings but after requesting copies of all of Sue’s Standard Form 50’s, they discovered that the dates OPM used to calculate when Sue would be eligible for immediate retirement were accurate.
Think about that for a moment, Sue had already left her position at her agency. She had already eaten a slice of her retirement cake, bid farewell to her coworkers and was living her retirement dream with Bob. Bob and Sue were not careless people, they had planned and planned and planned.
They just did not know what they did not know.
Your SCD may be different from their RSCD. This means you may be eligible for retirement sooner – or later – than you think. Your RSCD is what the Office of Personnel Management (OPM) will use to compute your official retirement from federal service.
You can find your estimated RSCD on your Personal Statement of Benefits. You can receive the Personal Statement of Benefits from your HR department. Keep in mind though that the RSCD you receive from your HR is an estimate. The date that OPM will use to calculate your actual retirement is determined when you apply for retirement. This date will emerge after an audit of your Official Personnel File has been completed by OPM.
You read that correctly – OPM does not calculate your retirement date until AFTER you have retired.
If you retire from Federal Service and OPM determines that you were ineligible for retirement, you could be asked to return to work.
Federal employees have been called back to work 6 months after they retired (or thought they had retired) because when OPM actually went through their OPF, the federal employee didn’t have enough creditablecredible years of service for retirement.
Or, in some cases, the pension you receive could be different than you expected because of your RSCD.
Remember, the FERS calculates your pension based on a percentage multiplied by your highest three years of pay AND years of retirement service credibility time.
A course of Action to Consider: determine what your real retirement service computation date is. You can request from your HR, a copy of all of your SF-50’s so that you can record your time in service. This is particularly important if during your federal employee career you ever had:
- Temporary Time
- Seasonal Time
- Military Service
- Took Leave Without Pay
- Had a Break in Service
- Took a Withdrawal of Retirement Contributions
Where do we recommend getting started?
“You do not know what you do not know until you know it.”
You have worked for the Federal Government long enough to know how to navigate the system as an employee, but chances are this is your first and only time retiring under the Federal Employee Retirement System (FERS).
Take some time to learn about your benefits and how those benefits fit into your financial plan.
Make sure that you create a list of “homework items” that you need to get in order before you apply for retirement.
We have taught hundreds of federal employees. We have flown all over the United States to talk with Feds and their families about their benefits.
We receive hundreds of questions from Federal Employees about their benefits regularly. Our team of financial planners regularly publishes the “FERS Federal Fact Check,” where we take YOUR questions and answer them in a benefits breakdown.
If you have not already subscribed to FERS Federal Fact Check, you can do so here. There is no cost to subscribe to our informative newsletter where we take real questions from Feds around the nation. These questions are often submitted after Federal Employees have exhausted their online research and connections within their HR department.
We take all of this knowledge and spend 8 weeks working through an online program where you can learn at your own pace, take notes, and learn about your federal employee benefits and financial planning.
We encourage you to enroll in our 8-week online program, FERS Pre-Retirement Bootcamp. The online course will take you and your spouse through three intense weeks of FERS benefits training and 5 weeks of how those benefits impact your financial planning.
As always, the program is marked by our 100% Money-Back Guarantee. We are passionate about financial planning for Federal Employees and want to provide you with value. If you enroll in our program and spend 8 weeks going through the training to determine that the course was not of value, we will refund you 100% of your purchase price.
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