Retirement is a topic we all discuss from time to time, but how does someone know when they can confidently set a retirement date?

With the ongoing discussions about the Department of Government Efficiency (DOGE) and the recent “Fork in the Road” email circulating among federal employees, retirement is becoming an increasingly important consideration. While the word “retirement” is often used casually, it can be an intimidating concept due to the sense of finality it carries. Some professions offer ample post-retirement employment opportunities, whereas others make finding work after retirement far more challenging. This reality adds significant weight to the retirement decision.

I encourage federal employees who are at or near retirement age to begin seriously evaluating their retirement plans. No one can predict the outcome of the DOGE situation or when another retirement incentive may be offered. If I were to speculate, I would say that the “Fork in the Road” offer is likely the first of several that we will see over the next few years. Even if you are not prepared to accept the current offer, it would be wise to assess your retirement readiness or explore what your next career chapter could look like just in case another VERA comes around.

How can you determine if you are ready for retirement?

There are two primary components to consider:

1. Financial readiness
2. Psychological and lifestyle readiness

Financial Readiness

The financial aspect is often the most straightforward part. There are two key steps to evaluate your financial preparedness:

Step 1: Determine Your Monthly Expenses
Do you track your spending? If not, now is a good time to start. Here are a couple of methods to estimate your monthly expenses:

• Bank Account Review: If you primarily use one bank account for your expenses, review your account’s outflows over the past two to three years. Exclude any one-time, abnormal expenses (e.g., purchasing a home) to arrive at a reasonable estimate of your annual spending. Divide this number by 12 to determine your monthly expenses.
• Net Paycheck Approach: Review your net paycheck. Multiply your biweekly net pay by 26 (the number of pay periods in a year), then divide by 12 to estimate your monthly income. If you regularly contribute to a brokerage account, Roth IRA, or savings account, subtract those contributions from your net paycheck. This will give you a clearer picture of your actual spending.

Also, consider whether your retirement expenses will differ from your current spending. You might save on commuting costs or reduce dining out, but you could spend more on travel or other activities.

This won’t help you with immediate retirement, but you can consider things like debt elimination, downsizing your home, moving to a lower tax locality to help reduce expenses and speed up your retirement date.

Step 2: Determine Your Monthly Income
Federal employees typically have three primary income sources in retirement:

• FERS Annuity: This is calculated as 1% of your “High-3” average salary multiplied by your years of service. If you are age 62 or older with at least 20 years of service, the multiplier increases to 1.1%. For example, with 30 years of service and a $120,000 “High-3” salary, the annuity would be $36,000 per year (30 x $120,000 x 1%). If you are married and elect a full survivor benefit, reduce this amount by 10%.
• Social Security: Benefits can be claimed between ages 62 and 70. Widows and widowers can claim benefits as early as age 60. Federal employees retiring before age 62 may qualify for the FERS Annuity Supplement, which bridges the gap until Social Security begins.
• Investment Income: Your Thrift Savings Plan (TSP) will likely be your largest investment source. Two common methods for estimating your investment income are:
  • The 4% Rule: Assume you can safely withdraw 4% of your total investment balance annually.
  • Expense Coverage Approach: Subtract your FERS and Social Security income from your estimated retirement expenses. Multiply the shortfall by 30 to estimate the amount you need to cover a 30-year retirement.
    Example: If you need $40,000 per year beyond your FERS and Social Security income, you would need $1.2 million in savings ($40,000 x 30).

If you take a VERA and retire before Minimum Retirement Age (MRA), will you have access to your investments? Do you have 100% of your investments in TSP? Retiring in the year you turn 55 will give you immediate access to your TSP, but if you retire earlier it will make accessing TSP more difficult. In that case you would need to do something like a 72t distribution which is a very structured way of accessing IRAs prior to 59.5.

Where the Rubber Meets the Road
Compare your estimated income with your expenses. If your income exceeds your expenses, you are financially ready to retire. Still struggling with your numbers? Consider finding a financial professional to help you.

Psychological and Lifestyle Readiness

The next question is: What will you do with your time?

• Do you want to retire completely?
• Will you work part-time?
• What kind of part-time work interests you?
• If you retire fully, how will you fill your time?
  • Spending time with grandchildren?
  • Playing pickleball?
  • Hunting?
  • Exercising?
  • Volunteering for a charity?
  • Traveling?
  • Gardening?

Whatever your plans, retirement will likely be a significant departure from the structure of your working life. Adjusting to the newfound freedom of 2,087 extra hours per year can be surprisingly difficult. Some retirees feel lost without the daily routine of work, particularly if they lack hobbies or social outlets.

The other part of the psychological aspect is the 180 degree turn necessary when it comes to your investments. Once retired you will likely stop saving and investing money and begin taking distributions. This can be a challenge when you have spent the last 30-40 years doing the opposite. While this mindset can pose another retirement challenge, it’s one that you must get over to enjoy your retirement.

If you are at or near retirement age, I urge you to consider both the financial and psychological aspects of this transition. Take some time—perhaps using annual leave—to do a “retirement trial run” and gauge how it feels to help figure out the psychological part of the equation.

The financial part of the decision is one that I would urge everyone within 10 years of retirement age to figure. If you aren’t ready to retire now, what will it take to get you there? Knowing exactly what your expenses are and how much retirement income you will have can give you peace of mind.

These are uncertain times for federal employees. Preparing now—both financially and emotionally—will help ensure a smoother transition to the next stage of your life. If you need help with decisions like these you are welcome to schedule a call with me here.