Have you ever wondered what retirees have to say about their finances after they have retired? Well, after my almost 2 decades experience of working with federal employees, I decide to put together a list of the most common regrets that federal retirees have shared with me. Hopefully this list can help some of you on your journey to retirement.
“I Wish I Had…”
1) Contributed to Roth TSP
This is one of the most common regrets I hear from people that are retiring. Why? Because they get to retirement and come to the realization that 100% of their retirement assets will be taxed when they take distributions. While not having money in Roth IRAs shouldn’t make or break anyone’s retirement, I have never had somebody tell me that they regret putting so much money in the Roth IRAs in Roth TSP.
Having access to different taxable buckets in retirement can be a huge benefit. The three main tax buckets are tax-deferred, taxable, and income tax-free. A person retiring with all three buckets would have more control over their taxable income in retirement and could therefore save in taxes over the course of their lifetime.
2) Talked to You Sooner
No, this statement is not meant to be self-serving. It’s simply something I hear quite often. The truth is that in today’s world information is at everybody’s fingertips. I could diagnose my vehicle problems and look up YouTube videos on how to fix them, but a lot of times it’s easier to just take the vehicle to a mechanic. If finance is not your strength, it may be hard to understand what to look for and discern what information is applicable to your situation. Working with a professional to develop a plan, or possibly even an hour consultation may give a person the direction that they are looking for. By advisor I mean one that is paid to give advice, not a salesman. Many federal employees don’t need help with asset management in their younger years, but could use some advice on multiple financial topics. Advice could range anywhere from:
- how much life insurance to get
- whether to keep FEGLI or get a private policy
- how much to save in TSP
- if TSP or Roth TSP is best
- if an HSA is a good fit
- if it’s worth it to buy long-term care
- when you can retire
- what your taxes will look like in retirement
This list could over the whole page, but I think you get the point. If you could benefit from talking with a professional, do it sooner rather than later.
3) Saved More Early On
This is pretty much a given when we’re talking about retirement planning. The data is very clear: the sooner you save, and the more that you save early on, the greater your retirement nest egg. This goes back to the principle of the time value of money, the sooner you invest the better off you are due to having more time invested.
It’s common for an employee nearing retirement to max out their Thrift Savings Plan. While that is never a bad thing to do, money that gets invested close to retirement has very little time to grow.
4) Left my TSP Alone
This typically comes from the people that change TSP investments based on their feelings. For example, the market may go down 20% and then they want to stop taking risk so they move their money out of stocks and into the G fund. The stock market can be an emotional roller coaster and that’s something that every person investing money in stocks needs to understand. The highest TSP balances that I have seen were from people that invested their money in the stock funds and rarely made any changes. This is not a coincidence. Your Thrift Savings Plan is not a game board so please don’t play with it.
5) Gotten Rid of FEGLI
This is something that people tend to say as they get older and their FEGLI to starts to go up. Many employees don’t realize that there FEGLI increases every five years and the older a person gets the higher the increase. There are different options under FEGLI, and option B can get out of hand if someone keeps it past the age of 60. Federal employees that are in good health would likely be better off by getting their own insurance policy early on in their career. This could end up saving tens of thousands of dollars over a 30-year career.
There have been more regrets, but those are the top five. If you are a federal employee nearing retirement and would like help on your journey you are welcome to schedule an introductory call. If you are a ways from retirement but believe you could use some advice, you’re welcome to schedule a call as well.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.