It’s essential to work towards maxing your Thrift Savings Plan (TSP) contributions, especially if you plan to retire by the end of the year.
However, The reality is that most federal employees approaching retirement may not have the financial resources required to finance their TSPs adequately, and there are various reasons for it.
Most federal employees who work in a lower-graded position were setting away their $19,500 elective deferral limit, which is impractical. Some still have children to support through college, disabled spouses or children to take care of, or may have started their federal careers with a lot of debt to repay.
There are two conflicting options for anyone who believes they don’t have enough money for retirement:
1. Put in more hours at work; or
2. Make a budget that allows you to live on less.
1. Put In More Hours At Work.
If you don’t have enough money saved away to allow you to retire as you planned, consider delaying your retirement for a few more years to save more money. For instance, if you plan on retiring by the end of the year, you can delay by a year or more to grow your retirement income.
2. Make A Budget That Allows You To Live On Less.
If you don’t want to continue past your retirement age, you’ll have to look for a way to live on your available funds.
It would require creating a budget and sticking to it to ensure you don’t run out of money in retirement.
Neither of these options is particularly enticing. One must either work longer to abbreviate their retirement or live on less to be able to achieve some of the things on the bucket list that they had hoped to do in retirement.
If you face these difficult choices, ask yourself: “Which one is more important to me? Money or time? There’s plenty of time in retirement but no new sources of income.
So, if a person: A) enjoys (or at the very least does not despise) their profession; and B) expects to live a long time after retirement, they might contemplate working longer. Someone like myself (I enjoy what I do, and my family has a lengthy life expectancy) could be inclined to navigate the option of working longer.
You will enhance your CSRS or FERS pension, your Social Security income, and your ability to save more in the Thrift Savings Plan (TSP) for each extra year you work. You would also have one less year of retirement to save for.
On the other hand, if a person dislikes their job and their family’s lifespan isn’t as long, they may choose to take the money and run. What good is money if you don’t have anybody to spend it with? Early retirement allows you to spend more time with those you love — your spouse, kids, grandchildren, and others.
Someone like my wife (who had the worst boss in the world and whose family is a decade younger than mine) might go this route.
Another factor to consider is that as people get older, they are less able to participate in some of the more physically demanding retirement activities. So if you planned on taking a hike, traveling around the world, or engaging in some fun activities, it may be best just to quit and start exploring: but again, it requires substantial funds to engage in all of these activities.
One standard route for those in the latter category is quitting their jobs and working part-time. Most engage in coaching and other part-time jobs that allow them to earn some income in retirement.
But again, working in retirement may affect your Social Security benefits.
For every $3 you earn in retirement, the Social Security Administration (SSA) will withhold $1 of your Social Security benefits. So if you earned $3,000, your benefits would reduce by $1,000. This deduction will stop once you reach the full retirement age (FRA).
Conclusion
There is no “one size fits all” option when deciding whether to work longer or spend less in retirement. As you approach the retirement age, it’s best to consider your options based on your unique situation.
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