Having an amazing retirement is really simple.
I have seen 1,000’s of federal employees retire and those with great retirements all follow the same 5 steps.
But while simple, not all these steps are easy.
The Fundamentals
There are 5 core steps to reaching financial independence and they should generally be followed in order.
That means you shouldn’t move on to the next step until you’ve completed the previous steps.
And while some steps may seem basic, no one reached financial success with mastering the fundamentals first.
Bonus: There are 3 Bonus steps below that supplement these core 5 if you want to take things to the next level.
Matchy Matchy
As a federal employee the very first thing that you should do is save at least 5% of your salary into the TSP.
If you do so then your agency will also put 5% of your salary into your TSP.
This is a 100% return on your money and you should prioritize this before anything else unless you can make more than a guaranteed 100% somewhere else 🙂
Shut Down Money
What if your car explodes, roof caves in, and the government shuts down?
The next step is to have an emergency fund in place to be prepared for the unexpected.
A good rule of thumb is to have between 4-8 months of expenses put aside.
Pay the Piper
This step is all about tackling debt. This includes most debt aside from your mortgage (think credit cards, auto loans, personal loans, etc.).
It is very difficult to have a great retirement while still servicing debt.
Write down all your debt and make a plan of attack (ideally starting with the highest interest rate first).
TSP Smackdown
Now that you have your financial foundation built it is time to get serious about the TSP.
This means investing more and maxing out the TSP whenever possible.
Check out this article for how you should invest your TSP to maximize your retirement.
Above and Beyond
Once you’ve maxed out the TSP, it is time to start thinking about paying off your mortgage early and/or investing money outside the TSP (think IRA or brokerage account).
Are you able to pay off your mortgage before retirement? How much would you have to pay per month to make it happen?
You can use this calculator to estimate your early payoff date.
Also, if you are looking to invest outside the TSP, here is an article on TSP vs. IRA.
3 Bonus Steps
If you have made it through all 5 steps above then congrats! That is a great place to be!
But if you aren’t there yet, no worries. Just focus on what step is next for you.
But regardless of where you are at, here are 3 moves to help you take your finances to the next level.
Head on a Swivel
Being financially strong means keeping an eye on things like your FEGLI (life insurance), FEHB (health insurance), FEDVIP (dental and vision), and other expenses.
I talk to hundreds of feds all the time who simply forget what insurance they have and don’t keep track of what things cost.
I have seen people waste thousands of dollars on insurance that they don’t need anymore just because they didn’t consistently review what they were paying for.
This happens all the time with FEGLI especially because the price gets crazy high as you age!!
Missing Assignments
In school getting a good grade often comes down to simply submitting your assignments on time.
The same is often true in life. Especially with estate documents.
Most people know they need estate documents but just don’t get around to it until it’s too late.
But that doesn’t have to be you.
Here are the most important estate documents you need as a federal employee.
Great Benefits?
Everyone says that being a federal employee comes with great benefits (which is true) but the benefits aren’t very helpful if you don’t understand what you actually have.
I see this most often with federal employee pensions.
It is so critical for you to understand how your pension works, how much it will be, and when you can start it.
Because if you don’t have this information it is impossible to retire confident.
Here is more info about how to maximize your FERS Pension
The same goes for Social Security.
Check out this article to learn when you should start Social Security as a federal employee.
Understanding these two programs (your pension and Social Security) will help you tremendously in being prepared for a great retirement.
Conclusion
Having a great retirement doesn’t just happen.
It comes after much planning and hard work.
But it is worth it! So so worth it!
While I can’t remember where I heard it, this quote puts it perfectly
“The desire for things to be easy is the main reason people rarely get anything worth keeping”.
