From market fluctuations to unexpected spikes in inflation rates and uncovered healthcare costs, the road to retirement can be fraught with financial uncertainties. Facing a trifecta of these challenges during retirement could spell financial disaster—living through your golden years with dwindling funds.
Understanding the Retirement Income Gap
The Retirement Income Gap signifies the variance between your retirement income sources and your living expenses. Federal employees relying on a FERS annuity (pension), the Thrift Savings Plan (TSP), and Social Security typically anticipate a financially secure retirement. However, failing to plan for unforeseen expenses could leave you with a gaping hole in your retirement funds when you need it most.
Unforeseen Long-Term Care Costs
Statistics from LongTermCare.gov indicate that individuals turning 65 today face a nearly 70% chance of requiring long-term care not covered by health insurance. Recent data from 2023 reveals staggering costs for private nursing home accommodations, potentially leading to substantial financial strain during retirement.
“Consider this: how will you manage your monthly expenses if inflation skyrockets to 9% during your retirement years?”
Inflation’s Impact on Retirees
Conventional wisdom advises factoring in a 4% annual inflation rate when planning for retirement. However, with inflation reaching unprecedented levels of 9% in 2022, the financial toll on retirees who planned for a lower rate is significant. During retirement, a larger portion of fixed income is allocated to goods and services whose prices are driven up by inflation. Contemplate this: how will you manage your monthly expenses if inflation skyrockets to 9% during your retirement years?
Mitigating the Risk of a Retirement Income Gap
Identifying potential gaps in retirement income while still employed affords you the opportunity to address them proactively.
Here are three strategies to consider:
- Extend your working years to benefit from the FERS 10% Bonus. Retiring at 62 (or later), with at least 20 years of service, can boost your FERS pension by 10%.
- Initiate TSP Catch-Up Contributions at age 50. Combined with agency matching, these contributions can significantly bolster your TSP balance.
- Delay receiving Social Security benefits until age 70 to maximize payouts. Delayed retirement credits increase your Social Security benefits by 8% annually until age 70.
For further insights, seek guidance from an FRC® trained advisor.
