When it comes to preparing for retirement, there are eight “stages” that every Federal employee should know about. Knowing what each milestone age means will help you, plan for your retirement more efficiently. Hopefully this will help you be prepared, maximize your benefits and avoid potential financial mistakes in your TSP.
Age 50 – Statistically this is the age most people begin serious retirement planning. It is never too early to start planning and hopefully you have begun saving and planning many years before age 50. At age 50 though is where I find most people really get serious about it. Due to the fact that not everyone planned efficiently or were able to save prior, the IRS has allowed people 50 years old or older contribute more to their retirement plans. This is called the catch up provision. Federal Employees who reach this age and beyond are able to contribute an additional $6,000 to their TSP. If you haven’t saved much in your TSP you may want to take advantage of this option.
For Federal Employees who are special provision such as Law Enforcement, Air Traffic Control or Firefighter, this is the age you can retire with 20 years or more of service. Also with new legislation that just passed, special provisions will be able to access their TSP penalty free if you retire the year you turn 50 or older. So you would be able to pull from your TSP (not IRAs) without paying the 10% penalty.
Age 55 – For most Federal Employees age 55 is when you would be first eligible to retire with a full unreduced annuity if you have 30 years of service.
For CSRS you can retire at age 55 with 30 years of service. For FERS if you have 30 years, you can retire at your Minimum Retirement Age between age 55 and 57 depending upon your year of birth (see chart below). If are eligible to retire at your MRA, you are also eligible for the FERS Supplement. If you aren’t able to retire at this age, retirement is growing ever closer. This is an age to consider are you able to contribute even more to your TSP?
Another milestone that age 55 brings is the potential to access your TSP without the 10% penalty. If you retire or separate from service the year you are turning 55 or older, you can access the TSP without paying an additional 10% penalty. Retirement accounts like IRAs have a 10% penalty until age 59.5 for most withdrawals.Another important thing to consider at age 55 is your Life Insurance options. At age 55 your FEGLI Option B premium is going to double from the previous age band. This is the time to consider a few questions. Do I still need life insurance? If so, how long do you want to have life insurance? Do you want life insurance in retirement or just during your working years? Have I looked at all my life insurance options including outside individual policies?
Age 59.5 – The infamous age of fifty nine and a half is when you are able to access all of your retirement accounts such as your TSP and IRAs without paying a 10% withdrawal penalty. If you’re still working, at 59.5 years old Federal Employees also have access to a TSP benefit called an Age Based In Service Withdrawal. This benefit allows a one time, lump sum withdrawal from your TSP even though you are working. You can withdraw some or all of your TSP. You can pull out the money and pay taxes on it, or you have the option to roll your TSP into another retirement account like an IRA.