Mistakes employees make before retirement

My Federal Retirement Newsletter
Editor’s note: This is the second of a 2-part feature.
Mistake #6: Failure to consider the TSP as a “long-term” investment plan and properly investing as such in the TSP funds.
The TSP is a retirement savings plan that allows participants to contribute some of their pre-taxed salary for the purpose of growing the monies in these accounts on a tax-deferred basis. Any earnings—this includes interest, dividends and capital gains—are not taxed until withdrawn. As such, TSP participants must think long-term with respect to which TSP funds they want to invest their contributions. Long-term is defined as the period throughout which an employee contributes to the TSP until the time the TSP participant or the beneficiary no longer needs his or her TSP account. A TSP participant should not define “long-term” as the time the participant contributes to the TSP and the day of retirement. A TSP account must continue to grow after an employee’s retirement date. As past investment performance has shown, long-term growth will most likely be accomplished when most of one’s TSP account is invested in the stock (C, S, and I) funds or in the Life Cycle (L) funds that are invested mostly in the stock funds (the L2030, L2040 and L2050 funds). and not in the bond funds (F and G funds) or in the L income fund. TSP participants are also cautioned not to “time” the stock market and constantly move TSP funds around in order to achieve long-term goals and to “preserve” one’s TSP account in stock market downturns. But as any investor is warned, TSP investors should heed that past investment returns are no guarantee of future performance.
Mistake #7: Failure to plan for “incapacity” while employed and when retired.
While federal employees accrue sick leave hours each pay period that can be used in the event an employee becomes ill or is injured and is unable to come to work, few employees purchase long-term disability income insurance that will replace—in most cases tax-free—as much as 60 percent of an employee’s gross salary in the event the employee suffers a long-term disability. The federal government’s sick leave program should be considered as a short-term disability income insurance program. Most Executive Branch agencies do not offer long term disability income insurance to their employees. The federal government offers long-term care insurance to its employees and retirees. Most episodes of LTC occur on average when an individual is in his or her 70’s or 80’s. Individuals are encouraged to buy LTC insurance when they are young and healthy enough to qualify as well as be able to pay reasonable LTC insurance premiums. Many insurance professionals recommend buying disability income insurance when employees starts their profession careers - usually when a professional is in his or her 20’s or early 30’s - and buying LTC insurance towards the end of their working careers when they are in their late 50’s or early 60’s.
Mistake #8: Failure to have a proper and up-to-date estate plan.
As part of their overall estate plan, employees to name beneficiaries for their bank and brokerage accounts, life insurance policies, TSP accounts and IRAs, and have prepared important estate-related documents. A proper estate plan, established by consulting and working with a qualified estate attorney, includes a Will or Living Trust, a durable power of attorney, an advanced health care directive (health care power of attorney) and Living Will.
Mistake #9: Failure to plan properly for retirement—in terms of income, housing and lifestyle changes—for themselves as well as for family members, especially spouses.
Retirement should be considered as another “life event” that can have significant effects on the income, housing needs and lifestyle of the retiree and immediate family members. Not properly planning for these changes could be devastating.  
Mistake #10: Failure to attend a mid-career and retirement seminar.
Many federal agencies offer to their employees two to three day mid-career and retirement planning seminars. These seminars, conducted by federal employee benefits experts, teach attendees what employees should expect in income and lifestyle changes once they retire from federal service. Among the topics usually discussed are retirement eligibility requirements, how the CSRS and FERS annuities are calculated, the best days of the month and the time of the year to retire, survivor benefits, what happens in the event an employee dies in service, how to invest in the TSP, what to expect to receive in Social Security benefits, how federal pensions are taxed by the federal government and the state governments, estate planning for soon-to-be retirees, and lifestyle changes during retirement. Many employees attend these seminars very late in their careers. They subsequently discover that they have made errors or omitted certain tasks that should have been dealt with earlier in their careers.
About the author
Edward A. Zurndorfer is an instructor at federal employee retirement seminars throughout the country for the National Institute of Transition Planning, Inc. and writes numerous columns and books on federal employee benefits.