Fix Your Retirement Finances During Your Furlough
It's not fun being on a furlough, but it can be a good opportunity to spend a little time on retirement planning. Hopefully, you have an emergency fund so you can ride out this senseless shutdown until you can get back to work. Here's what you can do during this forced time off:
Figure out your retirement date and benefit. The Federal Employee Retirement System (FERS) is quite complicated. If you are older than 45, you should check when you will be eligible for the defined pension benefit. If you have at least 10 years of service under your belt, then you might be able to retire as soon as you're 57 years old. Another option is to see if you are eligible for a deferred benefit. You could retire early and defer your benefit until you hit your minimum retirement age.
Crunch the numbers. This partial shutdown looks like it will drag out for at least a few weeks. That means more than 800,000 federal employees will have to deal with having no income for a while. This is actually a great opportunity to see if you are financially ready to retire. Most of us can't handle the income loss, but some households could do it. This is only possible if your expenses are low and you have income from other sources, such as a part time job or rental properties.
Even if you can't cover all your expenses without a paycheck, you can see how much of an income gap you have. Now you know how much money you need to generate before you can retire. You can also estimate your post-retirement income from your FERS benefit, Social Security benefit and Thrift Savings Plan (TSP). This is a good time to see if that will cover all of your expenses.
Check your asset allocation and rebalance your portfolio. Figuring out your ideal asset allocation is essential for successful long-term investing. As you get older, your risk tolerance and financial goals change, and you will need to periodically reassess your asset allocation. The TSP makes it easy by offering lifecycle fund options so participants can easily pick an appropriate asset allocation. If you have investments outside of the TSP, then you probably need to figure out your asset allocation on your own.
This has been a volatile year for the stock and bond markets. Your asset allocation probably drifted quite a bit from your target portfolio. Rebalancing your portfolio isn't a lot of fun because you will have to pay some transaction fees, but it's necessary to stay on target. If you have time off, you might as well get this important step done now before the year is over. You can easily rebalance your portfolio with the right tools.
Search for your ideal retirement location. One of our biggest monthly expenses is housing. If you can relocate or downsize, you will be able to reduce your expenses quite a bit. Adventurous retirees could move to low-cost countries such as Thailand or Ecuador to reduce their expenses even more. You can use the extra time to research more affordable locations, and see what would work for your family.
See if you are mentally ready for retirement. Some people enjoy working and feeling like they are contributing to the economy. The furlough will tell you pretty quickly if you're really ready for an unstructured retirement. Staying home for a few days is nice because you can catch up on your to-do list. However, as the days stretch into weeks, you might find that you're bored. You might not be mentally ready for retirement yet, especially if you find yourself very restless. Also, if you are driving your spouse nuts, then he or she probably isn't ready for you to retire either.
As disconcerting as it may be, there is a silver lining to being furloughed. You can use this time productively and work on your retirement plan. Hopefully our elected leaders will get the budget passed soon so federal employees can get back to doing the necessary work that they do.
Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.
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