Many federal employees are facing career transitions due to layoffs, early retirements and restructuring. If you find yourself in this situation, what financial action should you consider? Here are the key things to know before making a move.
If your transition is due to a layoff or early retirement package, you need to understand whether you’ll receive any money, and if so, how much and for how long. Also:
- Will the money stop if you accept a new role?
- Will you accrue sick leave and vacation time during your transition?
- Will you be paid for unused leave at your final resignation date?
- Will you accrue credits toward pension benefits if the offer is deferred?
These are important questions that require clear answers. You should also ask whether you qualify for any programs that would support you during your transition, such as unemployment benefits or workforce retraining programs.
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For government employees, a layoff or early retirement might come with additional considerations, such as how unused sick leave contributes to pension calculations.
If you are a federal employee, check with the Office of Personnel Management (OPM) or your human resources department to understand your full range of benefits and financial considerations.
Know your benefits package
Many organizations offer extended benefit packages for those transitioning into retirement or being laid off. For example, the federal government may offer coverage under the Federal Employees Health Benefits (FEHB) program, which allows former employees to continue their health insurance.
Other options include Temporary Continuation of Coverage (TCC), which can last up to 18 months for separating employees.
Additionally, you should determine whether your employer offers continued life insurance or other benefits that could be crucial during your transition. Private-sector employees may have access to COBRA coverage, which provides temporary continuation of health insurance, though it can be expensive.
Weighing these options and ensuring you have the necessary coverage is essential to protecting your financial and physical well-being.
Know your retirement plan options
Many Americans have retirement savings in 401(k)s and similar programs. Government employees use the Thrift Savings Plan (TSP). It is important to work with a financial professional who can explain how you’ll be taxed on withdrawals from these accounts, should you need them. In some cases, you can qualify for early retirement and avoid the 10% early withdrawal penalties.
If you’re transitioning to a new role, you may be able to transfer past accounts like your TSP to a new employer’s 401(k) if the plan accepts transfers. Rolling over your savings into an IRA is another option that can help you avoid immediate taxes while providing more investment choices.
Understanding these options will ensure that you maximize your retirement savings without incurring unnecessary penalties or taxes. You can always check the TSP Handbook for beneficiary options, as these may be dramatically different from the options available to beneficiaries if you move your TSP to an IRA or 401(k).
Review your finances and budget
What sources of income can you count on during this transition? If you have built an emergency fund containing several months’ worth of living expenses, you may need to tap into it.
If you were already nearing retirement age, you might start drawing on Social Security, even if it’s earlier than you planned. If you aren’t near retirement age, you may be able to find some part-time work until you land your next full-time job.
At the same time, it’s a good idea to closely examine your budget and identify areas where you can cut back. Consider reducing discretionary spending, such as dining out or subscription services, to make your savings last longer.
One of the many free budgeting apps available online can prove useful in this area.
Get some answers — and some help
You don’t need to navigate this transition alone. Consulting a financial professional can provide you with valuable guidance and help you work toward your short- and long-term financial goals.
A financial adviser can help you weigh your retirement options, determine the best way to access your savings and create a strategy that aligns with your personal situation.
Financial advisers possess planning tools that address the expectations and concerns you may have and can help you make important decisions with more confidence.
For government employees, it may be especially beneficial to speak with someone who has experience in federal benefits and retirement planning.
Additionally, talking to trusted colleagues, family members or mentors can provide emotional and practical support as you make decisions about your future.
Preparing for the future
For those who are worried about losing their jobs or being forced into an early retirement, the uncertainty can be overwhelming.
However, being well prepared can make the transition less daunting. Understanding your benefits, savings options and financial strategies will empower you to make informed decisions that align with your needs and goals.
If you are currently employed but are concerned about a possible layoff, now is the time to take proactive steps. Review your retirement plan, increase your emergency savings and explore potential career options.
By preparing in advance, you can position yourself for a smoother transition should you face a job change in the future.
This can unquestionably be a challenging time for you. But by looking at all your options, drawing on all your resources and getting financial advice and guidance, you can make decisions that will help you deal with whatever life throws at you.
Remember, while transitions can be stressful, they also present opportunities for growth, new career paths and financial security.
Edward Jones, its employees and financial advisors cannot provide tax or legal advice. You should consult your attorney or qualified tax advisor regarding your situation.
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