Retirement Solutions

Complete Guide To Maximizing Your Social Security Benefits

As the primary retirement program in the United States, Social Security currently benefits 66 million people, 51 million of them retirees and dependents.

It also serves 8 million workers with disabilities and 5 million survivors of deceased workers.

The program began with the Social Security Act in 1935, part of President Franklin Roosevelt’s “New Deal” response to the Great Depression.

It is administered by the Social Security Administration (SSA), an independent federal agency that operates through 1,200 field offices nationwide, as well as its website and 37 Teleservice Centers.

How Social Security Benefits Work

Social Security is not a pension plan, but rather an insurance plan to supplement a retired worker’s pension and savings. In 2022, about 182 million workers contributed to the program through Social Security taxes.

Most of those taxes are paid through employers’ payroll withholding, while self-employed workers pay Social Security taxes when filing their federal income tax returns.

The amount retirees receive depends on their pre-retirement income and the age at which they choose to begin receiving benefits.

To be eligible for Social Security, workers must have earned 40 credits. One credit is earned for earnings of $1,640 in 2023, with a maximum of four credits for earnings of $6,560 available per year. Thus a person who earns four credits per year for 10 years is eligible for Social Security.

The amount of your Social Security benefit is based on your highest 35 years of earnings. Workers with fewer than 35 years of earnings will receive lower benefit amounts because years without work represent zeroes in benefit calculations.

How Social Security Benefits are Calculated

To compute your benefit, Social Security indexes your actual earnings using the national wage indexing series. The goal is to make future benefits reflect the changing standard of living during the person’s lifetime.

Social Security then takes your average indexed monthly earnings from your highest 35 years of work and applies a formula to determine the benefit you will receive at your full retirement age (FRA), currently between 66 and 67 depending on your year of birth.

Your actual benefit changes depending on when you begin to start them. Turning benefits on before your full retirement age will lower the benefit amount while turning them on after the full retirement age will raise them.

The Maximum Social Security Benefit

For people who begin taking Social Security retirement benefits at the full retirement age in 2023, the maximum benefit amount is $3,637 per month.

For those who start receiving Social Security this year at age 70, the maximum Social Security benefit is $4,555. Meanwhile, for 62-year-olds who begin benefits this year, the amount is $2,572.

Social Security Special Minimum Benefit

Stemming from legislation enacted in 1972, the Social Security special minimum benefit provides low-earning workers with a primary insurance amount (PIA).

For 2023, the lowest PIA available for at least 11 years of work is $49.40 per month. For workers retiring after 30 years of earnings, the PIA is $1,033.50 per month.

Unlike regular Social Security retirement benefits, special minimum benefits are calculated not on income but solely on the number of years worked.

People who turn on benefits early will receive a lower benefit. Those who retire late will not receive a higher benefit—unlike regular Social Security.

Full Retirement Age

For people born between 1943 and 1960, the full retirement age increases gradually up to age 67. People born in 1955 have already reached the full retirement age in 2023. Below is a chart showing the full retirement age for people born in this period.

Year of birth Full retirement age
1943-1954 66
1955 66 and 2 months
1956 66 and 4 months
1957 66 and 6 months
1958 66 and 8 months
1959 66 and 10 months
1960 or later 67


Cost-of-living Adjustments (COLA)

Social Security retirement benefits increase as the cost of living rises. The increase is based on the Department of Labor’s Consumer Price Index (CPI-W). The goal is to keep benefits in line with inflation, offsetting a higher cost of goods and services with higher benefits.

In 2023, retirees received a large increase in their Social Security benefits of 8.7 percent, an average of $140 per month.

Determining the Best Age to File for Social Security Benefits

As noted above, retiring early lowers the benefit amount, while deferring retirement past the full retirement age raises it. The earliest you can begin receiving benefits is age 62, but the benefit amount is reduced by about 7 percent per year for each year prior to the full retirement age.

The chart below lists the percentages, with the full retirement age of 66. At age 62, a person receives 75 percent of the full benefit.

62 75%
63 80%
64 86.7%
65 93.3%
66 100%
67 108%
68 116%
69 124%
70 132%

The question is, if you turn on benefits at the earliest age, 62, at what age will you break even, or begin wishing you hadn’t retired early? In general, that age is between ages 78 and 82.

So among the questions people should ask is, what is their likely longevity in terms of health and longevity in their family history? For people with less-than-perfect health and parents who died before age 85, turning on benefits early might make sense.

Equally important are what other retirement assets the person has accumulated and what the person’s retirement plans are.

Another question is whether or not you plan to continue working. If you turn on benefits early, you face an “earned income penalty” if you earn over a certain amount, set by the SSA.

In determining whether or not to defer benefits past the full retirement age, or to increase the benefit amount, similar questions should be asked.

How to File for Social Security

Follow these simple steps to apply for Social Security retirement benefits.

  1. Make sure you want to apply at your current age.
  2. Check to make sure you are eligible.
  3. Collect the required documents.
  4. Complete the application.
  5. Monitor your status.

You can get all this started by calling the Social Security Administration at 1-800-772-1213 or by filing online at

Social Security Planning

It is never too early to begin planning a Social Security strategy. In fact, delaying can be costly, a price that retirees will be stuck with for the rest of their lives. To navigate the complexities of retirement and Social Security, it’s best to consult an accounting professional.

Social Security FAQs

1. What are Social Security credits and how are they calculated?

The Social Security Administration uses a credit system to determine eligibility for Social Security benefits. For 2023, a person gets one credit for each $1,640 in earnings, up to a maximum of four credits, or $6,560.

To become eligible a person must have earned 40 credits. Thus a person must work for at least ten years to become eligible for retirement benefits.

2. Can I receive Social Security benefits while I’m still working?

Yes, you can receive Social Security retirement benefits and work at the same time. However, your benefit amount may be reduced if you earn above a limit set by the Social Security Administration.

3. What is the payout percentage difference between filing at full retirement age and minimum filing age?

The minimum filing age is 62, but the benefit amount is reduced by about 7 percent per year for each year prior to the full retirement age. The chart below lists the percentages of full retirement benefits by age of retirement, with the full retirement age at 66.

62 75%
63 80%
64 86.7%
65 93.3%
66 100%
67 108%
68 116%
69 124%
70 132%

4. Do I have to pay taxes on my social security benefit?

Possibly. You must pay taxes on up to 85 percent of your benefit if (a) you file your federal tax as an individual and your combined income is above $25,000, or (b) you file jointly with a spouse and your combined income exceeds $32,000.

Retirement Solutions

How We Helped a Client Retire Early

Millions of people anticipate the day they will retire—when they can finally engage in the activities they’ve always wanted to do, such as reading, golfing, hiking, traveling, or simply completing a jigsaw puzzle.

Wouldn’t it be amazing to enter that stage of life even earlier than anticipated? While early retirement may not be feasible for everyone, with careful planning and effort, it can be done.

Read the following case study to understand how our team implemented strategies to get our clients to their goal of financial freedom earlier than expected.

Analyzing the Financial Picture

Meet Mr. & Mrs. Jones,(1) your typical hardworking American couple. They were diligent savers and wise spenders, however, they had never received outside advice on their investments nor created any specific strategies to map out their path to retirement.

Their expectations were to retire in 10 years, at the ages of 67 and 65. Through working with this couple and offering guidance, we revealed that they were in stronger financial shape than they realized.

Because they hadn’t received an opinion on their portfolio, they lacked the awareness to know they were actually ahead of the game!

We strategized a plan to fuel them further and faster down the path to financial freedom, allowing them to retire much sooner than previous projections estimated.

This plan included recommendations to modify their portfolio which ultimately led to improvements in their financial situation.

Adjusting Asset Allocation

Asset allocation is fundamental to successful investing. We can think of it as being an essential part of Investing 101. But is asset allocation different for those on the path to early retirement?


Asset allocation, often better known as diversification, is an investment strategy in which you spread your portfolio across several different asset classes.

In doing so, you reduce the volatility associated with any one particular asset class, which generally improves a portfolio’s long-term performance.

With Mr. and Mrs. Jones, we discovered that their 401(k)s and IRAs were invested very conservatively for their age; they also had one account entirely in cash.

We made the  recommendation to choose a more suitable allocation which ultimately improved their risk-adjusted expected return profile. This adjustment put them in better alignment with their retirement objectives and other financial goals.

Improve Tax-Efficiency

Every investment has costs. Of all your expenses, taxes can sting the most, and take the biggest bite out of your returns.

The good news is that tax-efficient investing can minimize your tax burden and maximize your bottom line—whether you want to save for retirement or generate cash for savings.

Tax-efficient investing involves choosing the right investments and the right accounts to hold those investments. There are two main types of investment accounts: taxable accounts and tax-advantaged accounts.

There are advantages and disadvantages to each, but both are important pieces of creating an effective investment strategy.

In the case of Mr. and Mrs. Jones, we provided recommendations on the share of their savings going into pre-tax vs. Roth accounts. This improved the tax efficiency of their retirement assets so the projected future draw from their RMDs was less while maintaining today’s tax rates.

Know the “Why” Behind Your Goal

Financial stability can enhance your happiness, but only if your monetary objectives align with your values and what matters most to you. Before committing to the ambitious goal of retiring early, it’s essential to reflect on the reason why you want to retire early in the first place.

Suppose a person values working as an employee in a company. In that case, early retirement may not be a suitable goal for them because they thrive on the experience of being a part of a team.

On the other hand, suppose autonomy and adventure are part of their value system. In this case, early retirement may be an excellent goal that allows them to fully live out those values.

This is why we spend a great deal of time discussing values and priorities with clients like Mr. and Mrs. Jones. While numbers and projections are an important part of the discussion, good financial planning goes beyond analytics and spreadsheets.

Understanding the “why” and purpose behind your actions is a critical piece of the puzzle. Your values are the driving force behind identifying goals that genuinely feel fulfilling to accomplish.

Is Early Retirement in Your Future?

The factors and recommendations mentioned above revealed to Mr. and Mrs. Jones that they would be able to retire with increased financial stability in six years (at ages 63 and 61), much earlier than expected.

Because each individual situation is unique, it takes a careful and customized approach to each client’s portfolio and goals to find the ideal path to early retirement. Like Mr. and Mrs. Jones, you may discover that you are closer to financial freedom than you think.

Disclosure: It is unknown whether the listed clients approve or disapprove of the advisor or the advisory services. The criteria used to determine those included in this blog was whether the person was typical of the clients the firm serves.

Neither portfolio size nor performance were used to determine which persons were chosen.

Whatever your situation, our team at Ferguson Johnson Wealth Management can create a retirement strategy that fits your financial needs and helps you retire how you want and when you want.

Whether you have needs similar to the couple in this case study or you’re facing an entirely different situation, we are here to get you closer to your goals.

To schedule a complimentary consultation and learn more about how we help clients retire early, reach out to us at 301-670-0994 or by email.

(1) Names changed for confidentiality purposes.

Retirement Solutions

Countdown to Retirement: 12-Step Checklist if You’re Retiring in 2024

Retirement Planning Checklist

If you’re planning on retiring in 2024, the countdown is on! The new year brings new planning needs, especially if you’re retiring in the next year or so. 

There are many moving parts to preparing for retirement. Here, we share a 12-step retirement planning checklist to help you prepare for retirement over the next year. 

1. Review or Create Your Retirement Plan

If you haven’t done so already, now is the perfect time to review or create a retirement plan. This should include everything from exactly when you will retire to how you will spend your time. Take the time to think about what you want retirement to look like for you.

Will you be retiring with a spouse? Do you want to work part-time, volunteer, or travel the world? The answer to these questions will inform the rest of the tasks on this list, so it’s important to be both intentional and realistic about your plans.

2. Decide When to Claim Your Social Security Benefits

Deciding when to take Social Security benefits is one of the biggest questions you will have to answer in the year leading up to retirement. Depending on your age when you retire, you could be looking at reduced benefits (age 62), full benefits (age 67), or maximum benefits (age 70).

If you decide to retire, but delay benefits until a later date, you will have to plan for an alternate income stream during that time. 

Keep in mind that once you turn age 62, your benefit amount will be increased annually based on the cost-of-living adjustment. This adjustment occurs even if you don’t claim your benefits until a later age.

If both you and your spouse worked and contributed to the Social Security system, then you have two benefit amounts to consider. There are strategies that married couples can use to make the most of their benefits by taking one benefit early and delaying another until age 70. 

3. Create a Realistic Retirement Budget

Once you’ve assessed your Social Security benefits and decided when to claim, it’s important to take a look at all other sources of retirement income and create a realistic budget. With your newfound free time, it can be easy to overspend without realizing it.

But since your income is fixed, a realistic budget that you can hold yourself accountable to is one of the best things you can do in the months leading up to the big day. Overspending, even for a short period, can shave years off the longevity of your assets. 

The budget doesn’t need to be perfect, but it should be something you can honestly stick to. Try tracking your expenses for a couple of months to get an idea of what you spend currently. Once you have all your costs outlined, consider if there are areas where you can cut back or items that will increase in retirement.

4. Consider Saving More

If you are earning more income in the year leading up to retirement and you don’t necessarily need it for daily expenses, consider contributing more to a tax-advantaged retirement account like a traditional or Roth IRA, or a 401(k) or 403(b). These accounts have increased contribution limits for taxpayers over the age of 50 and contributing more can be an effective way to boost your nest egg while reducing your taxable income just before retirement.

5. Determine Your Withdrawal Strategy

Many retirees mistakenly assume that how and when they withdraw from their retirement accounts doesn’t matter as long as they have a sizable amount saved. They also falsely believe that they will always be in a lower tax bracket in retirement.

This can result in inefficient withdrawals that increase your tax liability unnecessarily and greatly reduce the longevity of your portfolio. The timing of withdrawals makes all the difference and it’s a key component in safeguarding your retirement nest egg. 

For example, a $50,000 withdrawal from a Roth IRA will have a wildly different tax impact than that same distribution from a traditional IRA.

If you blindly take your money and run, you could trigger an avalanche of higher Social Security taxes, investment surtax, capital gains taxes, and even higher Medicare premiums, which will eat away at the funds that were supposed to carry you through retirement.

Creating a tax-efficient withdrawal plan before retirement can help you strategically withdraw from your various retirement accounts and minimize your tax liability. 

6. Review Your Life Insurance Needs

Many employers offer group and supplemental life insurance policies as part of a benefit package for employees. These are great during your working years, but they often expire at retirement, and retirees who only have group insurance may be left unprotected.

Whether you have a mortgage and want to make sure your family is covered, or you want to provide an inheritance, be sure to review your life insurance needs, as well as any existing policies you have in place. If it makes sense, consider extending your employer’s coverage or look for a private insurance policy. 

7. Take Advantage of Employer Healthcare Benefits

Another important step to take before retiring is to utilize any healthcare benefits offered by your employer. Maintaining good physical and mental health is a key component to a happy and fulfilling retirement. Make sure you are up to date on your physicals, check-ups, and prescriptions before retiring, especially if you have already met your deductible for the year. 

If you have an FSA, consider spending down the account, and if you have an HSA, consider paying for expenses out of pocket to keep the funds growing tax-deferred.

8. Review Your Medicare Options

Once you turn 65, you will be able to enroll in Medicare. Depending on your age at retirement, be sure to mark your calendar for this important milestone.

If there is a gap between when you’re retiring and your medicare eligibility, you will have to find alternative coverage through the Health Insurance Marketplace, COBRA, private insurers, employer retiree insurance, or your spouse’s employer coverage.

These options can vary dramatically in cost and level of coverage, so be sure to plan ahead.

9. Evaluate Your Long-Term Care Needs

It’s estimated that 70% of today’s 65-year-olds will need long-term care services at some point in the future. Without proper planning, these costs can quickly spiral out of control. The year before retirement is the perfect time to assess your needs and consider long-term care insurance to supplement what you can afford to spend out of pocket. 

Consider family health history as well as your own lifestyle, health needs, and projected life expectancy when thinking about long-term care. As difficult as it can be to think about, planning ahead is the best way to safeguard your savings as you head into retirement.

10. Evaluate Your Housing Needs

If you haven’t already, take stock of your current housing and if it will still make sense in retirement. Are you an empty-nester in a five-bedroom house? Have you always wanted to relocate? Do you have a mortgage? Would you easily be able to age-in-place or would significant accessibility modifications be required?

These are all questions to ask yourself in the year leading up to retirement. Since housing is one of the largest ongoing expenses you’ll have during your golden years, it’s important to thoroughly consider your options.

11. Review Your Estate Plan

Now that you’re gearing up to retire, take the time to review your estate plan and make sure everything is in order. You should have basic estate planning documents like a will, durable power of attorney, and healthcare power of attorney to ensure that your wishes are clearly communicated and a trusted individual can act on your behalf if something were to happen.

If your estate is more complex and you will have significant assets to leave behind, consider utilizing trusts in your estate plan.

12. Partner With a Professional

Lastly, partnering with a fee-only financial advisor is a good way to navigate your retirement journey this year. The year before retirement is likely going to be the most crucial one of all. At Ferguson Johnson Wealth Management, we specialize in helping pre-retirees and recent retirees navigate retirement with ease. If retirement is right on the horizon for you, reach out to us at 301-670-0994 or by email.  

We’d love to help. 

Retirement Solutions

Can You Maintain Your Lifestyle in Retirement?

One of the most important things to consider when planning for retirement is what kind of lifestyle you want to live. Retirees are rarely interested in giving up all their worldly possessions and moving to a remote island in the Pacific.

Most people love the lives they’ve built for themselves and want to keep their lifestyles relatively the same in retirement. Without an income from a job, retaining the same lifestyle is no longer as easy, but it’s not impossible.

With proper planning and wise investment decisions, you can minimize the uncertainty around retirement. Here are four factors to keep in mind.

Identify Your Income Sources and Manage Fragmentation

Before assessing what type of lifestyle you can lead in retirement, you must first identify where your retirement funds will be coming from. Common sources include:

  • Qualified retirement accounts such as 401(k)s, 403(b)s, and 457(b)s
  • Traditional or Roth IRAs
  • Health savings accounts (HSAs)
  • Social Security benefits
  • Investment portfolios
  • Life insurance policies
  • Annuities

If you’re like many American workers, you’ve probably worked for several different companies throughout your career and you may have multiple retirement accounts that are not consolidated. This is called fragmentation, and it can eat into your income stream by causing larger tax liabilities. 

For instance, all qualified retirement accounts (except Roth IRAs) have required minimum distributions (RMDs) once you reach age 72. This means you are obligated to withdraw and pay taxes on a certain amount each year.

If you have three accounts with RMDs, but you can easily survive off of just one distribution, you can end up paying taxes on two income streams that would have been better left undistributed.

Fragmentation can be alleviated by merging your accounts through consolidation. This will allow you to take one RMD instead of three, thereby saving you money on taxes and keeping your funds invested longer. It’s important to note that there are very particular rules surrounding consolidation and the process should be reviewed with a professional whenever possible.

Where Is Your Money Going?

Our clients often come to us with concerns about how soon they will be able to retire, whether they can maintain their desired lifestyle in retirement, and how to make sure they won’t run out of money. A crucial part of answering those questions comes from budgeting and tracking expenses.

Without understanding your retirement needs, there is simply no way to assess where you stand. It’s important to record every expense you can realistically estimate, including basic living expenses, mortgage and debt payments, life insurance, health insurance, and long-term care. 

It’s often said that retirees should plan to spend about 80% of their pre-retirement income on their post-retirement lifestyle, but, in practice, that number is very subjective. The amount of income required largely depends on the type of lifestyle you want to lead, which is even more of a reason to plan ahead. 

Assess Your Level of Risk

Once you have a complete picture of your finances, you will be able to determine whether you’re on track for retirement. At this point, you can evaluate the level of risk in your portfolio and make any necessary adjustments. 

If you find that you are not on track for the lifestyle you want to lead, you can consider investing in riskier assets with the hope they will earn a bigger return or you can extend your retirement timeline. 

Conversely, if you find you are on track for retirement, you can consider reducing your overall level of risk and invest in more conservative assets. Either way, your risk tolerance is just one aspect of your full financial situation, and, as such, it must be analyzed as one piece of a much larger puzzle.

Review Your Plan

Lastly, be sure to review your retirement plan annually so you can make adjustments as needed. Try as we might, we simply cannot plan for everything, and partnering with a trusted advisor can help keep you on track no matter what pops up. 

At Ferguson Johnson Wealth Management, we can help you navigate the road to retirement. If you’re ready to review your retirement needs, reach out to us today! Call us at 301-670-0994 or email us

Retirement Solutions

How Can You Start Living Your Retirement Dream Now?

By Jon Powell, CFP®

As financial advisors, our work is about much more than just picking investments and managing your money. We want to help teach you how financial freedom can improve your day-to-day life and also help you set short-term and long-term goals for the future. 

One of those long-term goals for most people is a safe, comfortable retirement. But who says you can’t enjoy some of the flexibility and freedom that retirement brings today? Here we outline some tips on how to live out your retirement dreams now instead of just waiting for the future. 

Envision Your Dream Life

Financial conversations can often be left-brain dominant. But since money impacts every area of your life, it’s critical that financial discussions also include your hopes and dreams for life. That means we need to dig into the emotional side of our thinking.

One simple way we can do this is by asking our clients specific questions about what their retirement goals look like:

  • Tangible goals: What would you like to have? 
  • Conceptual goals: What would you like your life to be like?
  • Freedom goals: What would you like to be able to do?

Take Practical Steps to Live a Fulfilled Life

Many people don’t even know where to begin when faced with the above questions and will sometimes provide a surface-level answer, such as “I’d like to travel” or “I’d like to spend more time with my family.” These are great starts, but it may take some time to truly uncover what’s most important to you.

Even if you don’t know exactly what you want, there are ways to take practical steps toward leading a happier, more fulfilled life now. 

1. Expect Less

It’s no secret that money can buy peace of mind and less stress. But can money buy you happiness? The answer is: to an extent. Researchers have found that increased income is associated with increased levels of happiness and life satisfaction up to a point—$105,000 to be exact. Beyond that threshold, happiness levels plateau and additional increases in income result in negligible changes in happiness. 

Instead of focusing on the ultimate retirement dream (e.g., a certain amount of money in the bank, or a specific car or household item), try focusing on what you do have and live in the moment as much as possible.

Practicing meditation or mindfulness can have significant impacts on your overall sense of happiness and well-being, and letting go of expectations of what your life should look like can be a great first step in living your retirement dream now.

2. Set Sub-Goals

If your dreams are more on the tangible side, that’s great too. To help with these goals, try setting smaller sub-goals that can be achieved more quickly than the ultimate retirement dream.

For instance, if your retirement dream consists of retiring in a condo on a beach in South Florida, maybe set a sub-goal of vacationing in South Florida first. Taking that trip could inspire you even more to make your ultimate dream a reality, while also allowing you to live your dream in the moment as well. 

3. Find Purpose

Studies show that individuals who live a purpose-driven life are happier and healthier on average than those who don’t. Not only that, they also live longer! 

A purposeful life is commonly associated with fulfillment and motivation, and can be found in many ways. Volunteering for a local nonprofit or church, spending time with your children, or pursuing a newfound hobby are great ways to find purpose in your day-to-day life. 

4. Prioritize Family & Friends

This one sounds obvious, but it’s often one of the hardest things to do. Life gets in the way and before you know it, you’ve spent a whole month getting stuff done but not really spending any true quality time with the people who matter most.

Living your retirement dream now often comes in the form of just slowing down for a moment. Realizing that the laundry list of stuff to buy, deadlines to meet, and things to do is important, but so is connecting with and learning from those around you. 

The great news is that you don’t have to wait until retirement to do that. You can start setting aside time every week to check in with loved ones and find meaningful ways to connect. You might just find that in doing so, your to-do list becomes a little lighter and maybe even easier to accomplish.

Get Started Today

So, what are some action steps you can take to start pursuing your dreams now? You may be surprised to realize that some of your goals can be accomplished sooner rather than later. 

At Ferguson Johnson Wealth Management, we are here to celebrate your successes and cope with your challenges as you work toward living your retirement dream now. Reach out to us at 301-670-0994 or by email

Retirement Solutions

How Will Inflation Affect Your Government Pension?

By Jon Powell, CFP®

Inflation is all over the news these days along with constant talk of how your purchasing power is being washed down the drain. If you’re like many of our clients, you’re probably wondering what this means for your government pension and if there’s any way to protect your savings.

At Ferguson Johnson Wealth Management, we’re here to answer your questions about inflation and guide you through this troubling time. Here’s everything you need to know about how inflation might affect your government pension.

What Is Inflation?

Inflation is the general increase of prices and goods, which can lead to an erosion of your purchasing power over time. It essentially means that every dollar you earn today is worth less than it was yesterday.

The Consumer Price Index (CPI) is a common measure of inflation. The most recent CPI report from January 2022 shows that inflation has risen an astounding 7.5% over the past year!

 That is significantly higher than the typical 2% rise we see in an average year, and it’s the highest 12-month increase since February 1982

So, how does inflation affect your government pension? Well, the answer really depends on whether you are still accruing benefits, or if you have already retired. 

Inflation & Your Pension Before Retirement

Before you retire, the money paid into your pension is invested in various assets throughout the stock market, which helps your benefit grow faster than inflation. Though the exact rate of return you will achieve is specific to your pension plan, the stock market as a whole has averaged a 10% historical return. Using this amount as an example, we can see how inflation affects your pension over time.

At a 10% annual return, your pension would have only grown 2.5% (10%-7.5%) in real terms from January 2021 to January 2022. Now imagine that your pension only grew 8% over the course of the year, while inflation remained the same.

Your real rate of return would only be .5%! Over time this can drastically affect how much money you have saved when it comes time to retire. Not only that, but prices will also be higher when you do retire (thanks to inflation) and your already weakened savings will be further reduced when it’s withdrawn.

Inflation & Your Pension After Retirement

In retirement, you will receive annuity payments based on the total benefit amount accrued during your working years (contributions and earnings). At this point, you have locked in the value of your plan and you are guaranteed a set income for life. 

Government employees retiring under the Federal Employee Retirement System (FERS) will also receive cost-of-living adjustments (COLA) that are meant to offset the rate of inflation. However, it doesn’t solve the inflation problem entirely due to provisions in the law.

If inflation is 2% or less, your annuity payment will be adjusted by the full COLA. But if inflation is greater than 2%, your annuity payment will get the COLA minus 1%. This can have a significant impact on your purchasing power over time, especially because your ability to earn additional income is reduced in retirement.

Another issue to consider is deciding when to retire and start your pension benefits. This can be a tricky decision, especially in a high inflation environment. You may feel pressured to take your benefits sooner rather than later out of fear that inflation and poor market performance could devalue your savings.

On the other hand, you may want to wait in order to recapture earnings when inflation subsides and the market levels out. Regardless of which option you’re considering, choosing when to retire is a decision that should be thoroughly assessed in the context of your overall financial plan.

Protect Your Savings From Inflation

There are several ways to protect your savings from the risk of inflation. Working longer, contributing to other forms of savings, and diversifying your income are just a few options.

We at Ferguson Johnson Wealth Management can help you navigate the current high inflation environment so that you can retire with confidence. If you would like to learn more about how we empower retirees to make wise decisions for the future, reach out to us at 301-670-0994 or by email

Retirement Solutions

401(k)s and Pension Plans: What’s the Difference?

By Jon Powell, CFP®

With many kinds of retirement plans out there, it can be hard to tell the differences among them at first glance. Two of the most popular types of retirement plans offered by employers are the 401(k) plan and the pension plan.

An employer typically provides one or the other, but not both. While it’s unlikely that you’ll have a choice between the two, you’ll probably come across one of these plans throughout your working years, so it’s essential to understand how they work and what they mean for your retirement. 

What Is a 401(k)?

A 401(k), or defined-contribution plan, is a common retirement plan offered by employers. With a 401(k), you elect to contribute part of your salary into a retirement account. You can choose from a range of investments such as index funds, mutual funds, and target-date funds.

You also have the ability to change your investments, however, they are limited to the investments your employer offers. You can contribute up to $20,500 (as of 2022) each year, and if you are 50 years of age or older, an additional $6,500 catch-up contribution.(1)

Your employer may also choose to match your contributions up to a certain amount. The total limit for employee and employer contributions is $61,000.

There are two types of 401(k) plans: a traditional 401(k) and a Roth 401(k). In a traditional 401(k), your contribution is taken from your salary pre-tax. Your traditional 401(k) grows tax-deferred, and you only pay taxes when you withdraw from the account in retirement.

Because these contributions are tax-deferred, contributing to a traditional 401(k) means you lower your taxable income at the time you contribute. 

A Roth 401(k) is funded with money after you’ve already paid taxes on it. The money in your Roth 401(k) grows tax-free in your account, and since you’ve already paid taxes on your contributions, when you withdraw funds, you withdraw them tax-free.

Thus, the key difference between the two boils down to when you pay taxes. If your employer offers both, you need to decide whether it makes sense for you to pay taxes now or when you retire.

401(k) plans are also generally subject to required minimum distributions, meaning you will need to begin withdrawing from your plan when you reach age 72.(2)

What Is a Pension Plan?

A pension plan, or a defined-benefit plan, is an employer-sponsored plan that guarantees an amount of income in retirement. The amount you receive in retirement is determined by a few factors, such as your length of employment, your salary, your age at retirement, and any other specifications set by the employer. 

Your employer is responsible for contributing to the plan and all the investment risk is on them as well. However, you may need to work several years at the organization before you are eligible for a pension plan. Additionally, with a pension plan you have no control over how it’s invested.

Depending on the plan, you may be allowed to contribute part of your salary as well. You are also guaranteed regular payments for the rest of your life, though the plan might offer you the choice of a lump-sum payment.

Which Plan Is Better: 401(k) or Pension Plan?

Both plans have their advantages and disadvantages. Pension plans have been around longer, however, 401(k) plans are much more common today. In fact, as of March 2021, 52% of employees had access to a defined-contribution plan such as a 401(k), while only 3% had access to only a pension plan (12% had access to both).(3)

If you have a 401(k), it is up to you to save for your retirement. You have more control but more responsibility as well. With a pension plan, your employer is responsible for funding the plan.

If you like knowing you will have a guaranteed income in retirement and prefer not having to contribute any of your own money, a pension plan will be more attractive to you. If you’d rather have more control over how much you put toward retirement, a 401(k) may be a better fit for you. 

Setting Yourself Up for Success

Planning for retirement can feel daunting—but you don’t have to figure it out all by yourself. Choosing the right partner as you plan for the future can help you set yourself up for success in retirement. And finding a financial advisor that understands your unique situation and goals doesn’t have to be difficult.

At Ferguson Johnson Wealth Management, our mission is to simplify navigating the complexities of retirement, helping you plan wisely so you can live fully.

We understand that retirement plans are not one size fits all. That’s why we work with you to develop a plan tailored to your needs. Reach out to us at 301-670-0994 or by email

Retirement Solutions

Can I Retire in the Middle of a Pandemic?

For families contemplating retirement, the prospect of moving on to a new stage of life may feel even more uncertain than ever in light of the pressures and uncertainties brought on by the coronavirus. As advisors, we’ve come across two very common questions over the last few months from soon-to-be retirees:

Retirement Solutions

Your New Decade To Do List

A New Year (a new decade) is an opportunity to get things in order and make improvements. Every article published this week and last is a list of things to do to start the new year off right. Personally, I’ve already read more than I can count, so, I’ll keep this brief. Two financial and two non-financial to-do’s for the new year:

Review What the SECURE Act Means for You

The ‘Setting Every Community Up for Retirement Enhancement (SECURE)’ Act was signed into law in December as a part of the latest government spending bill. As a whole, the SECURE Act is a grab bag of various incentives and obligations for individuals and companies providing retirement plans.

The overall intent is to make it easier for families to save for retirement with several changes affecting the availability of and incentives for saving in retirement accounts.

Retirement Solutions

It’s Required Minimum Distribution Season

It’s Required Minimum Distribution (RMD) season (or Minimum Required Distribution – MRD, same thing). Beginning the year an individual turns 70 ½ mandatory distributions from certain tax-deferred retirement accounts must begin.

Each year, the amount required to be distributed increases as a percentage of a retirement account’s balance. This percentage starts out small – about 3.5% of the account’s value – and increases to nearly 10% of the account value by age 92 (and continues to increase beyond that). You can find the full distribution table at the IRS website.