Retirement Planning in Washington, DC

The shape of retirement here

Planning for the years after work means building enough income and then keeping enough of it. In the District, a large share of people have a government connection, so many retirement plans revolve around a federal pension, a Thrift Savings Plan balance and Social Security. Others come from law firms, associations, universities or nonprofits and rely on 401(k) or 403(b) savings.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, about 12.8 percent of residents are 65 or older, about 41.5 percent of homes are owner occupied and the median home value is about $737,100. The city is younger than most places, yet many long time residents own homes that have risen sharply in value, and many federal workers approach eligibility each year.

FERS, CSRS and what the pension pays

Most current federal employees are in FERS, whose pension is based on years of service and the average of the highest paid years, then added to Social Security and Thrift Savings Plan income. The multiplier can be higher for people who retire at 62 or later with enough service. CSRS covers longer serving employees, with a larger pension formula and no Social Security from that work. Employees who retire before Social Security age with enough service may receive a supplement that bridges the gap. Because formulas are detailed, request an estimate from your agency’s human resources office before you pick a date.

Choosing survivor benefits

When you retire you choose how much of your pension continues to a spouse. A full survivor benefit lowers your monthly check but protects your partner. Skipping it raises the check now and can leave a spouse in trouble if you die first. Most couples where one person has a smaller benefit choose a survivor option, often supplemented with life insurance. A planner can compare the cost with a policy bought privately.

Using the Thrift Savings Plan in retirement

The TSP lets you keep your money in the plan, take installments, buy an annuity through the plan or roll to an IRA. Staying has low costs and simple choices, while a rollover opens more investment options. Decide which accounts you will draw first, and think about Roth conversions in the years between retirement and the start of required distributions, when income may be at its lowest. Our retirement planning guide explains conversions.

How the District taxes retirement income

The District does not tax Social Security benefits. It allows residents who are old enough to subtract a limited amount of retirement income, and it has special treatment for military retirement pay. Rules, ages and dollar limits change, so confirm them with the Office of Tax and Revenue. Federal tax can still reach up to 85 percent of Social Security depending on your total income, and required distributions from traditional accounts begin in your seventies.

Property tax relief and the homestead

Older homeowners who live in their home can claim the homestead deduction, and the District limits yearly increases in assessed value. Seniors and people with disabilities who meet income limits can apply for a deeper reduction in the property tax bill. A retired couple in Brookland with a modest income but a valuable house may benefit. The application has deadlines, so check them each year.

Condo fees do not retire

A retiree in a downtown condo still pays monthly fees and may face special assessments for roofs or elevators. Budget for them as a fixed cost and ask whether reserves are healthy. Some retirees sell the condo and rent, others move to a one level home in Maryland or Virginia, and some choose a continuing care community. Each option changes taxes, healthcare access and closeness to family.

Leaving the District in retirement

Some retirees stay for the walkability, medical centers and cultural life. Others move to Delaware, the Carolinas, Florida or Virginia where living costs differ. A move changes which state taxes your income and estate, and establishing a new domicile takes more than a new address. Keep records of days spent, voter registration, driver license and where your doctors are. Moving does not remove an estate tax if you still own District real estate, so ask an attorney.

Estate tax and legacy

The District has an estate tax with a threshold well below the federal exemption, and no inheritance tax. A retired couple with a house, a TSP balance and life insurance may cross it. Beneficiary designations, trusts and gifts can help. Our estate planning guide covers the basics, and an estate attorney should draft documents.

Healthcare and long term care

Federal retirees who keep FEHB into retirement can pair it with Medicare Part B or choose Medicare with a supplement. The comparison depends on premiums and your health. Long term care is expensive, and Medicare pays little of it. Options include savings, long term care insurance, hybrid life policies and Medicaid planning with an elder law attorney.

Part time work and consulting

Many retirees keep working as consultants or contractors, using their experience and clearance. Earnings before full retirement age can reduce Social Security temporarily, and consulting income triggers self employment tax. A plan sets how long to work, how to bridge to Social Security and how to avoid a surprise tax bill.

Sequence of withdrawals

A basic order uses taxable accounts first, then tax deferred accounts, then Roth accounts, but real plans vary. Bring in pension and Social Security, and fill lower tax brackets with IRA withdrawals. Test the plan against a market drop in the first years of retirement, since that period matters most.

What an advisor costs

Retirement advisors charge a percentage of assets, often about one percent, or a flat or hourly fee. A one time retirement review may cost less than ongoing management. Ask for the total in dollars and whether the advisor is a fiduciary.

How to check an advisor

Search the SEC adviser database and FINRA BrokerCheck, read the Form ADV and contact the Department of Insurance, Securities and Banking. Be wary of anyone who pushes you to roll over your TSP without comparing costs.

Early retirement offers and buyouts

Agencies sometimes offer voluntary early retirement or a buyout payment to reduce staff. A 54 year old with 30 years of service could be eligible for an immediate pension, while a 50 year old with 20 years may not. Before you accept, ask for a written estimate of the pension with and without the offer, the effect on the survivor benefit, how health coverage continues and whether you can keep working elsewhere. An early pension is usually reduced, and the Social Security supplement may stop if you earn above a limit before 62. A one time payment is taxable and can push you into a higher bracket, so spread decisions across years when you can.

Clearances and second careers

Retired officials, military officers and analysts often take consulting or contractor jobs paying well above what they earned in service. That income can lift your bracket and raise Medicare premiums two years later. Some retirees find that working three more years doubles the flexibility of their plan, since savings keep growing while the pension is still waiting. Others want to stop and travel. A planner can show both paths with real dollar totals, which makes the choice less emotional.

Where District retirees live

Longtime residents of Brookland, Capitol Hill, Cleveland Park and Chevy Chase DC often stay because of friends, hospitals and the Metro. Others move to Montgomery County, Arlington or Alexandria for single level homes and lower fees, or to Rehoboth Beach in Delaware. Costs differ a lot between these places, including property tax, state income tax on pensions and the price of home care. A small number of retired couples downsize into a continuing care community, which has an entry fee and monthly charges that need a careful read. Visit in different seasons and talk to residents before you decide.

Medicare premiums and your income

Higher income in retirement can raise Medicare Part B and Part D premiums, based on tax returns from two years earlier. A retiree who sells a condo at a large gain or converts a big IRA to a Roth in one year may see higher premiums later. Spreading gains across years and timing conversions with this in mind keeps the surprise small. If income drops because you stopped working, you can ask Social Security to use a more recent year.

Aging in place in an older building

Many District rowhouses have stairs, narrow doorways and old plumbing. Modifying a bathroom or adding a first floor bedroom can run into five figures. Condo buildings may have elevators that fail or need replacement, and a special assessment can arrive at the same time. A retirement plan should have a line for home upkeep and a reserve for health related changes. Our estate planning guide covers powers of attorney and health care directives, which every retiree should have in place.

Retiring from a university, association or nonprofit

Staff at Georgetown, George Washington, Howard and the region’s associations usually have 403(b) accounts, sometimes with a pension. Plans may offer annuity options with different fees and contract terms. Compare the plan’s annuity with an income you could build yourself, and check whether the plan allows installments. Retirees who worked many years at a nonprofit may also have a 457(b) plan with its own withdrawal rules. A planner reads each plan document with you before you pick a payout.

Frequently asked questions