Federal employees are entitled to some of the very best in retirement options, but that also means that they are faced with many challenges when it comes to their retirement planning. Retirement planning for Federal employees can be a lot more challenging versus retirement planning in the private sector as there are so many rules and regulations that you need to consider and each benefit will have its own qualifying measures that need to be looked at.
While there are other types of retirement plans for Federal workers, the most common that you will see is the FERS plan, which stands for Federal Employees Retirement System. When you look at the FERS plan it is important to note that you are actually looking at three different components of your retirement planning including your FERS pension, your social security, and your Thrift Savings Plan, or TSP. These are broken down further as follows:
Sometimes you will hear this referred to as a FERS annuity. Basically, when you work for the Federal Government, each time you receive a paycheck you will have a little bit of money deducted and then put towards your FERS pension. While the amount that is deducted is usually about 0.8%, that is not what is used to calculate your final FERS pension payments.
What you will receive will depend on a number of factors such as your years of credible service and how much you made when you were working for the Federal government. You also have to take into consideration what kind of retirement you choose. You can choose Immediate FERS Retirement, Early FERS Retirement, Early Out FERS Retirement, Deferred FERS Retirement, and Disability FERS Retirement.
Each type of FERS retirement has its own requirements for age and years of service, so you need to know your Minimum Retirement Age, or MRA. If you do not know what your MRA is, you need to find out as this can greatly impact the amount of money you receive from your FERS pension.
Typically, if you are covered under the FERS plan, then you will be eligible to receive Social Security when you retire. Each pay period, your Federal employer will take out 6.2% of your paycheck and put it towards Social Security, but again, this is not how your payment is calculated.
Instead, what you receive is based on how long you have been working at a particular Federal job and how long you have been contributing to Social Security. This is just like with most other jobs, so the longer you work, the more you should get in Social Security benefits when you retire.
You can find out for sure what you can expect to receive when you look on your Social Security Statement that gets sent to you on an annual basis. You should always be sure to carefully review this statement each and every time you get it. If there is a mistake, you need to address the issue sooner rather than later as you only have three years to catch any glitches before you are simply out of luck. Social Security can end up being a major part of your retirement income, so you need to be sure that all the pieces are properly in place.
You should also look into whether or not you are a Federal employee who is eligible for a program known as the FERS Supplement. This program allows you to retire before your Social Security receiving age of 62 and will supply you with funds that will help you bridge the money gap until you have reached that magical age of 62 where your Social Security benefits will then kick in. This program is not widely known and not all FERS plan participants will be eligible, but it is certainly worth looking into.
Thrift Savings Plan, Also Known as TSP
Your TSP will act much like a civilian 401k and will allow you to contribute a certain amount of money to your TSP in order to help you save for retirement. This is the part of your FERS plan that you will have the most control over. That’s because you are allowed to invest the money in a number of different ways. With your TSP you can choose to invest in:
- G Fund: A government securities fund considered the least risky.
- F Fund: A fixed income fund also considered less risky.
- C Fund: A common stock fund, which tracks the S&P 500 Index.
- S Fund: A small capitalization stock fund, which tracks the Dow Jones US Completion TSM Index.
- I Fund: An international stock fund, which tracks the MSCI EAFE Index.
In order to get the most out of your TSP, you have to know how much you can put in and what your risk tolerance is. By putting in as much as you can, you allow yourself the most amount of saving possible, plus most Federal employers will match a certain percentage of what you invest.
By knowing your risk tolerance you can then decide which fund, or funds, you want to invest in. If you make no choice, then you will automatically be put in the G Fund.
Even if you have no clue as to how you should invest your money, you can easily look into a program that was started in 2005 called the Lifecycle Funds. This program will take your contributions and invest it in a variety of the funds depending on how long you’ve been building your government resume, or in other words how close you are to retirement. Essentially, the further away you are from retirement, the more risk you can take for more chance of potential reward.
Retirement planning for Federal employees is retirement planning that requires a lot of thought and careful consideration. If you are planning your retirement from your Federal job, be sure that you look into all the variables and try to consider all of your available options so that you can be sure to get the most amount of money for you and your family when you finally do get to retire.