Future Retirement: Federal Workers In Good Shape
by Ralph Smith |
How do federal employees stack up against the private sector in saving for retirement? Here are some figures to give readers some perspective.
According to the Retirement Confidence Survey from the Employee Benefit Research Institute (EBRI), more than half of American workers (60 percent) report they and/or their spouses have less than $25,000 in total savings and investments (excluding their home and defined benefit plans), including 30 percent who have less than $1,000. 10% of workers have between $50,000 and $99,999, 11% have between $100,000 and $245,999 and 10% have $250,000 or more.
58% of workers indicate they are saving for retirement according to the report.
Another report from EBRI shows that the average IRA balance is $67,438. And, in 2010, the average IRA individual balance (all accounts from the same person combined) was $91,864.
Federal employees are in a different situation because they have a retirement system that includes the Thrift Savings Plan but also provides for other income throughout their retirement years. Although it is a subject of considerable dispute among readers as to which group receives the greater benefit, there are differences between those who are in FERS and those covered by CSRS. You can read a couple of articles comparing these retirement system and read the comments by those who believe one system is superior to another in articles such as The Best Annuity: FERS or CSRS? and CSRS Is Better Than FERS. Are You Sure?.
There is no direct comparison to federal employees as we do not know how much employees may have socked away in other retirement savings accounts. Also, federal employees receive an annuity throughout their retirement although the amounts differ considerably depending on the retirement system, length of service, and average income over a period of several years.
The number of American workers with a defined benefit plan is quite small. According to the Social Security Administration, the percentage of employees covered by a traditional defined benefit (DB) pension plan that pays a lifetime annuity, often based on years of service and final salary, has been steadily declining. From 1980 through 2008, the proportion of private wage and salary workers participating in DB pension plans fell from 38 percent to 20 percent. At the same time, the percentage of workers covered by a defined contribution (DC) pension plan—that is, an investment account established and often subsidized by employers, but owned and controlled by employees—has been increasing. From 1980 through 2008, the proportion of private wage and salary workers participating in only DC pension plans increased from 8 percent to 31 percent.
How Do Your TSP Savings Compare with Other Federal Employees?
With that in mind, how much do federal employees have socked away in their Thrift Savings Plan accounts?
As of August 31, 2012, the average TSP balance was $68,452.93 according to the folks at the TSP. Here are a few more statistics that put this into better perspective.
For those employees under CSRS, the average TSP balance as of August 31st was $88,373.90. Most of these investors are older as the FERS system has been in existence since 1986. The average TSP balance for FERS employees as of August 31st was $87,720.21.
So why is the average for TSP accounts much less than either of these figures? The reason is that the average TSP balance for uniformed service members was only $13,535.20 as of August 31 which brings down the average balance.
As one might expect, those that are older have accumulated more in their TSP funds. Those who are 56 and over have an average TSP balance of $113,450; those 46-55 have $104,435; 35 to 45 year olds have $51,003, and under 35 have $11,993.
Most Federal Employees in Good Position for Retirement
In the final analysis, the average federal employee has less money in the TSP than most Americans have in all of their IRA accounts. However, as noted above, we do not know how much other money federal employees may have saved in other retirement investment accounts. In a recent survey of our readers, of those who chose to take the survey, 44% indicated they had saved between $100,000 – $500,000. 3.3% had accumulated more than $1 million and 4.4% had saved less than $1000. In the same survey, those responding to the survey were “Very Confident” in their ability to retire and they probably have good reasons for their confidence.
But, as noted in an OPM survey several years ago , many federal employees have never calculated how much they need to save for a comfortable retirement and most still expect to work after they retire.
Federal employees who retire will receive much of their retirement income through their respective federal retirement system.
In the article cited above by Robert Benson, he considered the financial retirement income for two hypothetical 57 year old federal employees with a high three income of $54,000 and 27 years of service. There are different factors but whether under FERS or CSRS, the federal employee in either scenario will have substantial additional income from their respective retirement plan.
Keep in mind that the average “high three” income selected for comparison purposes by Mr. Benson is substantially less than the average federal salary. According to the federal Bureau of Economic Analysis, the average federal employee salary in 2010 was $83,679 and $51,986 was the average private sector salary. This means that the “average” federal employee would have more coming in after retirement than the hypothetical example used by the author.
When taking into account their income in retirement will be much more than what they have accumulated in a TSP account, as a group federal employees can count on a retirement that is relatively secure and provides financial security for the remainder of their lives. Of course, there are a number of federal employees who are not taking advantage of their ability to participate in a TSP account which will not serve them well in their retirement years.
In short, in terms of saving for retirement, most federal employees are doing reasonably well.
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