Planning for Retirement Throughout a Federal Career

By on April 21, 2013 in Current Events, Retirement with 22 Comments

Retirement planning is a lot like gardening; you cannot be successful if you start too late.  A gardener prepares the soil in the Spring, plants the seeds or seedlings, makes sure that the growing plants have enough organic matter and water, controls weeds so that they do not take over the garden, and keeps insect pests away from the growing plants.  Only then, at the end of the growing season does the farmer reap his or her harvest of fresh, tasty vegetables.

The Spring of the federal employee’s career begins with their entrance on duty; and that is where their retirement planning should start.  This article covers just a few important areas and is designed for employees early in their career; but they are areas that a federal employee ignores at their peril.

First and foremost, a federal employee needs to understand their benefits in order to make the most effective use of them in their planning for their financial future.  What exactly should you do if you are a new employee?

  • Know how your benefits work.  If you do not understand how they work, you cannot get the most out of them.  What should you do to better understand your benefits?
    • Pay attention during employee orientation.  I know this is easier said than done, but there’s a lot of good (albeit brief) information given out in orientation.
    • Enroll in the appropriate benefits within the grace period, or be prepared to wait.  For example, you have 60 days from entrance on duty to elect optional FEGLI coverage.  If you do not elect optional FEGLI at that time you will have to wait at least one year (and go through an underwriting process as well) to choose any optional coverage.
    • Attend a new-employee financial and retirement planning class or a benefits overview.  Most agencies do not offer these ½ to 1-day courses, so if your agency does, jump on it.  Federal Career Experts offers these courses to federal agencies.
    • Subscribe to federal newsletters that provide information about federal benefits and other topics of interest to federal employees.  FedSmith is an example of such a newsletter.  If you aren’t already a subscriber, please click the link at the top of the page and begin your subscription today.

Based on the understanding you develop early in your career, you can take specific steps to improve your odds of having a comfortable retirement.  Here are some of them:

  • Realize that both your FERS pension (I’m not mentioning CSRS, as this article is designed for those early in their career) and your Social Security benefits are determined by formulas.  The way to increase either FERS of Social Security is to work longer or make more money.  This is also easier said than done.
    • FERS is determined by your high-three salary and your length of service.
      • By continuing to seek advancement and promotion in your career, you can increase your salary, resulting in a larger pension.
      • By working longer you can also garner a larger pension.
    • Social Security is determined by your lifetime earnings and the age at which you claim it.
      • As with FERS, getting promoted to jobs that pay more will enhance your Social Security benefit.
      • Delaying your application for Social Security will result in a higher benefit.
  • Always contribute as much as you can to your Thrift Savings Plan.  In fact, if you do this, some of the less appetizing choices listed above (i.e., work longer and delay your application for SS) may not be necessary.
    • In 2013 you can contribute $17,500 to the TSP ($5,500 more if you are 50 or over).  Employees early in their career are unlikely to be able to afford the full amount, but they should always contribute enough (5%) to get the government match.  If you can’t afford to contribute the full amount, take your initial 3% contribution (the default for all new hires) and slowly increase it.  By doing it slowly you will be less likely to notice the changes to your take-home pay.  Try increasing your contributions by 1% every six months.
    • In order for you to receive a relatively safe inflation-indexed income of $20,000 a year, most financial planners suggest that you have $200,000 to $250,000 in your TSP at the time you begin withdrawals.  If you start early and invest as much as you can, you may very well have significantly more than that by the time you retire.  When you start early, the magic of compounding works on your account.  If an investment had an average annual gain of 6%, it would double in twelve years without any new money having been added.  Checking the TSP website, three of the five basic funds have earned greater than that amount from their inception through the end of 2011 (as of the date in March 2013 when this article is being prepared, the TSP has yet to post new “fund sheets” that reflect returns from inception through 2012).
  • Invest outside of the TSP.
    • In 2013 you can contribute $5,500 to an IRA ($1,000 more if you are 50 or over).  Your income level will determine which of the IRA varieties (traditional deductible, traditional non-deductible, or Roth) you can contribute to.

I’m sure by now that some readers are saying, “Yeah, this is fine for those who have the money to save and invest.  What about me?”  You would be right; if you are a grade 7 you’re not going to have the same amount of money to set aside that a grade 14 would have.  There are two ways to save: earn more and spend less.  If you can’t earn more (and Congress seems to feel that we shouldn’t earn more for several more years), then do what you can to spend less.  Ask yourself the following question:

  • Which of these items will a bank not give me a loan for.
    • A home
    • My children’s education
    • My retirement

The answer is retirement.  Saving for it is all on you.  Maybe you can make cuts in other parts of your budget.  If you don’t have a budget, that’s a good place to start.

Regardless of you grade level of amount of time in federal service, if you begin saving more for retirement now, your will have more later.  It’s time to start.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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