Will You Ever Be Rich as a Federal Employee?
By Ralph Smith
Wednesday, September 13, 2006
Most federal employees do not embark on a government career with the stated intent of becoming rich because there are other fields that are going to pay more money than spending 30 years or so working for Uncle Sam.
But that doesn't mean that you are not rich or will not become rich as a federal employee. In large part, the answer depends on how you choose to define the term. How much do you need in assets to be rich? $500,000? One million? $15 million?
One certified financial planner came up with these statistics. If you are married with kids and are in your early 40s, will live until age 90, and won't spend more than $200,000 a year, a nice cushion would be $7.5 million. If you spend only $150,000 a year, $5 million will enable you to get by. Or, if you can ratchet back to $100,000 a year, you'll do okay on $2.5 million.
These numbers are not very satisfying for most of us. Most federal employees do not have assets that approach these numbers. But, to be realistic, you should add in the value of your retirement pension which, for many federal employees, will turn out to be the most valuable asset they will ever have and will easily add more than a million dollars to their net worth if they are healthy, expect to live a long life, and continue collecting a federal pension that is indexed for inflation every year.
And, if you are still relatively young and want to add another million dollars or so to your net worth over time, give up your fancy cup of coffee that you grab on the way to office each day and invest the money in your TSP account.
Defining "rich" depends on you. Most of us compare ourselves to our social circle. Most of us will never start a new industry that changes the world (think of Bill Gates and Microsoft or Steve Jobs and Apple Computer) and have a net worth of hundreds of millions of dollars. In other words, whether you are rich or whether you feel rich will depend on your personal view.
Here is a scenario that may brighten your day.
The average federal employee now makes more than $66,000. In Washington the average is over $80,000. Obviously, many federal workers make much less and many make much more than the average.
One way to gain perspective is to see who has the money to pay the most in taxes. Wealthy taxpayers pay more money. Taxpayers in the top 25% of income earners in the United States paid about 84% of all federal income taxes according to the latest figures. If you made more than $57,343 in 2003, you are in the top 25% of income earners in the United States. If you happen to make $94,891 or more, you are in the top 10% of income earners. Rise above $130,080, and you are in the top 5%. (See Summary of Federal Income Tax Data)
And, when you consider the value of your federal pension and the ability to carry your health insurance with you into retirement, many readers are already financially comfortable even though they may not be considered rich by themselves or by their neighbors.
Stated differently, most Americans are well-off compared to the rest of the world. Most federal employees are doing better than most Americans.
Keep in mind that a person with a large amount in lump-sum assets may need to have that money stretch to last another 30 or 40 years. Having a couple of million in assets may not do it depending on that person's spending habits. But a federal annuity that keeps a check coming to your house or your nursing home each month for as long as you live and is guaranteed by the federal government is pretty safe and secure and you can't spend it in a couple of years on material goods as you would if it were sitting in your savings account.
Most federal employees are and should be relatively happy with their contributions and their place in society. Most Americans respect federal employees and the job that they do. Most Americans see federal employees as making a positive difference in their lives. Most Americans willingly pay taxes to support the work performed by FedSmith readers who work to make America a better place to live.
So, if you are relatively well-off, have a good job and making a contribution to your country, and most people pay money to provide your salary and benefits and do so willingly, that is enough to make most people feel good about themselves, their accomplishments and to be a "rich" man or woman. Or, to borrow from songwriter Bobby McFerrin, "Don't Worry, Be Happy."
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