Who’s to Blame? Will Feds be Culpable for Lower Income and Lost Benefits?

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By on June 5, 2018 in Pay & Benefits with 0 Comments

Sad looking businessman standing next to a lowering bar chart depicting lost money/financial losses

Recent budget proposals have been targeting benefits of both current and retired federal employees. Yet, (as a united collective), feds have not taken a stand to thwart these attacks on their very futures. Why?

It is likely many federal employees are not yet aware of the threat. They remain uninformed and are unaware to what extent their income and retirement benefits are at risk. Others, for some unknown reason, are aware, yet view this issue through the lenses of complacency and indifference. 

Proposed Benefits Cuts

When reviewing the White Houses 2019 budget proposal, there is no doubt that the hunt is on! Benefit cutters have caught the scent and are tracking down ways to cut:

Cost of Living Allowances (COLA)

For FERS employees, proposals exist that would withhold COLAs from federal pensions/annuities forever. This means a benefit that is in place to account for inflation throughout a feds retirement life would no longer be available. Just this one move by D.C. could cause tremendous harm to countless federal employees.

Note: This same proposal would cut past and present CSRS retirement COLAs in half.

FEHB Health Insurance

The proposal also suggests cutting the amount feds pay for their FEHB health insurance. This is nothing more than a thinly cloaked pay cut to the entire federal workforce.

Annuities

The 2019 White House budget proposal also suggests cutting federal pensions/annuities through altered calculations.  You may have heard of it as “moving from a high-3 to a high-5 calculation.” Adding two more years of income to the calculation, then dividing by 5 (instead of 3), would create a lower base from which to make the pension/annuity calculation. For those who make significant advancements in pay during their final work years, the effect could be substantial.

TSP

Another high-value target is the current employer match to, and ultimate value of, TSP accounts. Related to this is a proposal to cut the G Fund’s interest rate.

If there has ever been a time that feds should be concerned about their income and benefits, that time is right now! Federal employees can no longer afford to sit on the sidelines and hope for the best. 

In the words of Edmund Burke – “The only thing necessary for the triumph of evil is for good men (people) to do nothing.” Many feds are just now recognizing that these attacks on federal salaries and benefits are an “evil” (or at least a dispassionate) attack on their ability to survive and thrive during retirement.

Hypothetical Case Study

Tom Jefferson (not his real name) is a federal employee with 34 years of service. We will use Tom’s experiences as a “Hypothetical Case Study” for other feds to hopefully learn from. 

Tom noticed last year that the momentum in the U.S. Capitol building to diminish many (and even eliminate) some of his benefits had picked up speed, noise, and support. 

Initially, Tom’s two most significant concerns were the proposed elimination of both the Special Retirement Supplement (SRS) and the Cost of Living Allowance (COLA). 

Tom’s SRS

Through a “Retirement Readiness Review” with his wealth advisor, Tom deduced if cuts are made to the SRS before he retires, he would have to postpone his retirement by 4 years. Even worse, if the COLA is eliminated, Tom’s entire retirement is in jeopardy.

Tom is 57 and plans to retire at 58, utilizing the SRS as an income supplement for the first 4 years. However, Tom calculates he will not be able to maintain his comfortable retirement savings without the SRS short-term bridge payment. Instead, he would need to make withdrawals from his savings in the amount of at least $69,000. 

Tom’s SRS calculation

His estimated age 62 monthly SSA income benefit (based on www.SSA.gov calculator) would be $1,646. At age 58 (next year), Tom’s qualifying SRS payment would equal 87.5% of his age 62 SSA income benefit. (35 years ÷ 40 years = 87.5%). 

Tom had planned on utilizing this $1,440 ($1,646 x 87.5% = $1,440) per month income to support his retirement needs for those first 4 years. If the SRS is removed, Tom’s long-planned retirement will have to be delayed.

Note: $1,440 monthly x 48 months = $69,120.  

Tom’s COLA

While the SRS removal would be acutely damaging to Tom’s short-term retirement plans, he has deduced the damage caused by the COLA proposal would be virtually impossible to overcome.

COLAs are in place to offset the long-term negative impact of inflation. By losing this benefit, MANY feds will, undoubtedly, eventually learn what Tom has already uncovered. 

Tom’s review provided him with an income and cost analysis of his retirement. He learned that he would (with the SRS in place) have a $7,000 per month immediate fixed income and a $6,000 per month debt. Initially, he was pleased with the $1,000 per month cushion until the proposed COLA loss and its impact on his long-term retirement were explained to him.

According to www.inflationdata.com, inflation has historically averaged 3.24% since 1913. However, several decades far exceeded this moderate average. For example, Inflationdata.com also reports, “The average annual inflation rate in the 1940’s was 4.86%, in the 1970’s it was 7.25%, and the 1980’s was 5.82%. Each of those decades was especially hard economically for people trying to make ends meet while prices increased and wages didn’t keep up.” 

The point is that wages are not keeping up with inflation during retirement. Without COLA increases, feds’ incomes won’t have the ability to keep up with inflation.

No one knows for sure what inflation rates will be in the future. But, using a very moderate rate uncovers some concerning potential future financial issues. 

Without a COLA, if inflation hits just 3% per year during Tom’s first 5 years of retirement, his $1,000 per month cushion is effectively depleted. ($6,000 x 3% x 3% x3% x 3% x 3% = $6,955). That is just 5-years into retirement and his $1,000 per month cushion has dwindled to just $45. What should Tom expect in 15 years, 25 years and beyond? 

Tom decided he couldn’t sit on his hands and hope for the best any longer. The consequences were just to darn high. 

Tom has been reaching out to his congressional elected officials to let them know (as a voter in their district) his concerns and that he is watching them. 

But Tom didn’t stop there. Tom also decided to play as active a role as possible in protecting his career-long, promised benefits. 

Tom said, “It would be different if I hadn’t worked my whole career expecting to receive what I was promised. It seems some are intent on changing the rules of the game at the end.” 

Tom has also decided to add his voice to hundreds of thousands of other feds by joining and becoming active in National Active Retired Federal Employees (NARFE).  

Perception = Reality/Belief 

As can be seen in the article “Reforming Federal Worker Pay and Benefits” published by Downsizing the Federal Government, in the eyes of the public and some D.C. elected officials, Feds (unfairly) don’t share the same financial/retirement struggles everyone else does. Instead, they ARE the federal government, i.e., the “career establishment.”  As such, they are the “problem.” It doesn’t matter if you are the head of a major agency or the person that cleans the agency head’s floors, you are recognized as part of a glutted bureaucracy that plagues our nation! 

This masterfully crafted image of the federal workforce has been honed over several decades. The objective seems to be to give America an internal “elite” enemy to rally against, and you have a formidable base of “whipped up” supporters. 

The anti-federal workforce ideology has been decisively planted, and some in Congress intend on harvesting a bumper crop of cuts very soon. 

What Can Feds Do?

  1. Federal employees can unify and rally against not only the design but the proposed actions with one dominant and cohesive voice.
  2. Contact elected officials as Tom has started doing. Elected officials and political parties’ points of view can be swayed and even transformed by substantial and persistent outcries.  
  3. NARFE has an impressive resume of fighting for and successfully protecting federal income and benefits over several decades, but their numbers aren’t what they used to be. Federal employees concerned about and wishing to preserve their own personal incomes and benefits may well want to check into joining NARFE and other groups defending them. 

It appears obvious: take action or take what others decide you deserve. If changes come and Federal Employees do not unite against it, they will have no one to blame but themselves.

Any opinions expressed above are mine and mine alone.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss. Silverlight Financial, Infinity Financial Services and its affiliates do not provide tax, legal or accounting advice. This material is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. For a list of states in which I am registered to do business, please visit www.silverlightfinancial.com.

Silverlight Financial donates free/no obligation Federal Retirement Readiness Reviews. These reviews culminate with a no cost phone consultation with founder, Randy Silvey. To personally request your FRRR email: [email protected]

© 2018 Randy Silvey. All rights reserved. This article may not be reproduced without express written consent from Randy Silvey.

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About the Author

Randy Silvey is the published author of You FIRST, Federal Employees Retirement Guide, one of the bestselling books of its kind on Amazon and Kindle. For over 14 years, he’s been educating and guiding Feds in pursuing wealthier retirement lifestyles. Randy can be reached at 816-524-1515, [email protected] or visit his website at www.silverlightfinancial.com. Securities offered through Infinity Financial Services. Member FINRA/SIPC.

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