Posted on Thursday, 6th July 2017 by

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It’s hard to believe that only 2% of the active workforce is CSRS retirement eligible! When I was hired in the early 1970s all were CSRS eligible. A sea change from those days. Now FERS will soon be the only game in town and we don’t know what changes will come down the road for new hires. There is talk of eliminated the fixed annuity FERS option for new hires and if that comes to pass FERS will sunset 30 to 40 years down the road as well.

The July edition of the NARFE magazine published the latest annuity statistics. There are a total of 2,625,261 annuitants for the federal and postal systems of which 533,884 are survivor annuitants.  Add to this active federal and postal workers and you have a total annuitant and employee count of 5,361,427!  The average monthly employee annuity was $3,586 ($31,032 per year) for CSRS and $1,392 ($16,704 per year) for FERS in 2016, a survivor’s average monthly annuity was $1,575 ($18,900 per year) for CSRS and $557 ($6,684 per year) for FERS for that same period. Fortunately many also have the TSP plan and Social Security to add to their monthly income in retirement plus personal savings and investments to draw from. Many CSRS annuitants aren’t eligible for Social Security because they didn’t work 40 quarters in the private sector and pay into the Social Security System.

According to the Social Security website, “The average monthly Social Security retirement benefit for January 2016 was $1,341. The amount changes monthly.”  For FERS annuitants adding this to their annuity takes them up to an average of $2,733 a month, closer to what CSRS annuitants take home. Adding the more generous FERS Thrift savings accounts, CSRS employees were limited to a 5% contribution with no government match if memory serves me, FERS employees total take home in retirement could easily exceed that of the CSRS retiree. FERS employees were permitted to sock away the maximum each year and they received a 5%  match if they contributed at least 5% to the TSP.

Financial planners often recommend that FERS employees contribute as much as possible to their TSP plan for a number of reasons. First, you get an immediate tax break because TSP contributions are tax deferred until withdrawal years later. Secondly, the compounded interest earned will grow your balance significantly over time and your retirement nest egg can and will be substantial at the time of retirement if you manage it properly.

The key phrase is “manage it properly.” Too few know little about finances in general and that can dramatically reduce your retirement savings when you really need it. If you are unfamiliar with finances or not interested in learning about investing a target date fund will manage the mix of funds for you.

My daughter is a federal employee and she asked me to help with her fund selection. I suggested the L-2040 target date fund. Each year she adds half of her annual pay increase to her TSP contributions and intends to continue with this approach until she reaches the maximum amount allowed.  I advised her to ignore the stock market’s erratic behavior and let the target date fund balance her account every quarter to a more conservative mix until she retires around 2040. By the time Sabrina retires approximately 85 percent of her entire account will be in the G Fund and high quality private sector bond fund.  Currently the G Fund is the only fund that I’m aware of that is guaranteed never to decrease in value! Can’t ask for more than that.

Both retirement systems have their advantages and no matter what plan you are in a federal retirement far exceeds what most in the private sector can expect. If FERS employees pay attention to their THRIFT account and opt to fund it to the maximum many will potentially have hundreds of thousands available for them when they need it.  Even as a CSRS annuitant I can attest to the advantages of the TSP. My account balance, even though I was only able to contribute 5% of my annual earnings, has increased to over three times my total contributions. I elected to keep my TSP active for a number of reasons that I discussed in an earlier article titled, The TSP Advantage (Show I Stay or Go).

Now that we are midway through another year it’s a good time to review your retirement options, possibly request annuity estimates from HR for several target dates, and perform a comprehensive retirement cost analysis. Take a breather from your hectic schedule and sit down with your significant others and talk about retirement and your expectations.

Request a  Federal Retirement Report™  today to review your projected annuity payments, income verses expenses, FEGLI, and TSP projections.

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Disclaimer: Opinions expressed herein by the author are not an investment or benefit recommendation and are not meant to be relied upon in investment or benefit decisions. The author is not acting in an investment, tax, legal, benefit, or any other advisory capacity. This is not an investment or benefit research report. The author’s opinions expressed herein address only select aspects of various federal benefits and potential investment in securities of the TSP and companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that retirees, potential and existing investors conduct thorough investment and benefit research of their own, including detailed review of OPM guidance for benefit issues and for investments the companies’ SEC filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.

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