Navigating Federal Retirement: FERS and Maximizing Your TSP

Federal employees face significant changes in retirement policies that can impact their benefits. Understanding FERS and TSP is crucial for effective planning, and proactive education is emphasized throughout the discussion.

• Overview of recent changes affecting federal employees
• Importance of understanding federal benefits for retirement
• Insight into FERS and its advantages
• Discussion of survivor benefits and their implications
• The role of TSP and investment strategies within it
• Caution regarding the mutual fund window and associated costs
• Encouragement for federal employees to seek education and guidance
Do you want to learn more about what your federal benefits include? Contact us to discuss your options.

Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.

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Call 770-980-9262 to speak directly with someone about your retirement planning needs.

https://masterplanretire.com/

Catch all episodes of our podcast at https://www.masterplanyourretirement.com/resources/episodes

Listen to Mark Fricks on Saturdays at 12:00 p.m. on XTRA 106.3 FM WFOM.
Sign up for one of our upcoming events at https://www.masterplanyourretirement.com/events

Purchase Mark’s book, The Road Less Traveled: Turning Your Retirement Worries Into an Excursion of a Lifetime, on Amazon: https://a.co/d/4fx94Al

Advisory services offered through MasterPlan Retirement Consultants, Inc., a Registered Investment Advisor in the state of Georgia. Insurance, tax and commodities services offered through Fricks and Associates, Inc. dba MasterPlan Retirement Consultants. The aforementioned are affiliated companies.

Transcript

Speaker 1 0:06

You are a federal employee? Do you have a job? Can you retire, folks? Hey, thanks for joining us. My name is Evan, with me, as always. Retirement planner Mark Fricks with MasterPlan Retirement Consultants. Thanks for joining us today. Thanks for joining us today, whether you're a federal employee or know someone who is. Today we'll discuss recent changes in policy from the new administration and how it may affect our country's federal workers.

Speaker 2 0:32

Yeah, so we've talked about this before. A large segment of our clientele are federal workers. We've got a lot of retired federal workers. We've got a lot that are shooting for retirement. So we're very well versed in this. We're certified in federal employees. But there are changes coming. They've already begun coming, so to speak, and we're going to talk today about what do we think, what do we see on the horizon, what do we think the effect is going to be on you as a federal worker and what are your options. So I think we'll get a nice overview today. And even if you're not a federal worker, and what are your options? So I think we'll get a nice overview today. And even if you're not a federal worker but you're in a position to where your job maybe you're tired of it, you're headed toward retirement don't tune out, because some of this will apply to you as well but certainly targeting that federal employee today.

Speaker 1 1:17

Yeah, absolutely. And whether you are a federal employee and thinking you might want to retire soon or still have a long time horizon, we are going to discuss some of the policy changes, for sure, but some of the topics we discuss. As far as federal employee benefits, not only are they good to know now for preparation for your retirement, no matter how long the time horizon, but for non-federal employee workers, we're still discussing topical issues that have to do with everyone's retirement.

Speaker 2 1:43

Yeah, and I think the thing we've experienced too teaching so many federal classes, working with so many workers that work for the government is that the complaint we get the most often is they don't understand their benefits. And here you've got somebody that starts work with the federal government and then 20 years later they find out this benefit was there. They should have been feeding it or paying more attention to that. And so we've really been trying, as you know, Evan trying to get into some of these federal agencies early, maybe during the processing part of the hiring, so that we can go in and teach them ahead of time. Oh, they'd be so much further ahead, so much further ahead. So if you know someone, if you're a department head or if you're connected and you're like, hey, we need somebody to come in, we don't charge anything for that. It's just educationally based but really to help folks getting ready to begin employment but also again getting ready to retire as well.

Speaker 1 2:32

Yeah, excellent. So, Mark, to start out, can you discuss some of these policy changes and why it's got certain people a little concerned?

Speaker 2 2:39

Yeah, two or three things. First of all, there's talk, of course, of getting rid of some of the federal workforce. You know they're looking at cutting positions. They're looking at cutting out certain layers of management. They're using different ways to do this.

Speaker 2 2:53

Now, whether you agree or disagree that we have too many employees in the federal government, too little, I think it depends on the department. But I know a lot of the folks we talk to. They're like you know, people are retiring and not replacing them and they feel like they're being overworked as well. So this is not a one size fits all, and so that's one of the issues I kind of have with what's going on is kind of a let's throw everything out of you know, out the window, and then you know what? Do you go back and say, ok, well, now we're missing this, that and the other, and sometimes these folks are hard to replace. But there is that.

Speaker 2 3:26

What can we do to go ahead and get people to retire early? What can we do just to get people to leave? Period? They're looking at doing in fact, I think they've already issued an order or some instructions to begin getting rid of telecommuting, and so I know a lot of the folks that haven't retired yet. They work with us, telecommute, two days a week, three days a week, maybe five days a week. I know a couple of folks that live fairly far away, like in another state, and so do they retire, do they quit, are they ready to retire? And so part of today's episode is going to be about can you retire earlier, and what are some things you can look at to help you do that?

Speaker 1 4:03

There's not been a lot of nuance in the news yet, it's been a lot of blanket, and that we were just in Augusta, georgia, teaching a federal benefits seminar and one of the conversations was there's someone who's a federal employee, and they were on disability as well, and they can't really commute, so they had a completely virtual job and now they are under the assumption that they might have to start going into the office five days a week and they just might not be able to do that. So some people have a little bit more options, others might not. So, just as Mark said, we want to talk about what are your benefits? How do you prepare for retirement? How do I look to see if I'm ready for retirement? And that's where we'll start today All right, let's get going Well.

Speaker 1 4:44

First of all, federal employees have two big benefits. Well, they have as far as the retirement planning, financial aspect of that, and one is your pension, your first pension, in fact. In an era where pensions are going away more and more, you folks are incredibly blessed.

Speaker 2 5:03

You are for a couple of reasons. Number one is it's a good, solid pension. Also, there may be some CSRS pension folks out there as well. That's the old pension program, so we're kind of alluding to both. But the more common one now is the FERS, and basically it's a guaranteed annuity check from the government for as long as you live, and so this is a benefit that the employee pays very little into. I think they pay 5% into this program. The government covers 95%, and so there's this guaranteed check on top of your social security and that's a great benefit to have because, as you said, in the corporate world most of those are gone.

Speaker 2 5:39

The other good thing about the one with the federal government it does have a cost of living adjustment. It doesn't keep up with inflation, but it certainly bumps it up some over the years to help keep up. And so you know, we've had some employees come to us confused about what is FERS, what is their TSP, things like that. So that's why Evan's kind of starting with the basics what is the FERS and how does it work? So there's really nothing for you to do. There's no managing it. There's no, you know, picking funds. It is managed by the government and the longer you work, every hour you work puts another penny in the jar, so to speak.

Speaker 2 6:14

It makes your pension bigger. There are ways to maybe maximize it at retirement. We can help folks with that. Do you want to increase your pension based on survivor options, things of that nature, that Do you want to increase your pension based on survivor options, things of that nature? And that's another whole layer, right, evan, is do you leave a survivor to a spouse or significant others? Who else can you leave it to? That's some training we do. There are some other caveats of where you can leave it, but it does cost you something to leave it. So there's other ways to maximize that without reducing that survivor benefit. So there's a lot of moving pieces and that's just the pension part that's got to work in conjunction with your social security, with your maybe a spouse's social security, other forms of income.

Speaker 1 6:53

Medical benefits.

Speaker 2 6:54

Exactly. I mean all of this kind of ties together and it's so multi-layered, especially for the federal worker, but I think this is a good place to start is the FERS pension. By the way, if you are not fully vested in your retirement as far as your FERS annuity, there are ways to take it earlier. So if you felt like you're being pushed out or you felt like your position's being alleviated I'm sorry, eliminated or if you can't commute, telecommute or something like that, we might be able to help you still get that pension. There's at least two ways to do it. So that might be a great reason to schedule a phone chat with us. But that is an important part of your retirement and it again, depending on how long you've been with the government and your age and things like that, can we get you into that pension program. If you're forced or decide because of circumstances to leave earlier.

Speaker 1 7:48

Yeah, and depending on how many years you've worked with the government or your age, you could retire with full benefits. Again, there are very specific numbers that we can look at with you if you want to call or reach out to us via our website, masterplanretirecom. But as far as, how much am I getting for my pension? The the big question how much am I getting monthly? Now you are able to look that up yourself. Is it the grhp platform?

Speaker 2 8:13

I believe that is correct, or we can. We have the software as well. We can write a report for you, right? It's a very simplified process that we use um and it's very accurate. We pretty much match what comes up on the federal website as well.

Speaker 1 8:26

Right and keep in mind, too, the number that you see if you do run this for yourself, the number that you see for your monthly pension. That is a gross number.

Speaker 2 8:35

Yeah. So be careful with that, because gross means that's everything you would get. But you haven't taken away what comes out of that. So what comes out? Well, federal taxes. The first pension is 95% taxable, so whatever rate you're at in retirement and that of course will change over the years. But also, if you keep the health insurance, the FEHB, that price comes out of that. If you keep any of the life insurance, which is called fegally with the government, that comes out of that. And then the other big one could be if you purchase a survivor benefit, if you want to leave some of that annuity to a spouse or significant other, if you pass away first, that's going to reduce your pension. So that's something you may or may not get on the website with the government, but we certainly can help you figure that as well.

Speaker 1 9:20

And it might seem like a very straightforward answer when considering your survivor option, but there's a lot more nuance than you would suspect or assume on the outlook and I would really recommend you speaking to someone who is an expert. Please contact us if in any way you are interested, because there are certain considerations, because, as Mark said, it does lower your FERS benefit a little bit, but there are also options for pension maximization. You want to discuss with that?

Speaker 2 9:48

Yeah Well basically, it's just other ways of replacing your pension. If you pass away first, because the negative with buying a survivor is, if I collect my pension for 10 years, I'm getting between five and 10% less. If I have a survivor, Okay, Well, that's five. Or 10% less. If I have a survivor, Okay, well, that's five. Or 10% less Well, that could be two, three $400 a month. Okay, If I die first, if I continue living, I've wasted that money.

Speaker 2 10:12

I've paid because my spouse has already gone. So there's other ways that outside sources that will actually pay that pension amount, whether you pass away first. Your spouse passes away first it can go to kids, grandkids. Your pension cannot, and so it's one thing to think okay, I just need to see how much my spouse needs to get A lot of other things. Maybe you don't even need a survivor because your spouse is taken care of in other ways. So many things to look at and that's again one of the reports we can run for you is the survivor report. If my spouse passes away, what am I left with and how do I plug that gap?

Speaker 1 10:50

And if you're under the age of 62, you also may be entitled to additional pension money. Some people around the water cooler in the federal offices might refer to this as the social security supplement, but it's called the special supplement.

Speaker 2 11:05

They still have water coolers.

Speaker 1 11:08

They got to drink something.

Speaker 2 11:10

It's called bottled water.

Speaker 1 11:11

Depending on what the next year looks like it might turn into a keg.

Speaker 2 11:14

That's right. So yeah, Evan is exactly correct there. Another great benefit for the government worker is they have what's called the FERS supplement. So the FERS supplement is basically an extra check that comes to someone that retires under full benefits under age 62. So if you're 60 and you retire with full benefits, you've got enough years in. Then you get an extra check until age 62. And so that's another great benefit, and so that helps plug some gap. But at age 62, that gap filter is gone. So how do you fill it? Do you turn on social security early? Not a good idea, usually. Other things we can utilize as well. So, again, another great benefit.

Speaker 1 11:54

Anything else over FERS as far as FERS that we need to cover Well.

Speaker 2 11:59

I just want to make sure people understand that just because you're not full retirement age and have a certain number of years in doesn't mean you can't go ahead and retire with most of your benefits. So again, if you see the writing on the wall, maybe you're not sure yet. But don't wait till the last minute. Go ahead and contact us. Let's have a plan and if you end up staying, at least you've got a plan that we can extend. If you don't end up staying, then we have a backup plan. Don't wait till it happens. Be proactive, because you'd be surprised some of the ways that you can actually collect that pension, even when retiring early.

Speaker 1 12:33

Yeah, Another thing to consider is today's episode.

Retirement Planning for Federal Employees

Speaker 1 12:37

We've got 25 minutes on air. We're trying to cover as much as we can in a short period of time. So there are many caveats, a lot of details, a lot of gotchas that we are missing in this conversation. This is as much of an overview as we can do. I would recommend you attending one of our seminars or webinars.

Speaker 1 12:54

On our website, masterplanretirecom, we host a series of different webinars, whether they're social security or income in retirement tax strategy. We also fairly regularly host federal benefits seminars. Again, seminars or webinars. Go to our website, masterplanretirecom, or call us at the office 770-980-9262. We dig in a lot more and it's not just more information. There is talk back. We get to take your questions, field your questions and concerns and look how things might apply to your specific case. So feel free to take us up on that. Also on our website, for anybody interested, you could schedule now an IC, an initial consultation with one of our advisors, and that's an opportunity to discuss your own retirement hopes, dreams, fears, you name it. We'll run a series of reports and see where you stand in your retirement today.

Speaker 2 13:52

Yeah, when you go to the website I think it's under events Is that where the classes are? Yes, sir, events tab. We're going to there and we typically have things listed on there about a month ahead. So bookmark it, come back because we'll be adding some every month and again face to face in many areas of the southeast, but the webinars are great because you can sit at home in your PJs at night with a cup of coffee or tea and they last about an hour so it doesn't take forever. Good Q&A at the end and we get much deeper during that class, so definitely.

Speaker 1 14:25

And if you don't see something on the events page, reach out to us, email us. Either way, we will make sure you get the email invites for upcoming seminars. Yep, great idea. So the second half, essentially, of the federal employee benefit is the Thrift.

Speaker 2 14:42

Savings Plan or the TSP. Yep, TSP is the 401k for the government worker. Okay, Works very much the same way. It's interesting with the TSP. When they first put it together, the general consensus among the Thrift Savings Plan Board which governs the TSP, was the feedback they got was let's keep it really simple, so they have as few of holdings as any other retirement plan.

Speaker 2 15:08

I've seen there are five funds to choose from and so you know when we teach a class I love to ask folks you know I kind of play the game of. You know most of you have one of your largest assets for retirement is probably your TSP. You know certainly cannot get into it super deep today. Okay, so attend a class, but basically five funds to choose from. They're trying to expose, you know, 70% of the places you can put your money, so they're in. So they got some government bonds from regular bonds, some common stock, S&P 500. They got small stocks and the international funds and you can choose between the five.

Speaker 2 15:55

We actually help many of our clients and folks like you manage that TSP to get that risk a little bit lower, get the return a little bit higher. Over time they can make a big difference. But I would certainly encourage you to at least put in the match. The government matches up to 5%. At least put 5% of your income into that TSP and I would also recommend that the 5% you're putting in goes into the Roth part. The Roth part you do not get a tax break this year but you never pay taxes for the rest of your life on that money while it grows and when it comes out powerful. You control the irs, they don't control you. So so those are just some very quick little tidbits about it.

Speaker 2 16:38

I will say this the g fund, which is the government fund it's the safe fund cannot lose money unless the government defaults. Right, but it does not beat inflation. So I've had people sit the g? G fund for 10, 15 years and they have lost out on significant market returns. So if you're five years away or more from retirement, utilize the stock accounts, the C and the S, primarily. If you're five or less, you need to call us, because if you're five years or less away, we're going to have another bear market and at least another correction in the next five years and that money in your TSP you're gonna lose some of it. Okay, and that's okay if you're 20 years away, but if you're five years away or less, you may have to work another year because if you've lost 20 or 30 percent, that could affect it. So be careful with that. It's okay to sit and forget it when you're 25 and 35, but be careful when you get close to retirement.

Speaker 1 17:34

Yeah, martin. The TSP also has options to invest in lifecycle funds.

Speaker 2 17:39

Yeah, so the lifecycle funds they've been around about 20-something years in the open market. Not a big fan of them because basically these are portfolios put together of those five funds we just talked about. Ok, so there's no different investments. They're just kind of setting up the percentages for you. The problem I have with that is those percentages are locked in. So if I'm locked in at 15% of the G fund which I really shouldn't be in any way if I'm away from retirement, 15% is too much to be in the G fund if I'm 20 years away from retirement. Yet that's the static on the 2040, the 2045 L fund, and so I'm not a big fan of those. I'd prefer to make changes as we need to. We as a firm, our money manager algorithms and things like that directed us back in 2022 to go to the g fund. But you don't drive in the g fund, you park there. That's a nice, safe place, but don't stay there.

Speaker 1 18:37

So we got back into the market late in 2022, later in the bear market, made some money that year and if you were a federal worker back in 2022, you might remember over the summer, a two-week blackout on the TSP website. They did a huge update, revamped some things to make it more user-friendly. I don't know how user-friendly it is at this point, but you can be the judge.

Speaker 1 19:02

But something else they did in that two-week period was open a mutual fund window. Basically, they had a lot of complaints, say only these five funds, we need more options. So they took the opportunity to give you some options, 5,000 of them actually.

Speaker 2 19:17

Yeah, so during this blackout period they installed a window. Okay, I don't know why it takes two weeks to install a window, but they installed a window. Not sure what the warranty is, but basically they have a window that if you pay to open it, and so there's a $95 charge a year to open it and I think a $55 charge a year to maintain it, or vice versa. So already $150 to access this window. When you open the window, there are 5,000 mutual funds. Okay, now you have choices. Problem is what do you choose?

Speaker 2 19:54

The biggest problem I have with it is not only the annual maintenance admin fee, but is one trade cost 28 bucks. I can't afford that. I mean, if I make 10 trades, that's 280 bucks. If I turn around a month later and make a change, it's costing me again. The other bigger fee is this Every one of those mutual funds, evan, has an expense built in between a half percent and 2%. So you've got to make a half to 2% just to break even, plus the cost of the trade. So not big fans of the mutual funds. I think they should have had 50 funds and no trading costs. That's what they should have done. I'm not sure, is the government in the? Are they trying to make a profit, or what?

Speaker 1 20:34

It almost, it almost feels like out of spite. Oh, you want more choices. Here you go. The biggest issue, or one of the largest issues in my mind is one of the reasons we're able to work with the federal employees is because the government doesn't have a department to do that. They don't have retirement planners or advisors to help employees decide where they should invest, how they should invest or even teach them Anything about their retirement period?

Speaker 1 20:56

They don't even get taught about their benefits. The government thought that it was better to outsource that, so we have an opportunity as an independent RIA form to open ourselves up to that line of business. Of course it's a great thing, but the problem is so many people that come to our federal seminars and webinars they don't have any of this information. And the same thing with the TSP or FERS and all these ins and outs the mutual fund window. How do you know what to choose? I don't know what to choose.

Speaker 2 21:23

I'm an investment advisor, but I mean, how do you know what to choose? I don't know what to choose. I'm an investment advisor, but I mean, how can you study 5,000 different funds and again, just because one did good last year has nothing to do with this year, and so if you're trying to diversify by 20 of them, again your trading costs, the fees and the funds? We don't even use mutual funds anymore. They're so antiquated, cumbersome, expensive, all of that. We don't even use mutual funds anymore. They're so antiquated, cumbersome, expensive, all of that we don't even use them anymore. And now you got 5 000 to choose from. It's again. It's just ridiculous. I don't understand why they did it that way. I'm not in charge, I'm not on the board, so you know, maybe there's something they found that's a good idea. I'll tell you this since's opened, that window has opened two years ago, two and a half years ago. Now, every workshop we've taught face-to-face. I've asked who's heard of this. I can think of two people that's heard of it.

Speaker 1 22:16

Almost no one.

Speaker 2 22:17

And so it's probably good you don't know about it, because I don't think it's a great idea. But I don't know how they I guess they sent out an email, I don't know, but nobody knows about it, and so now you know about it. I'm not saying you should use it, but you know about it. So we just take those five funds the G, the F, the C, the S and the I and we use those to pick up most of everything we need when we're helping our clients manage that TSP. And imagine getting some help managing it, picking up an extra 3% on average, historically with less risk, by managing the TSP. Again, 30 years old, not a big deal. But getting into your later years, your five years or less away from retirement, really need to get a hold of that because you can't afford a large loss at that late stage of the game.

Speaker 1 23:05

Look, we have less than a minute left. There's so many more things I'd like to share about your federal benefits, but please, if you have any questions or just want to learn more, check out our seminars or webinars. There's insurance to discuss life and health that are part of your federal benefits package and they also affect FERS and other aspects of your retirement, affect your survivors. Just like Mark mentioned, there are gotchas I wish we could have gone over.

Speaker 2 23:32

Oh, look into a gotcha program.

Retirement Planning Guidance and Resources

Speaker 1 23:33

There's a TSP annuity option. When you log in and look at your TSP, avoid it like the plague. Call us, we'll talk to you about it and spill the beans, or just come to a seminar masterplanretirecom.

Speaker 2 23:48

Take our class and or schedule a chat and I mean I'll educate you one-on-one, Okay, but more importantly, we'll run some complimentary reports. Make sure you know where you're at, so until we see each other again. It's time to wrap it up, but remember, plan well and prosper and take care everybody. This was Retirement Roadmap Radio with Mark Fricks of Master Plan Retirement Consultants. To schedule a complimentary consultation, go to masterplanretirecom or call 770-980-9262. Thanks for listening and remember plan well and prosper.