Uncategorized – Fedretireservices

5 Things to Know About TSP

Posted on April 2, 2024April 27, 2024 by admin

The Thrift Savings Plan is exclusive to federal employees, and it can help you fund your retirement.

The TSP can be confusing, especially if you haven’t been given the proper information regarding its use and its ability to help you in retirement from your federal job. If you’re not sure exactly what we’re talking about, that’s okay. Just know that you aren’t alone, and we’re here to help.

We can answer some of your biggest questions about TSP as a federal worker, even if you aren’t sure what questions you have yet. We’ll start with the basics by discussing what the TSP is, how contributions are made to your TSP, the different types of funds available, how much you can contribute each year and how the government matches your contribution.

What is TSP?

TSP stands for Thrift Savings Plan. The concept was established at the inception of FERS in 1986. It works very much like a 401(k) does for employees of private corporations, but it is offered exclusively to federal workers. Simply stated, it is a retirement and investment fund that can function as a second income stream in retirement in addition to your pension.

Currently federal employees are automatically enrolled in TSP when they’re hired. Auto-enrollment designates 5% of your base pay to your TSP account through payroll deductions. Additionally, the government agency or branch of service you work for also contributes to your account at around 1% of your base pay rate.

There are multiple options for TSP accounts, including which funds you invest in. You can also decide whether you will pay income taxes now or in the future by selecting a traditional or Roth option.

A traditional TSP account collects pre-tax dollars and is tax-deferred. When you withdraw money from this account after you retire, the withdrawals (also called distributions) can begin without penalty at age 59-1/2 and are subject to income taxes. Contributions to a Roth TSP account are made with post-tax dollars. All withdrawals, including any account gains, are generally tax-free during retirement if you satisfy IRS requirements.

What are the different types of TSP funds?

There are five different core TSP funds that federal employees can choose from. All five funds are managed by Blackrock Capital Advisers and are available only to TSP participants.

Your investment options are designed so you can choose either the L Fund that is appropriate for your time horizon, or a combination of the other four individual TSP funds that will support your personal investment strategy or mix.

In order of most to least conservative, the five main funds are: G Fund, F Fund, C Fund, S Fund and I Fund. The G Fund puts its contributions into government securities. The goal of the G Fund is to outproduce inflation while avoiding risk. The F Fund is the combination of government and corporate bonds to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. The C Fund puts its contributions toward large-cap U.S. stocks to match the performance of the S&P 500. The S Fund mixes small and mid-cap U.S. stocks to match the Dow Jones. The I Fund uses large-cap foreign stocks in an attempt to match the performance of the MSCI EAFE Index.

The L or Lifecycle funds are composite funds that invest in a combination of the five core funds and act like target-date funds by nature. They are designed and managed by the portfolio managers at Blackrock Capital and function as “automatic pilot” funds for participants who do not wish to make their own asset allocations.

If you are auto-enrolled, the automatic selection is your age-appropriate L fund.

Who can contribute to TSP?

The groups that may contribute to TSP include: FERS employees, CSRS employees, uniformed service members, civilians in other federal jobs such as justices and judges, and full-time federal employees. Part-time federal employees and contractors are not eligible for TSP.

TSP is voluntary. If you’re unsure if you’re currently enrolled or how much you are contributing, you can check your paystub.

What are the contribution limits?

In 2022, each eligible and enrolled federal employee may contribute $20,500 annually to their TSP. Federal employees over 50 years old may also contribute an extra “catch up” amount of $6,500. The contribution limit typically increases each year to keep up with COLA and inflation. For example, in 2021, the contribution limit was $19,500 per employee. The limits apply to both traditional TSP and Roth TSP accounts.

What is the government’s policy regarding matching funds?

The first 5% of an employee’s salary is matched to some degree. The first 3% contributed by the employee to either type of TSP is matched dollar for dollar by the government, and the other 2% is matched at 50 cents per dollar. Employees may contribute more, all the way up to the annual limit, but contributions above 5% of an individual’s salary are not matched.

If you have any questions about FEGLI or you need help deciding which package is right for you,

please give us a call at (734) 388-0044.

5 Facts About Social Security as a Federal Worker

Posted on April 2, 2024April 12, 2024 by admin

Most retired federal employees participate in Social Security now as part of FERS. Here are some things you should know.

Federal employees under the FERS (Federal Employees Retirement System), which replaced the CSRS (Civil Service Retirement System) in 1986, all participate in Social Security.

In fact, FERS is a retirement plan that provides benefits from three different sources:

A Basic Benefit Plan,
Social Security and
The Thrift Savings Plan (TSP).

The first two, the Basic Benefit and Social Security parts of FERS, require you to pay your share each pay period. Your agency withholds the cost of the Basic Benefit and Social Security from your pay as payroll deductions.

After you retire your Basic Benefit Plan allows you to receive annuity payments each month for the rest of your life (also called a pension)

The Social Security portion of your benefits means you can also file for and collect Social Security and receive monthly checks for the rest of your life.

Thirdly, instead of the 401(k) plans available to private sector workers, federal employees have the TSP (Thrift Savings Plan) as part of their benefit package. Your TSP account is automatically set up for you by your agency. Each pay period your agency deposits into your account amount equal to 1% of the basic pay you earn for the pay period. You can also make your own contributions to your TSP account and your agency will also make a matching contribution. Participation in the TSP is automatic although you can opt out or opt to contribute more. It is similar to a private sector 401(k) plan.

Five facts about Social Security that you should know as a federal employee:

1. CSRS (Civil Service Retirement System) employees, or federal employees who began working for the federal government in 1986 or earlier do not contribute to or nor can they collect Social Security.

CSRS employees do, however, contribute to Medicare, so they qualify for Medicare at age 65.

2. FERS (Federal Employees Retirement System) employees, or those who began working for the federal government after 1986, do contribute to and can collect Social Security.

NOTE: Often the amount of Social Security that federal employees can collect is not enough to provide a comfortable retirement, even when added to the FERS Basic Benefit pension. TSP (Thrift Savings Plan) contributions may need to be higher early in your career to ensure you have enough money to retire securely when you are ready.

3. The date you can file for Social Security benefits is different than the age you can take withdrawals from your TSP account without penalty.

Whether you are a private sector worker or federal employee, waiting to file for Social Security can add to your lifetime benefit amount. You can file for Social Security as early as age 62, but your benefits are permanently reduced if you decide to claim Social Security before your full retirement age.

For those born between 1943 and 1954, the full Social Security retirement age is 66. It then increases two months for every year of birth from 1955 to 1960 until the retirement age reaches 67. If you were born after 1960, your retirement age is 67.

If you wait even longer to file, your benefits increase by 8% per year from full retirement age up to age 70.

Just as with private sector traditional 401(k) accounts, you can begin withdrawing funds from your traditional TSP account without penalty beginning at age 59-1/2, but you will owe income taxes on the amounts withdrawn. (Roth accounts are generally not taxable except for the matched portion.)

4. Projections show Social Security will run into shortfalls in 2034.

By the year 2034, analyses show the current reserves will be depleted. Without Congressional changes to Social Security—such as reducing benefits, raising the Social Security age, increasing Social Security withholding, or raising the cap for high-earners—it’s expected that the government will only be able to pay 78% of expected benefits by then. With workers already aware that it’s nearly impossible to live off Social Security payments alone, it’s important for the federal employee to plan to have other sources of retirement income in place.

5. Social Security payments are often not enough to completely support you in retirement.

In 2018, the NHP Foundation reported that 62% of baby boomers think Social Security will fund at least half of their retirement. In reality, that’s not the case. There is typically a gap between the amount retirees need to spend and want to spend versus the amount they receive in Social Security. Pensions, TSP accounts and other retirement strategies can be a great way to supplement that income—but you must plan early to have enough by the time you are ready to retire.

If you have any questions about Social Security, your federal employee benefits or how to better prepare yourself for retirement

please give us a call at (734) 388-0044.

Pros and Cons of FEGLI

Posted on April 1, 2024April 27, 2024 by admin

Do you have questions about life insurance as a federal employee? We have answers!

As a federal employee, you have probably heard of FEGLI. Moreover, it’s incredibly likely that you have Federal Employees’ Group Life Insurance as part of your benefits package, but having it is only part of the battle. Understanding it is the more mountainous task. With more than 500 questions on the FAQ page of the U.S. Office of Personnel Management’s website, understanding it can be difficult. That’s why it’s important to have a dedicated advisor willing to help you use it to your advantage throughout your career and retirement.

As per usual with life insurance, there are positives and negatives with FEGLI. Let’s break them down to help you understand how you’re protected as a federal employee and how you can use your benefits to plan for your future.

What is FEGLI?

Before we can cover the pros and cons of FEGLI, we have to first establish what it is. FEGLI stands for Federal Employees’ Group Life Insurance. It is term life insurance for the largest employer in the world, the federal government of the United States. It was first conceptualized in 1954 and currently covers more than 4 million employees and retirees and their family members.

The insurance is actually provided by MetLife, who has a contract with the OPM, or the Office of Personnel Management, and MetLife has an office dedicated to federal employees. That office is called OFEGLI, or the Office of Federal Employees’ Group Life Insurance, and it handles claims under FEGLI.

Employees are automatically enrolled into FEGLI, and premiums are deducted from paychecks. It is, however, possible, to waive coverage if you choose to opt out.

PROS:

1.Death benefit

The most obvious pro to a life insurance policy is the death benefit. In the event of untimely death, you can only hope to leave your beneficiaries with some money to cover the cost of your funeral and, ideally, support them without your income. The total payout of the basic package is one year of annual salary, rounded to the next $1,000, plus an extra $2,000.

2.Automatic enrollment

Federal employees are automatically enrolled into the basic FEGLI package, which includes the death benefit. With automatic coverage, there is no hassle of an initial sign-up process. Premiums are then deducted right from your bi-weekly paycheck, so there’s no need to keep up with paperwork or deadlines. You’re also able to opt out of the group life insurance benefit if you so choose.

3.Cheap for employees who are currently working

Under FEGLI, the employee pays two-thirds of cost, and the government pays one-third of the cost, except for postal employees who get basic coverage at no cost during employment. Age also does not affect the cost of the basic coverage, as long as the employee is working. There are even double basic benefits for employees until age 36, after which it decreases by 10% of the base death benefit each year until the age of 45. You can click right here to calculate the cost of your basic life insurance package and see your hypothetical death benefit.

4.Opt-in additional coverage

FEGLI offers three additional forms of optional insurance if federal employees would like more coverage. Option A offers $10,000 in additional coverage. To see the additional cost per paycheck, or per month, you can click right here. Option B offers extra coverage in multiples of one through five of your base annual pay rate, and the additional cost is per $1,000 of additional coverage. To see a table displaying the extra cost per paycheck or per month for Option B, you can click right here. Finally, Option C insures spouses and children. Federal employees may insure their spouse for five units of $5,000, and they may insure their children for five units of $2,500. To see a table displaying the extra cost per paycheck or per month for Option C, you can click right here.

CONS:

1.Employees cannot borrow against their FEGLI insurance

Federal Employees’ Group Life Insurance is only a term life plan, so unlike other types of life insurance, there is no investment component, and there is no cash value from which you can borrow.

2.Expensive and/or minimal coverage for retirees

As discussed in the list of pros, FEGLI comes with optional additional coverage for federal employees and their families. At age 65 or retirement, whichever comes later, the coverage in Options B and C are reduced 2% each month for 50 months, at which point there is no coverage. Employees who opted into Options B and C may continue their coverage, but premiums increase significantly with age. Under the basic package and the additional Option A, the coverage decreases 2% each month until the death benefit is 25% of its total at the time of retirement.

3.Insurance has not been updated on pace with inflation

When FEGLI was first created in 1954, the $2,000 was intended to be the extra support figure to cover the cost of death. More than half a century later, the extra payout is still $2,000. With inflation at around 900% since 1954, that extra payout of $2,000 would need to be around $20,000 to have the same purchasing power.

4.Coverage ends if you leave your job as a federal employee

Most professionals are always looking for great opportunities to progress their careers and horizons. Sometimes, for federal employees, that means leaving the government and working for a different employer. In that situation, coverage ends unless the employee is rehired by the federal government within 180 days, in which case the same coverage would be reinstated. Also, if you waived your coverage while working for the federal government, leave to work for a different employer, then return to work for the government, you are not eligible to enroll into FEGLI.

FEGLI can be confusing as a government employee, especially if you haven’t been properly educated on each individual detail. It is, however, a crucial piece of your benefits package as a federal worker. It’s important to know how your coverage works, what it entails and how it can help you if the unthinkable were to ever occur.