In the recent past, proposed budgetary measures seek to reduce the benefits current and retired federal employees receive. Given that, it is worrying that federal employees aren’t doing anything to fight back this threat. What is the reason behind this nonchalance?
It could be that most feds aren’t aware of the impending threat. For this reason, many are oblivious of this risk to the retirement benefits and incomes. Others may know of these measures but could be ignorant and apathetic.
What are the Proposed Measures?
The White House’s 2019 budget proposal contains the proposed benefits cutting measures. Among the proposed in this budget are those that seek to reduce the following benefits:
Cost of Living Allowances (COLA)
Employees under FERS will no longer receive COLA annuities or pensions in the future. COLAs exist to offset inflation during a federal employee’s retirement. This measure is expected to affect a majority if the federal retirees. In this proposal are measures to reduce current and past CSRS COLA retirement benefits.
FEHB Health Insurance
Another proposed measure intends to reduce federal employees FEHB Health Insurance remittances. In essence, this is a well-hidden pay cut targeting federal employees.
Also, the 2019 budget proposal will cut pensions and annuities are calculated to achieve desired cuts. Instead of using a high-3 annual average, this measure will use a high-5 annual average for calculations. In doing so, it will reduce the base used in calculating annuities and pensions. Employees who make a significant contribution to their retirement plans will be hard hit by this proposal.
Thrift Savings Plans (TSP)
Besides the above benefits, the 2019 budget proposals also target TSPs employer math and total value. What’s’ more, the G Fund’s interest rate is targeted for reduction.
Given that, the importance of paying attention to these proposed measures cannot be underrated. It is not possible to ignore these issues and hope to enjoy your benefits after retirement. The time for action is now! Electing to let this issue fade away is a recipe for disaster.
Hypothetical Case Study
Consider this hypothetical case of an employee with 34 years of federal service. Let’s assume that he learned of the impending measures to eliminate or reduce his benefits last year. Two of his major concerns include measures to eliminate the Special Retirement Supplement (SRS) and Cost of Living Allowance (COLA).
As a result, he conducts a Retirement Readiness Review(RRR) with the assistance of his financial advisor. Because of SRS cuts, he has to postpone his retirement by four years. Even worse, the proposed elimination of COLA benefits jeopardizes his retirement plan.
Presently, this employee is 54 years old and looks forward to retiring at 58 years of age. Given that, he planned to rely on the SRS supplemental income in his first four years of retirement. All the same, his RRR reveals he needs to make SRS withdrawals in the short term worth $69,000 for sustenance.
At age 62, estimates show that he requires an SSA income of $1,646. At 58 years of age, his SRS payments equal 87.5% of his SSA income at age 62, (35 years/40 year=87.5%). Initially, he had planned to use $1,440 ($1,646 * 87.5% =$1,440) each month for his retirement needs in the first four retirement years. However, he will have to delay his plans if/when the SRS is eradicated.
Though eradication of the SRS limits his short-term retirement objectives, the impact of the COLA proposal will be devastating. COLA adjustments exist to offset fluctuations in living expenses caused by inflation. By losing this benefit, federal employees will wake up to the impact of the proposed measures.
In this case, his Retirement Readiness Review helped him estimate the costs and income he needs to retire. Assuming that the SRS is still in place, his monthly income equates to $7,000 and a $6,000 monthly debt. Previously, he was comfortable with a $1,000 fixed salary per month before COLA’s eradication and its impact on his retirement financial status. Since 1913, the rate of inflation averaged 3.24%, though in some years it has exceeded this average. According to inflationdata.com, the average rate of inflation hit 4.86% in the 40s, 7.25% in the 70s, and 5.82% in the 80s. In these decades, life was hard for people with increasing living costs and no wage increments.
A key takeaway is that wages don’t matchup to inflation once you retire. The eradication of COLA means that any accumulated savings won’t be sufficient to offset the increase. Also, it is impossible to tell what future inflation rates will be. But using a moderate inflation rate can help reveal potential financial pitfalls.
What Will You Do?
- Federal employees need to mobilize against this proposed measures as well as speak with a unified voice.
- Lobbying political leaders and parties can help change policy viewpoints regarding proposed measures.
- Enroll as a NARFE member if you wish to protect your personal income as well as retirement benefits or other groups that represent federal employees.
The bottom line is either you get engaged or take what others think you deserve. When these measures are implemented and federal employees fail to take action, they will be solely responsible for their status.
How to change my TSP contribution
If you have not made a contribution election through your agency to start contributions or change the way your contributions work, there are a few steps:
- Ask your personnel or benefits office whether your agency or service handles enrollments
- Determine the amount you want to contribute and whether you want a Roth or Traditional TSP
- Return your completed TSP-1 or TSP-U-1 to your employer to get your payroll deductions set up. Your election should be effective no later than the first full pay period after your agency or service receives it.