Questions and Answers: Federal Benefits

Q: Let’s assume that an employee enters into federal service at an old age. How dependable are federal benefits as a source income during one’s retirement?

A: Before considering the number of benefits you will receive from the federal government, first we need to look at your accumulated benefits since you joined federal service. Assuming that you are enrolled in a federal retirement program, you are fortunate enough to receive a pension. Your odds are that you currently make contributions to a 401(k) plan. Certainly you also contribute to Social security, and consequently, you are entitled to Social Security benefits upon reaching the age of 62. Ideally, you should make contributions throughout your federal career instead of at the end of it. To illustrate, we assume that you receive a salary of $100,000 by the time you retire and that you are qualified for TSP elective deferral limits but unable to make catch-up contributions.

FERS Pension

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By the age of 62, you will have ten years of service which entitles you to a FERS pension before the deduction of $10,000 annually at the rate of $833 per month. Your accumulated ten years of service also qualify you to high amounts of Social Security.

Thrift Savings Plan

Assuming that you have a base salary of $90,000, a contribution rate of 18% and a pay increase of 1% each year, an annual rate of 5%, you will have accumulated $275,000 at the end of ten years. A 4% withdrawal rate is equal to an income of $916 per month after adjustments for inflation.

FEHB

Provided that you are FEHB covered in the first years of your retirement; you can continue enjoying FEHB coverage as well as making contributions to the government. However, it is difficult ascertaining the amount of these benefits that nonfederal employees do not possess.

Some of these calculations are of a simple nature. Nonetheless, the benefit you will earn over ten years of federal service will probably help improve the quality of life that you will enjoy once you retire.

Bottom Line

Understanding, the reality behind the benefits you receive can help you make sound decisions. For example, this understanding can help you maximize the longevity of your benefits as well as improve you know when to start making contributions. However, if you are uncertain about the benefits you will receive, you need to take time and research information related to federal employee benefits.

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