Federal employee retirement
Learning about L Funds by Todd Carmack
Todd Carmack discusses L funds and retirement
The L Funds (Lifecycle funds) became part of the TSP allocation options in August 2005. The objective of L funds is to provide a balance between risk and return combined with an employee’s future retirement year. The L Funds are designed to make life a little easier for federal employees by taking the guesswork out of trying to diversify and rebalance TSP allocations for retirement planning.
The L-funds are comprised of the six basic allocations of the Thrift Savings Plan:
G fund – government securities
F fund – government, corporate and mortgage-backed bonds
C fund – S&P 500 index fund (large cap companies of the US)
S fund – small to medium cap US companies
I fund – international stocks of more than 20 developed countries
These lifecycle funds offer both risk (exposure to stock market losses) and reward (exposure to stock market gains). The funds are designed to have greater risk in the portfolio the farther out your expected retirement date will be and a more conservative stance the closer you are to retirement. The idea is to pick the fund closest to your goal retirement date. Utilizing L funds and retirement planning can be helpful in preparing you for retirement. The funds will be rebalanced over time, going from containing higher percentages of risk (C, S, and I funds) to greater percentages of G fund as time gets closer to retirement.
Here is the current breakdown composition of the L funds:
L income – designed for those retiring in the next year or two.
G fund – 74%
F fund – 6%
C fund – 11.2%
S fund – 2.8%
I fund – 6%
L-2020 fund – retiring between 2017-2024
G fund – 50.28%
F fund – 5.72%
C fund – 24.32%
S fund – 6.48%
I fund – 13.2%
L-2030 fund – retiring between 2025-2034
G fund – 30.78%
F fund – 5.72%
C fund – 34.53%
S fund – 9.92%
I fund – 19.05%
L-2040 fund – retiring between 2035-2044
G fund – 20.43%
F fund – 5.57%
C fund – 39.8%
S fund – 12.35%
I fund – 22.20%
L-2050 fund – retiring between 2045-2054
G fund – 12.13%
F fund – 3.87%
C fund – 44.14%
S fund – 14.66%
I fund – 25.20%
These funds are rebalanced each quarter moving to a less risky mix of investment allocations with a greater percentage going into the G fund.
Source: www.opm.gov
Other Todd Carmack Articles
Social Security for FERS Employees by Todd Carmack
Understanding The Thrift Savings Plan, By Todd Carmack
Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack
Understanding Your FEGLI Coverage, by Todd Carmack
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Federal Employee Retirement Savings Tips
We all strive to make more money and the start of a new year can represent good place to start. For federal employees, there are a lot of different strategies for boosting federal employee retirement savings and something that we need to put at the top of our list of things to do. If you are also trying to double up on your savings, then read on as we have some interesting tips for you:
Increasing Federal Employee Retirement Savings:
- Set goals: The first thing that you need to do is to set up your monthly goals. The biggest mistake people make is setting up goals for the whole year which (because of the longevity constraints) they fail to achieve. Try to set up as vivid monthly goals as you can.
- Set default saving options: Always make the default decision when it comes to making additions to your savings accounts. You can just choose to make 401 (k) deductions from your pay check right away and that should be the ideal practice.
- Defer your saving boost: IF you are not capable of bearing a smaller check in the start of the year, don’t just put it off completely. Defer it till later in the year and do it eventually.
- Your future you needs the present you: You will love yourself dearly if in the future you end up having enough money to live a dandy life. So think about your future and make decisions accordingly.
- Keep it increasing: Throughout the year, try to increase the rate at which you put money in to your account and you will be good to go. A small percentage in January and a large one in October can do the trick.
TSP Default Investment to Change, for Some New Enrollees
As of September 5, 2015 the Thrift Savings Plan (TSP) will use Life Cycle Funds as the default investment — for new civil service enrollees who do not specify an investment fund.
The Thrift Savings Plan gives all new enrollees several choices for investment options (including short term U.S. Treasury securities, a bond fund that mirrors the U.S. bond market, various stock funds and Lifecycle funds. The Lifecycle funds include mixtures of other TSP funds.
Everyone enrolling in the Thrift Savings Plan has the opportunity to pick from one or more of the TSP’s investment options. When someone did not specify an investment option, the TSP automatically chose the Government Securities (“G Fund”) for the new enrollee.
However, the Smart Savings Act (Public Law 113-255) mandated a change in TSP practice. So, as of September 15, when a new civil service employee does not specify an investment fund, the TSP will pick a Lifecycle (L) Fund for the employee.
The TSP offers a number of Lifecycle Funds. The investments in each fund vary. Some funds include a mix of investments appropriate for people who plan to retire relatively soon. Other funds’ investments are more appropriate for those who anticipate retiring far into the future. For a new civil service enrollee who does not specify an investment option, the TSP will pick the most appropriate L fund, based on the enrollee’s age.
The new law does not apply to uniformed service members who participate in the TSP. Their default remains the G Fund.
The TSP explained these changes in its Bulletin 15-12, dated August 21, 2015.
https://www.tsp.gov/PDF/bulletins/15-02.html
The TSP directs questions about this Bulletin to the Federal Retirement Thrift Investment Board at 202-942-1450.
— by John Zottoli. John retired as Human Resources Specialist from the U.S. Office of Personnel Management, and he invests in a TSP Lifecycle Fund.
The TSP – a Not-So-Hidden Gem
TSP Overview:
Among the many savings plans federal employees have at their disposal lies one of the most valuable pieces of the Federal Retirement system – the Thrift Savings Plan (TSP). TSP offers a tax-deferred retirement savings and investment plan. Participants who in enroll in TSP benefit from having the opportunity to save part of their income for retirement, receive matching agency contributions and shrink their current taxes.
The Thrift Saving Plan is an investment expense, which reduces returns. Participants in TSP invest in diversified markets. The financial contributions produce a return without any special effort from the investor. Employees only have to participate and to receive the market’s return.
TSP – Hidden Advantages:
In a turbulent economy, it is nice to find a financial opportunity that is economically sound and advantageous for your bank account. Employees who invest in the Thrift Savings Plan will experience very low costs associated to their account; on average, ranging from 0.029 – 0.049 percent of account assets. Comparatively, there is not another investment program that allows for employees to invest in their future for roughly 49 cents on every $100 invested.
For the investment novice, the minimal fee may not seem like a huge selling point, but it is. TSP’s low costs translate into rather high anticipated investment returns. Greater investment returns equals more money in your pocket later on. Gaining a peace of mind for your finances during your golden years.
The variance between the Thrift Savings Plan’s cost and the cost to the standard retail mutual fund is around 1 percent. Hypothetically, if an employee invested in a diversified portfolio, consisting of TSP funds they have the potential to capture over 99% of the market portfolio’s return. Putting all of these seemingly miniscule percentages in perspective, over the length of 40 years could cost a benefactor up one-third of their portfolio…..wait, seriously?
The cost of owning another investment option, such as an IRA, charges a higher fee – that goes into the pocket of the middle man. Federal employees who have invested into TSP and have accumulated a substantial balance may be swayed to move their funds into an IRA. Employees should be wary of transferring their hard-earned funds into an alternate portfolio that can boast a substantially higher percentage in expenses. To the surprise of many, in addition to fund expenses, an IRA account can charge sales commissions, service fees, advisory fees, costs and account-level administrative expenses; potentially costing an employee 2-3 percent more than the TSP’s expense; the higher-cost investment plan can greatly damper your retirement expectations. Staying cognizant and well-educated of your finances can help retirees reap the benefits of decades of hard work.
Overall, the TSP combined with the availability of the G Fund, the TSP’s negligible costs make it a premier investment and retirement plan for federal employees. Employees will reap the benefits of their Thrift Savings Plan account by investing and leaving their contributions for as long as they can.
TSP – Current News:
This month, Congress is weighing in on some dramatic changes to military retirement. Under the current plan, the military invests retirement money exclusively in U.S. Treasury bills, and guarantees that retirees will receive a specified level of benefits.
With the new changes in policy, the guaranteed benefits will be reduced and 3 percent of service members’ pay will be transferred into the federal Thrift Savings Plan (TSP) – the government will match an additional 1 percent to all contributions.
The TSP is comparative to a 401(k) investment retirement program offered by private sector employers. The Thrift Savings Plan invests money with private financial firms and does not guarantee a set amount of retirement income. According to the system’s financial statements, TSP currently invests more than 55 percent of its assets with BlackRock.
The Thrift Savings Plan will still offer enrollees to waive investing in actively managed funds and enroll into the lower-risk U.S. Treasury bill option – but will still guide all participants within the system to diversify their portfolio for greater return. Theoretically, if the new plan is enacted, approximately $91 billion in service members’ compensation would be transferred into the TSP over the next 25 years. Supposing military participants invest in a similar manner as other enrollees, such as federal employee, the financial shift could end up channeling up to $50 billion to BlackRock during that time period.
In addition to the shift of funds, service members may say goodbye to no additional fees to Wall Street money managers and hello to annual fees for their pension plans. If the Obama administration’s changes are approved, new service members in the TSP will pay investment management fees to either the Thrift Savings Plan or BlackRock.
Recently, on June 4, the Senate unanimously passed the legislation allowing federal law enforcement officers and firefighters will be able to access retirement funds earlier without penalty. The amendment will allow federal law enforcement officers, firefighters and specific border protection and customs officers to withdraw funds from their Thrift Savings Plan after the age of 50 without a tax penalty.
Currently, federal law enforcement officers are eligible to retire after 20 years of credible service and at the age 50 – many are required to retire by age 57. Usually the earliest possible withdrawal date without penalty is 59.5 years old. Meaning that there is a long lag between an employee retiring and being able to have access to their hard-earned retirement fund.
Other TSP Related Articles
What Are Your TSP Options With the New Phased Retirement Program? by June Kirby
Understanding The Thrift Savings Plan, By Todd Carmack
Are You Thinking About a “Deferred” Retirement? by Gary Fouts
What Happened – Young People Don’t Want The Feds
What Happened is a question put to the former telecom giant Nortel. Nortel went from being the ninth-largest company in 2000 to filing for bankruptcy in 2009. The question was more like – What The Hell Happened? This well-respected telecom giant agreed to participate in a study conducted by the University of Ottawa. As a matter of fact, they were the case study.
Nortel agreed to have nearly half of its top executives interviewed, as well as customers, partners and competitors in an attempt to answer the question. Professors conducted an extensive case study of Nortel. Some very interesting findings surfaced quite to the surprise of Nortel executives. The researchers found that Nortel had bred a culture of arrogance due to prior successes that proved to be lethal.
The researchers further found that arrogance had also led to lax financial discipline among the executives escalating to a kind of excessive pride that put customers on the back burner. The executives were only interested in themselves and not what customers wanted. The very component, good customer care, that had elevated Nortel to the top of the telecom game, was lost in the rise to the top and therefore sent the telecom giant plummeting into an abyss.
All organizations must understand the needs of their customers if they want continued success. It might serve the Federal Government well to begin looking at the behavior of top executives and their impact of recruitment and retention. I know the top executives at Nortel were amazed to hear that it was not losing their competitive edge and it was not that they no longer understood the technical market and advancements in technology. It was and is pure and simple that they got too big for their breeches.
The Federal Government would be wise to invest in an Innovation Summit targeting recent college and university graduates, young people under age 50 not employed by the Federal Service to explore why this population is running away from being a part of the public sector. I can assure you that it is not salary. The unemployment rate both nationally and internationally is highest among young adults under the age of 50. Foreign graduates are leaving their home countries looking for jobs in the United States. For many, once in the United States, they simply join the ranks of their peers looking for jobs that are not there. If the Federal Government has a number of vacancies, there are applicants qualified to fill them. But the mystery remains – What happened that young people don’t want to be employed by the Federal Government.
P. S. Always Remember to Share What You Know.
Recommended Articles
Understanding The Thrift Savings Plan, By Todd Carmack
Social Security for FERS Employees by Todd Carmack
A Little-Know Opportunity Can Increase Your Retirement Income – By Mark Sprague
The Aging Federal Workforce
The Federal Workforce is losing a tremendous number of employees to retirement. The Federal workforce is aging and leaving in record numbers. The Federal Government has not had great success in recruiting younger people to the workforce. The Federal Government has many self-imposed barriers to recruiting and retaining younger workers, future leaders of the Federal workforce.
It is reported that only 7% of the Federal workforce is under the age of 30 as of 2013 as compared to 20% in 1975. Workers under 30 in the private sector was estimated at 25% in 2013. The Federal Government is losing the ability to fuel the pipeline with young workers talented in technology implementation. The world is becoming increasingly digital with a need for talent to fill the digital divide. It is in indictment of the American workforce and the education system that technology work would be farmed out to countries outside of the United States. Farming the work out provides employment opportunities for young adults in those countries, denying opportunities for young Americans.
There is certainly not a deficit of young people absolutely skilled in technology and automation. Perhaps the Federal Government should have an all-out-cry to young people engaged in automation. If recruitment means providing education and training to bring the employee up to par, then it should be done.
The Government has a long, drawn-out convoluted process of hiring even through their automated systems. By the time the process of hiring comes through, talent is no longer available. On average, it takes the Federal Government 6 months or longer to bring on a new hire. Often times, when new hires are brought on board, the job offer may be rescinded because of hiring errors due to no fault of the new hire. Many times the hiring error is in indeed a hiring error which by law should be rectified with no adverse impact on the new hire. Often these hiring errors are motivated by internal politics. A person inside of the agent might have wanted the position and was not selected. When the new hire is selected, the environment is made uncomfortable and hiring error is used as the culprit.
When a hiring error is made, like the unintentional selection of a non-Vet over a Vet, then the non-Vet should not be removed from the position. The Vet who was passed over should be given priority consideration for the next position or if a similar position is open within the agency, the Vet should occupy that position. There are many horror stories told about the conduct of Federal personnel offices and selection committees that cause many young people to turn away from the process.
If the Federal Government wants to increase the pipeline with younger workers poised to become leaders, then the hiring process must be transparent, consistent, uncomplicated with immediate job placement. Individuals looking for employment do not want to wait one to two years before getting an interview and still not be selected. The lengthy process of hiring employees and engaging them once they are hired, is one of the barriers to bringing talent to the Federal Government.
P. S. Always Remember to Share What You Know.
OTHER PHASED RETIREMENT RELATED ARTICLES
Explanation of Phased Retirement
Plan Building: How Do I Get Started?
~~HOW DO I GET STARTED WITH A PLAN?
By now you are probably asking – How do I get started setting goals that are SMART and putting a plan into action? You get started by first simply writing down what you desire your retirement picture to reflect. Write down your goals, evaluate and analyze them so they fit your circumstances and values.
Create a strategy that is doable with short, intermediate and long-term goals with time horizons that are based in reality. Make certain that the plan you create can be put into action without causing undue stress on your emotional and financial well-being. Lastly, make room to monitor and track the movement of your plan, leaving time and space to modify the plan as circumstances and conditions change in your life both for you and your family.
A plan that starts out SMART ends with giving you in retirement the lifestyle you desire and deserve.
P. S. Always Remember to Share What You Know.
