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March 28, 2024

Federal Employee Retirement and Benefits News

Tag: thrift savings

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Five Key Steps Towards Federal Retirement and Financial Security by Carol Singer

Five Key Steps Towards Federal Retirement and Financial Security

by Carol Singer

If you’re concerned with your Federal Retirement and financial security you may want to look into the social security administration’s “National social security month” to learn more about the benefits of social security and your thrift savings plan. These plans can be applied to the federal employees & retirees.

thrift savings plan
Federal Retirement and Financial Security and how Social Security and the Thrift Savings Plan will impact your retirement

Steps To Help You With Your Federal Retirement and Financial Security

Step 1:

The crucial step towards keeping maximizing your social security is to first understand how social security works.  Understand that Social Security is not just simple as it might looks and that there are thousands of potential claiming solutions that you could elect.  Once you understand the different ways you can claim your Social Security benefits and how that might be impacted by other income source (like your TSP and the therefore impacted by potential taxes on your TSP Withdrawals) you will be able to make a more informed decision.

Step 2:

Performing verification is the next crucial step to do under the mySocialSecurity account. Assuming that the Social Security Administration has an accurate record of your earnings could cause you to lose out on some of your benefits; you should check the earning record inside the statement of your account.

Step 3:

The Social Security Administration suggests that estimating your social security benefits with the help of using their calculators/tools under the My Social Security Account section can be beneficial for you. Using these estimates along with tsp considerations and thrift saving withdrawals options can be a major step toward finding the perfect solution to maximizing what you will receive from your FERS / CSRS Annuities, TSP and Social Security combined.

At the same time, you can calculate how much you are entitled to receive social security benefits at different ages. You should be careful with the words like “on average” & “approximately” as most of the federal employees earn more than the average wage earner. According to the data received from the Bureau of Labor, the average salary of US workers in the year 2016 was $44K. This is because the formula used by many retirees for the calculation of SS benefits replaces the major percentile of higher earners with the low wage earners.

Step 4:

The next consideration is to apply for your security benefits online. Online applications are easy to complete & are readily available. The representatives will call you to help you out with your doubts related to social security. At the same time, you have to mention the amount withheld inside the remarks section of the application from as current online application doesn’t address the federal income tax withholding. This can be achieved if you want to have your money withheld for taxes. Apart from that, if you are applying for the social security schemes after the attainment of perfect age for retirement, then you should indicate whether or not you want to receive the six months of retroactive benefits in place of remarks section.

Step 5:

The fifth & final step regarding your social security is to manage your benefits with the help of online tools or with the help of your personal mySocialSecurity Account.

Conclusion

Your social security retirement benefits will be based on your earnings history and inflation-indexed calculations.  Your thrift savings plans and your social security benefits will impact one another as income from either source could cause the other to be taxed at a higher rate.  You should carefully weigh the various social security claiming options along with thrift savings plan withdrawals options. At the same time, you should not forget your taxes on your TSP funds & all other TSP considerations while having the social security benefits.

 

Carol Singer
Carol Singer

Contact Carol:

Phone: 505.310.1474

Email: [email protected]

 

Other Carol Singer Articles

Obtaining the Best Federal Employee Life Insurance by Carol Singer

The Correct Way of Saving for Retirement by Carol Singer

Is FEGLI Right For You, Right Now? By Carol Singer

Getting the most out of the Thrift Savings Plan by Todd Carmack

For employees under the FERS system, the TSP is one of the best benefits to take advantage of. The TSP plan allows FERS employees matching contributions:

TSP Matching Contributions

1% is automatic from their agency

100% matching on the first 3% of contributions

50% on the next 2% of contributions

This gives you a total of 5%. Let’s face it, free money is too hard to come by, so make sure that you are contributing at least 5% to your TSP plan.

Contributing to your TSP:

Traditional TSP – where the amount is deducted from your check prior to taxes. You will pay taxes on any distributions.

Roth TSP – where the amount is deducted from your check after taxes have been taken out. As long as you keep the money in the account for 5 years and withdraw it after age 59.5, your distributions are TAX FREE !!!! If you are only contributing to the Roth TSP, your matching 5% will be deposited into the Traditional TSP.

If you withdraw money from either the Traditional or Roth TSP prior to age 59.5, you will pay a 10% penalty. There are a couple of exceptions to this rule.

TSP Contribution Limits

For the year 2015, if you are under the age of 50, both CSRS and FERS employees may contribute up to $18,000 a year (spread that out over the 26 pay periods).  If you are age SO or above, you may contribute the Catch-Up amount of $6000 a year.  These amounts can be contributed to either the Traditional or the Roth. The Roth TSP does not have the same income restrictions as a private Roth account!!! This will allow high-income earners (married or single) to take advantage of accumulating wealth for a tax free retirement income.

Employees can take money out of their TSP account in a few different ways:

TSP Loan – employees may that a loan from their TSP in the amount of their contributions, but not the matching contributions. Loan interest is based on the G-fund. Growth of this loan money is stopped until it is repaid bi-weekly. You can continue making your regular TSP contributions while repaying the loan.

TSP Hardship Withdrawal – this would be withdrawing money and NOT paying it back. This will result in a 6-month freeze of making any contributions and receiving the matching contributions. To add insult to injury, you will also pay income taxes and penalties (if under age 59.5) on the withdrawal. Try and avoid this option.

TSP Age Based Withdrawal – this gives the employee the opportunity to withdraw money after the age of 59.5 without penalty. The gives you the opportunity to take advantage of investment options outside of the Thrift Savings Plan that may help you achieve your retirement goals.

When money is simply withdrawn, 20% is withheld for taxes.  If you are transferring TSP funds to a self-directed IRA, financial advisor (still classified as IRA account) or a tax deferred annuity (still classified as IRA account), then you pay no taxes or penalties.

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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TSP Bill Equals Christmas in July for Federal Employees

Eliminating TSP Withdrawal Penalties for Certain Federal Employee Participants

TSP

On June 29, 2015, the President of the United States, Barack Obama, signed a bill that would prevent the penalization of public safety employees who must retire under mandatory age guidelines, many as young as age 50 or before.  Federal firefighters, law enforcement officers (LEOs), air traffic controllers and border protection officers most of who leave the public sector or their job classification by the time they turn 50 or shortly thereafter suffered a 10% early withdrawal penalty from the Thrift Saving Plan (TSP) before enactment of the law.

The bill, Defending Public Safety Employees’ Retirement Act, amends the Internal Revenue Service Code and allows those employees falling into the above category to make early withdrawals from the TSP without incurring the 10% penalty when a TSP participant is 50 years old or less.

The Thrift is still reviewing the law and its impact on TSP accounts.  The Thirft Savings Plan intends to publish information on the TSP website before the law’s effective date set for December 31, 2015.  Roll-out of the bill is a great after Christmas gift for these public safety employees who put their lives on the line to protect the federal workforce everyday.

P. S. Always Remember to Share What You Know.

Dianna Tafazoli

Other Federal Retirement Articles

IMPORTANT UPDATE…FEGLI Open Enrollment Season!  by Gary Fouts

No COLA Increases in Social Security Benefits

Are You Thinking About a “Deferred” Retirement?  by Gary Fouts

SCOTUS Ruling Impact on Federal Employee and Retirement Benefits

Social Security for FERS Employees by Todd Carmack

Aiding an Aging Community – TSP Decisions

Protecting Federal Retirees and Their TSP

Retirees

Many baby boomers are heading into their golden years of retirement. But often times the reality of retiring is not all it is cracked up to be. Many soon-to-be or newly retirees are dealing with the financial woes of not having a sufficient nest egg to support themselves. Due to this, Congress and the White House have turned the conversation towards the contributing factors of financial hardship for an aging generation.

Recently, Labor Secretary Tom Perez testified before the House committee on a new bill that would protect federal employees as they transition out of the workforce into retirement. Presently, many federal employees fall victim to poor advice given by their financial advisors especially as it pertains to their Thrift Savings Plan (TSP). The current standard allows financial advisors to recommend financial decisions to their clients that are more beneficial to the advisor versus the client. Federal employees are especially vulnerable to poor financial advice; often taking a financial misstep when deciding what to do with their Thrift Savings Plan accounts upon leaving the government. A recent study found that more than 75 percent of TSP account holders removed their investments from their Thrift Savings Account.

Often times, financial advisers may legally recommend that a federal employee’s roll over their TSP holdings into an Individual Retirement Account (IRA). The promise of investing the money into a mutual fund that will produce the same of similar return on investment. However, some of these accounts can cost the account holder up to 50 times more than leaving their investments in a Thrift Savings Plan.  Financial planners giving this advice may profit from the higher fees and commissions.

The help protect retiring federal employees make the most of their retirement savings,  the Federal Retirement Thrift Investment Board, which administers the TSP, has made it a priority to keep retirees’ money in the TSP.

As you can imagine, a number of large number of groups support successfully passing this new rule, including the NARFE and the American Federation of Government Employees. During the week of August 10th, the department will open a public comment period and hold a public hearing. In the meantime, the department will continue to operationalize the proposed rule.

In addition TSP is modifying their policy for firefighters, certain border protection agents and law enforcement officers to withdraw funds from their TSP account for any amount without penalty. The catch to this updated policy is that the employee must be separated from federal service during the year in which they turned 50 years of age. The law only specifically mentions these four categories of employees. Other FERS participants and other special-category employees do not qualify under the Act.

The TSP, Defense Bill and Federal Employee Retirement Accounts:

A light is also being shone on a huge defect in the military compensation program. 83 percent of men and women who don the uniform exit the military without any type of retirement fund or pension in place. Only, the commonly referred to “lifers” who commit themselves to serving our country for 20 plus years receive a pension for life. More than directly hurting the separating military members who aren’t receiving any type of financial aid for their service, it hurts recruitment of new military members and does not reflect the modern workforce anywhere else. It is absurd to think that our uniformed men and women don’t have any options for retirement when even entry-level retail workers are offered a 401(k) with company matches for employee contributions.

These are the findings reported in January from the Congress-ordered group, Military Compensation and Retirement Modernization Commission. The Commission has recommended that the military transitions from the current inflexible benefit plan to a blended retirement plan that includes options such as 401(k) investment opportunities for all service members. Following the Commission’s recommendation, both the House and Senate versions of the Defense authorization bill use language that readily support the suggested changes. The proposed changes would be available to over 75 percent of service members who serve two or more years.

Armed Services Committee Chairman John McCain has been quoted as saying this one of the biggest leaps forward in military compensation and is one of the most significant parts of the Defense bill. The new system would vest service members in a thrift savings plan after two years of continuous service. At two years, all service members would start with a 1 percent monthly contribution from the government, with the potential for the military to match service member’s own monthly contributions up to 5 percent of their salaries.

The Defense bill has received little public debate in Congress, mostly because members of both the House and Senate Armed Services Committees waited two years to receive the recommendations from the Military Compensation and Retirement Modernization Commission before acting. Once the Commission’s report was published, the House and Senate Armed Service Committees adopted the recommendations in their entirety. While the report did not deliver any huge surprises, it did pave the way for lawmakers to have the ironclad justification they needed to put the thrift savings plan into the Defense bill.

The new system does have one drawback, service members who have served 20 years or more will see a reduction in their pension by about 20 percent. However, future retirees, who contribute to the TSP will receive pensions up to 20% higher than they are now – according to the Commission. Current or soon-to-be retirees do not need to fear for a reduction in their pensions, all pension promises will remain intact for service members. And current service member can also opt-in to the new 401(k) system at their discretion.

The proposed changes have received a stamp of approval from many military associations, such as, Veterans of Foreign Wars, the Reserve Officers Association, the National Guard Association, the Enlisted Association of the National Guard and the Air Force Association. Now, the Defense bill will just need to overcome a few more hurdles before being fully enacted.

Other TSP Related Articles

Federal Employee Retirement Checklist by Gary Fouts

What Are Your TSP Options With the New Phased Retirement Program? by June Kirby

Understanding The Thrift Savings Plan (TSP), By Todd Carmack

Thrift Savings Plan Features – Low Administrative Fees

TSP

The Thrift Savings Plan (TSP) is far from alone in offering “index” funds to investors.  Many organizations offer similar funds, but one marked difference are the “administrative expenses” that the TSP and other organizations charge.

Think of TSP administrative expenses as a fee, taken out of someone’s investment in a fund — to pay for operating the fund.  The fee is a small percentage of the total investment; but even that small percentage, over time, can take a significant bite out of an investment.

The lower the administrative expenses, the smaller the bite — and the more quickly an investment can grow.

In 2014, the administrative expenses for TSP funds were just under .03%.  In other words, for every $1,000 of investment, the admin expenses were about thirty cents.

So, how does that thirty cents per thousand dollars compare with the administrative expenses of other index funds?  It compares quite well.

Thrift Savings Plan (TSP) Examples

For example, Vanguard offers a fund that, like the TSP’s C Fund, mirrors the performance of the 500 stocks in the Standard and Poor’s S&P 500 index.  However, in the Vanguard fund (Vanguard 500 Index Fund Admiral Shares) the administrative expenses were .05% compared to the .03% for the TSP product.

The Fidelity S&P 500 fund (Fidelity Spartan 500 Index Advantage) had administrative expenses of .07% as did the TIAA-CREF S&P 500 Index Institutional.

Even more striking contracts exists with the TSP’s S Fund and similar funds.  The S fund has, as its objective, matching the performance of the Dow Jones U.S. Completion Total Stock Market Index — a broad index of stocks of U.S. companies that are not in the S&P 500 index.  The comparable Vanguard fund (Vanguard Extended Market Index Fund Admiral Shares) has administrative expenses of .10%, more than three times higher than the expenses of the TSP’s S Fund.

Another fund that is similar to the TSP S fund is USAA Extended Market Index Fund.  It’s administrative expenses were .48%, more than fifteen times higher than the TSP S Fund’s administrative expenses.

The same kinds of comparisons exist in bond funds.  The TSP F Fund has as its objective matching the performance of bonds in the Barclays Capital U.S. Aggregate Bond Index.  This index represents the broad U.S. bond market.  One comparable bond fund is Fidelity’s Spartan U.S. Bond Index Fund – Investor Class.  That fund’s administrative expenses came to .22%, more than seven times higher than the S&P’s F Fund expenses.

Advice to investors often includes the recommendation to check administrative expenses before deciding to get into or to stay in a particular fund.  In such checks, the TSP Products will likely compare favorably.  The favorable comparisons are likely to apply both for TSP’s individual funds (C, S and F, for example) as well as for TSP’s Life Cycle (L) funds.

However, administrative expenses are not the only consideration in choosing an investment.  Perhaps the convenience of dealing with one firm over an other offsets paying higher administrative expenses on a similar index fund.  Furthermore, since different funds often have very different investment objectives, the purposes of the funds (as they relate to an individual investor’s needs) is likely to be a more important consideration than the funds’ administrative expenses.

To sort out questions of where to put their investment dollars, many investors profit from the advice of a knowledge and well-trained financial advisor.  Nevertheless, whether acting on their own or with an advisor, prudent investors may want to add administrative expenses to the factors they consider before making investment decisions.

by John Zottoli.  John is a retired Federal human resources specialist who takes an interest in all aspects of planning for retirement.

Recommended Articles

Understanding The Thrift Savings Plan, By Todd Carmack

Social Security for FERS Employees by Todd Carmack

Are You Thinking About a “Deferred” Retirement? by Gary Fouts

Federal Employee Retirement Checklist by Gary Fouts

 

The TSP – a Not-So-Hidden Gem

Thrift Savings Plan

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

How Ready Are You For Retirement?

Ready Are You For Retirement?• Have you quantified your financial objectives?  In other words, have you estimated how much money you will need to live the life you desire in retirement?

• Have you saved enough in your TSP Account?

• For Postal Employees – Are your Retirement Elections up to date in LiteBlue?

• Have you set appropriate goals for retirement?

• Do you have doable strategies to achieve those goals?

• Can you itemize the strategies to achieve the goals you have set for retirement?

• Do you know where all your important records are?

• Have you informed someone you trust about your important records?

• Do you have your spending under control and what strategies have you used to control your spending?

• Do you know how you spend every single dollar and cent?

• Do you keep a spending chart so that you can actually determine what you are spending, how you are spending and if changes need to be made?

• Are you saving enough money?

• Have you prepared an estimated retirement budget and devised steps to help you operate within your budget?

• Do you intend to leave a big inheritance to your children, other family members, or a charity?  If so, have you set aside money or made provisions to accomplish that goal?

• Have you thought about where you will live in retirement and the cost involved?

• What would you do in the event of an unexpected and extended disability before you retire?

• Do you have an emergency fund?

• If you are a couple, are both parties completely aware of the status of the financial situation?

• If something happens to either of the parties,  is each member capable of managing the family’s finances independently?

• Are you taking full and total advantage of any tax-deferred savings options offered by your employer?

• If you have dependents that rely on your income for survival, what plans have you put in place in the event of your death?

• Are you taking care of your health so that you can have a good quality of life in your retirement years?
There are many more retirement readiness questions we could pose, but I think we have sufficient fuel to allow us to take a good look at our readiness for retirement.   Remember if you have not done any of the things listed, it’s ok, you need only make them a part of your individual action plan and get started activating that plan as part of your goal to Retire Well.

P.S.  Always Remember to Share What You Know.

Dianna Tafazoli

RELATED TSP ARTICLES

Thrift Savings Plan (TSP) Withdrawal Options

For Postal Employees – LiteBlue and the TSP

Federal and Postal Employees – Choosing a Financial Professional

The Thrift Savings Plan (TSP)

Is All ‘Your’ TSP Money Actually Yours?

Federal Retirement Benefit Analysis

How To Best Fund Your TSP

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