Why Retirement Is Very Difficult to Get Through With Just Social Security Payments Alone

Retirement Income Savings Money Future Plan

What is TSP?

According to the Center for Social and Demographic Research on Aging at UMASS Boston, research shows that a lot of seniors do not have a sufficient amount of income to live their retirement comfortably. It shows that about 50 percent of single seniors who live alone that are 65 and older are not able to pay for their basic living expenses on their retirement income. In contrast, 23% of those that live with another person does not have enough income to pay for their living expenses.

The researchers created what is called an Elder Index to measure these stats, and those that do not have sufficient income to cover their basic living costs fall under the minimum. This index compares the basic living expenses a household generally needs to pay along with if these households can pay them. The basic living costs consider transportation, housing, healthcare, food, and some other expenses, but does not include expenses on leisure activities such as eating out, vacations, and entertainment.

The benchmark number of these costs depends on the circumstances from participant to participant. For couples or singles that no longer have a mortgage on their housing, have a baseline of $31,800 or $21,012, respectively.

These measures increase for those who do have rent or a mortgage to pay at $42,852 for couples and $32,062 for individuals.

The study showed that almost half of the single people, 4 out of 10, were at a high possibility of not covering their basic living costs.

The director of the Center for Social and Demographic Research on Aging at UMASS Boston, Jan Mutchler, states that those that have retirement income over the index do not fair any better. She states that they do not see a decline in the high number of people that do not see to have enough money to get through their retirement.

States that are the most expensive for these single retirees are Massachusetts, New York, and Vermont. The most affordable are Alaska, Nevada, and Utah, with Nevada being the most inexpensive.

For couples, Massachusetts, New York, and Vermont are also the most unaffordable states. The most affordable states are Alaska, Washington, D.C., and Utah.

The research also shows that those who fall under the Elderly Index depend on their Social Security payments for about 90% or more for their retirement income.

Depending on the area or county they are in, their payments can take them far or short distances. For instance, in Wyoming County of West Virginia, the cost of living is $2,000 less than the nation’s average. However, the cost of living is more than $27,000 than the average in San Francisco County of California.

Mutchler states that the researchers find that no average individual with the average Social Security payment still does not have the equivalent of the average cost of living throughout the entire country.

And the shortfall from the cost of living is not easy to cover for these older Americans as it is very difficult to find a job at that age.

That is why the report on the study states that guarding SS benefits is a very critical matter for older Americans.

Benefits of TSP

There are several advantages to the Thrift Savings Plan for participants. The most basic part is that the federal government offers a contribution match for up to 5% of the employee’s annual income. These can be made in the form of automatic payroll deductions. TSP funds can be low-cost ways to save for retirement, especially with lifecycle funds tailored to a specific retirement date. You can also choose from traditional pre-tax contributions, which allow you to not have to pay income tax until retirement, or Roth TSPcontributions that allow you to pay the tax now and not worry about it at retirement. Both are good options, but consider talking to a TSP withdrawal expert before you make any decisions.

Retirement Income Savings Money Future Plan

Difference between CSRS and FERS

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TSP CSRS, or the Civil Service Retirement System, offers the Thrift Savings Plan as a supplement to your CSRS Annuity or military pay- as of January 1st, 2018, military employees also participate in a military TSP.

TSP and FERS, or Federal Employees’ Retirement System, makes your TSP one part of a three-part retirement plan. This also includes the FERS Basic Annuity and Social Security.

The difference between the FERS or CSRS Annuity and the TSP is that the annuity is based on your years of service, rather than how much you have contributed, and is also voluntary, as opposed to the annuity.

Regardless of which retirement system you qualify for, contributing to the Thrift Savings Plan is vital to your retirement, especially if you contribute early. TSP compound interest means that the earlier you start to make contributions, the better. However, if you did not start saving at an earlier point, committing to a steady and consistent contribution schedule will almost always produce positive results.

How does TSP work?

If you are a new federal employee, you most likely have an established account and were enrolled in a 3% payroll deduction. If you were hired before July 31st, 2010, you were not automatically enrolled in a TSP account and will need to create it yourself. For CSRS employees and members of the uniformed services, you must elect to contribute to the TSP. You are also not eligible for agency contributions.

You can elect to stop or change your contributions at any time. Check with your payroll office or agency to find out how to sign up for TSP. You may be required to use your agency or service’s electronic system, or you may have to submit Form TSP-1 (Form TSP-U-1 for uniformed services). The Thrift Savings Plan website has the forms available if your agency or service accepts them.

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TSP funds

There are five core funds in the Thrift Savings Plan- four of them are index funds, which mean that they are exactly matched to a broad market index.

  • G Fund (Government Securities Investment Fund)
    • This fund does not invest in an index. The only fund that it is connected to is a nonmarketable treasury security issued for the TSP by the U.S. Lowest return and risk
  • F Fund (Fixed Income Investment Index Fund)
    • Matches the Barclays Capital U.S. Aggregate Bond Index. Slightly higher return and slightly higher risk.
  • C Fund (Common Stock Index Investment Fund)
    • Out of the three stock funds in the TSP, the C is considered the most conservative. It is connected to the Standard and Poor’s 500 Index, which has greater volatility than either the G or F funds.
  • S Fund (Small Capitalization Stock Index Fund)
    • This fund is connected to the Dow Jones U.S. Completion Total Stock Market Index, which is a total of 4,500 companies that fall outside of the S&P 500’s list. Potential for large growth, but also large losses.
  • I Fund (International Stock Investment Fund)
    • The only internationally invested fund. High risk, but potentially high reward.

There is another option for Thrift Savings Plan investment funds- the L funds. These are funds that actually invest in a variety of all the other funds and target a specific retirement date, initially investing in the more aggressive funds and slowly moving into the more stable bonds funds as retirement approaches.

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:

  1. Ask your personnel or benefits office whether your agency or service handles enrollments
  2. Determine the amount you want to contribute and whether you want a Roth or Traditional TSP
  3. 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.
TSP and FERS are important parts of your retirement
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Withdrawing from the TSP

You have several withdrawal options that you can choose from. Partial withdrawals are allowed in a single payment. You can also make a full withdrawal with any one or any combination of the following methods:

  • A single (lump sum) payment
  • A series of monthly payments
  • A life annuity (Thrift Savings Plan Lifetime payment options).

A combination of any of these three full withdrawal options is called a “mixed withdrawal.” You can have the Thrift Savings Plan transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or an eligible employer plan by completing the TSP-70 form. Payments to you can be deposited directly into your checking or savings account using electronic funds transfer (EFT).

Spouse’s Rights

If you are a married Thrift Savings Plan participant (even if you are separated from your spouse), spouses’ rights apply to annuity purchases. If you are a married FERS or uniformed services participant with a total account balance of more than $3,500 and you are making a full withdrawal of your account, your spouse is entitled by law to an annuity with a 50% survivor benefit, level payments, and no cash refund. If you choose any other withdrawal option or combination of options by which your entire account balance is not used to purchase this particular type of annuity, your spouse must sign the statement on your withdrawal form that waives his or her right to that annuity.

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