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September 26, 2020

Federal Employee Retirement and Benefits News

Category: Don Fletcher

Top Tips for Navigating Retirement Planning During the COVID-19 Pandemic Sponsored by Don Fletcher

As per Don Fletcher, in recent times, the coronavirus pandemic has caused confusion and frustration for plenty trying to plan their retirement. Thankfully, retirement accounts currently have temporary lenient and flexible rules. Additionally, some people are working from home, while others have found employment elsewhere. However, the pandemic timing couldn’t have been worse for the group who were already behind on their retirement planning. 

Social Security Importance 

 Although it’s no surprise based on previous recessions, there are now three main threats to older workers: 

 • Loss of business 

• Loss of jobs 

• Loss of retirement accounts (due to declines in the stock market) 

With this, they’ll be forced into claiming Social Security much earlier than initially intended. For Baby Boomers, they might fight to stay in employment for a handful of years. Sadly, this won’t be an option for everybody, as long as the economy remains in this state, companies continue to lay off staff. Whenever this happens, there’s a need for immediate income – wherever they may find it. 

Considering that retirement benefits are available as soon as one turns 62, this isn’t the option for many. As you may know, the problem with claiming early is that you’re locked into lower payments indefinitely. In normal circumstances, we would recommend holding on for as long as possible because, up to the age of 70, being patient is worth up to 8% per year (in terms of the monthly check). 

Back in 2009 and amid a global financial crisis, it’s believed that 42.4% of those aged 62 claimed Social Security, an increase of 4.8% from the year before. In the current situation, the biggest concern regards individuals and families who are being hit the hardest by the economic downturn. As the disruptions continue not only for the US but all over the world, lower-income households struggle, and the reliance on Social Security may grow. 

Withdrawal vs. Loans 

As things stand, there are options for anybody who needs to dip into their retirement account. For example, some will take a loan against their 401k. Alternatively, another option is to withdraw permanently from a 401k or IRA. Traditionally, we would advise against a hardship distribution (permanent withdrawal) because it would affect you later in retirement. Furthermore, account holders would pay an early withdrawal fee as well as a tax on the amount. On the other hand, no tax or penalties traditionally came with loans.

According to Don Fletcher, the government has addressed the pandemic with the CARES act for COVID-19, so does this change things? Although a loan is still the better choice, the 10% penalty for distributions has been removed, which makes it slightly better. If you’re currently debating your options, one of the most significant considerations is your financial future. Are you looking for temporary help, or has the weak employment market meant that you’re seeking long-term assistance? 

Experts are advising against even the no-penalty withdrawal when retirement planning, and we must remember that stimulus checks have been introduced to help. History tells us that it takes an average of 30 months to overcome a recession in the future. With this, we could face a difficult job market for around two-and-a-half years. Alternatively, some have predicted a faster rebound, given that it didn’t occur under normal circumstances. 

By taking your withdrawal when the value of the account is depressed, there’s a potential of missing out on a rebound. 

Roth Accounts Taking the Lead?

According to Don Fletcher, while the CARES act didn’t address Roth IRAs, it’s important to note that those generating a lower income may fall into the income-eligibility contribution limits. For singles earning under $124,000 or couples making under $196,000, full Roth contributions will be available. As the stock market continues to tumble, switching to a Roth is quickly growing as an attractive option. You might be worried about the taxes due on the switching amount, but this shouldn’t play a significant role for lower balances. 

All investors have an option to withdraw from a traditional IRA as long as they place it into a second retirement account inside three years, and this includes a Roth (with tax). 

Interesting Times to Come 

If one thing is for sure, it’s going to be a confusing time in an area where things were already strained. Assuming the employer agrees to the changes, for example, participants in a 401k can temporarily borrow up to $100,000 (they can even drain their accounts). Previously, this rule allowed $50,000 up to a maximum of 50% of funds. Circumstances leading to such measures include reduced hours, getting laid off, and getting furloughed. 

According to Don Fletcher, if a permanent distribution is necessary, taxes will apply, but you can waive the 10% penalty. As long as you repay within three years, you may be able to avoid tax after finding a new job or deciding the money isn’t needed. For anybody over 72, RMDs (required minimum distributions) have also been suspended under the CARES act. Again, it’s a confusing area since account holders can take a similar amount to before, or perhaps more. 

It seems as though new guidance comes into effect every day, which will continue in the time ahead. Above all else, it’s essential to follow the advice and contact an expert before making a decision that could negatively impact your retirement planning.

All Thrift Savings Plan Funds Showed Significant Decreases Sponsored by: Don Fletcher

Last Month, Thrift Saving Plan TSP funds (S, I, C, F, G) showed a significant decrease in their monthly returns. Even the G Fund, considered as the steady fund of all, could not safeguard itself from the impact of the coronavirus pandemic across the globe. 

According to Don Fletcher,  reports from the sources, employees actively made more withdrawals last month as compared to the same month, last year, and last months of the running year despite an increase in on-going inter-fund transfers. 

From the data, it is reported that participants transferred $21 billion into the government securities investment fund that is the G fund between February 24 and March 17. Surprisingly, this is the smallest month-over-month drop in monthly returns—from 0.13% to 0.11% or -0.02%.

On Wednesday, TSP released exact numbers that showed the largest drop from February month was seen in the small-capitalization stock index S fund. These funds dropped from -8.01% to -21.40% in March, or we can say it showed a difference of -13.39%. The second-largest drop was seen in the international stock index I fund that dropped from -7.74% in February to -13.87% in March or felt a change of -6.13%.

According to Don Fletcher, Likewise, the common stock index investment C fund dropped by 4.16%, from -8.24% in February to -12.40% last month. The fixed-income investment F fund also declined by 2.46% from 1.82% in February to -0.64% in March.

Lifecycle funds hit in March, the largest hit seen in the L 2050, which dropped from -6.39% in February to -11.90% last month—a drop of -5.51%. The L Income fund, on the other hand, dropped by just 1.57% month over month, from -1.52% in February to -3.09% in March.

According to Don Fletcher, Further reports from close sources state that seeing the decline in the current stock market, the Federal Retirement Thrift Investment Board is planning to add a new Lifecycle Fund this summer. These funds will not be in 10-year increments like the existing funds and will be in five-year increments and would have L 2025, L 2035, L 2045, L 2055, L 2060, and L 2065 funds as well.

When checked year over year, the treasury fund, G fund had the smallest drop in March TSP returns, -0.12%, while the S fund dropped more, -20.37%.

Honey, Don’t Hit Your savings from Thrift Saving Plan Sponsored by:Don Fletcher

According to Don Fletcher, Coronavirus Aid, Relief, and Economic Security Act, CARES Act has been just signed by the federal government to allow flexibility in in-service withdrawals from federal employees’ contribution plans like Thrift Savings Plan or TSP. The Federal Retirement Thrift Investment Board is working on measures that would allow them to use this plan for TSP participants.

As per Don Fletcher, FRTIB sent a short email to all subscribers of the TSP Plan News on March 27th informing subscribers that they will soon update all about the changes in the retirement plan that have been introduced by the CARES Act.

From the email, it looks like there will be several amendments in the act that will inevitably impact workers’ retirement plans.

Elimination of Required Minimum Distributions (RMDs)

One amendment that has done in the act is for the benefit of TSP participants who have already retired and are old enough to take required minimum distributions (RMDs). The CARES Act has eliminated RMDs for the running year. That means people who were forced to withdraw money that had lost its selling value due to coronavirus outbreak would no longer be forced to do so. 

Don Fletcher said This change is beneficial, especially for the TSP participants because, according to the Thrift Savings Plan, the withdrawal needs to be proportional among the different funds. For example, if a worker had 50% of his or her account in the C Fund and 50% in the G Fund, then 1/2 of each withdrawal would come from the falling C Fund.

Withdrawals options from Retirement Plans

Another amendment allows participants who are under 59 ½ can take up to $100,000 out of their plan sponsored by the company and IRAs without any need to pay a 10% early withdrawal penalty (usually applied to such withdrawals).

In addition to these changes, present employees who are TSP participants can take a hardship withdrawal and repay over three years. According to current rules, such type of repayment option is not available for existing workers. If he or she is not able to repay within the three years, then the income would become taxable.

Is it good or bad? 

We shouldn’t touch the savings that we have done for retirement for anything other than the retirement itself. When in dire need of money, look for your other options first:

· Emergency fund;

· Other taxable savings; 

· Controlling current expense; and

· Try to take advantage of options given by money lenders and credit card companies during this coronavirus crisis.

If you find no way and end up extracting money from your TSP account during this time of crisis, then try to take some harsh steps and repay the money once the situation comes back to an adequate level. Re-payment will not be counted against the annual contribution limit.

In simple words, Honey, don’t hit your TSP account unless it’s the last option for you.

2020 Financial/Career Calendar – Ultimate Checklist Sponsored by:Don Fletcher

According to Don Fletcher, When the turn of the new year comes, it’s a time for hope and optimism. We set out a list of our dreams and ambitions, and they usually end before February arrives. However, the financial side of your life is something you can’t just neglect after January. Throughout the calendar year, there are things you can be doing for protection, growth, security, and more. 

 

Thanks to Abraham Grungold, a federal worker for over 30 years, we have a full calendar here today with an action for every month. Not only will it make your life and job easier this year, but it should also help you to make positive steps towards a comfortable retirement too. As you’ll see, there’s nothing too strenuous, and they’ll be much more comfortable than sticking to the fancy diet everybody else is trying as their resolution. 

 

Don fletcher said Every year, millions of Americans prioritize social media and other less critical areas of their life when they should be focusing on employee benefits, filing taxes, getting a new job, and achieving their life ambitions. 2020 is the time for a change, and positive steps, and below is the calendar to help with this! 

 

•   January – Create or update your resume and review some jobs (unless you’re happy in your role, of course). Even if you don’t want to change your job, there’s nothing wrong with updating your resume. 

 

•   February – Connect with somebody new on LinkedIn in the month of building relationships. 

 

•   March – As spring arrives, update life insurance and TSP beneficiaries. 

 

•   April – Make sure you get all quarterly, state, and federal tax returns in time. 

 

•   May – Consider long-term care insurance for a more comfortable tomorrow.

 

•   June – We’re sticking with insurance in June, but this time life insurance. 

 

•   July – How’s your dental plan looking? Don’t let this fall by the wayside. 

 

•   August – With your teeth sorted, what about a vision plan?

 

•   September – Just in case of an emergency or another government shutdown, create a strategy to build savings to pay the bills should the worst happen. 

 

•   October – As we edge towards the end of the year, Grungold thinks it’s wise to think about the Federal Spending Account Program. 

 

•   November – With the holidays looming, investigate your choices and premiums for FEHB (Federal Employee Health Benefits).

 

•   December – It’s the season of goodwill and the time where we start planning for the next year. In 2020, you can plan TSP contributions for 2021 (after reviewing this year’s contributions). 

 

Don fletcher said If you carry this simple calendar forward every single year (and even make small adjustments to suit your position), you can keep tabs on your financial situation while also progressing towards goals and dreams. Good luck! 

Should You Prioritize Saving Up for Retirement or Paying Down Your Debts? By Don Fletcher

Should You Prioritize Saving Up for Retirement or Paying Down Your Debts? By Don Fletcher

As per Don Fletcher, Many of us encounter the dilemma of figuring out if we should be putting our money toward paying off our debts or saving up for retirement. And many of us might not have enough money to cover all our financial necessities.

Then what should you do? Should you pay off your debts first or put money into your retirement contributions?

Well, the best thing to do is to do both, if possible. At least contribute enough to your workplace retirement plan to receive the maximum match, if offered. Then take what you have leftover to put it towards your debt.

However, this isn’t always possible. So when it comes down to choosing one or the other, it depends on certain factors, like your age, if your workplace offers a contribution match, how much debt you have, and the cost of holding that debt over time.

Though it is important to save as early as you can, when it comes to age, if you have decades between you and retirement, you are in a better position to focus on just paying down your debt and creating an emergency fund by Don Fletcher.

It can be crucial to take care of the debt first as interest rates on new credit cards are currently around 17.3%, on average, to 24.54% on maximum average.

If you have debt that has high-interest rates, you will be better off getting rid of that burden instead of saving up for retirement. As you are also paying off your debt, be sure to set aside money for emergencies as a prevention method of having to use more credit or borrow money.

Once those essentials are taken care of, you can put all your attention on your retirement contributions.

It also makes sense to take care of your high-interest debt first when you have a lot of time before retirement because the market returns are not set. So during times when the market is volatile, a lot of the time, the interest you’ve earned from your retirement contributions is less than what you would have saved paying off your debts.

According to Don Fletcher, Now, if your employer is matching contributions, try to at least meet the minimum to get the max contribution match, as that will be free money towards your retirement you would be passing on if you fail to do so.

See if there are any other monthly expenses you can cut before allocating where your money can go. For instance, if you eat out every day for lunch, you may save more cash by making packed lunches.

When it comes to older Americans, if you do not have a lot of years between you and your retirement, you won’t have the power of compound interest as significant as someone who has decades before retiring. In this case, it may also be in your interest to take care of as much debt as possible that has high-interest rates and save up to 6 months of pay for an emergency fund by Don Fletcher.

Then go full-throttle on putting money into your retirement contributions and take advantage of the extra catch-up contributions if you are headed towards reaching the annual maximum contribution limit.

Remember, if you have matching contributions offered by your employer, be sure to at least meet the necessary amount to receive it.

No matter what boat you’re in, be sure to have your strategy and plans detailed out. Be sure to specify how long each strategy will take so that you stay on point.

Why Taking Retirement Refund is Not Always the Best Case by Don Fletcher

Why Taking Retirement Refund is Not Always the Best Case by Don Fletcher

Federal employees serve under the three branches of the United States government: executive, legislative, or judicial. Some of them are politicians and their staff members, military personnel, and numerous civilians working in different state offices described by Don Fletcher.

If a federal employee decides to retire but isn’t eligible for a retirement annuity, they have the option to ask for a refund of their retirement contributions in a lump sum payment. In contrast, they may choose to withdraw their contributions until they become eligible for deferred retirement.

As per Don Fletcher under the Federal Employees Retirement System (FERS), a federal employee may get a deferred annuity at age 62 with a minimum of five years of creditable civilian service but doesn’t receive a return of all retirement contributions and does not qualify for an immediate retirement benefit.

Federal employees are allowed to get deferred annuity at a minimum of 60 years old with 20 years of creditable civilian services. They can also retire at the minimum retirement age as long as they worked for 30 years with accredited private services, or even ten years of commissioned civilian services but with a reduced benefit.

What Are the Requirements to Qualify For a Refund?

Below are the eligibility requisites for a retirement refund claim:

  • Federal employees could avail of a retirement refund if they got separated from the federal government for at least thirty one consecutive days.
  • Federal workers are also eligible if they have been assigned to a position not subject to retirement reductions for at least thirty-one straight days.
  • Exiting employees should not be re-hired for a role subject to retirement reductions at the time they file for an application as well as be unsuitable to get an immediate annuity within thirty days of separation.
  • No court order would stop federal employees from receiving a refund.
  • Lastly, they should inform their current and former spouse(s) of the refund request, if possible.

When is it Beneficial to Get a Retirement Refund?

Federal Employees should consider several factors before withdrawing their retirement contributions. For one, prematurely claiming a retirement refund is a good thing when an employee has less than five years of civilian service and does not plan to return to federal employment as per Don Fletcher.

Another reason is that the employee has five or more years of civilian service and has no intention to become a federal employee again. Another reasonable case is a plan to invest the funds. This presumes that the person had already done a lot of thinking and believes that it will accumulate and surpass the amount of the deferred annuity.

Don Fletcher on when is it NOT Beneficial to Claim a Retirement Refund?

Sometimes, it is not ideal to take your retirement refund. Doing so without thinking ahead would lead federal employees to a regrettable action.

The first reason is that the employee might be re-employed by the federal government and wish to receive credit for the refunded service. The federal employee will be required to make a redeposit to receive credit for those earlier years of service, plus interest. Another reason is that the employee has at least five years of civilian service, and the potential deferred annuity surpasses the amount of the lump-sum refund.

In conclusion, it’s generally wise for a federal employee to apply for a deferred annuity at age 62 because the employee can provide a survivor annuity for their spouse. Unlike a retirement refund, all deductions will void any retirement options. Even if you think that it will be more profitable to invest, it still involves a significant risk⁠—At that point, you wouldn’t have any energy left to work long enough to get back all of the savings you’ve lost.

About Don Fletcher:  Federal Retirement Expert

Don Fletcher has years of experience helping federal employees maximize their retirement benefits.  Helping thousands of federal employees through hundreds of seminars and one-on-one federal retirement benefit analysis.  Contact Don Fletcher at www.don4fers.com or (469) 358-1913

What Are Limits to Carrying Over Your Annual Leave Hours? By Don Fletcher

Don Fletcher on The 2019 leave year ended last month on January 4, and the 2020 leave year started on January 5 and will end on January 2 of 2021. In this article, we will go over how many leave days you can carry over every year along with what lump-sum payment you can expect to receive in retirement.

To begin, we will talk about how you receive your annual leave. Those that have less than three years of time served at your federal post, you receive 4 hours for every 2-week pay period. This adds up to 13 days per year.

Those that have worked from 3 to 15 years will receive 6 hours for every 2-week pay period, which adds up to 20 days of annual leave per year.

If you have over 15 years of service, you accrue 8 hours for each 2-week pay period, which adds up to 26 days per year confirmed by Don Fletcher.

For part-time federal workers, these amounts are prorated. There are also some employees, such as senior scientific and technical workers and senior executive service members, that will accrue 8 hours per pay period no matter the length of time worked.

For those of you that are apart of the Reserves or Guard will receive credit for active duty service and active duty training while you are a federal employee. For those of you that are retired military service members, credit will only be added for active duty during a war or while in a campaign for which a campaign ribbon was awarded. Active duty service will be counted if a disability occurred due to armed conflict or caused by an instrumentality of war during a war on duty.

Don Fletcher said at the discretion of an agency, those that have been given a new position or those that are former military members that had a gap of a minimum of 90 days in their service can be given credit.

The number of annual leave hours you can take into the next year and so on depends on the employment category you are under by Don Fletcher.

Wage grade and GS workers can take up to 240 hours into the next year. This adds up to 30 days of annual leave. Those that have more than 240 hours will lose the time if they do not use it before the end of the year.

Those that are at the Senior Executive Service level will be able to carry over up to 720 hours, which adds up to 90 days. If you had more than this limit before October 23, 1994, your limit is that amount you had. If you have fewer hours than that amount you had at the end of any leave year, the limit will be lowered to 720 hours.

Those that work overseas can carry over 560 hours into the new years, which is equivalent to 45 days.

According to Don Fletcher, A Postal Service bargaining unit worker can carry up to 440 hours, which adds up to 55 days. Executive and Administrative Schedule workers of the Postal Service can carry up to 560 hours, which is equivalent to 70 days.

When you become a retiree after being a Postal Service bargaining unit worker, you will receive payment for any time you were able to carry over (with the limit in mind) into the new year along with any annual leave you accrued the year that you retire.

Any other type of federal employee that retires before the end of the leave year date will receive a payment in a lump-sum for any unused annual leave that they have. The hourly rate for which the lump-sum is calculated will be at the basic pay rate you would have gotten had you continued working until your annual leave hours had been all used up. This tends to be a big reason as to why a lot of federal workers leave just before the end of the leave year.

federal retirement savings

Why Max Contributions Can Be A Bad Idea By Don Fletcher

Why Max Contributions Can Be A Bad Idea By Don Fletcher

As per Don Fletcher, we hear it all the time: “Save as much as possible! Max out your contributions!”.

Why do we hear it all the time, though? According to a study done by the Insured Retirement Institute, almost 45 percent of Baby Boomers have zero savings. The ones that have saved, about more than 25 percent have less than 100K saved up. 

This is why for many people in the situation of no savings or very little think it could be a great idea to contribute as much as possible to your IRA or 401(k). However, Don Fletcher said this may or may not be a great idea, depending on your situation. 

So when is the maximum saving a bad idea? If you have other financial matters that need taking care of but focus on saving for retirement, this may take a bit out of your savings in the future. 

Other than putting money aside for your retirement years, there are two other financial goals you may need, such as creating an emergency fund and paying off debt. 

If you do not have extra cash around for when an emergency comes up or you are paying the minimum on high-interest debt, it may be in your best interest to make these your priorities first as per described by Don Fletcher. 

Maximizing Contributions and Debt

Having debt with high interest is very bad for your financial health. Currently, the average interest rate for a credit card is around 17 percent a year, while your yearly return rate on your retirement investments maybe around 7 to 10 percent. If you are in the situation where you are paying more interest on your debt than what you are earning from your retirement savings, it is better that you address the high-interest rate first. 

According to the Federal Reserve Bank, for emergency funds, only 61 percent of Americans can pay for an emergency expense of $400. That means that 39 percent of people will have to borrow money from their retirement accounts or use a credit card to cover this expense. 

Don Fletcher on Thrift Savings Plan Distributions

Touching your 401(k) or TSP before you are 59 and a half will have a tax penalty of 10 percent on top of the taxes you already for the amount you withdraw. If you do not have an emergency stash, you might be going backwards if you have to withdraw from your savings accounts. This is why you should ensure that you have emergency savings funds for unexpected situations. 

So how can you balance all of these crucial financial matters? It is critical to save up for retirement, but also essential to pay off debt and have money in case of an emergency. So in which order should you save up for these things?

If you have an employer-sponsored 401(k) or Thrift Savings Plan and they offer matching contributions, put in enough to get the full match as this essentially is free money. After that is taken care of, review all of your debt and see which has the highest interest and prioritize paying that down first. Ensure that you are paying what you need to for your other lower interest debt, but getting rid of your high-interest debt will save you money in the long run. 

Finally, sit down and figure out how much you need to save in your emergency fund. Many financial professionals advise having enough money to get you through 3 to 6 months of your monthly expenses. However, save only as much as you can. If that means even $20 a month, that’s fine. Just start somewhere. 

Figure out how much money you have available each month to put toward your financial goals. Once you set aside what you will contribute to receive a full match, then prioritize that amount to where you’ll put your focus first. If you have a ton of debt with super high interest, be sure to put that as your first main goal to take care of as soon as possible. If you have low-interest debt but nothing for emergencies, start putting money away for those unexpected expenses. 

After you have, most of your debt with high interest paid down, and you have enough savings in your emergency fund to cover you a few months, you can then begin to maximize your retirement contributions. That way, you won’t have high-interest rates or unexpected costs tripping you up as you save up for your future. 

About Don Fletcher:  Federal Retirement Expert

Don Fletcher has years of experience helping federal employees maximize their retirement benefits.  Helping thousands of federal employees through hundreds of seminars and one-on-one federal retirement benefit analysis.  Contact Don Fletcher at www.don4fers.com or (469) 358-1913

Don Fletcher

Why it’s Wise to Front-Load Your TSP Before Leaving A Job by Don Fletcher

Why it’s Wise to Front-Load Your TSP Before Leaving A Job

By Don Fletcher

Don Fletcher helps Federal Employees protect their retirement money by assisting them in putting together their Personal Retirement Plan. Wealth preservation and financial security, when looking at retirement planning, is key for Don and his clients.

With agency downsizes and buyouts possible, federal employees close to retirement, or thinking about a change, may be wondering what to do with their TSP. If you plan to leave before the year’s end, you may want to consider front-loading your Thrift Savings Plan (TSP).

For 2017, employees can contribute up to $18,000 to their TSP. If an employee is 50 years of age or older, they can contribute another $6,000. If you are retiring mid-year, you can speed up the TSP contributions to hit the maximum before you decide to leave.

For example, if you plan on leaving around the 20th pay-period, you will have contributed nearly $14,000 to the TSP.  This is $693 per pay period, which is how much you need to max out by the last pay-period (26th).

Say you decide to leave two months before your actual date of leaving (which is four pay periods before your date). If you boosted the bi-weekly contribution, you would hit $18,000 for the 20th pay-period. In order to attain $6,000 per year in catch-up contributions, you would need to put in $576 per pay period to attain the max out by that time.

This is a total of $1,611 for each pay period, which is impossible for federal employees who want to leave the government. However, you could boost your payments to 15 percent of your salary and have a bigger TSP amount upon leaving (or retiring).

It’s wise to add money to your Thrift Savings Plan, and you should avoid spending it whenever possible to ensure it’s still there when you retire. If you leave, you can either leave it there, or you can roll the money into another employer’s defined contribution plan or an IRA.

If you have any questions on your TSP or need some advice, please be sure to consult a financial professional.

Changes to the Thrift Savings Plan by Don Fletcher

Changes to the Thrift Savings Plan

By Don Fletcher

Don Fletcher helps Federal Employees protect their retirement money by assisting them in putting together their Personal Retirement Plan. Wealth preservation and financial security, when looking at retirement planning, is key for Don and his clients.

In a statement from the Thrift Savings Plan governing board, they announced changes to both the international stock I Fund as well as L Funds. Essentially, the number of L Funds will be changing in around three years’ time, and there will be alterations to how the I Fund is made up although there isn’t a timescale on this change just yet.

I Fund – Ultimately, the recommendation to change the Thrift Savings Plan I Fund came from a consultant and the board then approved the change soon after. Currently, the fund itself is a reflection of an index monitoring the stocks of the largest companies across a whole host of countries. Although most companies come from the Western world and the Far East, a quarter of the value is now held by Japan. Within Europe, United Kingdom holds the largest share with one-fifth while one-tenth each comes from Switzerland, Australia, France, and Germany.

When the changes finally come into effect, the I Fund will be expanded dramatically regarding the number of countries reflected. For example, Canada will be added as will the stocks of developing countries and small-company international stocks.

Why? – Ultimately, the board wants to make the fund more diversified. Instead of just considering the largest countries in the world, they want the fund to reflect the international scene more accurately. As mentioned, there isn’t yet an introductory date for this, and this is likely to be because the finer details are yet to be revealed. For the change to work successfully, there would need to be a smooth introductory plan to prevent major issues and potential embarrassment.

L Fund – With L Funds, there is a timescale in place, and we are expecting the addition of TSP lifecycle funds in 2020. In this year, it is expected the Income fund will have the same type of standing as the L Fund which will see the two merge. With this, investments will be mixed with C, F, G, I, and S Funds. Once the projected withdrawal date comes nearer, the mixes become more conservative. In addition to this, we will also see the addition of funds for 2025, 2035, 2045, 2055, 2060, and 2065.

Once again, it was the recommendation of a consultant which led to this change. Within the recommendation, they stated that increments of five years were the standard choice within the industry for mutual funds. Interestingly, there was also research into potential funds that could track real estate investment trusts, hedge funds, high-yield bonds, and other industry sectors specifically. However, results were not quite as expected and the consultant eventually withdrew their interest and advised the Thrift Savings Plan board against it.

There we have it, two major changes coming to the Thrift Savings Plan and one each for the I Fund and L Fund. In the next couple of years, everything will remain as normal, but you should be ready for the changes as they come. For example, the L Fund changes are due in 2020 while the finer details of the I Fund changes still have to be calculated. If this will affect you in the coming years, please feel free to talk to a financial professional who can help take the right action both now and long into the future!

Contact Don Fletcher

Don Fletcher

Article: Why it’s Wise to Front-Load Your TSP Before Leaving A Job by Don Fletcher

Count On The Thrift Savings Plan For Your Future by Don Fletcher

Count On The Thrift Savings Plan For Your Future

by Don Fletcher

Don Fletcher, discusses TSP benefits, eligibility, and more.

The Federal Employee retirement system designed a retirement savings plan known as Thrift Savings Plan (or the TSP). The TSP is available to all current and retired federal employees who were engaged in the federal civil service. The TSP is a defined contribution plan that has been designed to give same retirement savings to federal employees as are offered to private sector workers who enjoy the benefits of a 401(k). Federal Employees are eligible to make contributions through paycheck deductions, employer matching, and rollovers from an existing defined contribution plan or eligible IRA.

thrift savings plan tspEligibility for the TSP

The Thrift Savings Plan involves the participation of the federal civilian employees and members of the uniformed services. To become eligible to receive matching contributions, uniformed service federal employees need to agree to serve on active duty for at least six years.

Benefits of the TSP

One of the primary benefits of the TSP is how contributions to the TSP are taxed.  Contributions to the Traditional TSP (Roth TSP contributions are handled differently) are made “before tax.” This helps in reducing your reportable income by the amount of the contribution that you make.  An additional benefit of the tax deferral is that earnings are also not taxed in the year they were created, but rather postponed until the employee begins to withdraw the money. They are meant for allowing compound interest on the earnings.

According to the Thrift savings plan distribution rules, the tax bite is deferred until you start withdrawing funds from the plan. As per the TSP considerations, the federal employees are seen to transfer an approximate amount of $ 9 billion from the retirement accounts each year. These are regarded as defined contribution plans that offer access to the similar kinds of retirement benefits to the federal employees as the private sector employees receive along 401 (k) plans.

How TSP works with FERS

Among the civilian participants, the Federal Employee Retirement System (FERS), employees are entitled to receive employer contributions to their TSP and FERS Annuity.   As a FERS employee, the agency employer makes two different kinds of contributions to the account as a part of the FERS benefits. Just like other defined contribution plans, the employees need to bear investment risks for his account balance as well as the account determining the performance and contributions of the investments with various TSP considerations. To participate in a TSP plan, you will select investments that you believe are best for your situation and that suit your financial profile.

However, the TSP modernization act is altered to change the current rules that have been restricting employees from the federal workforce to avail post-separation withdrawals.

Conclusion 

If you want to set yourself up for a retirement that matches your income needs, it all starts with a great plan.  The Thrift Savings Plan can be incredibly beneficial, but if you’re unsure of how to make the most out of your plan, then it’s best to contact a professional investment advisor.

Don Fletcher

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