Why Planning Healthcare in Advance Safeguards Your TSP

Did you know that one of the biggest problems for those with a Thrift Savings Plan (TSP) retirement account is actually unexpected healthcare costs? Although we can’t expect the unexpected, we can make better healthcare decisions at a younger age and improve the position of our assets within a TSP. 


For those that are unaware, the TSP account is designed for federal workers. While in federal employment, you regularly contribute to the account, and this saves money for retirement. After leaving work and retiring, you should have three reliable streams of income: 


Social Security 

TSP accounts 

FERS annuities (defined benefit plans) 


If you were to ask federal employees why they contribute to a TSP account, not many would talk about healthcare costs, and this is because the Federal Employees Health Benefits (FEHB) policies are designed for this need. Normally, FSAs (flexible spending accounts) supplement these policies when it comes to healthcare expenses. However, it’s important to remember that retired federal workers don’t have access to an FSA. 


What’s more, retired workers get a further surprise when they realize that FEHB policies aren’t paid with pre-tax dollars, as in the working years, but instead after-tax dollars. These changes to FSAs and FEHB policies can leave many retired federal employees disillusioned (and without the right support for healthcare!). 


As life expectancy continually increases, it’s more important than ever to pay attention to retirement healthcare. According to a recent Fidelity study, $295,000 is the average healthcare cost expected for a couple retiring at 65 in 2020. Not only does this seem high, but it gets worse when you consider that this Fidelity study didn’t take long-term care into account. Some sources say that this will exceed $100,000 for a private nursing home room in 2020. 


What does this mean for federal workers? For one thing, we recommend visiting the Office of Personnel Management (OPM) website to review the literature on Medicare and the FEHB program. Here, you’ll learn why many workers use a strategy that contains an FEHB policy as well as Medicare Part B for retirement. 


This has been the advice of the OPM for some time, but it’s frequently ignored due to the higher monthly costs that come with the approach. Yet, choosing between FEHB and Medicare leads to more risk. For example, it leaves retirees exposed to copays, coinsurance, medical deductibles, and other expenses not covered. Choosing one or the other cost in the long-term also leads to uncertainty and a lack of security for federal workers and retirees. 


Choosing Medicare and FEHB 


As a financial professional will tell you, a strategy with both FEHB and Medicare provides more security and reliability for financial planning. Additionally, choosing this path also opens up asset allocation options for a TSP. Suddenly, with FEHB and Medicare, you’re no longer worried about a medical emergency draining your TSP assets. 


When choosing between the two, you’re risking your TSP assets if something were to go wrong. As such, participants take a more conservative approach and protect these assets rather than focusing on growth potential. Just in case the assets are required, people invest mostly in the G Fund because it provides accessibility. What happens when the G Fund doesn’t offer growth? What happens when your timing is poor, and your TSP portfolio is at risk? 


By following the OPM guidance, you’ll have certainty in the shape of Medicare Part B and an FEHB policy. The primary effect is confidence in budgeting for healthcare, and the secondary effect is more freedom with TSP asset allocation. Rather than liquidity, you can focus on growth and building a nest egg for retirement (in other words, the reason for introducing TSP in the first place!). 

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