In this day and age, people looking to invest in Certificates of Deposit are lucky to find one paying 1 percent. And often that rate is locked in for two, three or five years. But not if you are a long-time federal worker.
If you are one of the half million federal and postal workers who are under the old Civil Service Retirement System you can invest in something called the Voluntary Contributions Program.
The VCP is totally different from the Thrift Savings Plan in part because it is open only to currently working feds under the old Civil Service Retirement System. It is not open to FERS employees or to CSRS retirees.
With the VCP plan you invest after-tax money. Then when you withdraw it you pay interest only on the earnings. You can also use the VCP to increase, slightly, your lifetime CSRS retirement benefit. Unlike the VCP, the TSP is a 401(k) plan that is open to all federal and postal workers, regardless of their retirement plan. Under the TSP you invest pre-tax money with each paycheck and pay taxes on the entire amount of your account (earnings and contributions) when you withdraw it.
The VCP has other advantages over traditional Certificates of Deposit. For one thing, it is backed by the full faith and credit of the U.S. Government (whatever that means!) And the interest rate is good for one year. This year (2010) for instance, the 12-month rate was 3.125 which trumps anything any bank, savings institution or credit union offered. By a lot.
Next year (2011) money invested in the VCP will earn a respectable 2.75 percent, according to federal benefits expert Tammy Flanagan. If you can beat it, go for it. Odds are you can’t.
The amount of money you (as a CSRS employee) can put into the VCP is almost unlimited. And once you’ve opened an account (you must send in a Standard Form 2804 to OPM and have your account approved) you can begin investing at your own pace. To download that form, click here.
Want more information on the VCP program? If so, check out yesterday’s Your Turn With Mike Causey radio show. Tammy Flanagan was our guest. She explains how the VC program works and who can and should check it out. And there’s a bonus to listening…
Best Day To Retire: In addition to the VCP program information, Tammy Flanagan also tells you the best date to retire this year. To listen to it either for the VCP information, an update on the best-date-to-retire, click here and tell a friend.
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Will the tires go flat on the omnibus? Senate Democrats unveiled a $1.1 trillion dollar omnibus bill yesterday that would fund agencies through the fiscal year and does includes a two-year pay freeze for feds. Bob Cusack, managing editor for The Hill newspaper, told Federal News Radio the question isn’t whether your agency will be funded. The question is how.