For FERS Folks: the Money Decision

If $500 or $5,000 suddenly appeared on your doorstep would you keep it? What if you got a perfectly legal cash windfall every two weeks, the equivalent of a 5 percent tax-deferred pay raise. Would you accept?

For most people that’s a no-brainer. For the vast majority of federal and postal workers (those under the Federal Employees Retirement System,) getting the extra money is easy. All they need to do is put 5 percent of their own pay, via payroll deduction, into the Thrift Savings Plan each payday. Uncle Sam will match the first five percent, although FERS employees are allowed to invest an additional 5 percent without a government match.

For any FERS employee, and especially new hires for whom the TSP is a brand new perk, the amount they put into the TSP is an important decision. So what to do?

On April 11, Joe Sullender, a certified financial planner, joined benefits expert Tammy Flanagan on her For Your Benefit radio show. He’s with Wells Fargo advisors based in McLean, Va.. To hear the entire show, including tips on the best dates to retire, click here.


Meantime, here are some highlights from the program for FERS investors:

  • For new hires with the Federal government, there can be some trepidation with how to proceed with saving for retirement while still managing current needs and other goals. A careful balance must be struck between long-term planning (like retirement) and more immediate needs such as education, savings, purchasing a first home or even paying down debt. However, regardless of the new FERS employee’s situation, it is imperative that they contribute at least 5% to the TSP. If you contribute 5% to the TSP, they match these contributions 100% – meaning your money is essentially doubled instantly. Combine this matching with the compounding interest on these funds over the years and you can quickly see how a 5% contribution early in one’s career can accumulate to quite a bit of money by retirement.
  • Once the 5% contribution has been met, then you may want to consider maximizing the TSP contribution up to the 2011 limit of $16,500. Ideally, it is recommended that each FERS employee try to “max out” the TSP. Not only are all TSP contributions pre-tax, but all growth accumulates in a tax-deferred shelter, allowing it to grow faster than it would in a taxable account.
  • Be sure, however, to weigh this savings against other goals that could be more immediate. First of all, it is usually advisable to not contribute more than 5% to the TSP if you have high-interest debt such as credit cards. Use all disposable income to wipe out this debt before trying to build your retirement nest egg. Additionally, many people I meet with in the mid-career stage have been maximizing their TSP and are in excellent shape for retirement – but have nothing put away for their children’s college education. Be wary of this and be sure you are tackling all of your goals at the same time – water ALL of the “plants” the best that you can!

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