Government Employees: Best Retirement Strategies

If you work for the government, retirement planning and conventional wisdom regarding 401(k) plans and Social Security benefits are unlikely to apply to you. However, there are several ways for government employees to plan for a prosperous retirement. The first step is understanding your benefits and how to apply them to your financial picture effectively. The following are the best retirement planning techniques for government employees.

Hired before January 1, 1984

Let’s say you are an older federal civilian service employee employed on or before December 31, 1983. In that case, you may be eligible for the Civil Service Retirement System (CSRS), which offers retirement, disability, and survivor benefits.

Since you haven’t had Social Security taxes withdrawn from your paycheck, you won’t be eligible for Social Security benefits until you work another job or qualify via a spouse.

If you’re eligible for Social Security benefits, your CSRS pension may lower your benefits.

Hired in or after 1984

If you were hired in civilian service in 1984 or after, you are covered by the Federal Employees Retirement System (FERS).

It offers Social Security benefits, a basic benefit plan (pension), and a Thrift Savings Plan (TSP), which includes automatic government contributions, optional employee contributions, and matching government contributions. The retirement payouts for these plans are structured as annuities depending on your age, years of service, and plan contributions.

Contributions and Investments of the Thrift Savings Plan (TSP)

The TSP is a defined contribution plan, which means you choose how much to contribute and how to invest it.

These decisions determine how much money you will get when you retire.

Contributions and how they work

Employee contributions to a TSP can be made either before or after tax. If you contribute pretax money, you don’t have to pay taxes on them until you begin withdrawing funds from your TSP. If you contribute after-tax funds, you won’t have to pay taxes on the money you withdraw in retirement. In any case, your contributions grow tax-deferred.

For 2021, the maximum TSP contribution is $19,500 (increasing to $20,500 in 2022), with an extra $6,500 in catch-up contributions if you’re 50 or older.

Employees under the CSRS and the FERS can contribute to a TSP. Only FERS employees, however, get employer contributions. If FERS covers you, your employer will automatically contribute an additional 1% of your income, and if you make employee contributions, you’ll be eligible for a matching contribution from your employer.

If you have the resources, it’s suggested that you contribute enough to maximize your employer match and ensure you have enough years of service to qualify for the automatic 1% match. You can also transfer funds from a former employer’s retirement account into your TSP.

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M. Dutton and Associates is a full-service financial firm. We have been in business for over 30 years serving our community. Through comprehensive objective driven planning, we provide you with the research, analysis, and available options needed to guide you in implementing a sound plan for your retirement. We are committed to helping you achieve your goals. Visit us at MarvinDutton.com . Tel. 212-951-7376: email: [email protected].