Working for the government usually requires a different type of retirement plan than average Americans who receive 401(k) plans from their employers and Social Security benefits from the government. Several retirement benefits are available to government employees. Here’s a look at how federal employees can strategize their retirement planning.
Thrift Savings Plan Contributions and Investment Schemes
A popular federal retirement planning option is a thrift savings plan (TSP), in which you determine for yourself how much money to invest. Your decision will impact the number of benefits you receive upon retirement. The contributions you make can either be with pre-tax or after-tax dollars, and you won’t pay taxes for pre-tax contributions until you withdraw money upon retirement.
In 2022 the maximum contribution amount to a TSP in the United States was raised from $19,500 to $20,500. For individuals age 50 and over, you can make additional contributions of $6,500. A TSP retirement plan is available to both Civil Service Retirement System (CSRS) employees and Federal Employees Retirement System (FERS) employees, and the latter requires employers’ contributions.
TSPs offer investments in stocks and bonds, but they carry a certain level of risk. These plans, however, can be customized for tapping into low-risk funds based on investments in Treasury bonds or higher-risk funds based on global stocks.
Specialized Professional Advice Helps You Plan Better
Federal employees typically have a hard time understanding their retirement plans due to confusion over benefits. Often government employees turn to co-workers for advice, which creates even more confusion.
Federal employees should talk to a Chartered Federal Employee Benefits Consultant (ChFEBC) since they are trained thoroughly on this topic. Ensure they are certified as fiduciary by the National Association of Certified Financial Fiduciaries (NACFF). This certification indicates they uphold the highest ethical standards and put their client’s interests ahead of their own.
State and Local Government Employee Pensions
State, county, and local government employees may be entitled to pensions, depending on the jurisdiction. These retirement plans are based on years of employment, final salary, or an average of your highest paying years. The equation includes a multiplier, which differs in each state. The biggest factors affecting the value of benefits tend to be the type of work and the year you started.
You can start your federal retirement planning as soon as you are hired. Some employers offer a 457(b) plan, which will strengthen the more you contribute to it.
Pension Eligibility Criteria
Federal employees must be in service for at least five years to qualify for a pension. The pension is paid in the form of an annuity based on whatever your highest salary was for a consecutive three-year period. Your federal retirement payout will be about 1 percent of this average salary per year of work.
So, if you only worked five years at an average salary of $100,000 per year, your payout would be 1 percent of $500,000, which is $5,000. If you worked six times longer, which is 30 years, the payout would be $30,000.
At Premier Protection, we’re here to help make your retirement planning easier. Contact us today to get started with our complimentary retirement benefits analysis!
Retirement Benefit Analysis
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