Is Uncle Sam your career coach?

When it comes to providing top quality career or financial advice — free and on the clock — who are the best employers? Progressives in Silicon Valley and other high-tech companies or more basic operations that have been around for decades?

Or how about Uncle Sam? Is he, at least in some agencies, giving workers and/or their spouses the most help when it comes to investing, planning for the future and retirement preparation? Although it’s a tough call to make, many veterans of many agencies and the private sector say, overall, the government consistently does the best at providing early and mid-career training in many cases — and help for all when they are within 5-to-10 years of retirement.

“Doing it early, and I mean like right after they’ve joined the agency is rare…but I think it provides a big payoff.” She said informing employees that their retirement options and the TSP, with its generous employer match, “can make a difference and convince many of the best and brightest, the future is in government.”

Several long-time feds, and both current and former trainers say the CIA, FBI and NIH — to mention a few — have excellent programs. Some super-secret agencies and Defense agencies also provide training overseas for their people who are based outside the U.S.

Sometimes the training is provided by outside firms that specialize in it. They typically bring in a team of experts — often now via Zoom since the COVID-19 pandemic — for both lectures and Q&A sessions. Sometimes agencies do it themselves or provide a combination of in-house or outside training. Last week’s column —  What’s Your TSP IQ — was based on a presentation the National Oceanic and Atmospheric Administration (NOAA) provided to many workers in an “all hands” meeting on the TSP. It was done primarily by a 23-year fed who took control of his TSP early on. Like most of the 75,000 plus feds with $1-to-7 million accounts, he did so the old fashioned way. Not trying to time the market. And investing is stock-indexed funds. Is it guaranteed? Of course not. But it has worked very well for hundreds of thousands of feds who went into or will go into retirement, with lifetime annuities indexed (in whole or part) to inflation AND a big cash retirement kitty.

Last week’s column promised you a look at the outstanding session by the NOAA fed whose credential includes the fact that although he got a modest start in government, he’s now a TSP millionaire.  And here it is:

TSP & You!

• CAVEAT: Everyone’s financial situation is different. Everyone’s budget and comfort level with investing is different. TSP is a “tool in the toolbox.”
• Federal Employees Retirement System (FERS): Employees will have a defined monthly pension (amount depends on length of service and average of “high-three” salary years) – but should also strongly consider participating at some level in the TSP. If you don’t participate – you are walking away from “free money” (the Government matching amount).
• 1% contribution is automatic. The Government does that for you upon employment.
• Government will match your contributions, up-to-5%. So – if you participate with 5% of your salary, with the Government 5% match – you effectively get 10%. If you choose 10% of your salary, you would effectively get 15%. If you choose 15% of your salary (normally the “max” you can contribute) – you would get 20%.
• 2nd CAVEAT: At GS-14 and higher level salaries – you have to be careful – it might be better to take the annual election limit (IRS & TSP announces each year) and divide that amount by 26 pay periods – and use that amount as pay period deduction (instead of using a %) – so you don’t contribute “too much” by October or November, hit the annual election limit and miss some matching amount in November or December.
• Roth vs. Pre-Tax contributions – Roth option for TSP only offered since 2012. It is “post-tax” donations – you have already paid Fed & state tax on the $ – but after you retire and start to withdraw funds – you don’t pay federal or state tax on it. There is no Roth income limitation for TSP, but there is for civilian sector 401(k) plans.
• Pre-Tax – you don’t pay federal or state tax on your contributions – but after you retire and start to withdraw funds – you DO pay federal (and *might* state). Research different states before you decide on a retirement location – some don’t tax Federal Government pensions (military or civilian), some don’t tax TSP.
• Once you reach age 50 – you can contribute an additional amount annually (normally done per pay period) – “catch-up contributions” until you retire. The 2021 amount is the same as 2020 – $6,500.
• Some TSP-centric recommendations – that are “generic” – for long-term / retirement savings / investing:
  • Long-term is a marathon, not a sprint. Your goals should be long-term.
  • TSP is not meant to be a platform for “day-traders.”
  • TSP does have very low administration costs compared to other retirement plans – you don’t have to leave it once you retire. But once you do leave TSP – you can’t come back.
  • Your investments and eventually, your withdrawal decisions – are all up-to-you. You can make investment changes and fund transfers via the TSP website. TSP instituted Life Cycle Funds (“L Funds”) – that would slowly shift funds over time (become “less risky” in the last part of whatever time the fund covers).
  • Risk and Reward are often matched – low-risk can = low reward. The opposite may be true. But – not always. Timing is an issue and investment markets always rise and fall. Find the risk and reward goal and balance that is right for you.
  • There are various companies that will advise you when to move funds in TSP – you can find them via Google. I don’t know what they charge for this service. I haven’t ever used them.
  • Review the TSP website for information & training, and to keep current on policy changes, at least annually.
  • I STRONGLY recommend that you participate when you can and to the extent that you can.

My example: Started TSP ~six months after I joined the federal civil service in March, 1998, as a GS-12, Step 1 – putting away 10% (the most I could do at that time). In 1999, I increased my contribution to 15%. Have “maxed-out” every year since. I added the TSP “catch-up” contributions the year I turned 50 (2017). I used a fairly high-reward / high-risk contribution strategy – 80% into the C Fund, with 20% spread into the other funds (not the G Fund). I did not move the funds or change the allocation amounts much. I only noted the amounts at the end of each month. (Some years – checking it more frequently was too painful – and while it was tempting to make changes – I didn’t.) I had two years (2004 & partial 2012 / partial 2013) – with no contribution on my part due to military mobilization – but was allowed to contribute the amount that I missed when I returned (which I did). Never took a TSP loan. Amount as of February 2021 – slightly over $1M – not bad for 23 years! That is pre-tax (I don’t have any Roth contributions) – so it will need to be ~$1.3M to be a “full” $1M once I start making any withdrawals. Total contribution limits for those years (1998-2020), $374K my funds + Gov’t match, $116K = $490K.

Another example: CSRS employee who served 50+ years (!), starting in 1968 and retired in 2020. CSRS annuity is 56.25% of average of high-three years pay. CSRS did not pay Social Security taxes, so they don’t get Social Security benefits. Federal employees hired after 1983 do participate in Social Security. Initially, CSRS were not allowed to participate in TSP, but that was changed – and in 2001 they could contribute up to 6% of salary. CSRS employees could not get matching funds. Employee never contributed “catch-up” amounts. Unsure when the employee started contributing, or how much – but upon retirement had $200K – in the G Fund.

This is the example of investing ($ over time) – $1M vs. $200K for a similar time frame.
Is the CSRS employee “hurt” by lack of aggressive investing/contributions? No, as they have a generous pension – but that employee could have realized at least 2x that amount if they had been more attentive to TSP data and trends.

Some other retirement recommendations:

• Speak with a financial advisor (some perform “free” consultations, some require a fee).
• Take a “Federal Retirement” course or seminar every 5 years or so during your Government career to remain current on TSP and retirement law and policy changes. Take one course NLT one full year before you retire – and if you have a spouse, bring them along.
• Various websites state that retirement savings should be between 8-10x your annual salary as you approach retirement age (~60+) and that you may need 70-80% of your current income to be comfortable in retirement. This range normally assumes a single mortgage is paid off by then.

Nearly Useless Factoid

By Alazar Moges

Japanese mountaineer Junko Tabei became the first woman to climb to the apex of Mt. Everest’s in 1975. She was part of an all-female team of 15 climbers and their Sherpas that were hit and buried under an avalanche. Despite that, a Sherpa was able to dig her out and she pushed on to become the first in her group to reach the top.

Source: The Week