Case Study

Financial Planning For Federal Employees

Meet Kat

Financial Planning For Federal Employees: Smart Money Moves To Maximize Your Benefits​

Are you a federal employee wondering how to maximize your benefits and plan for retirement? Federal employees have unique financial planning needs. It’s important to have a solid financial plan to ensure you are making the most of your salary, benefits, and retirement options. Hiring a financial advisor who specializes in working with federal employees can be a smart move and help you achieve your short and long-term financial goals.

Kat's Situation

Kat started working for the federal government after she graduated from grad school 5 years ago. She makes decent money, currently at GS-13. She wants to be fully free from her $149,000 in federal student loans, but not sure how to do that. She wants to travel and enjoy life, but she feels constantly stressed by her money, unsure if she is doing enough for her future.

Kat - Federal Employee

Financial Goals

How We Helped

  • Analyzed if it’s best to apply for the Public Service Loan Forgiveness (PSLF) program, to pay off her student loans. Lowered her monthly payment after she enrolled in an income-driven repayment plan. Showed her steps to take each year so her monthly payments count towards PSLF. 
  • Developed a plan towards having a 6 months-worth of emergency savings within 9 months. 
  • Reallocated her Thrift Savings Plan (TSP) based on her risk tolerance and market conditions. Gave recommendations on pre-tax vs Roth TSP options. 
  • Helped Kat open, fund, and invest in an IRA, so she can grow some money with tax advantages.
  • Helped Kat set up a plan to begin saving for her home down payment. 
  • Provided ongoing support to Kat, allowing her to focus on her life and stress less about her money.

Why do federal employees need specialized financial planning?

Federal employees have many benefits available to them, but these benefits are sometimes complex. Here are some reasons why federal employees may benefit from specialized financial planning:

  1. Complexity: There are many complex rules and regulations that federal employees need to be aware of. It’s important for you to understand the differences between the Federal Employees Health Benefits (FEHB) program and the Federal Employees Retirement System (FERS). A financial planner can help you understand these differences and help you make an informed decision.

     

  2. Multiple retirement plans: Federal employees have access to a variety of different retirement benefits, including the TSP and a pension. A financial planner can help federal employees understand the intricacies of these retirement benefits. They can also help create a retirement strategy that fits your individual needs and goals.

     

  3. Unique tax situations: Federal employees may have unique tax situations. Some of these may include contributing to both a traditional and a Roth TSP. A financial advisor can help federal employees understand their tax obligations and develop a tax-efficient investment strategy.

     

  4. Healthcare expenses during retirement: It’s important for federal employees to plan for healthcare expenses in retirement. This includes the cost of Medicare premiums and out-of-pocket expenses. A financial advisor can help you understand the options available to you and plan for these expenses in your overall financial strategy.

 

Retirement planning for federal employees

Everyone needs to plan for retirement, but federal employees need to understand their options and benefits especially well. Federal employees have access to a variety of retirement benefits including the Thrift Savings Plan (TSP), Federal Employees Retirement System (FERS), and Social Security.

Make sure you understand how these retirement benefits work and how they will factor into your overall retirement planning.

  • Maximize your TSP

The Thrift Savings Plan (TSP) is a defined contribution plan. This means that you decide how much money you want to put in and how you invest that money. The TSP offers very low fees and allows you to diversify with five index funds, ten lifecycle funds, and a mutual fund window. Contributions can be pre-tax or after-tax and will grow either tax-deferred or tax-free.

Both CSRS and FERS employees can contribute to a TSP. However, only FERS employees receive employer contributions. If you are a FERS employee, your employer will automatically contribute an additional 1% of your salary. If you make employee contributions then you will be eligible to receive an employer matching contribution as well. The TSP contribution limit for 2024 is $23,000, with an additional $7,500 catch-up contribution for those aged 50 and older.

We will collaborate with you to select the best TSP strategy that matches your overall situation, risk tolerance, and retirement goals.

 

  • Understanding your federal pension

Federal employees have different retirement benefits based on when they were hired:

If you were hired on or before December 31, 1983:
If you were hired on or before December 31, 1983, you may have access to the Civil Service Retirement System (CSRS), which provides retirement, disability, and survivor benefits. You won’t be eligible to receive social security benefits because social security taxes weren’t deducted from your paycheck. However, you may have earned social security through another job or you may qualify through your spouse.

If you were hired in 1984 or later:
If you were hired in 1984 or later then you are covered by the Federal Employees Retirement System (FERS). This system provides Social Security benefits, a basic pension plan, and a TSP that consists of automatic government contributions, voluntary employee contributions, and matching government contributions. The retirement benefits you’ll receive from these plans are structured as annuities. These annuities are based on your age, plan contributions, and years of service.

We have helped federal government employees understand the differences and pension options available under both the CSRS and FERs.

 

  • How much social security will I get as a federal employee?

All FERS employees receive social security benefits based on their annual income and years of service. Most retirees will receive their social security paycheck at their full retirement age of 67. However, you can choose to receive your social security benefits as early as 62, or you can delay collecting it beyond your full retirement age.

The age you choose to take social security will determine how much you receive. A Federal employee’s spouse is also eligible for Social Security benefits. He or she can receive 50% of the primary insurance amount.

We can help you decide what age you may want to take social security, how much you may receive, and how it fits into your overall retirement plan.

Federal student loan forgiveness

Many federal employees have taken higher education coursework or graduated from college. If you earned a college or graduate degree and work for the federal government, then you may be eligible for student loan forgiveness.

The Public Service Loan Forgiveness (PSLF) program allows public service employees to qualify for federal student loan payment reductions. Your remaining debt balance on your student loan may be completely forgiven after you have made 120 qualifying payments while working full-time as a federal employee. 

A financial advisor can help you determine if you can benefit from the PSLF program. We have personally helped federal employees have their student loans forgiven. This can make a massive difference to your overall financial situation.

Insurance options available to federal employees

Federal employees have access to several insurance options. Some of these may include:

  1. Federal Employees Group Life Insurance (FEGLI): As a federal government employee, you have access to the largest group life insurance program in the world. This is the Federal Employees’ Government Life Insurance (FEGLI).  This program offers group term life insurance to you and your family members. There are pros and cons to using FEGLI.

     

  2. Federal Employees Health Benefits Program (FEHB): Within this program, there are many health insurance plans to choose from. Some of these include health maintenance organization (HMO), fee-for-service, and point-of-service (POS) plans.

     

  3. Federal Employees Dental and Vision Insurance Program (FEDVIP): Federal employees and their eligible family members have access to this dental and vision insurance.

     

  4. Federal Long-Term Care Insurance Program (FLTCIP): Federal employees and their eligible family members have access to this long-term care insurance.

     

  5. Federal Employees Compensation Act (FECA): If you are injured or become ill as a result of your job, then this program provides compensation coverage.

We can help you understand your insurance options and choose the plans that best meet your needs and budget now and during retirement.

How District Capital financial planning helps federal employees

We are passionate about helping federal employees fulfill their financial dreams. Our financial advisors help federal employees maximize their benefits, helping them grow and protect their wealth, both now and once they retire. We have helped current and former federal employees navigate the complex benefits available to them and created comprehensive financial plans to better their financial future.

Some federal employee areas that we cover include: 

  • CSRS and FERS Federal Pensions
  • Thrift Savings Plan 
  • Social Security
  • Insurance Strategies
  • Survivorship and Spousal Benefits (SBP)

Some additional questions that federal employees have about retirement planning:

How many years do I have to work to get a federal pension?

You must have worked for at least five years as a federal employee to become eligible for the pension plan.

How do I calculate my federal retirement?

A federal employee pension is paid out as an annuity. This is based on the highest consecutive 3-year salary, multiplied by around 1%, multiplied again by the number of years of service. A financial advisor can help calculate your estimated federal employee pension when you retire.

How much can federal employees make in retirement?

The amount that a federal employee makes in retirement will depend on several factors. If you are an employee under FERS, you will probably have retirement income from your pension, Social Security and TSP.

Below is a great way to estimate your FERS pension amount.

If you are under age 62 at separation for retirement or age 62 or older with less than 20 years of service then the FERS pension calculation is: 1% x high-3 salary x years worked.

If you are age 62 or older at separation with 20 or more years of service then the FERS pension calculation is: 1.1% x high-3 salary x years worked.

Can I lose my federal pension?

Once you have earned a federal pension, you usually cannot lose it. However, if you are convicted of a federal crime related to your government employment or if you are found to have violated certain ethical standards, then you may be subject to penalties that could impact your pension benefits.

What are my TSP retirement choices?

Here are 5 options for what you can do with your TSP when you retire.
1. Keep your money in your TSP and let it grow
2. Transfer your TSP to a rollover IRA
3. Transfer your TSP to your new employer 401(k)
4. Take a lump sum distribution
5. Purchase an annuity

Do federal employees need a financial advisor?

A comprehensive financial plan can help federal employees maximize their benefits, make informative investment decisions, and prepare for retirement. It is important for federal employees to carefully consider their options and choose a financial advisor who is knowledgeable and experienced in working with federal employees. If you want help with your finances and are interested in having a comprehensive financial plan, feel free to schedule a discovery call with one of our financial advisors today.

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Disclaimer: Case studies are hypothetical client scenarios. Planning recommendations may differ from your situation. Please consult with your own advisor before making any changes to your Financial Plan, Investments, or Insurance coverage.

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