TSPThere will be a number of Federal employees who will retire at the end of the year. They will be met with a plethora of questions and things to do in order to make a smooth transition from work to retirement. Many of the employees retiring will come from the old Civil Service Retirement System (CSRS). These employees have the benefit of collecting 80% of their high-three basic salary representing their pension if they have served 41 years and 11 months in the Federal government.
Most of these employees will reap a rather handsome retirement because of the lucrative plan they fall under. CSRS employees can have an even more financially sound retirement by participating in the Thrift Savings Plan (TSP). This is a benefit many CSRS employees miss out on because there is no agency-match. Although there is not an agency match, the benefit is the tax deferment protection. By having a part of your salary deferred via participation in the TSP, employees pay less taxes against their salaries and therefore supplement their retirement resources.
The TSP has management fees that are unmatched even better than Vanguard, another great reason for participating in the TSP. Potential retirees should be very careful about who is going to handle their hard earned money. Retirees should carefully interview the individuals and/or firms that might be handling their money. They need to find out about management fees and whether the agents work on commission. Many agents who work on commission are often concerned about commission earnings instead of providing the very best services possible to clients. Potential retirees should not be intimidated by firms and individuals who may handle their resources, the retiree is in charge and have every right to outline what they want and how they want their business handled.
If you are a CSRS employee preparing to retire, the best advice is don’t remove your TSP money without transferring it to a fund that will continue to protect your tax status. If you take the money in hand, then you become responsible for the taxes due on that money. You want to continue to protect that money for future benefits to you and your family. Make sure you know as much about your benefits as possible and about the individual or firm you choose to handle your resources.
FERS employees do not have a maximum percentage that can be earned like CSRS employees. FERS employees have three components to their retirement plan-Social Security, a Basic Benefit and the TSP. It is not wise for any Federal employee to bypass participation in the TSP. It is a benefit that is extremely valuable and one that should be taken full advantage of. If FERS employees do not maximize their participation in the TSP they risk having a very small retirement benefit unless they have made other arrangements outside of work. Chances are the majority of employees have not involved themselves in other investments.
It is always best to start early participation in the TSP because the longer you participate the better your money looks at the end of your career. The TSP is the largest part of the benefit plan for FERS employees. FERS employees enjoy an agency match and an automatic 1% contribution even if there is no employee contribution. The 1% contribution automatically belongs to the employee if the employee has been in the Federal service for three years. Maximizing participation in the TSP is one of the best decisions a Federal employee can make.
Retirees should also be mindful that they don’t have too many retirement accounts. Some individuals have worked outside of the Federal service where they had 401K plans or other plans. Check with your TSP representative to see if you can transfer your other plans to the TSP. Transferring your other funds to the TSP is probably wiser than transferring your TSP funds to other accounts because of the extremely small management fee charged by the TSP. You don’t want to have too many plans because it becomes more difficult to manage and keep up with several plans as opposed to one where possible.
If you are in fact retiring by year’s end, hopefully you have already connected to your TSP and have participated to the greatest extent possible. Not participating fully in the TSP whether you are in CSRS or FERS is like throwing away money.
Dianna Tafazoli
P. S. Always Remember to Share What You Know.
