As a government employee, mainstream retirement plans aren’t something you will want to pay much attention to. These plans may work for the general population, but as a government employee, different strategies will be required to ensure that when you retire, you are financially comfortable to do so!
Fortunately, there are many ways you can plan for a successful retirement. The best way to go about it is to understand the benefits of a specific plan and how the said benefits can fit into your financial future.
With that said, here are two common ways government employees can successfully retire:
1. TSP contributions and investments
TSP, short for a thrift savings plan, is a defined contribution plan that allows you to decide how much you want to put in and how the money will be used. This type of strategy is available for those hired before after 1984, where you will be covered by either CSRS (Civil Service Retirement System) or FERS (Federal Employees Retirement System). TSP is one of the benefits you’ll be getting, along with others like Social Security benefits and pension.
With TSP, you will be contributing before or after-tax, where if you contribute before tax, you will only be taxed after you withdraw the money from the TSP. If you contribute after-tax, you won’t have to deal with taxes. Specifically, if you are under FERS, you can receive employer contributions, meaning that your employer will automatically add 1% of your salary to the contributions.
What you decide to contribute and invest your money in will be up to you. There are many types of funds you can access, some low-risk and others high-risk. Which one you choose will be up to your risk appetite. However, we highly recommend picking those with low expenses, as these are more reliable in terms of long-term investments. Expenses can grow to considerable amounts in the long run, and if you can limit them, you will be able to make more money in the long run.
2. Pensions for local or state governments employees
Another way for you to start saving for your retirement is through a pension. This is typically available for those working in a municipal, county, or state government, and is based on years of service, the average of your highest years of earnings, or your final salary, along with a multiplier. How the system works exactly will differ from one state to another, simply because different states will have different variations that make their total amount a little different from others!
If you are interested in opting for pensions, you must understand the system that you are subject to if you opt for this plan. This way, you can plan properly to ensure your future financial goals are met to live a happy and comfortable life.
If you do have a 457(b) plan offered by your employer, it is recommended that you contribute to it. This way, when you retire, you will get to enjoy multiple sources of income.
Conclusion
Understanding the different retirement strategies can be tough, especially if you have no idea of what you are doing. For that reason, we always recommend working with a financial adviser with the Chartered Federal Employee Benefits Consultant designation. This designation is proof that the professional has taken the time to study the subject and has passed an exam that talks about federal employee benefits such as TSPs, Social Security, and more. Their assistance will help you craft a long-term plan you can rely on to retire comfortably, allowing you to live to your fullest and enjoy life.
My Federal Plan offers free consultation and retirement planning services for government employees to retire successfully and comfortably. Work with us today and get your free retirement planning session!
