Are Federal Employees Not Putting Enough Money into the TSP?
The Head of BlackRock Speaks
Larry Fink, the head of the company that manages all of the TSP funds (except the G fund), stated in the October meeting of the Federal Retirement Thrift Investment Board that he is concerned that Federal Employees are not putting enough money into the TSP (Thrift Savings Plan).
The government automatically contributes to your TSP account an amount equal to 1% of your salary whether or not you contribute to the TSP. After that, the government will then match your contributions dollar for dollar on the next 2% of salary.
And lastly, the government will match half of your contributions to the TSP on the next 2% of salary. This means you can receive free contributions to your TSP account equal to 4% of your salary from the government.
The Concern is Warming
I think we can all appreciate Larry’s concern. After all, the agency match is FREE MONEY. This can happen in the private sector as well as in government agencies.
For whatever reason, people don’t always take full advantage of their benefits. Couple this with the fact that 35% of retirees rely on social security for 90% of their retirement income, and it’s clear that Larry’s concerns are just cause for worry.
The Big Picture
In 2015, Federal Employees can put up to $18,000 away for retirement. If you are age 50 or older you can contribute an extra $6,000 on top of that. It doesn’t matter if you are a GS-7 or GS-15. And the best part? It’s all pre-tax dollars.
Save For Retirement, Save on Taxes
If you are age 50 or older and you max out your contributions, that would save you $6,000 in taxes if you are in the 25% income tax bracket.
So if you put away $24,000 for retirement to grow tax deferred, it really only costs you $18,000 because of the tax savings.
Remember, you didn’t lose the money you put away, you just made a conscious decision to spend it later.
To zoom in to what Larry is saying, if you make $100,000, maxing out on the matching is just $5,000.
Isn’t this a mere pittance when it comes to a retirement that may last 30 years or more? What else is happening in your life that would keep you from putting free money toward your retirement?
Is Everything a Necessity?
Do you find every convenience, comfort, and want a necessity in your life? Is there anything left over for your retirement after you satisfy this never ending list? What number on your list of necessities does saving for retirement rank?
The Vacation
It is a pain to arrange for all the kids’ flights to Ft. Lauderdale for your annual family cruise. It was much easier when they were all still living at home. Opting for the suite costs a bit more than the two tiny rooms you usually suffer with, but you know it’ll be worth it.
The New Car
Your Highlander is approaching 100,000 miles. This year’s model has incredible ergonomics and a dashboard that’ll put any 747 cockpit to shame. It’s a little more than the budget you originally set out with, but how can you pass up all those new features?
The Cable
For only $89.99/month, Verizon Fios offers 405+ channels and 125+ HD channels. But after a full day of channel surfing you still can’t find anything to watch. More channels mean a higher bill, but what choice do you have?
Life Without a Paycheck
We all dream of retirement, a point in our lives when we don’t have to deal with the stress of a job and what we do with our time is completely of our own choosing.
But the true definition of retirement is life without a paycheck. When you are focused on discretionary purchases, remember that saving for retirement is often not something you can catch up on later.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.
in