On January 1, 2024, the Federal Employees Retirement System (FERS) celebrated its 37th birthday. However, it may not be cause for celebration when you consider its history. Once FERS went into effect in 1987, newly hired federal workers could no longer enroll in the Civil Service Retirement System (CSRS). And this the moment when Uncle Sam shifted responsibility for planning a financially-secure retirement onto the shoulders of FERS workers.
It’s A Fact: CSRS Retirees Got A Better Pension Deal
If you’ve ever discussed retirement benefits with one of the few active CSRS employees, you’ve likely realized they got a better deal on their pension. Under CSRS, the mandatory payroll deductions and government match for a pension (annuity) works out to more than a FERS retiree’s pension (annuity) and Social Security combined. In order for a FERS worker to equal the retirement income of a CSRS pension, the TSP is not an option, it’s a requirement.
Then Again, FERS Retirees Can Become TSP Millionaires
For disciplined savers covered under FERS, the TSP provides the ability to accumulate a nest egg that can exceed the retirement income of CSRS retirees. In fact, as of late 2023, approximately 95,000 TSP account holders have balances of $1 million or more.
How did they do it? They started saving and investing aggressively at the start of their federal career – a TSP millionaire’s average length of service is 30 years. They also took full advantage of the maximum 5% agency match even if it meant living on a tight budget. Thanks to the magic of compound interest, it is possible for a TSP participant making $50,000 to hit the $1-million mark over a 25-to-30-year career.
“As a result 20% of current federal workers are walking away from free money because they’re not contributing enough to get the full agency match.”
The TSP 5% Agency Match: Free Money
Starting October 1, 2020, newly hired FERS employees now have 5% automatically deducted from their pay for TSP contributions to help ensure they get the maximum 5% agency match. Unfortunately, far too many federal workers hired prior to 2020 suffer from set-it-and-forget-it syndrome. As a result approximately 20% of current federal workers are walking away from free money because they’re not contributing enough to get the full agency match.
When you consider that Cost-of-Living Adjustments (COLAs) on your FERS annuity (pension) and Social Security are not keeping up with inflation, your TSP nest egg may be the only thing standing between you and outliving your money. And this is the reason why the TSP is essential to your financial security in retirement. To learn more, connect with an FRC® trained advisor who fully understands how your TSP works.
