By Jon Powell, CFP®
We all face financial pitfalls. Not having a financial plan, starting to save for retirement too late, not being aware of your expenses, and being underinsured are just a few. If you’re a federal employee, however, there are specific financial pitfalls you need to avoid to ensure your financial future stays on track. Let’s discuss a few points that can help you navigate some of the intricacies involved with your specific financial situation and special benefits.
One important benefit federal employees are entitled to is a thrift savings plan (TSP). A common financial pitfall among these retirement savings plans has to do with how they are invested. The federal employee must understand that TSPs are intended for long-term investing, not just to the point when retirement begins, but through retirement. Because of this, the federal employee must invest in specific funds that align with that long-term investment approach. The funds that are allowed inside a TSP are not available to the general public. Some of these funds are titled C, S, I, L, F, and G funds. With this long-term approach in mind, the federal employee should check how the TSP is invested, making sure that it is allocated more so with stock funds (C, S, and I). However, if you are in the later years of retirement, it’s important to ratchet down the allocation of stock to an increased allocation of the fixed-income funds (F and G).
In addition to how the funds are invested, it’s equally important to do your best to contribute the maximum amount allowed when you are younger and when you reach age 50 (eligible to contribute an additional “catch-up” contribution).
Some of the special accounts or forms that federal employees may have to be aware of include the following:
The financial pitfall that we typically see here is not including or updating beneficiary designations on the above-mentioned accounts or forms. This is important, especially if the federal employee gets married, has children, gets divorced, or experiences any other major life change.
Having adequate emergency funds applies to all individuals, but this point is also important to make when considering pitfalls for federal employees. While federal employees have very strong job security, emergency funds still play a major part in their financial plan. The reason for this is because of the potential for a government shutdown, which could eliminate certain sectors or lay off less-tenured employees.
Benefits for federal employees can get complicated and they may change over your career. Because of this, many federal agencies offer multi-day seminars for mid-career employees and employees nearing retirement. To stay abreast and more informed, it’s a great idea to attend and actively participate in such seminars when possible. The earlier you start understanding the nuances that federal employees are faced with, the better off you will be to make decisions today that have a big impact on your financial future.
At Ferguson Johnson Wealth Management, we work closely with our clients to design a financial plan that provides confidence and clarity while also helping to safeguard their future. We help our clients plan wisely so they can live fully by building the retirement they’ve been dreaming of. If you’re nearing retirement, are already enjoying your golden years, or are a government employee and you don’t already have an advisor helping you on your financial journey, reach out to us at 301-670-0994 or by email at firstname.lastname@example.org.
Jon Powell is a financial planner and portfolio manager at Ferguson Johnson Wealth Management, an independent, fee-only fiduciary firm that has been helping clients plan for and enjoy retirement for more than 40 years. With more than 10 years of experience, Jon is passionate about providing unbiased advice that puts his clients first. He considers it a privilege to carry some of the financial burden for his clients and educate them so they can make empowered decisions for their futures. Jon is also the primary author and curator of the Ferguson-Johnson Wealth Management blog.
Jon graduated from Virginia Polytechnic Institute and State University with a bachelor’s degree in financial planning and holds the CERTIFIED FINANCIAL PLANNER™ certification. When he’s not serving his clients, you can find Jon spending time with his wife, Erica, and their pets, a black lab named Nugget, and an orange tabby cat named Kiwi. He loves to play tennis and golf and won’t turn down a good board game. Jon is a diehard fan of D.C.-area sports teams; you might see him at a Washington Nationals game. To learn more about Jon, connect with him on LinkedIn.