Financial Planning for Government Employees

Plotkin Financial Government retirement planning

For the past several decades Plotkin Financial Advisors, LLC has worked with current and retired federal government employees. Many federal employees may have both a defined contribution plan via a TSP, 457 or 403(b) and a federal pension. Having both retirement benefits may require comprehensive financial planning from not only how retirement and non-retirement accounts are managed and invested, but also how to anticipate how much income will be taxable in retirement.

If you have excess savings or other outside accounts, it may be a good idea to prepare a financial plan to see how all your assets align. It may help you make progress towards your financial goals and feel more confident that you are ready to retire. Please feel free to contact one of our Certified Financial Planners™ today to learn more how we can help coordinate and align your retirement assets.

Government Employee's Financial Planning

Financial planning for retirement is different for government employees than for people employed in the private sector. The benefits system for these employees is complex. However, it provides some benefits that most workers in the private sector do not have. Government employees have unique needs that are not addressed by most generic retirement financial planning. If you are planning for retirement, you need to be familiar with all of the regulations and rules. The entire process can be a bit complicated.


Government Financial Planning

Government Retirement Plans explained

There are two types of retirement systems, CSRS or Civil Service Retirement System and FERS or Federal Employees Retirement System. You can be covered by one of these two systems, depending on when you were hired. If you are an older employee of the federal government and were hired before 1984, you are covered by the CSRS. This system provides retirement, survivor, and disability benefits. Also, financial planning considerations are simpler than with FERS. During your retirement, you will receive a portion of the income you had before you retired. You are eligible for up to 80% of the pre-retirement income. Once your retirement begins under this system, you will receive a certain portion of your previous income every month for life. It also includes an annual cost of living adjustment. If you have worked long enough, and have earned an adequate income, you won’t have to worry about retirement financial planning. However, you should be aware that you are not eligible for Social Security benefits, as Social Security taxes haven’t been deducted from your income. Of course, they can be earned through another job, or you can qualify through your spouse, but your CSRS pension might reduce your Social Security benefits.

Government Employee's retirement

If you were hired in the 1984 or later, you are covered by the FERS. This system includes three parts. It provides Social Security benefits, the FERS basic retirement benefit, and a Thrift Savings Plan or TSP. You will receive monthly benefits from the first two parts. Social Security benefits include an annual COLA or the Cost Of Living Adjustment. The FERS basic retirement benefit has a smaller and delayed COLA, and it might lose some of the buying power in times of high inflation.

Your retirement benefits depend on your years of service, age, and plan contributions. Most government employees have a defined contribution plan either through a TSP or 457(b) Plan or both. Some of them also have a defined benefit plan in a Federal or state-sponsored pension.


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Deciding Which Government plan is Right for you

When it comes to the TSP, it is up to you to decide how much you want to put in, and how you want to invest. The amount of money you will receive during the retirement will be based on these decisions. You can contribute pre-tax or post-tax. In the first case, you will pay taxes only after you start withdrawing money from your Thrift Savings Plan after age 59.5.

If you choose to contribute to a 457(b) Plan, the contributions will be taken from your paycheck. It will be on a pre-tax basis, which will lower your taxable income. You will be taxed after withdrawing money in retirement. Besides making pre-tax contributions to your TSP or 457(b) Plan, you can also contribute to a Roth or Traditional IRA. IRA stands for an Individual Retirement Account. With Roth IRA, withdrawals are tax-free, and you can make contributions with after-tax assets. With Traditional IRA, withdrawals are taxed as income.

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