It can be daunting to look at your benefits packages and not know what all the acronyms and percentages mean. I’m here to show you that it’s nothing to fear! One of the best ways to conquer your fears is to sit down and gain a bit of understanding of what is ahead of you.
Let’s take a minute to look at some of the benefits you will receive from being a federal employee so you can look forward to your retirement instead of worrying about it! Starting with the basics, we’ve got the Federal Employees Retirement System (FERS). This system (or package) of benefits that most civilian federal employees are qualified for comprises three different programs. These programs are as follows:
- Social Security
- A Basic Benefit Plan
- Thrift Savings Plan (TSP)
Social Security
Starting with the most well-known, we’ve got Social Security. While the term may have lost some of its meaning through its notoriety, Social Security is aptly named for the benefits it provides. The benefits provided under the Social Security Act are provided to the worker and qualifying beneficiaries. A portion of employees’ pay is held until retirement, at which time they would receive money from Social Security. The qualification criteria for Social Security are based on multiple factors; one such qualifier is that you have paid Social Security taxes for the required period.
With Social Security, you stand to gain the following :
- Monthly benefits upon being retired and having reached the age of 62.
- Monthly benefits for your spouse and dependents during your retirement.
- Monthly benefits if you become disabled. - A lump sum benefit upon your death.
- Monthly benefits for your eligible survivors.
Basic Benefits Plan
Next up, we have a Basic Benefits Plan. Also known as, and often referred to as, your FERS Pension/FERS Annuity. It might help to think of a Basic Benefits Plan like a pension. In today’s work environment, having access to a pension is rarer than you may think. Both you, the employee, and the agency you work for will contribute to the program, and you will reap the benefits upon retirement. These benefits are dependent upon multiple factors. These factors are as follows:
- Your age -Number of years of creditable service
- Your salary
- The “high-3 average pay” (This refers to your highest basic pay over three consecutive years during your time of creditable service)
- As a federal employee, you have both Social Security AND a Basic Benefits Plan.
Thrift Savings Plan
The last built-in plan of your Federal Employees Retirement System (FERS) is the Thrift Savings Plan (TSP). In addition to Social Security and the Basic Benefits Plan, the TSP is a retirement savings and investment plan similar to a private corporation’s 401(k). The TSP offers you the opportunity to save some of your pay for retirement, reduce your current taxes, and get the agency to match your contributions. This plan is totally within your control, and you dictate how you’d like to invest, how much of your pay you’d like to put towards this savings plan, and how you want it paid out.
Contributions to your Thrift Savings Plan come in three different types:
- Employee Contributions
- Agency Matching Contributions
- Agency Automatic (1%) Contributions
Employee contributions are easy enough to understand; these are the contributions you make from your payroll deductions. This contribution is taken out of your pay before taxes, and you can contribute up to 10% of your basic pay in each pay period up to the IRS limit, which may be adjusted each calendar year by the IRS.
Agency Matching Contributions are an extra benefit to you. They are not docked from your basic pay but come from your agency. For the first 3% of your basic pay, the agency matches 1:1. For the next 2% of your basic pay, your agency will match ½ to your contributions, so ¢50 per $1.00 you contribute. The agency does not exceed 5% of your basic pay each pay period for matching contributions.
Lastly, we’ve got the Agency Automatic Contributions. When your agency sets up a Thrift account, they will automatically contribute the equivalent of 1% of your basic pay. This contribution happens regardless of whether you contribute or not.
You’ve got three investment options under the Thrift Savings Plan to balance your investments. The three investment options are the Government Securities Investment (G) Fund, the Fixed Income Index Investment (F) Fund, and the Common Stock Index Investment (C) Fund. There are pros and cons to investing in any of these funds, but that’s a deeper conversation for another day; we’re here to give you the highlights and boost your financial confidence.
Not sure if the TSP is the right choice for you? Download our complimentary white paper below to learn reasons to stay and reasons to go.
Other Benefits
That’s just a brief breakdown of what’s included in your Federal Employees Retirement System (FERS)! These aren’t even the only benefits you get for working as a federal employee. As a civilian federal employee, you also have access to the Federal Employees’ Group Life Insurance Program (FEGLI) for group rate life insurance plans in either the Basic or Optional variety, and the Federal Employees Health Benefits Program (FEHB) which gives you access to health insurance from Fee-for-service plans (FFS) to Consumer-driven health plans (CDHPs).
Our top priority is helping you feel safe and secure with your financial future. With just a little information and explanation, you can head into retirement confident about your finances. If you want to learn more about any of these elements and how they look for you personally, contact us!
