May 6, 2011This week, let's look at some recent news from the world of federal retirement planning, and some reaction from readers to recent columns:
TSP Goes to Town
If you're counting on growth in your Thrift Savings Plan account to help provide you a comfortable retirement, April was a good month for you. Emily Long reports that the investment options in the federal employee retirement savings plan delivered a strong performance last month, following mixed results in March.
The I Fund, which invests in international stocks, grew the most in April, increasing 6.03 percent. The C Fund -- invested in common stocks of large companies on the Standard & Poor's 500 Index -- increased 2.96 percent, with the S Fund, which invests in small and midsize companies and tracks the Dow Jones Wilshire 4500 Index, close behind at 2.94 percent.
The S Fund has gained 11.17 percent this year to date. The I Fund is up 9.69 percent in the same period, followed closely by the C Fund, up 9.05 percent so far this year.
Federal employees may think they have it bad, enduring a pay freeze and constant calls to trim benefits in the name of deficit reduction. But the situation in the states is far more dire, reports National Journal's Katy O'Donnell.
State funds that pay pension and health care benefits to public workers faced a $1.26 trillion shortfall at the end of the 2009 fiscal year, according to a recent report from the Pew Center on the States. The funding gap increased 26 percent over the previous year, a surge caused by a combination of inadequate state contributions, an aging population and recession-driven market losses.
States faced a $660 billion pension funding gap and a $604 billion health-care liability gap in fiscal 2009, according to the report, which drew from state financial reports. The gap reflects the failure of a number of state policy choices, including a failure to make annual payments for pensions systems at the levels recommended by their own actuaries and the expansion of benefits and cost-of-living payments at an unsustainable level.
Perhaps most troubling is the fact that states' larger fiscal prospects are dim for the near future; declining property values have shrunken revenues, and the recession has driven up the need for benefits among the poor and unemployed.
Finally, some reader reaction to recent Retirement Planning columns.
On a Roth IRA option in the Thrift Savings Plan:
Will the TSP educate investors on the possible financial rewards and pitfalls of using the Roth option? With the standard TSP I understand that 100 percent of the balance is taxable upon withdrawal. Both employee and government contributions taxability is deferred. Conversely, since the Roth is 100 percent nontaxable on withdrawal the government would need to tax its contribution in the year that it is made. Assuming a FERS employee contributes at least 5 percent to the Roth first, the government would increase the employee's salary 5 percent to cover its contribution which would then be taxed in the same tax year. That is tantamount to a 5 percent increase in taxable earnings. Personally, if I contribute to the Roth I would like to see a split investment option so that I can contribute the first 5 percent to the standard deferred TSP and the second 5 percent to the Roth so that the government contribution remains tax-deferred.
On the importance of saving up your sick leave as you progress through the milestones of your career:
Not only does it allow you to collect full pay if you are sick or injured, but any sick leave that isn't used will also increase your length of service for pension computation purposes. I know too many colleagues who use sick leave just for additional days off. They then don't have it available when they truly need it, and have to request leave donations from the rest of us.
On picking a retirement date:
Will you be publishing an update to your excellent "Best Dates to Retire in 2011" article? I'm leaving in 2012, and hope to be the beneficiary of your excellent advice on choosing a date.
On that last point, stay tuned. Best Dates to Retire 2012 is coming soon.
May 6, 2011