Financial Literacy for Feds

Did you know that April is Financial Literacy month? In 2003, President Bush declared the United States should use the month to promote healthy financial habits. There's even a Web site to help you understand more about being financially healthy. On this site you can follow a 30-step process (one for each day in April) toward financial wellness.

I thought I'd take a few of the steps and modify them for federal employees in an effort to help you learn more about properly preparing for a financially secure retirement.

Step One: Goal Setting

According to Money Management International, the organization that came up with the 30-step path to financial wellness, goal-setting is critical. The organization says smart goals have five characteristics:

• S: Specific
• M: Measurable
• A: Achievable
• R: Rewarding
• T: Trackable

You should set short-, mid- and long-term retirement planning goals with these characteristics. Here are some examples to get you started: Short Term:

• Update your beneficiary forms.
• Increase the amount you're saving for retirement when you get your next pay increase.
• Attend a class to help you understand benefits, financial planning and estate planning.
• Organize the documentation of your federal career. Pick a place to store and maintain the following documents:
  --SF-50 forms (Personnel Action Statements) or other documentation of the beginning and ending dates of all of periods of federal service, retirement coverage, tour of duty and type of appointment.
  --Beneficiary designations filed throughout your career.
  --Health and life insurance enrollment forms.
  --Thrift Savings Plan participant statement.
  --Social Security personal benefits estimate.
  --Previous year's worth of leave and earnings statements and W-2 form.
  --Records of service credit payments for civilian and military service deposits.
  --Previous retirement estimates or benefit reports.

Mid Term:

• Consider that your life insurance needs will change as you get older. How much coverage do you have? How much do you need? How much does it cost? Have you compared the price and coverage of a private term insurance policy to Federal Employees Group Life Insurance?
• Do you understand the value of your federal retirement and insurance benefits before you make a decision to leave federal service for a different career path? (See Public or Private?, Sept. 14, 2007; Going Private, Oct. 5, 2007; and Federal vs. Private, May 9, 2008.)
• Maintaining Federal Employees Health Benefits Program and FEGLI coverage in retirement requires five years of coverage before retirement. If you aren't currently enrolled, do you need to consider this coverage? The Office of Personnel Management has more information.
• Consider the need for long-term care insurance. The younger you are when you purchase a policy, the more coverage you will be able to afford.
• Project your retirement income for the date you become eligible for retirement using this ballpark estimator developed by the American Savings Education Council.
• Learn more about your Thrift Savings Plan investment choices and long-term investing.

Long Term:

• What type of lifestyle do you want in retirement? Do you enjoy travel and fine dining? Are your tastes simpler? How important is it to be near family and friends? Do you want to move to a warmer climate?
• How is your health? This can affect all of the previous goals. Have you looked into a health savings account to save for future medical expenses?
• Do you plan to retire as soon as you're eligible to begin a second career, or would you rather work in your current job long enough so you don't need a second career? The answer to this question can affect your long-term goals significantly.
• Do you need to plan for college expenses for your children? Will your parents need help from you as they get older?
• How well do you manage your spending and debt? Do you have an outstanding loan from the TSP? How much credit card debt do you have?
• If your long-term planning period is shorter than you expected, how can you modify your goals? By delaying retirement a few years, you can save money, increase the value of your federal retirement benefit, permanently boost your Social Security benefit and decrease the amount of debt you have incurred.

Step Two: Secure Your Financial Future

• Take advantage of available resources. Participate in the TSP. For those under the Federal Employees Retirement System, it is especially important to take advantage of the matching agency contributions that you receive on the first 5 percent of your biweekly contribution. Not participating in this type of program means literally leaving money on the table and passing up significant tax advantages.
• Seek professional guidance. A trusted planner can help you determine the amount to withhold. A planner also can help you understand your tolerance for risk and map out a comprehensive strategy to bring you closer to your financial goals. By attending a financial planning or retirement planning workshop at your agency, you might meet planners who are familiar with the benefits available to federal employees.
• Take an active role. Most people fail to manage their TSP accounts by shifting their allocation of assets when market conditions change. Rebalancing your portfolio every year is key to maximizing returns and minimizing risk.

Step Three: Plan for the Unexpected

• Death: How is your family protected in the event of your untimely death? Do you (and they) understand how to manage the benefits you will leave behind?
• Disability: Do you know how much your benefits would be if you had to retire on account of a disabling condition? Here's how to learn more:
  --CSRS Disability
  --FERS Disability
  --Social Security Disability
  --Worker's Compensation
  --Federal Leave Policies

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Monday mornings at 10 a.m. ET on federalnewsradio.com or on WFED AM 1500 in the Washington metro area.