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If You Do Nothing Else to Plan for Retirement, Do This

Don’t turn away free money.

Almost all current federal employees are covered by the Federal Employees Retirement System, meaning that there are three elements of their retirement income: The FERS basic retirement benefit, Social Security, and investments in the Thrift Savings Plan. 

The last of those tiers, the TSP, is optional, and requires planning and management on the part of the employee. More than 90% of federal workers participate in the TSP. But a smaller percentage, 86%, contribute enough to receive full matching investments from their agencies.

The TSP is an integral part of FERS. Without adequate contributions, you may have to postpone your retirement or learn to live on less. The reality is that you must be able to live within your means during most of your career and also save a minimum of 5% in order to look forward to a financially comfortable retirement after 30 to 35 years of federal service. 

In addition to making adequate contributions to your retirement savings, it’s important to educate yourself on managing your investment so it will grow during your career. A typical career begins between ages 18 and 22, and retirement from a federal government position is often possible between 57 and 62. However, if you aren’t covered by a pension during a portion of your career, you may need to save more or work longer.

If you want to retire sooner rather than later, your ability to save and invest is key. The FERS basic benefit and Social Security retirement may not provide enough replacement of your salary to ensure a financially secure retirement, especially if your goal is to retire by 62. 

For those who aren’t yet contributing the 5% of basic pay to the TSP to ensure the maximum agency matching contributions, the 2023 federal pay increase could provide an opportunity to increase savings. 

Take this example of an employee working at a GS-9, Step 5 salary rate in the “rest of the U.S.” locality pay area: 

  • 2022 pay rate: $62,024
  • 2023 pay rate: $64,732
  • Increase: $2,708

If this employee put an additional 1% of basic pay into the TSP, that would add up to $647 per year, or around $25 biweekly. And if this employee was not contributing the full 5% to the TSP, this increase would also add agency matching contributions of between $323 and $647 to their account. Of course, the pay increase came at a time of high inflation, so this approach could require some belt-tightening on the part of the employee. 

Here is how agency automatic and matching contributions work: Even if you contribute nothing to the TSP, you receive an agency automatic contribution of 1% of salary to your account. If you contribute 1%, you get the agency automatic 1% contribution and a 1% match. The percentage continues to rise until if you put away 5% of your salary, you get the 1% automatic agency contribution and a 4% match.

Over a career, that can add up to a lot of money. And it’s a vital part of your long-term plan for financial security.