Memo to self: Don’t quit your day job

In order to spice things up, we are going to initiate a new feature: From time to time, we will have yoga and exercise (for both mind and body) tips to help get you through the day. Starting today: You don’t need a mat.  And you don’t have to take anything off, unless you want to. (After all, what happens in your cubicle stays in your cubicle).

Next step: Using your favorite arm, raise it, bend it and pat yourself on the back. You deserve it and here’s why:

For whatever reason, you went to work for the government. And you are either still on the job, or happily (more or less) retired. Whether you are CSRS, FERS or CSRS Offset, you are in one of the best, if not the best, staff retirement plans in the country. It has both a DC (defined contribution) feature and DB (defined benefit) system. Bottom line: You kick in a little, the government pays the lion’s share of the annuity benefit and it is indexed to inflation in whole or part. That’s not the way it works in the private sector. And many people who are lucky enough to work for a company that still has a pension plan think that COLA is something you drink.

Forty percent of American households have a DC (defined contribution) retirement program. The other way to look at is that 60 percent, that’s six of every 10, do not have any retirement nest egg either in savings or a 401(k) plan, according to a new Government Accountability Office study.

Many private sector employers don’t like government-style retirement plans because they cost a bundle — increasing their payroll by as much as 25 percent. They much prefer to have employees finance their own retirements via DC plans. Some, but definitely not all, also contribute to their employees’ 401k plans. During the Great Recession, many large and small companies — some of them Fortune 500 types — stopped making any contributions to employee 401(k) plans. Others ended traditional retirement programs that some had offered for decades.

By contrast, roughly 100 percent of full-time federal and postal workers have the financial equivalent of a belt/suspenders/air bag/parachute. Or the equivalent (if there is one) for women in government. Feds have their FERS and Social Security retirement benefits coming. FERS is partially-indexed to inflation. Social Security is fully-linked to living costs. CSRS employees have a generous, stand-alone retirement plan that is fully indexed to inflation regardless of what age they retire. Some also get (generally reduced) Social Security benefits for work in the private sector before or after they went into government. Bottom line is that after a 25, 30 or 40-year career, many, if not most, retired feds are often better off than their neighbors who worked in the private sector. CSRS employees with 41 years of service — and there are lots of them — get a starting annuity equal to 80 percent of their final salary. Again, indexed to inflation.

The GAO study of projected retirement income painted a grim picture for lots of people who do not work for the federal government. Its title, “Low Defined Contribution Savings May Pose Challenges,” probably isn’t what Shakespeare would have chosen. But it says a lot. It shows that many working people, especially low-income and black and Hispanic households, “were less likely to have access” to a DC plan than white workers. Few non-federal workers were in DB pension plans in which the employer guaranteed them certain levels of retirement benefits. It said that white working households’ “median DC balances were more than three times larger than for Black or Hispanic households.”

The GAO report estimated that non-fed households in the lowest earning groups with DC benefits would, in retirement, likely have lifetime (as in never adjusted for inflation) annuity payments of $560 per month.

The executive summary of the GAO report concluded, “While GAO’s projections of these scenarios show many possible ways to increase DC savings , they do pose potential trade offs for both workers and employers.”

Bottom line, if you are currently a fed,” Don’t quit your day job!”

Nearly Useless Factoid

By Michael O’Connell

The British government created the “Keep Calm and Carry On” poster in 1939 to motivate people in preparation for World War II.

Source: Wikipedia

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