This past election campaign was arguably the most malicious in recent history. Unquestionably, the election’s outcome has resulted in a concerning rift among Americans, including those that work together in the federal government. The campaigns, the election results and the divide are worthy of every American’s attention. Yet, are these issues so compelling that feds are overlooking the forest for the trees? Is there another issue that may, potentially, be even more personally critical?
Putting political and ideological differences aside, there is one issue that now looms heavily over every federal employee’s head. It should (ironically) unify them all — federal benefits! As distracting as the past several weeks and months have been, feds may want to adjust their focus and keep their eyes on the prize. Regardless of how one voted, federal employees need to recognize that their retirement benefits may be in more danger of slashing, reduction and eliminations than ever.
While I wish to raise the perception, concern and actions of federal employees, I do not want to unnerve them. No one can predict whether now is different than any other time in the past. But begin by considering what has been discussed and what has not come to fruition in the past.
Historically, federal benefits bashing has been somewhat of a political “whack-a-mole.” In the past, suggestions have been made to either eliminate or alter the following:
Alter federal pensions by basing them off the “High-5” instead of the “High-3.”
Reduce federal workforce size through attrition.
Eliminate the Supplemental Retirement System (SRS). The system bridges the financial gap, from the date of a Federal Employee Retirement System (FERS) employee’s retirement, until they turn 62 and qualify for minimum Social Security Administration income benefits.
Drop rates paid into the Thrift Savings Fund, G-fund.
Lower the TSP match made by federal employers.
But is now different?
Is posturing necessary when the Republicans hold a majority in both the Senate and the House of Representatives, combined with a Republican President?
Is it reasonable to think that federal benefits may be under serious threat this time?
If so, some conceivable proposals may have a bearing on greater changes to federal employee health care, SRS, pensions, union strength and job security.
Admittedly, it is pure speculation as to which (if any) of these benefits will be assaulted. Or even if this time is any different than past affectations. But a wise person should probably take steps (where possible) to prepare for the possibilities.
Remember the words of Reinhold Niebuhr when he penned the “Serenity Prayer:”
“God grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference.”
Let’s examine items for which feds may need to develop serenity:
Reduction of benefits — This is out of the average individual’s hands to have even a small influence over. Benefits likely being discussed — job protections, “automatic” raises (I know, what raises?), a ban on union business on government time, even more (such as Civil Service Retirement System (CSRS) to FERS) trimmed pensions.
Budget cuts — These are likely coming in some spectacular waves. Consider the words of then-candidate Donald Trump: “Look at what’s happening with every agency: waste, fraud and abuse. We will cut so much, your head will spin.”
Newt Gingrich said the Trump administration probably would look for guidance from Wisconsin Gov. Scott Walker (R). Walker stripped public employee unions of most of their collective-bargaining rights and forced workers to pay more into their pensions and for health care.
Eliminating the retirement supplement paid to many FERS who retire relatively early. For those FERS employees that wish to retire prior to turning 62, this could be one hefty boot in the shorts by a pointy, steel-toed cow-kicker. This may produce a $600, $800, $1,000 or more (monthly) reduction in income during the benefit time-frame. Currently, this income is designed to be distributed from the date of retirement up to age 62.
Reducing the interest the government pays into the G-fund, which is the most popular investment fund in the TSP.
What items will require federal employees to develop courage:
Retirement planning — This is such a foreign subject to many feds, that it is largely ignored until the last minute. If overwhelmed by the subject, feds may want to seek out trusted advisor to assist in creating a comprehensive and well thought out retirement plan.
Managing investment risks — Feds should know and understand their panic point for taking risks with their retirement savings. This is key in making intelligent investment decisions, even while assets are sitting in the TSP. Many federal employees will have a hard time understanding the significance or rationale behind “risk tolerance.” However, a simple yet thorough financial risk assessment may do wonders in lifting this confusing curtain. Many can be located online. I know Rutgers University has a free online assessment, as does Yahoo Finance and I offer one as well.
Retirement savings — If pensions, supplemental retirement income and interest to the G-fund are cut, then feds will need to offset those losses. This could, at least in part, be accomplished by adding more to their TSP. Or for some it may be as simple as adjusting investment choices (wisely) within the TSP. On average (based on Federal Retirement Thrift Investment Board statistics) it appears that federal employees invest more conservatively than their non-federal counterparts. Example: Over 36 percent of all TSP assets are in the G-fund. In some cases, a (well-planned) adjustment may potentially increase TSP savings balances, thus offering larger retirement incomes.
Actively participating in personal retirement planning — Feds need to know where they stand heading into retirement as soon as possible. This could mean the difference between financial retirement success and failure. 1) Dream about your retirement. What will it look like? 2) Affix values to each aspect of retirement. Example: If painting landscapes will be a big part of retirement, how much will brushes, canvases, paints, etc. cost each month. 3) Use all known and anticipated retirement expenses together to create a fair and realistic retirement budget. From these steps, it is possible to work backwards in determining how much will be needed to fund retirement.
Join National Active and Retired Federal Employees (NARFE) — NARFE is a 95-year-old nonprofit association fully dedicated to improving federal benefits. They have been the national voice for, and highly influential in, protecting federal benefits for generations. However, their numbers have been dwindling over the years, as newer feds have opted not to join. Remember feds, they speak for all of you. The smaller their numbers, the softer their voice. I strongly urge feds to unite through NARFE to make that voice (once again) strong, loud and influential.
There is no easy fix here. It will take work to offset any retirement benefit cuts. For those who want to stand pat and do nothing, because they fear that doing something will be worse, I offer these words.
Understand when making changes and taking a risk, you’re potentially exposed to harm. Yet don’t forget, there may be (lifelong) regret in doing nothing at all. Perhaps it is the one who learns to adjust and to change that ultimately endures.
Perhaps, early on, I asked the wrong question. Maybe the real question isn’t “How will the recent election results impact federal retirement?” Maybe the real question is “Will feds be courageous enough to ‘change the things they can?’”
Take the following Risks to Federal Benefits Survey to share how you feel about your concerns with the potential risks to current federal benefits. We will publish the results in a future article.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss. For a list of states in which I am registered to do business, please visit www.silverlightfinancial.com. Securities offered through LPL Financial, member FINRA/SIPC.