Are you in the 11 percent club? If so, get out now

Sirloin or Spam? Shiitake mushrooms or dandelion greens? Duck l’orange or no-brand canned pinto beans?

When you retire, do you plan to shop for leisure wear at Talbots’s or the nearest Goodwill outlet?

Are you looking forward to driving into your golden years in a 20-year-old car?

Not that there’s anything wrong with that! But …

Even if you prefer the less expensive options, it would be nice to be able to pick and choose. To maybe sometimes walk on the wild/more expensive, side. Maybe sometimes have dinner out after 4 p.m. when the prices go up.

While most federal and postal workers should be very comfortable in retirement, 11 of every 100 are facing very hard financial times when they hit their golden years. The members of the 11 percent club are employees, under the FERS retirement program, who are not putting anything into their Thrift Savings Plan account. They are also leaving free, tax-deferred money on the table by not taking advantage of the total 5 percent match Uncle Sam can and does make to the TSP accounts of FERS employees. Provided they put 5 percent of their own into the third-leg of the federal retirement system. If you think that isn’t a good deal, ask a private sector friend (like me) how much his or her company puts into their 401k plan. The answer, in most cases, is zero. Because they don’t print money and collect taxes, they can’t afford it. But your boss can. And does.

Thanks to the miracle of compounding, that 5 percent government match, over time, can boost the size of your TSP account by tens of thousands of dollars. Currently, there are 2,199,000 FERS employees participating in the TSP. That’s 89 percent of the total eligible, meaning that 11 percent aren’t. Quick question: What are you thinking?

Early on in a career (and sometimes much later) 5 percent of your salary is a lot of money. Most of us have been there. Most of us wish, even though we know the drill, who didn’t kick into our 401k plan wish we had found a way. Given up something so we could have put more into our 401k. Especially if our employer was ready, willing and eager to match us up to 5 percent. That’s bigger than huge.

Right now, the average FERS employee in the TSP has an average of $112,146 in his or her account. Hopefully, over the years, it will grow thanks to the investments, and added employee contributions and that magic 5 percent gift from Uncle Sam.

For CSRS employees (the older folks in your office) the TSP is a nice thing to have. But for most, it is not a must. When they retire they will get an annuity (pension) for life. It will be based on their final salary and length of service. The maximum starting benefit is 80 percent of final salary. And it is indexed to inflation, regardless of how young the individual is when he/she retires.

For the majority of working feds under the FERS retirement system, it is a very different deal. They will get a much smaller pension, so-called diet COLAs (cost of living adjustments) and those partial inflation catchups won’t start until they are age 62. They contribute much less to their retirement fund than CSRS employees. But they also get half the benefit. And they must contribute to Social Security. So there is the FERS benefit, Social Security (at age 62), and the TSP. The third leg of the FERS program’s three-legged retirement program.

When FERS was set up (because the government realized it couldn’t sustain the costs of the CSRS program much longer) it was anticipated that the TSP portion of the three-legged program would provide anywhere from 33 cents to 50 cents of every dollar that individual will have in retirement.

So, if you in the 11 percent club, for whatever reason, and you don’t give at the office, ask yourself when you plan to retire and what you plan to live on. You won’t like the answer, but there is still time to make things better.

Nearly Useless Factoid

By Michael O’Connell

A stack of three average-sized grains of salt measures approximately 1 millimeter

Source: Wayne’s World

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