By Jay Shareef and Chris Rhoads
We all face financial pitfalls. Not having a financial plan, starting to save for retirement too late, not being aware of your expenses, being underinsured, to name a few. But if you’re a federal employee, there are specific financial pitfalls you should be on the lookout to avoid ensuring your financial future stays on track. So, let’s discuss a few points to help federal employees navigate some of the intricacies involved with their financial situations and special benefits.
Thrift Savings Plans
One important benefit that federal employees are entitled to is a thrift savings plan (TSP). A financial pitfall that is common among these retirement savings plans has to do with how they are invested. It is important for the federal employee to understand that TSPs are intended for long-term investing, not just to the point when retirement hits but all the way through retirement. Because of that long time horizon, the federal employee must invest in funds that align with that long-term goal. The funds that are allowed inside a TSP are not available to the general public. Some of these funds are titled C, S, I, L, F, and G funds. With the long-time horizon, the federal employee should check how the TSP is invested, making sure that it is allocated more so with stock funds (C, S, and I). However, when finding oneself in the later years of retirement, it is important to ratchet down the allocation of stock to an increased allocation of the fixed-income funds (F & G).
In addition to how the funds are invested, it is equally important to do your best to contribute the maximum amount allowed when you are younger and when you reach age 50 (eligible to contribute an additional “catch-up” contribution).
Failure to Include or Update Beneficiary Designations
Some of the special accounts or forms that federal employees may have to be aware of include the following:
- Unpaid compensation and unused annual leave of a deceased federal employee
- Federal employees group life insurance
- Thrift savings plan
- CSRS or FERS
The financial pitfall that we typically see here is not including or updating beneficiary designations on the above-mentioned accounts or forms. This is important, especially if the federal employee gets married, has children, gets divorced, or faces any other major life change.
Emergency Funds
Having adequate emergency funds applies to all individuals, but this point is also important to make in considering pitfalls for federal employees. While federal employees have very strong job security, emergency funds still play a major part in their financial plans. The reason for this is because of the potential for a government shutdown, which could eliminate certain sectors or lay off less-tenured employees.
Failure to Stay Informed
Benefits for federal employees can get complicated, and they may change over your career. Because of that, many federal agencies offer multi-day seminars for mid-career employees and employees nearing retirement. To stay abreast and more informed, it’s a great idea to attend and actively participate in such seminars when possible. The earlier you start understanding the nuances that federal employees are faced with, the better off you will be to make decisions today that have a big impact on your financial future.
Take the Next Step
At Certa Advisors, we work closely with our clients to design financial strategies that provide confidence and clarity while also helping to protect their future. Using customized strategies that are created through a true partnership, we empower our clients to weather the inevitable challenges that our complex financial world presents. If you are a federal employee and you don’t already have an advisor helping you on your financial journey, reach out to us at (301) 798-5250 or schedule a phone call now.
About Jay
Jay Shareef is vice president, financial advisor, federal benefits consultant, and co-founder at Certa Advisors. As a U.S. Army veteran, Jay is passionate about helping federal employees create a bulletproof plan for retirement and navigate the often confusing and complicated federal benefits landscape. He spends his days educating and providing clients with unbiased insurance benefits and retirement strategies to help his clients create guaranteed income for life. As a problem-solver and trustworthy resource, Jay always puts his clients and their needs first so they can find financial peace of mind. To learn more about Jay, connect with him on LinkedIn.
About Chris
Chris Rhoads is a co-founder and vice president of Certa Advisors. As a registered investment advisor and independent financial professional, Chris is committed to helping his clients in retirement and he takes a holistic approach to financial planning that includes insurance and risk management, investments and wealth management, retirement income planning, and estate and tax planning. Chris has been married to his wife Tia since 2009 and they live in Frederick, MD together with their two young daughters. In his free time, Chris enjoys traveling, watching sports, and being active in causes he cares passionately about. To learn more about Chris, connect with him on LinkedIn.