Just like any other individual, federal employees are also at risk for the common financial pitfalls that we all face. Some of those include not having a financial plan, starting to save for retirement too late, not being aware of your expenses, being underinsured, etc.
However, there are specific financial pitfalls that federal employees need to be aware of and must avoid in order to make sure that their financial future stays on track. In this article, my goal is to provide a few points that will help the federal employee navigate through 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.
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 is 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 Beacon Wealth Management, we pride ourselves on helping our clients navigate through their complicated financial lives. If you are a federal employee and would like to learn more about how we can help you, please do not hesitate to contact us. Please call (304) 626-3900 or email me at firstname.lastname@example.org.
John is the founder and owner of Beacon Wealth Management. He specializes in helping entrepreneurs, professional practitioners, and retiree red-zoners overcome the major financial challenges facing affluent families.
As a trusted and friendly financial partner, John delivers a collaborative client experience that empowers and guides people to reach a greater purpose for their wealth and pursue their financial dreams. He understands the multifaceted set of financial worries people face as they become more successful and get within the retirement red zone.
John is well-regarded throughout the business community for his expertise. He has appeared as an expert guest on the The Brian Tracy Show and Hollywood Live with Jack Canfield, is the co-author of the book Masters of Success with Brian Tracy, is the host of the WDTV News 5 segment “Solutions 4 Financial Independence,” and has conducted hundreds of educational events on Retirement and Investment Advisory, Tax Reduction, and Wealth Transfer Planning. These include many Universities, Federal Employee Organizations, Professional Associations, and Large Energy Companies throughout the eastern United States.
With more than two decades of experience, John is credentialed as a Certified Wealth Strategist (CWS), Accredited Investment Fiduciary (AIF), Certified Estate Planner (CEP), Chartered Federal Employee Benefits Consultant (ChFEBC), Professional Plan Consultant (PPC), and Registered Financial Consultant (RFC). He is also a past multi-year member of Ed Slott’s Master Elite IRA Study Group.
A native of Weston, West Virginia, John served in the United States Air Force prior to becoming a Wealth Advisor. Today, he resides with his family in Clarksburg, West Virginia. He and his wife, Lisa, have been married since 2005 and have three amazing children. A family-oriented man, he is passionate about giving back to his community, coaching youth sports, landscaping, architectural design, and playing racquetball.