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Monday - Friday, 6-9 a.m.
Hosts Tom Temin and Emily Kopp bring you the latest news affecting the federal community each weekday morning, featuring interviews with top government executives and contractors. Listen live from 6 to 9 a.m. or download archived interviews below.
Proactive protection for your federal retirement
Friday - 5/20/2011, 10:31am EDT
Senior Internet Editor
A proposal in the House 2012 budget plan includes a big increase to federal employees' pension contributions from 0.8 percent to about 6 percent. The White House is also considering the proposal as part of a debt reduction compromise. It has many feds worried about their nest eggs.
Those figures can be deceiving, said Arthur Stein, certified financial planner with SPC Financial in Rockville, Maryland.
Stein told Federal News Radio, "it seems to me what we're speaking about really is just the equivalent of a five percent reduction in pay, and that's a really serious deal, especially at a time when we've got a two year pay freeze. The total effect, I'm guessing would be eight to ten percent,"
With an extended pay freeze, reducing bonus performance awards, additional contributions needed to retirement funds, increased health care premiums, and the possible deferment of COLAs for retirees, there's a lot to worry about.
"Just in practical terms, things that your listeners can do," said Stein, include:
- "Just reduce your expenditures five percent right now and see what that's like. Take that money you don't spend, use it to increase your savings or pay down credit card debt. See what it's like and give yourself a chance to adjust."
- "I would also urge people who are thinking about retiring, don't do it before you get an actual retirement plan that would show that you're ready."
- "It really helps if people either keep track of their expenditures or go back retroactively and try and estimate how much they spent the last six or 12 months. See where your money's going. Not only would that help you determine how you might cut your expenditures five percent, but it's a very important step forward in doing your retirement planning to know what you're spending while you're working so you can estimate what you would spend in retirement."
- And finally, don't pull the trigger too soon. "Even if they do this, federal employees will still have a much better pension, i.e. annuity, than probably almost anyone in the private sector. I've seen a lot of discussion and letters from federal employees to your website and to the (Washington) Post and things like that, where some employees are saying 'well if the do that, I'm going to retire early.' Well, I don't know if that's the right response." If you've done your planning and it shows you can retire early, said Stein, go ahead. If you're not in that situation, Stein said consider working longer. You can contribute more to the TSP, which in turn would allow you to postpone taking Social Security for a little while longer.
"Quitting your job does not leave you ahead of the game. It just means that you've left a very secure position earlier."