The Top 3 Financial Mistakes I See Federal Employees Make

David Packer |

As a federal employee, you have a lot of financial concerns to think about. From retiring comfortably to making sure you have enough insurance, there’s a lot to consider. 

At Bridgerland Financial, we specialize in helping federal employees understand their benefits and bridge the gap between their federal service and retirement. We’ve worked with countless federal employees, and in that time, we’ve noticed some of the most common mistakes this segment makes. 

Today let’s break down three of the most common financial mistakes we see federal employees make and help you avoid making the same ones. 

Not Understanding Survivorship vs. No Survivorship

It’s important to understand the survivorship benefits of your pension plan because these benefits will impact how much you and your spouse receive not only during retirement, but after your death as well.

The two most common types of survivor benefits include single-life benefits and joint and survivor benefits. 

With single-life benefits, monthly payments are based only on the pension-earner’s expected lifetime, meaning that benefits stop when that person dies. 

With joint and survivorship benefits, the monthly payments are based on both the pension-earner and the spouse’s lifetime. This means that if the pension-earner dies first, the spouse can continue to receive survivor benefits from the pension plan. 

There are pros and cons to each option, including the amount of monthly payments. For joint and survivor benefits, the monthly pension payment will be lower, but a portion of the payments are guaranteed to continue for the surviving spouse (25% or 50% depending on which option you choose). 

According to the Office of Personnel Management, when deciding your survivorship election, you should consider: (1)

  • Your spouse’s future retirement benefits based on their employment
  • Your other sources of retirement income
  • Whether your other sources of retirement income are protected against inflation with cost-of-living adjustments
  • Whether or not your spouse will need continued coverage under the Federal Employees Health Benefit program

Listening to Coworkers on How to Diversify Their TSP

Like a 401(k), a TSP offers participants the opportunity to divert some of their income into a defined contribution program. For federal employees, the government contributes money an employee designates into a retirement account on their behalf. 

There are both traditional TSPs and Roth TSPs available. Having a traditional TSP means your contributions, employer match, and investment growth are all pre-tax. When you make a withdrawal down the road, the taxes will be due based upon the applicable tax rate at the time you take the money out. 

Roth TSP accounts are post-tax, so all contributions are taxed as income at the time the contributions are made. The benefit, however, is that no tax will be due at the time you withdraw on either your contributions or your growth. It should be noted that all employer matches can only be made in a traditional account. This will result in having both a Roth and a traditional account open if you choose to make contributions into a Roth.

A TSP plan is comprehensive and complex. If you want to learn about every detail to make the most of your opportunities, you need a professional to help you navigate your options. Be cautious when accepting financial advice on your TSP from coworkers versus financial professionals. 

Not Taking Full Advantage of Their Match

When retirement is decades down the line, it can feel like you will never be able to retire. Because of that, many federal employees don’t save enough in their TSP to qualify for matching. This is a mistake because the FERS match is almost like free money toward your retirement.

With most TSPs, you are automatically enrolled at 3% of your pay, but you can choose to increase or decrease that amount at any time. The Federal Employee Retirement System (FERS) will also contribute 1% of your basic pay on your behalf. Finally, FERS generously matches your contributions on the first 5% of the pay you contribute. The first 3% is matched dollar-for-dollar, and the next 2% is matched at 50 cents on the dollar. (2)

If you’re not sure you’re making the right financial choices regarding saving for retirement or taking full advantage of your benefits, schedule an appointment online or reach out to us at david.packer@bridgetoretire.com or (435) 535-1630. We specialize in working with federal employees and can help answer your questions. 

About David

David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠, CRPC® credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn.

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(1) https://www.opm.gov/support/retirement/faq/survivor-benefits/ 

(2) https://www.tsp.gov/making-contributions/contribution-types/