How Federal Employees Can Catch Up for Retirement
Working for the federal government can set you up for a success financially. After all, being able to retire after 30 years of service is something most private-sector employees only dream of. But many government employees miss out on this opportunity because they fail to plan ahead. Without proper planning and financial management, retirement can be just as elusive for federal employees as it can be for everyone else.
If that sounds like you, don’t panic. There are ways you can get back on track. It just requires a little strategic planning. Check out these 6 ways to catch up for retirement today.
Take Advantage of Your TSP Match
In addition to your FERS pension, as a federal employee, you have access to the Thrift Savings Plan (TSP). Instead of getting a promised pension amount, what you get out of it is a combination of what you put in and how you invest it, much like the popular private-sector 401(k) plan. It is your choice whether or not to contribute to the TSP and how much you put in it.
To build up the most funds for retirement, you need to contribute up to your agency’s match. Receiving a matching contribution from the government is essentially an immediate 100% gain on your money. Your agency matches your contributions up to 5% of base pay, so you should consider contributing at least that much. Contributing any less is leaving free money on the table—money that will fund your retirement.
Invest Your TSP for Growth
On top of getting your agency match, you want to make sure your TSP funds are invested wisely. Where you put your money over your career can make a huge difference in your account balance when it comes time to retire and, therefore, it can greatly affect your ability to do so.
It may be tempting to keep your money protected from the volatility of the stock market, but that also robs you of the opportunity for your money to potentially grow along with the stock market. Without growth, you may not have enough funds to retire on time.
The right investments for your TSP will depend on your age, goals, and risk tolerance. There is no one-size-fits-all answer that is best for everyone. An experienced financial advisor can not only help you build a diversified portfolio within your TSP, but they can also help you create an overall plan and strategy to be able to pursue your retirement goals.
Save in Other Ways
Increasing your retirement contributions is not the only way to save more for retirement. You can also identify ways to decrease your spending, increase your income, and eliminate debt. To decrease spending, look over your budget and cut out items you don’t need. I recommend even cutting items you think you need. This could be cable TV, a monthly house-cleaning service, or even your car (if there’s reliable public transportation in your area).
Increasing income may seem out of reach, but it’s the quickest way to save more money for retirement. Here are a few side-hustle ideas to get you started:
- Ask for a raise at your current job.
- Rent your spare room on Airbnb.
- Walk dogs on your lunch break through Rover.
- Drive for Uber on the weekends.
- Use your expertise to build a profitable consulting business.
Once you’ve decreased your spending and increased your income, use the extra money to pay off debt. Debt destroys your financial goals—especially high-interest consumer debt, so reducing or eliminating it entirely should be a top priority.
Downsize or Relocate
As you near retirement, your housing needs may look different than when you were raising a family. Downsizing your home is a great way to tackle consumer debt and prepare for retirement. Having a smaller yard to maintain and a smaller house to clean can add up to huge savings in the long run. Not to mention it’ll be more practical as you age.
If you currently live in an expensive city, you could save even more by moving to an area with a lower cost of living. The income from selling your home would instantly boost your savings and your day-to-day expenses would be cheaper.
Catch-Up Contributions
If you’re age 50 or over, you may be eligible to make catch-up contributions to your retirement plan. The maximum amount of these contributions depends on the type of retirement plan you have.
Here are some catch-up contribution limits for 2022: (1)
- $6,500 for 401(k), 403(b), SARSEP, or governmental 457(b)
- $3,000 for SIMPLE IRA or SIMPLE 401(k)
- $1,000 for Roth and traditional IRAs
Push Back Retirement Date
While this may not seem ideal, you’re able to save and invest more money every year you work. You could choose to stay at your current job a few more years or pick up a part-time job. Remaining in the workforce also gives you the option of delaying Social Security. You can start receiving Social Security at age 62, but your monthly benefits increase the longer you wait to file.
Do You Need to Catch Up for Retirement?
Are you a federal employee who needs to catch up for retirement? At Bridgerland Financial, we have helped many federal employees do just that. To learn more about how we can help you retire with confidence, schedule an appointment online or reach out to us at david.packer@bridgetoretire.com or (435) 535-1630.
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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Disclosure: A diversified portfolio does not assure a profit or protect against loss in a declining market.
