Retirement Planning

Vital For Your Future

What is your Retirement Packet?

   As I have extensively explained in the Lifestyle and Benefits Section as well as the 1811 Resources Section, the Federal Law Enforcement Retirement System is unique to covered federal law enforcement officers. The modern retirement plan basically consists of the following components:

I. Immediate Lifetime FERS Pension

II. Thrift Savings Plan

III. Temporary FERS Supplement (Ends at Age 62)

IV. Social Security (Starts at Age 62).

I. Lifetime Pension - FERS

   Since retirement is critically important, I am going to direct you to the Official Retirement Benefits for Federal Law Enforcement Guide. This should be the official starting document to understand your potential retirement income, especially since many federal government Human Resource departments are notoriously unhelpful. 

Some Key Takeaways Regarding FERS Pension:

• After 20 years of law enforcement service, you will make an income that is 34% of your highest 3 years average gross salary (which include Law Enforcement Availability Pay and Locality Adjustment). 
• In order to take advantage of this "High 3" calculation, many federal agents transfer to HQ for their last few years in order to receive the Washington DC Cost of Living Locality pay as it offers a lifetime pension increase. 

• The first 20 years of federal law enforcement service are calculated at a rate of 1.7% per year (totalling 34%) and any* additional or other federal service (regardless of category) is calculated at 1% per year. 

• The pension will be taxed in retirement.

II. Thrift Savings Plan

   This is likely one of the most overlooked but critical components of a successful retirement. The Thrift Savings Plan (TSP) is essentially a government run 401K retirement account. Importantly, all contributions above 5% of your salary are matched by the government. Most agencies will automatically enroll a new employee in one of the "Lifecycle Funds" and start deducting from each paycheck. Contributing 5% of your paycheck should be the minimum but 10% will ensure a more comfortable retirement. Most importantly, when you contribute to a TSP Account, your taxable income is reduced and the government will match those contributed funds. This is obviously meant to encourage federal employees to make regular contributions.

   The lack of regularly contributions to the TSP is the single biggest failure point for federal employees and the impact is usually disastrous. The TSP is designed to be another income stream and is basically your private pension system. To put it in perspective, I have been making basic TSP contributions for the last 25 years and am projected to receive $3,500 a month upon retirement!   

   On a side note, the conversion by the federal government to the current Federal Employees Retirement System (FERS) was basically a massive cost savings measure by the bureaucracy. A significant amount of the pension was removed and replaced by the TSP scheme, which requires diligent contributions by the employee. So long as the employee contributions are made regularly and start early in their career, the plan works. However, the problem is that most new employees do not make as much in earnings and often skimp out on their TSP contributions during the early years; which usually translates to hundreds of thousands of dollars in lost compound earnings and a lower balance upon retirement! 

 I encourage all new employees to review the TSP Official Website to properly understand their investment options and to ensure that their contributions are being made to the correct Funds. Many employees simply choose the "Lifecycle Funds" such as "Lifecycle 2040," which are designed to have higher risk (i.e. more stocks) early on and more stable low risk bonds as the retirement date nears. Most importantly, virtually every single guide will tell you one simple thing; start making regular contributions early in your career to ensure success!   

 III. Annuity Supplement - Temporary

   The Special Retirement Supplement is paid in addition to gross monthly Federal Employees Retirement System (FERS) annuity benefits (aka Lifetime Pension). It represents what you would receive for your FERS civilian service from the Social Security Administration (SSA) and is calculated as if you were eligible to receive SSA benefits on the day you retired. 

   The supplement varies and is based on your individual earnings, consequently, I would recommend reading the attached OPM Information for FERS Annuitants and Official Retiree Annuity Supplement to calculate your projected amount. 

 IV. Full Social Security (Starts at 62)

   Your full social security earnings are a critical component of your full retirement and all employees are advised to obtain access to their Social Security Administration Account to review their contributions and projected earnings via the Social Security Benefits Statement. Review this document for accuracy and ensure that all* of your earnings are properly credited (even that job in high school!). 

Other Critical Helpful Steps & Resources

   All current federal employees should have online and regular access to their Personal Benefits Statement. This statement will provide a summary of our projected pension and TSP income. Review it regularly to understand your retirement options. 

   The informal but highly effective Retirement Calculator Spreadsheet is one of the most helpful tools in properly estimating retirement earnings and I have yet to see a more accurate projection (other than the official one provided by HR).  This spreadsheet will truly give you a reasonable understanding of your retirement income and my hats are off to the author. It also includes a detailed PDF Instructions Sheet to help answer some of the more complicated scenarios (i.e. divorce). 

   Employees should conduct an immediate review of their Service Credit Report. This document should properly reflect ALL of your years of service, to include any buyback time for military veterans. Most importantly, do not wait until the end as correcting errors made by Human Resources can take significant time and effort. I know of one agent who recently discovered that even though they bought back their military time, it was not being credited towards their retirement calculation. It took almost a year of communicating back and forth with HR before it was finally corrected. Luckily this agent was still years from retirement. Don't get surprised by something like this the day you drop your retirement packet!

     The FERSGUIDE is a fantastic document to fully maximize your retirement scenarios.  It provides critical tips (i.e., best timeframe for retirement) and offers guidance for more complicated scenarios (i.e., making catch up contributions to TSP).  The Outdated 2019 Guide is available online but I would highly suggest purchasing the updated version if you are planning for retirement.  FERS Guide - AMAZON 

     Finally, many Special Agents unnecessarily delay retirement because they don't truly understand their benefits and keep working, despite the detriment to their personal financial interests.  Consequently, I highly encourage a review of the "I Can't Retire" Article written by Chris Barfield.  Additionally, Chris Barfield runs an amazing Financial Advising Site that has a host of free retirement resources geared toward Federal Law Enforcement Retirement.  See Chris Barfield Website. 

I wish all past, current and future Special Agents a Happy Retirement!

Disclaimer:  This blog is not intended to be professional financial advice.  It is recommended that you consult with a professional before making any consequential personal financial decisions.