There’s a lot to like about federal employment: the ability to serve the public, guaranteed income levels within specified periods of time and, as last year reminded us more than ever, unparalleled job stability.
Couple this with a wide array of employee benefits, from a retirement plan with a generous employer match to extensive insurance programs and ever-growing opportunities for telework, and working for Uncle Sam may be the best it’s ever been.
The value of these benefits, however, hinges on understanding them and making the most of them within your overall financial plan — a task that’s far from simple when you consider:
- The federal employee benefits and retirement landscape is complex and ever-changing, filled with acronyms, paperwork, deadlines and legislation.
- Your financial responsibilities and goals are unique and ever-changing, whatever your age and whatever your GS level.
- While many automatically enrolled benefits programs are good starting points towards supporting these responsibilities and meeting these goals, the “set it and forget it” strategy rarely, if ever, supports them and meets them as effectively as you’d like — whether you know it or not.
With this in mind, here’s a look at three of the most unique areas of federal benefits that should be regularly reevaluated by all federal employees, from those just joining the federal workforce to those preparing to retire from it.
Beginning with what might be considered the lowest-hanging fruit of federal benefits, you might assume that getting your retirement account right simply means contributing as much of your salary as your budget will allow each pay period, ideally at least five percent, so that you can take full advantage of the employer match offered to all Federal Employee Retirement System or Blended Retirement System participants.
But there’s a lot more to consider than just contributions when it comes to making the most of your relationship with the TSP.
For starters, while policymakers regularly discuss broadening the number of TSP investment fund options — a good long-term idea — the fact remains that there are currently just five, all of which are quite passive. This can make it very difficult to adequately diversify and modify the acceptable risk level of your portfolio as you progress throughout your career, so it’s often a good idea for many feds to round out their portfolio with investments, including international exposure, real estate, emerging markets and actively managed fixed accounts outside of their TSP investments — even if this means contributing a bit less to your TSP.
In addition, the recent passage of both the TSP Modernization Act and the SECURE Act likely mean that your TSP and retirement strategy may need some attention, given the many changes and options introduced. For example, you should be aware of how the TSP Modernization’s Act’s loosening of limitations regarding age-based withdrawals, partial withdrawals and installment payments will affect you now or in the future, as well as how the SECURE Act will do so by allowing you to postpone your first required minimum distribution until age 72 (formerly required at 70.5) and requiring anyone who inherits your IRA to deplete all of its assets within 10 years.
As with the TSP, automatic enrollment in the Basic level of the Federal Employees’ Group Life Insurance program is a great benefit — especially at a time when many public and private employers do not provide any level of life insurance. But, also as with the TSP, it’s unlikely that getting your life insurance right means simply sticking with Basic coverage, or even just adding additional FEGLI coverage, throughout your career.
Among the many reasons for this:
- Although people who only have group term life insurance through their employer have, on average, $225,000 less coverage than they actually need, even the maximum level of coverage provided by FEGLI is often not enough to adequately protect those facing large financial responsibilities, such as paying for a house and college simultaneously.
- FEGLI’s premiums do not depend upon your level of health, so those in good health may be missing out on the potential cost savings that alternative plans may offer.
- FEGLI offers limited levels of family protection at a time when dual income is not a luxury, but a necessity, for many households.
- You cannot take your FEGLI policy with you when you resign from the federal government, so you would need to restart your insurance coverage if/when you join a new employer.
Given these limitations, it’s important to recognize that FEGLI is not your only option. Consider the many factors that may make supplementing your FEGLI, or pursuing an alternative (or alternatives) altogether, a better solution for your financial plan — factors such as higher coverage options, portability, cost savings for better health, coverage options for those in poor health and greater family protection. For those approaching retirement, it may also make financial sense to maximize your pension by selecting a minimum option for the survivor benefit and using the savings to buy an additional life insurance policy.
As the theme continues, the Federal Long-Term Care Insurance Program 3.0 is a good option for some federal employees but may not be the best answer to getting your long-term care insurance right for many.
For example, it tends to be a good option for those with simple coverage needs — primarily women — who traditionally have higher long-term care costs and would therefore typically face higher premiums with independent insurance carriers. In a relatively recent change, the FLTCIP now provides some death benefit if no LTC benefit is paid out.
It is important to note that FLTCIP is not subsidized by your agency and does not offer a discount if you are in very good health, meaning that those with better health may be better served elsewhere. For example, a shared care policy may meet your needs while offering a large discount for purchasing as a couple, while a life insurance policy or annuities with LTC riders could guarantee against increases in your premium and ensure that a benefit is paid out, whether your LTC benefits are used or not.
Clearly, getting your retirement account, life insurance, and long-term care insurance “right” is no simple task. And while this is true for all workers, it may be especially difficult for those in the federal workforce given how easy it is to fall into the “good enough” mindset regarding your benefits and your financial plan.
But meeting your unique needs can indeed be done — and for many, working with a chartered federal employee benefits consultant, who’s an expert in not only what all federal employee benefits programs offer, but also what they don’t, is a great, and necessary, first step.
Greg Klingler, CFP, ChFEBC, is the director at GEBA Wealth Management and a regular contributor to regional and national outlets on topics including investments, federal benefits and financial planning. He specializes in retirement planning and portfolio analysis for federal employees.