By Eric Rolshoven, MBA
Before becoming a financial adviser, I worked with the U.S. Department of Forestry for 8 years after earning my bachelor’s degree in forestry from the University of Montana, where I would eventually return to complete my MBA. My experience in the forestry industry helped me to shape my philosophy and approach toward financial planning, and I enjoy working with people in the industry where I began my professional journey and launched my first consulting business. Helping Forest Service personnel plan for retirement is a rewarding part of my role.
Three Streams Of Retirement Income
We encourage clients to think in terms of income after retirement, rather than thinking in terms of saving up money. Just like you need an income stream to pay the bills during the working years, you will need income streams once you retire. Savings can provide some of your income, but most people cannot save up enough to provide for all of their retirement needs. As federal employees, Forest Service personnel most often have access to three streams of income in retirement: Social Security, the Basic Benefit Plan, and the Thrift Savings Plan (TSP). All federal benefits are administered by the Office of Personnel Management (OPM) as part of the Federal Employee Retirement System (FERS). (1)
Some employees who were hired prior to 1984 and did not convert over to FERS are still covered under the prior Civil Service Retirement System (CSRS). There are some employees who receive a combination of CSRS and FERS benefits. However, the overwhelming majority of current federal employees are only covered under FERS.
The Basic Benefit Plan
The Basic Benefit Plan is a pension annuity, sometimes referred to as a Defined Benefit Plan. The Basic Benefit Plan is paid based on an average of your 3 highest-paid years of service (“High-3 average”). (2) Another factor to be aware of is the Minimum Retirement Age (MRA), which varies from 55 to 57 years of age depending on the calendar year in which you were hired. (3) As I often tell clients, it is often disadvantageous to retire too early, because the timing of when you retire can have a significant impact on your annual benefit amount. Retiring too early can incur an age reduction penalty, not to mention that you begin drawing against your retirement savings earlier.
Thrift Savings Plan (TSP)
The TSP is similar to an IRA, 401(k), or 403(b) plan; employees may choose to contribute pre-tax earnings to their TSP, and the Forest Service will match your contribution as well. Like other retirement plans, the TSP offers a Roth option (where you fund your plan with after-tax dollars) and a traditional option (where you defer taxes on your earnings until retirement). A TSP account will be created for you automatically when you begin employment, and you will receive an automatic contribution to the account equal to 1% of your gross pay, regardless of whether or not you contribute to the account. In addition, you may contribute any amount of your pay to your TSP, up to the IRS annual maximum. For tax year 2021, the maximum amount is $19,500. You will receive a dollar-for-dollar match of the first 3% and a $1 match for every $2 you contribute of the next 2%. No additional matching will be made for contributions above the first 5%. (4)
Social Security
Federal employees receive Social Security benefits similar to the private sector. You can set up a free account at SSA.gov, and I strongly recommend doing so. It is important to keep track of your Social Security benefits at minimum once a year to make sure that you receive proper credit for months worked. Employees still under the CSRS system with no FERS component will generally not receive Social Security benefits.
We’re Here To Help
It’s never too early to start planning your retirement. Whether you’ve just started with the Forest Service or whether you are just a few years away from retirement, you can always benefit from getting a clearer picture of your options and desired post-retirement lifestyle. Schedule time on my calendar or give me a call at 406-240-7659 today.
About Eric
Eric Rolshoven is founder and senior financial advisor at Treasure State Retirement Planning, an independent investment management firm in Florence, Montana. With over 30 years of experience in the financial industry, Eric focuses on providing his pre-retiree clients with customized insurance and financial strategies to protect and grow their assets, achieve financial security, and retire worry-free. Eric is known for explaining advanced financial concepts in an easy-to-understand manner and sees part of his job as helping to bridge any knowledge gaps for pre-retirees and retirees. Eric specializes in helping people maximize their Social Security benefits and holds frequent seminars and workshops in order to help his community be better informed about their financial options. Eric holds a Master of Business Administration with an emphasis in Finance from the University of Montana. When he’s not working, you can find Eric spending time with his wife, Julie, and their two grown children. Eric is a veteran Scout leader and baseball coach and enjoys hunting, fishing, hiking, golfing, and traveling. To learn more about Eric, connect with him on LinkedIn.
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(1) https://www.opm.gov/retirement-services/fers-information/
(2) https://www.opm.gov/retirement-services/fers-information/computation/
(3) https://www.opm.gov/retirement-services/fers-information/eligibility/
(4) https://www.tsp.gov/making-contributions/contribution-types/