CSRS people: Endangered species?
Tuesday - 4/21/2015, 2:30am ET
If there were an endangered species list for occupations, the roughly 300,000 remaining feds under the old Civil Service Retirement System would be on it. Not that they are technically in danger, but they are definitely a vanishing breed. Their ranks thin every day.
The less-generous, industry-style FERS retirement program replaced CSRS in the mid-1980s. The vast majority of current employees are under it. FERS was created to shift more of the burden of financing lifetime retirement benefits to workers. Some argued that the CSRS program was politically unsustainable and it might be eliminated completely and not replaced. As many private companies have done over the past 30 years.
FERS offers a smaller guaranteed defined benefit/lifetime annuity. To encourage workers to financially feather their own nest, people under FERS have a more generous Thrift Savings Plan option. Those who put in at least 5 percent of their own money get a 5 percent match from the government. That is much, much better than most private sector plans that have downsized (or in many cases totally eliminated) their retirement programs.
Because of their higher annuities, CSRS as much less dependent on the income they will get from investing. For FERS employees it is a must.
Many CSRS retirees won't touch their TSP investments until (under IRS rules) they must. Even then, some can get by making only minimal withdrawals each year. So investing for many CSRS employees is different than FERS workers, for whom it is a must.
Because of their higher annuities, many CSRS employees can afford to take more risks by investing more heavily in the TSP's stock funds. Some do. Some don't. Some may not have thought about it. Until, maybe, now.
We got an email from a long-time CSRS worker. Because of his length of service he will get the maximum benefit (starting at 80 percent of his final salary). And it will be completely indexed to inflation. If the cost of living goes up 2, 5 or 10 percent each year, so will his annuity.
He asked us for investment advice. We don't do it for two reasons. Primarily because none of us here is qualified (either legally or professionally) to give such advice. Besides, people are different. What some people consider safe (as in low risk investments like the G-fund) others consider to be risky, because their overtime can be diminished by inflation. That said, we know lots of people who do know the TSP inside and out. Here's his letter, then the recommendations from an expert:
"I am a CSRS employee with 36 years of service. I started contributing to TSP (5 percent) about 15 years ago and haven't really paid too much attention to it until 2008 when I lost a chunk of money. I have my funds diversified into the C, S and I funds. I plan on retiring when I reach the 41- year 11-month mark. Would it be prudent for me to move what I have now into the G-fund or keep it where it is?" — Mark
Now here's what our expert said:
"As long as he didn't move any money in 2008, he didn't lose anything. And, if he was calm enough to have stayed the course, not only did he not lose money, he bought when stocks were cheap so he did a very savvy thing."He says his money is diversified, but it is all in stocks (large domestic, medium/small domestic and international). He is five years away from retirement. He may not "need" this money for retirement but, as you point out, it's gonna make his life a lot more comfortable. One big market correction could change that quickly.
"He may want to look at the asset allocation for the L2020 fund and see the asset distribution (which is heavier into the G and F Funds (Treasuries and corporate bonds) and take some advice for those professionally designed funds, which balance risk and return at different stages of your investing life."
Posted by: sarah_oz@yahoo.com
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