Financial planning for Federal employees and retirees used to be based upon three assumptions:
- Most federal employees enjoyed excellent job security, they could work as long as they wanted or needed to. Many financial problems could be solved by working longer.
- Salaries, annuities and Social Security would always be paid on time (unless the government shutdown).
- It was unlikely that important benefits would be reduced. Important benefits include the 5% match for TSP contributions, the subsidies for health insurance and the Cost of Living Adjustments for annuitants.
Well, that was the old days. Now Federal employees no longer seem to have much in the way of job security, benefits no longer seem as secure and anyone receiving a check from the Government (Federal salaries and pensions plus those receiving Social Security, Medicare or Medicaid) needs to worry about their checks being delayed because of delays in processing the payments.
Here are five ways to prepare for job loss, reduction in benefits or Government’s failure to send salary or annuity payments on time:
- Build up your emergency fund.
- Pay down any credit card debt.
- Stop overpaying your mortgage, use those funds to accomplish 1 and 2.
- Obtain a HELOC.
- Compare interest rates on bank savings accounts and CDs to what is available from other banks.
For employees, reducing TSP bi-weekly contributions can help accomplish 1 and 2. However, do not reduce to less than 5% of your paycheck. A 5% contribution means you will receive the largest possible matching contribution from the Federal Government.
Disclaimers:
This is for educational purposes only. To learn more about the topics mentioned and if they are suitable for you, consult an appropriate professional. Tax laws can change at any time.
Any information provided in this presentation has been prepared from sources believed to be reliable, but is not guaranteed and is not a complete summary or statement of all available data necessary for making an investment decision. Any information provided is for information purposes only and does not constitute a recommendation.
Arthur Stein and Arthur Stein Financial, LLC are not authorized to give legal or tax advice. For information on your specific situation, please consult your tax advisor regarding any tax implications and your attorney for legal implications. As required by the US Treasury Regulations, you should be aware that this presentation is not intended to be used and it cannot be used for the purposes of avoiding penalties under federal tax laws.
Keep in mind that:
- Past performance is no guarantee of future performance;
- Investments involve the risk of loss of principal and earnings;
- ETFs, mutual funds, money market funds, etc. are not guaranteed by the US Government, the FDIC, a bank or anyone else.
- “Average annual return” evens out variations in the actual year-to-year returns.
- ETFs, mutual funds and individual stocks and bonds fluctuate in value and there will always be times when they lose value.
- None of the information provided is necessarily relevant to anyone’s personal situation. Circumstances differ among individuals and you should not assume that these generalizations or information apply to you.
- Investments mentioned may not be suitable for all investors.
- An investment cannot be made directly into an index.