If I Were Hired Today....
Who’d like to own one of Mr. Peabody’s Wayback Machines? We’d all like a do-over sometimes. Think about going back to your 20’s, but with your knowledge you have now. Can you imagine how much better you could do things?! Pitfalls you could avoid? Opportunities you could seize the second go around? That girl (or guy) you wished you’d never gone out with on that first date? You would literally be unstoppable.
We’ve all got a thing or two we’d like a second chance at again. That’s what we’re going to be talking about here.
I completed 24 years under FERS. All as a Special Category Employee (law enforcement). My wife completed 25 years under FERS as an SCE-LEO as well. We’ve lived this stuff. We’ve pretty much known nothing else in our adult lives but this. We have now both successfully transitioned into the retirement phase of FERS. Both getting annuities. Both getting the supplement. And both with very healthy (and growing) TSPs.
I have studied FERS non-stop for years now. I’ve worked one-on-one with over 600 FERS clients, analyzing their documents and creating retirement estimates for them. I’ve spoken to a couple thousand more. I built my TSP into 7 figures in about 21 years of working. I now speak weekly to other TSP millionaires. Like Farmer’s Insurance, I know a thing or two because I’ve seen a thing or two. I have learned what works consistently. And I have learned what doesn’t work at all. I’ve seen the common mistakes that so many of us (myself included) make regarding our finances. I know the impacts of keeping FEGLI or switching to private life insurance, for example. And the differences between leaving your TSP alone and trying to guess when it’s going to crash (or go up). And how advantageous an HSA is.
With all of that knowledge and experience, what would I do differently if I were being hired today at 25 years old? I’m glad you asked. Let me lay it out for you. Benefit by benefit.
THRIFT SAVINGS PLAN
I would:
Be 100% Roth TSP to start out. I’d keep this arrangement for probably 15 years or so and re-evaluate once I saw how much income I was making compared to the tax brackets. If I started moving up into higher tax brackets (over 25%), I’d probably switch to Traditional TSP for the rest of my career.
Be 100% C Fund. I would never alter this until I was close to retirement. Then I might consider switching to something like 60% C and 40% G. Or 70/30. I would have ZERO interest in anything else the TSP currently offers as investments.
I would always contribute at least 5% and I would have a goal of reaching the maximum TSP contribution limit within 8 years. I would achieve this by taking a portion of every raise every January and upping my TSP contributions. I would also take a portion of every Grade or Step increase and use it to up my TSP contributions. My goal would be to get to maxing out within 8 years and to max out every year thereafter. If it took me 10 years to get there, so be it. That’s better than never getting there. The point is I would have an actual, structured plan to get there. Not just a “I’ll put more in when I have more money” approach. That rarely works in my experience.
I would NOT:
Use any TSP allocation service ever. EVER.
Check my TSP balance very often. Once a quarter would be more than enough.
Take out a TSP loan. Unless very drastic circumstances required it, or the interest rate became less than 1% again and I was using that money for a residence or other appreciating asset.
FEDERAL EMPLOYEES HEALTH BENEFITS PLAN (FEHB)
I would:
Sign up for a High Deductible Health Plan (HDHP) immediately upon being hired.
I would contribute at least some money to the Health Savings Account (HSA) every pay period. Probably only $25 in the beginning until I was making better money, but at least the account would be growing from the insurance company’s contributions.
After I was maxing out the TSP each year, my goal would be to max out my HSA contributions as well, using the same long term, incremental strategy as above.
Evaluate the various HDHP FEHB plans every single open season in November. Every. Single. One. Different plans increase (or decrease sometimes) at different rates. Some people continue to blindly pay way more than they need to because they don’t bother checking what their plan has done compared to all the other ones out there.
Have the FEHB plan in my spouse’s name if she were to be the one to retire later (for tax purposes)
FEDERAL EMPLOYEES GROUP LIFE INSURANCE (FEGLI)
I would:
Sign up for Basic and Option B (5x) initially when hired. It’s not that expensive when you’re young, and a growing family needs a lot of insurance when assets are small, and future demands may be extreme: mortgages, college tuitions for multiple kids, etc.
Plan on switching to a private life insurance policy around 40-45 years of age, when FEGLI starts to get expensive and when private plans can still be had for WAY cheaper than FEGLI. I would also make sure to be in very good shape when I applied for the policy to get the best rate possible.
I would cancel all of my FEGLI once I had the private policy in place
I would only get a private policy long enough for me to be 100% self-insured with assets that exceed life insurance proceeds, especially after conducting a cost-benefit analysis. This would likely mean a 20-to-25-year life insurance policy and no more for me.
I would know EXACTLY how much FEGLI I have at any given time and EXACTLY how much it costs me. And how it goes up literally every single time my salary goes up.
GENERAL CAREER/FINANCIAL/FERS ISSUES
I would:
Believe that I am not a victim of the economy, the era, or any other “system” that is keeping me from being rich. I would understand that many federal employees who are disciplined retire as multi-millionaires. And that number will undoubtedly increase in the future. Beliefs like “You’ll always have a [insert “Car Payment”, “Mortgage”, “Credit Card Debt”, “Student Loan Debt” or any other excuse here]” will always prevent you from reaching your potential.
Realize debt is the single greatest factor keeping me from being rich and I would fight hard to get out of it as soon as possible. And stay out. Yes, even if that meant having a junky car even after I got a good federal job. (How many of us regret going and buying that nice car as soon as we got that federal job and could “afford” it?) It could also mean the drastic decision (so few people consider) of moving to an affordable area of the country for a few years.
Be judicious in how I took promotions or transfers. Increasing the salary for your increased annuity is a good financial move, but the quality of life may not be worth the extra few dollars. Likewise, transferring to a lower cost of living area may really pay off. (see previous paragraph). I would never take a promotion putting me over the GS Bi-Weekly cap.
Plan on retiring the month I was eligible. Understanding that from a time value of money perspective, the government pension is worth the most the month you are first eligible to retire. Staying to increase the High-3 is typically a losing proposition. Increasing the monthly amount does not necessarily increase the overall amount you’ll receive throughout the rest of your life. Most people don’t understand that math.
Start planning on my post-government chapter long before retirement. I have learned that 5 years prior to the eligibility date is a perfect time to start getting serious about retirement. It allows an employee time to decide what they want to do, time to develop the contacts or the skills for that desired outcome, and plenty of time to enact the plan without any stress. Most stress at retirement is a direct result of panic created by the unknown: 1.) how much money their pension is worth, 2.) how much money they need in retirement 3.) what they are going to do with the rest of their lives and 4.) the fear of leaving a known for an unknown. These are not big deals. None of them are. Ask anyone that retired correctly. It was a non-issue. But they are HUGE deals to those that have failed to plan. Ask anyone that is looking down the barrel of a pending retirement and doesn’t understand it all. It’s overwhelming. It leads to fear. And a less-than-optimal resulting decision: Staying in the government longer than they should.
Invest for the big things looming out there, particularly college tuition. Starting 529’s early-like the year my children are born.
Learn about other investment opportunities once I was out of debt, maxing out my TSP and my HSA, and consistently saving for college. Maybe a rental property? Maybe a lake house that I enjoy sometimes but Airbnb when I’m not there?
Stay in shape. Many government jobs are full of stress. And result in long hours and poor diets. For mental and physical health, you gotta fight the all-too-easy temptation to put your self-care last. You will undoubtedly be ok for years. Maybe a decade or two? But make no mistake—it WILL catch up with you. Sometimes suddenly. And with a vengeance!
Keep a proper perspective. The government does not NEED me. Clearly. I retired 2 years ago and not one news article has ever come out regarding the gigantic gap I left in my wake. The same will be true of you as well. The government existed before, and it will exist after you. Most of us are not curing cancer here, let’s be realistic in how important the job is. And hint: It’s not more important than your family. Don’t sacrifice your family (or multiple families) for “the mission.” You will realize one day “the mission” wasn’t THAT important.
Buy the FERSGUIDE by Dan Jamison and read it occasionally to stay up to date on my benefits. It is not a retirement guide per se. It is a benefit guide. Just as important for a 25 year old as a 55 year old.
Get a good CPA when I was younger that would give me wise counsel throughout the year. Saving $500 by using TurboTax but missing out on $2,000 in benefits is not coming out ahead.
I would NOT:
Let the job become 90% of my life. This can easily happen in some jobs more than others. Law Enforcement is one. Before you know it, you may find yourself traveling 5 months out of the year, and working weekends when you’re home. There are protection details to staff, surveillances to conduct, wires to listen to, ops to plan, training schools to attend, prisoners to extradite, etc., etc., etc. Many of these assignments are not even CLOSE to being in the neighborhood of “normal” 9-5 business hours. Keep a healthy amount of interests outside of the job: church, family, sports, hobbies, travel, volunteer work, etc. One day, this job will go from full-time to no-time in an 8-hour period. And your life will never be the same after. Plan for this. Because it is coming.
Get divorced. Do all of the above correctly but marry the wrong person, (or neglect the right person) and you’re in a world of hurt financially. Not to mention emotionally and other ways. Your 25-year project getting your TSP to 7 figures can be undone overnight.
Chase grades/promotions all over the world just to satisfy my ego or in an attempt to create a better annuity. Hit the cap too early and it just means you’re losing more money for longer period of time. It’s also very disruptive for my family and they come first.