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Archives for December 2021

Inflation, debt, retirement: A bad mix

In case you hadn’t noticed, inflation is at a 20 year high. Gasoline prices have jumped 40%. Houses are up 30% in many spots. A new car costs an average of $40,000-plus. And this may be the new normal, according to some experts. That’s the not-so-good news.

The much better news is that lifetime annuity benefits of most current federal/postal workers are relatively inflation proof. Just like Social Security. Or military retired pay. But during periods of high inflation — like NOW — keeping up with inflation that exceeds 2% per year will be almost impossible. Civil Service Retirement System (CSRS) retirees will be getting a 5.9% cost of living adjustment (COLA) in January. But those who retired under the Federal Employees Retirement System (FERS) will get a diet COLA of 4.9%. You don’t need to be a math whiz to see that overtime, if inflation is high, FERS retirees will fall further and further behind. So while most current retirees are in good shape, with a lifetime COLA linked to inflation, most current workers, people on the payroll now who are under FERS, need to plan carefully for periods of extended inflation which they will have to survive on diet COLAs.

So when you say most current retirees are protected from inflation, the key word is “most.” Most meaning the majority of people who retired from government years ago. And if they retired under the old Civil Service Retirement System. CSRS guaranteed qualified workers with a generous (by private sector standards) annuity for life. And one that was linked to inflation. The yardstick Uncle Sam uses to measure living costs is the Consumer Price Index-W (CPI-W). Many retirees say the CPI doesn’t reflect the costs that go with getting older. They would prefer an index that takes into account things like medical bills and drugs. But while it isn’t perfect, the COLA catchup under CSRS is better than almost anything outside government. Same for most people working right now who are under the different/less generous FERS program.

Most current federal and postal retirees are relatively inflation proof. Most current workers under the FERS program will not be when they retire. Which means they shouldn’t carry any large debt into retirement.

While future FERS retirees can’t do anything about inflation by themselves, they might support the National Active and Retired Federal Employees, which is lobbying Congress for what they say is a more accurate COLA catchup system for FERS retirees. They can also help themselves, big time, if they can pay down or pay off existing debts before they retire.

Over time, the value of annuities can slip tens of thousands of dollars below expenditures, according to Arthur Stein, a well known D.C. area financial planner. He says the diet COLA feature of FERS means they must have other income — from Social Security, their TSP accounts or some other source — to maintain their standard of living in retirement. He points out that the Consumer Price Index is almost always higher each year. “There were only four years since 1945 when the CPI declined,” he said. “The cost of living I got more than doubled what it was in 1988.”

One way to make retirement as comfortable as possible is to begin it debt free. So we turned to a successful pro. Abraham Grungold, a recently retired fed, is now a full time financial coach. His motto, at least one of them, is “retirement with debt is a bad idea!” Here’s how explains it:

Imagine this: you are within five years of your federal retirement, and you have a considerable amount of debt from credit cards, mortgage debt, and your child’s student loans. How will your retirement be successful? Unfortunately, it is a bad idea to enter retirement with considerable debt. As you reach retirement, you will be hit with new expenses such as medical bills or purchases to spoil your grandchildren. You may want to buy a vacation home or a sailboat. Thus, to prepare for retirement, you must reduce your debt.

It is never too late to alter your spending habits. Instead of grabbing that Starbucks coffee, make a cup at home and take it with you. During the pandemic, I saved a lot of money by working from home, preparing my meals, and reducing frivolous spending. While my family did do a lot of online purchasing and food deliveries, we saved thousands. Yes, thousands! Therefore, you can do it too.

First, aim on reducing your credit card debt and mortgage debt. This can be done by living on a budget. A budget will help you to limit your spending in non-essential categories such as vacations, high-end brand clothes, and streaming services. For example, when you go to a store, ask yourself, “Why am I really purchasing item X, and do I really need it?” I would go to stores like Macy’s and Target, always feeling like I had to leave with a shirt or a pair of shoes. This is impulse buying, and while it makes you feel good, you end up with a closet full of shirts, shoes, and designer bags that you do not truly need.

To reduce your mortgage debt, you should aim to make extra payments or look into possible options for downsizing your home. If you will be an empty nester in retirement, decide how many bedrooms you need rather than want. A smaller home could eliminate your mortgage and significantly reduce your monthly living expenses such as utilities, insurance, and taxes. Additionally, switching from your home in New York City to a property in Florida could put a lot of equity in your pocket.

As a financial coach, many federal employees contact me regarding their retirement. They ask me to help them figure out when is the best time for them to retire and what steps they need to take to retire successfully. While they discuss their goals, I perform all their calculations and discuss their credit card debt, loans, and mortgages. We plan how they will spend their time in retirement and how their retirement activities will be funded. While retirement is different for everyone, there are simple steps you can take today to set your future on the right track.

Financial success can easily be achieved; it only takes a little effort.

Any questions or comments please contact me at Abraham Grungold – AG Financial Services or my Facebook page at FERS Federal Employees.

Nearly Useless Factoid

By Alazar Moges

You weigh less at the equator than you do at the north pole. The attractive force of gravity is slightly reduced because it is directed towards the center of the Earth. If you weighed 100 pounds at the north pole, at the equator you would weigh 99.65 pounds, 5.5 ounces less.

Source: NASA

Life after government: Should you stick with the TSP?

When feds leave government — either to take another job or go into retirement — one in three investors in the Thrift Savings Plan move their money out of Uncle Sam’s 401k plan. Reasons vary widely. Many go into an IRA because they find it easier to get their money faster. Others say they want more investment options, such as mutual funds that invest solely in a particular industry. Or in gold. Or even specific countries or green funds. Their complaint is that while the TSP’s C, S, I, F and G funds pretty much cover the investing waterfront, they want more targeted options.

Most of the focus on TSP investments is outgoing traffic. People leaving and taking their retirement nest egg with them. But investing (or not) in the TSP is very much a two-way street. Every year a growing number of savvy, new, feds — from postal workers, DEA agents, and congressional employees to well-heeled newly appointed federal judges — move outside money INTO the TSP. And most of these folks are smart and have done their financial homework.

The reasons for moving money INTO the TSP are obvious to many. It is well-known for having some of the lowest administration fees in the investment business. Over time, low fees can boost an account by thousands of dollars. Also, Congress designed it to be super-safe. Most members of Congress are probably in the TSP. It also has as much or more outside oversight than any other 401k plan.

A while back I got an email from a fed who said he had read columns about why TSP participants transfer out of the TSP when they leave government. He asked what his options are.

He said:

The reasons mostly mention more investment options and flexibility. When I retire, I plan to transfer my TSP account to an external firm. Why? In a word, consolidation.

I have not seen any columns that mention this.

My wife and I worked in non-federal jobs for many years before I became a federal employee. We have other retirement accounts and investments that can’t be transferred into TSP, and I would like to minimize the number of places where my retirement funds and other investments are located. Also, many investment firms decrease their fees if you can maintain minimum account balances. Consolidation can help to meet those requirements.

I don’t know if other TSP participants think about consolidation, or even have that as an option, but it is an important topic for me.

Great point. So I checked with Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board, which runs the TSP. Her response:

Your correspondent is correct – consolidating your retirement accounts makes good sense. That’s why we regularly inform TSP participants that they can roll their qualified retirement accounts into the TSP. That message seems to be resonating because participants have been rolling money in at a fairly steady pace – see the attached table. We have information on tsp.gov that provides the information participants need to see if their retirement account is eligible to be rolled into the TSP and how to do it: https://www.tsp.gov/tsp-basics/move-money-into-tsp/

We also have this scorecard to help participants make a decision about whether to move their accounts: https://www.tsp.gov/publications/tsplf37a.pdf

As background, the average FERS employee joining the government starts in their mid-30s so a lot of them have retirement accounts from their previous jobs; it’s not just high-paid lawyers or those types who are rolling their accounts into the TSP.

So how popular is the practice of bringing money into the TSP? Look at the growing rate of role-ins over the years:

Year # of Roll Ins Total $ Roll Ins
2016 28,452 $1,325,361,748.04
2017 30,265 $1,459,088,386.17
2018 29,360 $1,480,148,902.25
2019 30,135 $1,539,984,811.96
2020 33,648 $1,589,582,977.65
2021 25,871 $1,481,637,857.72
Totals: 177,731 $8,875,804,683.79

Nearly Useless Factoid

By Alazar Moges

Bowhead whales are believed to be the mammal that can live the longest. Studies suggest they can live to be over 200 years old.

Source: NOAA

New features coming to the TSP – here’s what you need to know

Nicole Ogrysko’s last day at Federal News Network was Dec. 24, 2021. Please enjoy this column from the archives, and thank you for being a loyal reader.

Federal employees and retirees might want to keep an eye on the Thrift Savings Plan over the coming year.

The agency that runs the plan is in the early stages of a massive modernization effort, one that will overhaul the systems that manage and secure the TSP on the back-end.

But the initiative will also bring some new features and benefits to TSP participants as well. The project is known as “Converge” to the employees and contractors who are knee-deep in the technical aspects of it.

But participants will know it as the project that will eventually bring them a new TSP mobile app, a mutual fund window, new security functions and a few more features that most consumers might recognize from the online banking world.

Many of these changes, especially the technical stuff on the back-end, have been in the works for years. But the Federal Retirement Thrift Investment Board has said participant feedback is informing the direction it’s taking with some of those new features.

In a recent survey of its participants, 57% of those younger than 40 said they wanted a mobile app to access the TSP. About 24% of participants over the age of 40 agreed.

Participants will still be able to access their accounts and communicate with the TSP through their online accounts, email, and the customer service phone line. But starting next summer, they’ll also have access to a new TSP mobile app, as well as a chat function and a virtual assistant powered by artificial intelligence.

“That’s going to be available to our participants 24/7, so whenever they log onto the website they’ll have access to that virtual assistant,” Tanner Nohe, the TSP’s program manager for the project, told the board at its monthly meeting last week. “It’s basically a tutorial of questions that participants might be asking.”

Live TSP customer service reps will run the chat function, and they’ll have the ability to hand off participants to other individuals who can help with more specific questions or concerns over the phone.

The TSP will also add a more features that should make it easier for participants to manage their money and interact with the plan — think more online forms and more electronic signatures.

Participants will also get the ability to digitally scan checks into the TSP, much like the feature that most banking institutions offer.

Nohe said the TSP will also offer a “concierge” service  to help participants roll money into the plan, a popular topic that often prompts questions from federal employees and retirees.

Plus, there’s an upcoming mutual fund window, which should open sometime next summer as well, the TSP said. Participants will have access to thousands of funds not usually available to them through the plan’s core five.

The plan is still designing the mutual fund window. But it will  offer a search tool so participants can filter through the funds and look through their options based on criteria that are important to them, Nohe said. The plan will also set up a dedicated contact center for participants who have mutual fund window questions.

There will be no limit on trades once participants enter the window, though some specific funds may have their own, Nohe said.

The mutual fund window has a lot of interest from both participants and members of Congress. Look for more information from the TSP in the coming months.

Beyond the mobile app and the mutual fund window, participants will see new  security protocols next year as well.

Participants may see more prompts for a one-time password, for example, to make higher-risk transactions online. The plan is adding more fraud detection and prevention tools to the online experience. Participants will be able to use their biometric data, like facial recognition or a fingerprint, to access their TSP accounts, too.

The FRTIB has said participants will start seeing these changes sometime next summer. In the meantime, the TSP will start communicating with its participants next year to prepare them for the changes.

And yes, participants will actively have to prepare.

Most importantly, participants will have to set up new log-in credentials to access their online accounts. That means they’ll have to set up a new username, password and multi-factor authentication to get into their accounts.

Those who have multiple TSP accounts, say a military and a civilian retirement account, will only need to create one new credential to access everything, Nohe said.

Ahead of the big launch, there will be a brief blackout window where participants may be unable, temporarily, to access their accounts or make certain transactions for a short period of time.

Again, the TSP is still working out all the specifics. But in the meantime, keep an eye out for more information from the plan itself starting next January or February. And of course, we’ll do our best to keep you informed here of what you need to know.

Nearly Useless Factoid

By Amelia Brust

The idea that humans typically only use about 10% of their brains is a myth but a pervasive one. In reality, most of the brain is continuously active with the majority of its energy consumed for higher cognitive functions. The rest of its energy powers unconscious activities, such as heart rate, or conscious ones, such as driving a car. These regions of the brain may not always be firing simultaneously, however, as like any muscle the brain has rest periods. The myth is commonly traced back to American psychologist and author William James’ 1907 book “The Energies of Men,” which said, “We are making use of only a small part of our possible mental and physical resources.”

Source: Scientific American

Is 2022 the start of big time inflation?

The good news is that federal, postal, military and Social Security retirees in January will be getting the largest cost of living adjustment they’ve had in years. That is also the bad news! Especially for most working feds who are under the Federal Employees Retirement System (FERS) program with its diet cost-of-living-adjustment (COLA) feature. When inflation exceeds a certain amount, FERS retirees get it, minus one percentage point. That is not so bad IF it is a rare thing. But if inflation returns to bad-old-days levels, it could quickly erode the buying power of FERS retirees. How bad is that over time?

Well if you’ve picked up the habit of eating every day, if you wear clothes in public or if you get around by trains, planes or automobiles, you’ve probably noticed prices are going up. Up for everything from basic to luxury items. Whether the big jump in prices is because of climate change, supply chain problems, lack of workers or other things, it matters a great deal to politicians, journalists and people in academia. You just want to know why after years of 2-to-3% per year inflation, the cost of living adjustment jumped in the last 12 months. The biggest increase since 1990.

People who get Social Security, retired military pay or a federal Civil Service Retirement System (CSRS) annuity are in good shape. At least compared to private sector workers whose pensions were frozen when they retired. Or they don’t have a pension, period.

The January cost of living adjustmnent for most retired feds, military and Social Security reciepents will be 5.9%. While that won’t exactly cover rising costs for everything, it will go a long way to help the seniors keep pace. But the keyword is “most.” Most current retirees are under the old CSRS system, which promises to keep up with inflation as measured by the Consumer Price Index.

So far so good. But…

Almost all current federal workers, plus a growing number of new retirees, are under the FERS program. There is a permanent battle between FERS (with its generous 5% employer match to the TSP and Social Security coverage) and CSRS retirees who start off with much higher annuities (which they help finance) than FERS retirees. The fly in the ointment for FERS employees is their diet-COLA system. Under it, FERS retirees get the same COLA as CSRS retirees UNTIL it exceeds 2%. So for example if a CSRS Social Security COLA is 6%, FERS retirees would get 5%.

Imagine the impact on a FERS annuity over a period of extended inflation

What if, as some experts project, we are entering a period of high inflation? One that lasts for years. It’s happened before. Some say it may already be happening again. Benefits expert Tammy Flanagan (Tammy@retirefederal.com) passed on a chart showing the history of cost of living adjustments since 1975. If you are under the FERS diet-COLA plan, it can be scary. The chart was prepared by the Congressional Research Service. It reflects the actual COLA that Social Security and CSRS retirees got.

Prior to 1975, Social Security benefit increases were set by legislation.

Nearly Useless Factoid

By Alazar Moges

The reason cats rub their heads against things is because they have scent glands in their cheeks, forehead and chins. Rubbing up against people, other cats and objects is a form of marking their enviroment and grouping it together with the same scent.

Source: PetMD

Air Force spouse creates Five and Thrive program to prioritize military families

The Air Force is undertaking a new program aimed at helping military families in the areas where they are hurting most.

The Five and Thrive initiative is headed by Sharene Brown, wife of Air Force Chief of Staff Gen. C.Q. Brown’, and attempts to tackle military families’ top five concerns: Childcare, education, health care, housing and spouse employment.

“My goal is to ensure these five specific areas are highlighted and any challenges under them are met with purpose and resolve, to include the unique challenges to our Exceptional Family Members Program families,” Brown said in a Tuesday release.

The Thrive team will publish a monthly Spouse Situation Report to communicate and share information with military spouses, as well as keep them abreast of policy changes and new resources.

“These actions and policies taking place at the highest levels are not always readily communicated to our spouses and families,” Brown said. “Sharing this information directly to our spouses is vital to their continued support. Military spouses are essential to the success and strength of our force and should be included in those quality-of-life discussions.”

Brown and her team will also meet with military families at bases in order to collect experiences and best practices.

The team published a guidebook, which pulls together resources for the five focus areas. It explains everything from rank structure to challenge coins for the newly inaugurated. It also shares safety tips, hints and a guide to confusing acronyms.

Kathy Roth-Douquet, co-founder and CEO of Blue Star Families, recently told Federal News Network that all of the areas Brown is focusing on are of the utmost importance to military families.

Blue Star Families conducts an annual survey, along with other smaller surveys, that gives insight into the thoughts and concerns of military families.

“We need to see more focus on childcare, in my estimation, in the work that we’ve done, I think childcare is the number one barrier for spouse employment,” Roth-Douquet said. “That then becomes one of the major barriers for military families to continue to serve and to be able to find financial security for their families. It’s also a really enormous issue for female service members.”

The most recent defense authorization bill has a handful of changes in all five of the areas. It expands the in-home childcare fee assistance pilot and authorizes seven new child development centers.

It expands paid parental leave to 12 weeks and creates a basic needs allowance for military families under the poverty line.

The bill also authorizes $50 million for local school districts with military connected children and $10 million for schools serving military children with special needs.