The Uncertainty of Public Service Retirement
As a federal employee working under the Federal Employee Retirement System (FERS) for over 17 years, I’ve watched with growing alarm as Congress repeatedly targets our retirement benefits. Reading Dave Ramsey’s warnings about retirement planning struck a chord with me, but our situation as federal workers brings additional complexities and concerns that private sector employees don’t face.
Like many of my colleagues, I chose government service partly because of its retirement security. I accepted a lower salary than I could earn in the private sector, with the understanding that a stable retirement system would eventually compensate for that sacrifice. Now, that bargain appears increasingly fragile as Congress considers various “reforms” that would effectively reduce our deferred compensation.
The Federal Retirement System Under Threat
Unlike most private sector workers who rely solely on Social Security and their 401(k) plans, federal employees under FERS have a three-legged retirement stool:
- A modest defined benefit pension
- Social Security
- The Thrift Savings Plan (TSP)
Recent congressional proposals would significantly undermine this system by increasing our mandatory contributions while reducing benefits. Some legislators have proposed:
- Increasing employee contributions to the pension by up to 4.4%
- Basing pensions on the highest five years of salary instead of three
- Eliminating the supplement for those who retire before age 62
- Reducing or eliminating cost-of-living adjustments
Fedweek: House Panel to Vote on Raising Required Retirement Contributions while Lowering Benefits
These changes would effectively constitute a significant pay cut for current employees and break promises made to those of us who have devoted careers to public service.
TSP vs. 401(k): Not Quite The Same Game
When Dave Ramsey discusses 401(k) plans, many principles apply to our TSP, but there are crucial differences that make our situation unique:
Similarities:
- Both are tax-advantaged retirement vehicles
- Both offer traditional (pre-tax) and Roth (after-tax) contribution options
- Both typically include employer matching contributions
Key Differences:
- The TSP has significantly lower fees (typically under 0.06%) compared to many 401(k) plans that charge 1% or more.
- TSP investment options are limited to five individual funds and lifecycle funds
- Federal employees don’t receive the higher private sector salaries that enable larger contributions.
- TSP has unique rules regarding in-service withdrawals and loans
- TSP is integrated with our federal pension in a way private 401(k)s aren’t
While Ramsey correctly highlights the benefits of Roth accounts (which TSP now offers), federal employees face additional considerations when allocating between traditional and Roth options, given our pension income in retirement.
Ramsey’s Warning Applied to Federal Employees
Ramsey’s concern that “32% of American workers report the total value of their savings and investments to be less than $25,000” is equally relevant to federal workers. Despite having access to TSP, many of my colleagues haven’t maxed out contributions or made strategic investment choices. With pension benefits under threat, relying more heavily on TSP becomes increasingly critical.
His point that 44% of people “guess” when making retirement planning decisions resonates strongly. As federal employees facing potential benefit reductions, we cannot afford to guess. We need to be especially proactive in managing our TSP accounts and overall retirement planning.
The Path Forward for Federal Employees
Congress seems determined to shift more retirement risk onto individual federal employees, moving away from the defined benefit model toward greater reliance on TSP. This mirrors the broader economic shift Ramsey describes, but it’s particularly troubling when it represents a unilateral change to employment terms mid-career.
As federal employees, we need to:
- Maximize TSP contributions when possible
- Consider the appropriate balance between traditional and Roth TSP
- Engage collectively through employee organizations
- Plan for potentially reduced benefits
- Educate elected officials about the importance of honoring commitments to public servants
Conclusion
The retirement landscape for federal employees is changing, and not for the better. While Dave Ramsey’s advice on being intentional about retirement planning is sound, federal workers face unique challenges as Congress continues targeting our benefits.
Those of us who chose careers in public service did so accepting modest salaries in exchange for retirement security. Changing those terms retroactively isn’t just bad policy—it’s a breach of trust that will ultimately harm the government’s ability to recruit and retain talented employees.
For now, I’ll continue maximizing my TSP contributions, balancing traditional and Roth options, and hoping Congress recognizes the value of keeping its promises to those serving the public.
