Federal Government Plan

The Federal Employees Retirement System, or FERS, offers a secure three-legged retirement-planning stool for civilian employees who meet certain service requirements:

A basic defined benefit plan
Social Security
The Thrift Savings Plan, or TSP
Only two of these are portable if you leave government work – Social Security and TSP, the latter of which is also available to members of the uniformed services. The TSP is a lot like a 401(k) plan on steroids. Participants choose from five low-cost investment options, including a bond fund, an S&P 500 index fund, a small-cap fund and an international stock fund — plus a fund that invests in specially issued Treasury securities.

On top of that, federal workers can choose from among several lifecycle funds with different target retirement dates that invest in those core funds, making investment decisions relatively easy.

Pros: Federal employees are eligible for the defined benefit plan. Plus they can get a 5 percent employer contribution to the TSP, which includes a 1 percent non-elective contribution, a dollar-for-dollar match for the next 3 percent and a 50 percent match for the next 2 percent contributed.

“The formula is a bit complicated, but if you put in 5 percent, they put in 5 percent,” says Littell. “Another positive is that the investment fees are shockingly low – four hundredths of a percentage point.” That translates to 40 cents per $1,000 invested – much lower than you’ll find elsewhere.

Cons: As with all defined contribution plans, there’s always uncertainty about what your account balance might be when you retire.

What it means to you: You still need to decide how much to contribute, how to invest, and whether to make the Roth election. However, it makes a lot of sense to contribute at least 5 percent of your salary to get the maximum employer contribution.