Feather Your Nest Egg
With Congress sniffing at civil service and Social Security benefits, federal workers who don't adopt a do-it-yourself savings plan may spend their golden years in a rented room dining on markdowns from the dented-can section of the supermarket.</br></br>A General Accounting Office report in the works will warn that many feds no longer can count on civil service retirement benefits to provide them with an income that will even begin to maintain their current standard of living.</br></br>The study, requested by Rep. Constance A. Morella (R-Md.) and Del. Eleanor Holmes Norton (D-D.C.), looks at the "replacement rate" of income that federal retirees can expect. Many financial planners say retirees will need replacement income ranging from 60 percent to 80 percent of their final salary to live comfortably. The idea is that retired people still eat, wear clothes, take vacations and buy cars.</br></br>Most workers hired since the mid-1980s are under the new Federal Employees Retirement System, or FERS. Those hired before are under the old Civil Service Retirement System, or CSRS. CSRS provides a benefit that was indexed to inflation and based on the employee's salary and length of service. Workers retiring at 55 with 30 years of service will get a starting retirement benefit equal to just over 53 percent of their final salary. Civil service benefits are less generous under FERS because employees also qualify for Social Security.</br></br>Both plans have an optional Thrift Savings Plan. It permits workers to invest pretax income in stock, bond or Treasury funds. The Treasury fund (G-fund) is unique. It is guaranteed by the government and has returned 7 percent to 9 percent annually since inception. Both the stock and bond funds have outperformed the G-fund over time, but both are subject to market pressures, and they are not guaranteed like the G-fund.