FERS Three-Legged Stool
Have you ever heard of the FERS Three-Legged Stool? Maybe you have heard the term flying around in office chit-chat or from some fellow employee trying to share his wisdom with you. If you don’t know what it is, don’t worry, as we are here to explain everything there is to know about it.
The “three legs” of the “FERS stool” are the foundation of the generic FERS retirement plan. You can think of each of the three legs as one of the three streams of the FERS retirement income. To be more specific, think of the first leg as the FERS pension, the second leg as the Social Security, and the third leg representing the Thrift Saving Plan (TSP).
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Finding the Right Seat
Some people think that they will be able to spend their lives without many problems by entirely relying on Social Security benefits after retirement. That is a gross misconception. In reality, you can say that such people are doomed to live their days in borderline poverty. In other words, they have a very thin blanket protecting them from the harsh chilly storms of poverty.
As we have stated, Social Security is one of the legs of our stool. But can you imagine sitting comfortably on a stool with just one leg? It would be quite impossible to do so.
You can have a comfortable life after retirement only if you act as an active participant in planning your retirement. As a FERS employee, it is of utmost importance that you adequately fund your TSP. Those who ignore nourishing their TSP often find themselves in a situation that’s akin to balancing on a bike with two wheels that is not moving at all.
During the post-war era, people thought of retiring as late as possible. This trend has now changed. Nowadays, people want to retire earlier. This trend is expected to compound on itself in the upcoming years. Given that there have been significant improvements in the eldercare field and the life expectancy has also increased, there is no reason why this trend won’t move forward.
Design Improvements
Now let’s focus on improving the design of our three-legged stool. What can we do to make our seats even more comfortable after retirement? This first design improvement would include adding a tax-free bucket to our design. You can also think of this tax-free bucket as the fourth leg of our retirement stool, making it even more stable. We can agree that economic scenarios can change drastically within a short time frame. No one can predict the tax regime 15 years from now. For this reason, you should make sure that all your investments are well protected from such unpleasant changes in tax policies.
The fourth leg of our stool represents collaborative strategies adopted for benefiting from tax-free returns on our investments. In building this fourth leg, we can also say that we used a composite wood that includes Roth TSP, Roth IRA, and cash value Life Insurance.
Because our national debt crisis is compounding and the politics might take a complete U-turn on tax policies, it is highly recommended that you add this fourth leg to the stool.
Adding the Chair Back
Till now, we have understood the concept of the three-legged stool, and we have also added a fourth leg to provide more stability. What if we can further improve the design by adding a chair back? In this section, we will do precisely that.
The chair back represents a comprehensive insurance cover for you and your family to safeguard against any mishaps or unfortunate incidents. The primary purpose of buying insurance products is to create a flow of high-level emergency funds in case of an emergency. It is a known fact that the lack of proper health insurance causes most bankruptcies in the United States. For this reason, it is in your best interest to stay covered.
There are different types of policies available in the market, and mainly, they are designed to safeguard you against a particular kind of situation. For example, Federal Long Term Care Insurance Program (FLTCIP) provides you the benefits of providing coverage for long-term nursing care, Federal Employees’ Group Life Insurance (FEGLI) safeguards your family in case of your death, and Short Term Disability Programs provide coverage against work-related injuries. In most cases, these policies can be utilized only for the specific purpose for which they were designed.
There are also life insurance policies that utilize living benefits. Such policies are also called flexible policies as they can be used for other purposes.
Adding Comfort
So now we have added stability and a chair back to our stool. Next, we will add some comfort to it. Let’s say we add a nice cushion to make it a more comfortable seat.
The best way to add comfort to our retirement stool is with investments. You must always make sure that your TSP contributions match that of the government. Failing to do so will mean that you let go of easy money.
With TSP Catch Up contributions, an employee becomes eligible after 50 years of age, and you can add even more cushioning. You can even add IRA and make your FERS retirement stool the best and most comfortable retirement stool.
It might sound like it’s pretty simple, and this is something that you can easily do. But the fact is that it’s easier said than done. To actually stick to this design, we need to be emotionally invested in it. We need to empower ourselves with actual financial knowledge to make our investments work in our favor and towards the fulfillment of our dreams. It would help if you understood that delayed gratification is better than instant fun. For example, if you think that it’s in your best interest to have an extended vacation, then you are wrong. You must understand that a comfortable retirement will be the best vacation you can ever have.
Many people think that retirement means sitting duck for the rest of their lives — that is wrong. Even if you have the most comfortable stool with the best possible stability, you won’t be happy if you keep sitting in it till you cannot move. Retirement is not like a nursing home. It is more like a vacation to pursue your passions and work towards your dreams. There is no point in clocking out after retirement. Instead, you should keep yourself up by getting indulged in all the pleasures of life that you missed out on while working so hard.
Understand that retirement fulfillment will not come from a bank account — it will come from your own heart. The point of financial independence is not to become inactive but to have the freedom to do as you desire.
Contact Information:
Email: [email protected]
Phone: 6232511574
Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.
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