Hey everyone, it’s Finance Fridays again. I’ve noted before that I work for the Federal Government, I’ve talked before about How to Value a Pension. However, today I wanted to go into some of the benefits of being a federal employee that people may not know about. So today, let’s talk about “Federal Government Benefits“.
Stock Photo from: Pixabay
Federal Government Benefits
You may be asking yourself, why are you writing this article… and why is it Finance Fridays. Well, as I’ve said before, I work for the Federal Government and while I had some idea of the benefits available to me, I didn’t really understand it until I had already been on the job for a few years. In fact, one of my colleagues didn’t even know we had a pension!
For this reason I felt it was good to go over the benefits available to Federal Employees. This may help people who are “on the fence” about working in a government position as a physician to better compare things. Like I’ve said before, it’s not just Salary X versus Salary Y. You really have to understand the nitty-gritty behind everything. I’ve talked about this before in my job posts:
Let’s start…
First of all, I want to clarify that the benefits have changed slightly over the years, so they may be different for those who were in the system awhile ago. This is mostly due the changes in the Civil Service Retirement System (CSRS) and transition into (Federal Employees Retirement System) FERS. From my understanding, anyone newly entering the system will only be able to use FERS. However, those who had previous military service under CSRS may have the ability to use some kind of mixed CSRS/FERS if they were to take a federal job. That is outside the scope of this blog post though.
I’ve spoken about the benefits of the pension a few times:
The most direct post was my How to Value a Pension post with other references sprinkled throughout the Finance Fridays blogposts.
I still believe that having a pension is one of the best benefits that having a government job provides. Additionally, because pensions are so uncommon nowadays, they may be undervalued by most. Of course, a pension is not “free”. You are paying into the pension through a certain percentage of your salary going to the pension fund each year. However, because doctors are reasonably well-paid, this is one of those things where you never had it so you never felt it.
I’ve talked about The Checklist:
- Credit Card Debt
- Student Loan Debt
- 401k/403b
- 457 (if available)
- Backdoor Roth IRA
- Taxable Account
- Other Investments
This list is order of importance, on purpose. However, if you are a government employee, you essentially have access to another form of saving for retirement by utilizing the pension. The pension doesn’t even fit into this “checklist” because it’s automatic, it’s money you never see and therefore never even knew you had.
Also, remember that some states don’t tax a federal pension (like Hawaii, for example). While it may not seem like a huge deal, it is a little bit of extra money to maximize your retirement.
I know about the pension, what about other benefits?
Survivor Annuity Election
Well, I’ve spoken about it before, but there is also a survivor annuity election. The way it works is that before you retire, you can elect to exercise a survivor benefit option for your pension. In general, you take a penalty on the front end, like 10% or 20% of your benefit.
For example, if your benefit was going to be $50,000 a year, you would take a 10% penalty on it. This would change your benefit to $40,000 a year. However, in the event of your untimely death, 50% of your benefit would transfer to your spouse until his/her death, which in this case would be $20,000. This is kind of a morbid calculation, but you have to take into account the life expectancy of you versus your spouse in order to maximize your benefit. This would also alleviate concerns about “not having enough” in retirement for your spouse if you were to die prematurely.
The survivor benefit may not work out for everyone, but having the option is nice — and something not many people know about/understand.
Flexible Savings Account/Health Savings Account
In general, utilizing the FSA (for dependent care in my case) and HSA is easier when you work for the federal government. I’ve gone through it in prior posts, but it’s pretty easy to submit your claims through FSAFEDS and receive your reimbursement. In fact, it’s gotten slightly easier since I started doing it in 2014.
Life Insurance (FEGLI)
Although I advocate that physicians carry their own Life Insurance, it’s nice that the Federal Government also provides its own life insurance benefit. In general, it is one year of annual salary as the basic benefit, with an option to increase that to ~ 1.75x of a year if you add an additional benefit.
It’s not a ton, but it’s nice to have, and since the government pays 2/3 and you pay 1/3, it makes sense to utilize it.
Disability Insurance
Once again, I advocate that physicians carry their own Disability Insurance. However, the Federal Government does provide its own disability coverage, although it’s not technically considered “insurance”. It has its own internal evaluation of disability, which I don’t really understand very well. However, there is some verbiage that seems to “suggest” an own-occupation type of coverage:
“You must, while employed in a position subject to the retirement system, have become disabled, because of disease or injury, for useful and efficient service in your current position.” (emphasis mine) — You can read more here: Disability (OPM.gov)
Health Insurance
As a federal employee, you are enrolled in Federal Employees Health Benefits (FEHB). In general, you are given choices as to which plan you would like to use based on the area you are working in. However, something that I think goes under the radar is:
FEHB for Retirees and Survivor Annuitants
“Federal retirees and their surviving spouses retain their eligibility for FEHB health coverage at the same cost as current employees.” (emphasis mine)
This is kind of nice because then you don’t have to worry too much about changing plans when you retire. Then when you turn 65, you will likely utilize Medicare as the primary payer with FEHB as a secondary payer. It’s one less thing to worry about in retirement.
Phased Retirement
Phased Retirement is an interesting option available to federal employees. It is relatively new, having only started in 2014. Honestly, I don’t understand it 100% right now since my potential retirement is so far off. However, from my very limited understanding, you submit an application and you will receive partial annuity payments and go into a “partial retirement”. However, the requirements to do this may be kind of difficult for doctors to fulfill:
For FERS employees, participation is limited to those persons:
- Eligible for an immediate retirement with at least 30 years of service, and
- Who have attained their minimum retirement age (between ages 55 and 57 depending on year of birth) or who have at least 20 years of service and who are at least age 60.
I’m not sure I’ll make it all the way to 30 years of service in order to utilize this option, but it’s kind of nice to know it’s there.
Thrift Savings Plan
This one is kind of underrated. I think the Thrift Savings Plan Funds are probably one of the best options available with the expense ratios sitting around 0.032% and 0.033%. However, they are only available to Federal Employees. For those interested, you can go here:
I’ve already listed how I allocate my TSP on a prior post here: My Portfolios for 2018
Also, it’s worth mentioning again that there is an employee match. It’s not a 100% match, as it uses some formula based on your salary. However, it is free money.
I see…
The point of this post is not to tell all doctors to go become government employees and that is the best option. The point I am trying to make is that there is a lot you need to understand when it comes to your job as look toward your future. Being a government employee has a lot of “set it and forget it” options available to you to make saving for retirement relatively stress-free. Of course, in general, this comes at the cost of making less than what you could potentially make if you were in private practice.
Sometimes its hard to understand the benefits in front of you (annual salary) versus on the backend (pension, retirement benefits, etc.)
Just remember — the money has to come from somewhere.
TL;DR
Federal Government Benefits probably aren’t well understood.
I’ve outlined them here( as I understand them) for people to see since the opm.gov site is so daunting.
My goal is not to push everyone into federal government jobs. I just want people to really look in depth at jobs as they compare them.
Sometimes its hard to understand the benefits in front of you (annual salary) versus on the backend (pension, retirement benefits, etc.)
The money has to come from somewhere.
-Sensei
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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