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The Federal Employee Service
Center“Serving Federal & Government Employees”
TSP Federal Employee Service Center 2012
Welcome “AIM Members!”
Our Purpose
To provide all Federal and Government employees with the necessary information concerning their federal benefits and retirement planning.
Our Objective
To give Federal and Government employee a better understanding of their current benefits and provide individualized information and tools to help them achieve financial success.Federal Employee Service Center
2012
THRIFT SAVINGS PLAN
The TSP is a “DEFINED CONTRIBUTION PLAN” for federal
employees that allows you to save pre-tax dollars in a Retirement account. You get to choose how to invest
thosedollars – but your choices are limited.
Federal Employee Service Center 2012
Your contributions to your TSP account are optional. Theyare separate from your FERS or CSRS pension. While youreceive a fixed amount from your FERS or CSRS Pension;
The amount of money you get from your TSP will dependon:
How MUCH you put in How WELL YOU manage it.
Federal Employee Service Center 2012
TSPRoth
TSP
MAJOR FEATURES
• Pre & After Tax contributions• TSP Roth (NEW)• Tax Deferred Growth • Automatic agency contributions*• Matching agency contributions*• Choice of Investments• Inter-Fund transfers• Loan Program • Spouse Protection
* FERS only
Federal Employee Service Center 2012
ROTH TSP
No Income Restrictions
All TSP Participants Eligible
Different Contributions Limits
ROTH IRA
‣ Income Restrictions
‣ Contribution Limits
‣ Withdrawal Restrictions
Federal Employee Service Center 2012
Roth TSP is NOT a Roth IRA
Federal Employee Service Center 2012
How “TSP ROTH” works
‣ Current Balance in TSP will not count / Can not Convert!
‣ Combined contributions ( Plus “Catch –Up”) can not exceed Limit
‣ Any contributions will apply to both TSP & TSP ROTH
‣ You can transfer 401K ROTH, 403(b) ROTH, and 457 ROTH in TSP ROTH
‣ Still Able to take Loans, In-Service Withdrawals, and Partial Withdrawals.
‣ Withdraw TSP ROTH account to IRA’s
Federal Employee Service Center 2012
Who is eligible to take advantage of Roth TSP?
ParticipantGroup
New Roth Contributions?
Roth Transfers into TSP / Eligible Plans
Active Employees
FERS CSRS Uniform Services
YES YES YES
YES YES YES
Separated Empl’sRetireesBeneficiary participants**
NO NO NO
YES YES NO
* Roth Earnings will be Tax-Free IF 5 years have passed since January 1 of the year you made your first Roth contribution AND you are age 59½, permanently disabled, or deceased.** Beneficiary participants may not add new Roth contributions to their accounts, but their accounts may contain Roth contribution made by the deceased spouse
Federal Employee Service Center 2012
The Treatment of…
Traditional TSP Roth TSP
Contributions Pre-Tax After-Tax
Your PaycheckTaxes are deferred, so less money is taken out of your paycheck.
Taxes are paid up front, so more money comes out of your paycheck.
Transfers InTransfers allowed from eligible employer plans and traditional IRAs
Transfers allowed from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s
Transfers Out
Transfers allowed to eligible employer plans, traditional IRAs, and Roth IRAs2
Transfers allowed to Roth 401(k)s, Roth 403(b)s, Roth 457(b)s, and Roth IRAs
Withdrawals Taxable when withdrawn
Tax-free earnings IF five years have passed since January 1 of the year you made your first Roth contribution, AND you are age 59½ or older, permanently disabled, or deceased
Federal Employee Service Center 2012
If you transferred money to your TSP Roth balance from a Roth account maintained by
another employer plan, the 5-year clock begins on January 1 of the year your first contribution
was made to your TSP Roth balance or, if earlier, January 1 of the year you made your first contribution to the Roth account of the
other employer plan
IMPORTANT!
CONTRIBUTIONSMaximum Annual Contribution for 2012 has been reconfirmed as $17,000 per IRS §402 (g).
Federal Employee Service Center 2012
CSRS /Offset
•No Government Contributions(No Matching)•Always vested in all the money in their accounts
FERS •Government Contributions (Matching)•Vesting Schedule
VESTINGYou are always vested in your own contributions
including:any matching contributions, Catch-up contributions, and any earnings that you have accrued.
Most FERS Employees become vested in agency automatic contributions and earnings after three years.
FERS Employees in Congressional & certain Non-Career positions vest in two years.
Leave Government before vesting - agency automaticcontributions and it’s earnings will be forfeited to the TSP.
Death - Automatically vested in all the money in TSP.Federal Employee Service Center 2012
CATCH-UP►Must be 50 years of age (min) or over during the
current calendar year.
►Must be contributing the maximum amount.
►Invest up to $5,500 in 2012. Subsequent years after
will be indexed to inflation.
►No waiting period / Form TSP-1-C (Civilians) TSP-U-1-C (Uniformed Services). (TSP ROTH )
►Able to change, stop, or restart at any time!
►You MUST make a new election each calendar year if you want to continue your catch-up contributions.
►No Agency matching!Federal Employee Service Center 2012
INTER-FUND TRANSFERS
You can transfer money from one fund to another in the TSP (Must be received by 11:00am/About 2 days). Limited to two inter-fund transfers in a month!
Additional transfers allowed only to move in G Fund until the first day of the next calendar month.
Transfers are confirmed by TSP record keeper any errors must be reported within 30 days of notice.
Federal Employee Service Center 2012
IN-SERVICE WITHDRAWALS
Federal employees who are currently working for thegovernment have an opportunity to make in-servicewithdrawals from their TSP account. There are twoprograms available:
AGE BASED: A one-time lump sum withdrawal for participants who are 59 ½ or older.
HARDSHIP: Financial hardship withdrawals for participants who can demonstrate financial hardship.
Federal Employee Service Center 2012
AGE BASED WITHDRAWALS
Employees who are 59½ or older, can make an AGE-BASED WITHDRAWAL, a one-time withdrawalof all or any portion of their vested TSP accountbalance. The withdrawal is without interruption tothe contributions you make to your TSP account.
Age based withdrawals are subject to a mandatory20% federal income tax withholding unless the fundsare transferred directly from the TSP to a qualified account (IRA or 401(k).
Participants cannot repay the funds or convert it to aloan.
Federal Employee Service Center 2012
FINANCIAL HARDSHIP WITHDRAWALS
There is no age limit for FINANCIAL HARDSHIP withdrawals, but the participant MUST demonstrate a hardship.
Employees can withdraw all or any portion of their vested TSPaccount balance. However, employees cannot withdraw lessthan $1,000.
Financial hardship withdrawals are subject to an earlywithdrawal penalty of 10% if taken prior to age 59 ½.
Participants cannot repay the funds or convert it to a loan.
Employees who take a financial hardship loan are ineligible to
continue investing in the TSP for six (6) months following the
disbursement of the withdrawal. However, during that time the
1% agency contribution does continue.Federal Employee Service Center 2012
TSP
Loan Purposes:
* Purchase of a Primary Residence
* Education Expenses
* Medical Expenses
* Financial Hardship
Federal Employee Service Center 2012
Terms of Loans:
1) Residential is 1 to 15 years
2) Non-residential is 1 to 5 years
3) Payroll deductions 4) A Personal Check
Federal Employee Service Center 2012
LEAVE YOUR TSP ALONE!
IT IS NOT A GOOD IDEA TOBORROW AGAINST YOURRETIREMENT FUND!
Most people are worried if they are savingenough for retirement. Borrowing from what
youhave already saved only sets the bar higher.
Instead . . .Federal Employee Service Center 2012
Develop an Emergency Fund
If you don’t have one already you shouldestablish an adequate emergency fund. Itshould be separate from your checking
account:
1. In a place that’s safe2. Be completely liquid3. Be funded systematically
You should keep a minimum of 3 months income, preferably 6 months readily accessible.Federal Employee Service Center 2012
HOW MUCH YOU SHOULDHAVE IN YOUR EMERGENCY FUND?
Federal Employee Service Center 2012
A SINGLE WORKER WITH NO
KIDS
A TWO INCOME FAMILY WITH KIDS
A ONE-INCOME FAMILY
A SELF EMPLOYED
COUPLE WITH KIDS
3 MONTHS 3 – 6 MONTHS 6 - 9 MONTHS 9 – 12 Mths
THESE FIGURES ARE A SUGGESTION ONLY.
Federal Employee Service Center 2012
INVESTMENT OPTIONSYou may invest in:
G FUND F FUND
C FUND S FUND I
FUND
or the L FUND “Lifecycle Funds” in any combination.
TSP FUNDS ARE ON AUTOPILOT
You might be surprised to know that Blackrock Institutional Trust Company, N.A. is the company that
handles the TSP funds – not the Federal Government.
But even though Blackrock handles the money, the funds are really on autopilot. Unlike some mutual funds,
there is not a person or team of people managing the TSP
funds to get the highest return.
The funds are designed replicate a specific financial index. The goal of each fund is NOT to make the most money. Instead the goal of each fund is to make the same return as a certain index. The exception to this is the ‘G’ Fund.
Federal Employee Service Center 2012
FUNDS - INDEXES FUND DESCRIPTION INDEX
G Special short-term U.S. None Treasury securities issued
specially to the TSP
F Mix of government , mortgage- Barclay’s Capital U.S. backed, corporate & foreign Aggregate Bond Index
government sectors of the U.S. bond market
C Large capitalization U.S. S&P 500 Index
stocks
S Mix of small & Mid Dow Jones U.S. Completion capitalization U.S. stocks TSM Index
I Mostly large capitalization MSCI EAFE indexforeign stocks
Federal Employee Service Center 2012
LIFECYCLE FUNDSThe Lifecycle Funds are funds that are invested in the
variousregular funds (G, F, C, S and I).
The “L” Funds are allocated based on the expected withdrawal date of the participants, and are adjusted quarterly to becomemore conservative as the participants reach their desired withdrawal dates.
The L Funds are designed to provide the best possible return forthe least amount of risk based on the withdrawal date and notnecessarily the retirement date.
Federal Employee Service Center 2012
NOTE: THESE FUNDS CAN POST LOSSES
The L Funds below are listed from most conservative to most aggressive based on today’s allocations FUND ANTICIPATED WITHDRAWAL TIME
FRAMEL Income Those currently making withdrawal
or who expect to begin makingwithdrawals relatively soon fromthe TSP
L2020 Now thru 2024L2030 2025 thru 2034L2040 2035 thru 2044
L2050 2045 or Later (opening 01/31/2011)
Federal Employee Service Center 2012
CONSERVATIVE
AGGRESSIVE
Federal Employee Service Center 2012
AVERAGE OVER THE LAST 12 MONTHS
C FUND 9.26%
F FUND 7.31%
S FUND 1.01%
I FUND (11.61%)
G FUND 1.7% SAVINGS ACCT 1.6% to 2.02%
MONEY MARKET .85 %
EE BONDS .6% - 1%Federal Employee Service Center 2012
Average Annual Returns (As of 12/2011)
L Inc. L 2020 L 2030 L 2040 L 2050 G F C S I
1-YR 2.23% 0.41% (0.31%) (0.96%) 2.45% 7.89% 2.11% (3.38%) (11.81%)
3-YR 5.48% 9.78% 11.16% 12.19% 2.75% 6.86% 14.17% 18.91% 7.73%
5-YR 3.29% 1.77% 1.30% .75% 3.37% 6.62% (0.20%) 1.82% (4.51%)
Inception Date
4.08% 3.97% 3.81% 3.63% (3.81%) 5.86% 7.12% 9.23% 6.11% 2.79%
8/1/05 8/1/05 8/1/05 8/1/0 1/31/11 4/1/87 1/29/88 1/29/88 5/1/01 5/1/01
Federal Employee Service Center 2012
Federal Employee Service Center 2012
Year G Fund F Fund C Fund S Fund I Fund
2002 5.00% 10.27% (22.05%) (18.14%) (15.98%)
2003 4.11% 4.11% 28.54% 42.92% 37.94%
2004 4.30% 4.30% 10.82% 18.03% 20.00%
2005 4.49% 2.40% 4.96% 10.45% 13.63%
2006 4.93% 4.40% 15.79% 15.30% 26.32%
2007 4.87% 7.09% 5.54% 5.49% 11.43%
2008 3.75% 5.45% (36.99%) (38.32%) (42.34%)
2009 2.97% 5.99% 26.68% 34.85% 30.04%
2010 2.81% 6.71% 15.06% 29.06% 7.94%
2011
2.45% 7.89 2.11 (3.38) (11.81)
10 YEARCOMPOUN
D3.96% 5.84% 2.94% 6.76% 4.72%
10 YR SUMMARY OF FUNDS
HOW MUCH SHOULD I PUT IN MY TSP?
For most people, it makes sense to contribute at
least the “Maximum Amount” that your Agency
will match. Your TSP match is the closest thing you’ll get to Free money. Another way to
look atit is that you are putting in $1, and the agencygives you another $1.
YOU JUST DOUBLED YOUR MONEY!
CSRS Employees should also contribute to the
TSP, even though you don’t get a match.
Federal Employee Service Center 2012
DOUBLED YOUR MONEY!
TSP Matching for FERS
Federal Employee Service Center 2012
Agencies are required to contribute an amount equal to 1% of a FERS employees Basic Pay, regardless of their participation in the TSP.
Agencies are also required to match the first 5% of employee contributions.
Employee Contribution
Agency Automatic
Contribution
Agency Matching
Contribution
TotalContribution
0% 1.0% 0% 1.0%
1% 1.0% 1.0% 3.0%
2% 1.0% 2.0% 5.0%
3% 1.0% 3.0% 7.0%
4% 1.0% 3.5% 8.5%
5% 1.0% 4.0% 10.0%
WHAT IS YOUR RISK TOLERANCE
The key is to know yourself! How are you going to react if for example in aShort period of time your investment lost:
Would you have the emotional fortitude to stick to your long-term commitment and ride it out?
Federal Employee Service Center 2012
20%
50%
It was Will Rogers who once said . . .
“I am more interested in the
return of my money than the
return on my money!”
Federal Employee Service Center 2012
Federal Employee Service Center 2012
TSP
Goals for Investment
1. Strategy
2. Minimum Risk
3. Preservation of Principle
Federal Employee Service Center 2012
WHAT’S THE BEST TSP ALLOCATION?
Sometimes it can be difficult to get your Federal retirement planning questions answered. Questions about how your Federal benefits apply to your particular situation.
You probably know that your agency’s HR department can’t give personalized recommendations. They can tell you aboutyour benefits – but they can’t tell you what is the best option for you.
Federal Employee Service Center 2012
WHICH FUNDS ARE RIGHT FOR ME?
Equal Distribution
G FundF FundC FundS Fund I Fund
Federal Employee Service Center 2012
20%G Fund
20%C Fund
20%S Fund
20%I Fund
20%F Fund
Note: Hypothetical Example. Investment percentages shown are for illustration purposes only and not intended as investment advice
Rule of 100 Subtract your age from 100
Your MAXIMUM RISK exposure should not be greater than the difference between your age and 100.
For Example:
A person age 30, (100 – 30 = 70) no more than 70%
of your money should be at risk.
A person age 50, (100 - 50 = 50) no more than 50%
of your money should be age risk.Federal Employee Service Center 2012
25 Year Old ALLOCATIONusing “Rule of 100”
C, S, I FUNDSG, F FUNDS
G, FFunds
75%
25%
Federal Employee Service Center 2012
C, S, I Funds
Note: Hypothetical Example. Investment percentages shown are for illustration purposes only and not intended as investment advice.
SAFE
AT RISK
35 Year Old Allocationusing “Rule of 100”
C, S, I FundsG, F Funds
Federal Employee Service Center 2012
C, S, I Funds
65%
G, FFunds35%
Note: Hypothetical Example. Investment percentages shown are for illustration purposes only and not intended as investment advice
SAFEAT RISK
45 Year Old Allocationusing “Rule of 100”
C, S, I FundsG, F Funds
G, FFunds
Federal Employee Service Center 2012
C, S, IFunds
45%55%
Note: Hypothetical Example. Investment percentages shown are for illustration purposes only and not intended as investment advice
SAFE AT RISK
45 Year Old Allocationusing “Rule of 100”
SAFE
C FUND
S FUND
I FUND
G FUND
F FUND
25%
20%
10%
25%20%45%
Federal Employee Service Center 2012
Note: Hypothetical Example. Investment percentages shown are for llustration purposes only and not intended as investment advice.
AT RISK
(exploded view)
55 Year Old Allocationusing “Rule of 100”
C, S, I FundsG, F Funds
C, S, IFunds
45%
Federal Employee Service Center 2012
G, FFunds
55%
Note: Hypothetical Example. Investment percentages shown are for illustration purposes only and not intended as investment advice
SAFE AT RISK
Your TSP Retirement ChoicesFederal Employee Service Center 2012
POST SERVICE WITHDRAWALS
On separation from Federal Service, you become eligible to withdraw your TSP. You may choose:
1. Leave your money in the TSP
2. Take monthly TSP withdrawals
3. Annuitize your TSP
4. Transfer your TSP money into an IRA
Any combination of these withdrawal options.Federal Employee Service Center 2012
In 1935 when President Franklin D. Roosevelt signed OASDI into law, few people lived morethan 5 years inretirement.
Things have
changed!Federal Employee Service Center 2012
How many of you know that the tax law for Social Security recipients changed in 1984?Single
s• MAGI
over $25,00
0
Couples
• MAGI over
$32,000 50% OF
SOCIAL SECURITY
INCOME TAXABLEFederal Employee Service Center 2012
The Budget Reconciliation Act of 1993 added another bracket:
Singles
• MAGI over
$34,000
Couples
• MAGI over
$44,00085% of
Social Security Income
Taxable
Federal Employee Service Center 2012
$1 of excess income from:
Can trigger income tax on as much as 85¢ of each $1 of your Social Security Income.
Wages, PensionsTax-Exempt Bonds, Bond Funds Interest Earnings on CD’s Savings Accounts Money Market Accounts Royalties, Dividends
Federal Employee Service Center 2012
At age 65 your life expectancy is
85If you reach age 85 . . . chances are youwill live another 6.9 years.
Many people will be spendingas much time in retirement as
They did in the workforce.Federal Employee Service Center 2012
!
Too often people fail to address retirement needs untilThey are nearing retirement. Then they discover that theyMust adjust their expectations for the reality of their situation. The better approach is to begin thinking about how
muchmonthly income you think you will need to live on in Retirement as early as possible. Doing so will allow youto set an asset accumulation goal and calculate withreasonable accuracy how much you need to save. Be sure to take into account:
Federal Employee Service Center 2012
Government Pension Social Security Any Other Sources of Income
$12,809.50
$4,641.40
$2,39276
$1,306.00
$747.45$438.73
$261.21 $156.82
Years until Retirement
5 10 15 20 25 30 35 40
This chart dramatically illustrates how much money you must put away MONTHLY to reach $1M – depending on the number of years until retirement. The sample figures assume a 10% annual rate of interest
Federal Employee Service Center 2012
2010 2015 2020 2025 2030 2035 2040$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$50,000 $58,246
$67,851 $79,041
$92,075
$107,260
$124,948
This means that a person needing $50,000 in 2010 to cover living expenses would require approximately $92,000 in 2030 and $125,000 in 2040, just to maintain the same purchasing power.
Federal Employee Service Center 2012
+30 years
Since 1900, inflation has averaged an annualized rate of 3.1%*
* based on U.S. Bureau of Labor Statistics Consumer Price Index from 1900-2008
65
75
85
95
105 How long $500,000 will last at different withdrawal rates
10% 8% 5% 4% $4,166 mth $3,333 mth $2,088 mth $1,666 mth
To insure that your retirement savings last a lifetime, you to need to restrict your withdrawals the first year. Assuming you start with $500,000, that’s $1,666 per month. If you take out much more, you could run out of money.
YOUR NEST EGG
How Fast Can you Spend It?
Federal Employee Service Center 2012
Federal Employee Service Center 2012
RULE OF 72
Federal Employee Service Center 2012
Take the interest rate you are currently receiving and divide it into 72. That is the number of years it will take to double your money.
√72
This “Rule of 72” table will help illustrate this concept
Age 4%18 yrs
Age 6%12 yrs
Age 8%9 yrs
Age 12%6 yrs
29 $10,000 29 $10,000 29 $10,000 29 $10,000
47 $20,000 41 $20,000 38 $20,000 35 $20,000
65 $40,000 53 $40,000 47 $40,000 41 $40,000
65 $80,000 56 $80,000 47 $80,000
65 $160,000 53 $160,000
59 $320,000
65 $640,000
Federal Employee Service Center 2012
√72
? How much income will I receive at retirement
? How much will my spouse receive
? What is the FERS Supplement
? How much will Federal Employee Group Life (FEGLI) cost me at retirement
? What kind of penalties will I receive if I retire early
? What are my investment & retirement options with my TSP
? Can I count my accrued Sick Leave for my retirement
Are you aware of the changes that have been made to your Federal Benefits? These SHOULD be a few of the questions you have concerning your retirement:
Federal Employee Service Center 2012
BENEFIT ANALYSIS
By attending this Workshop and being an “AIM Member” you will receive a
Complimentary
“FEDERAL BENEFIT ANALYSIS”
Federal Employee Service Center 2012
A Federal Benefits Specialist will meet with you and explain your Benefit Analysis which will include:
Eligible Retirement Age
CSRS, FERS Pension (projected 10 years beyond)
FEGLI costs
Health Insurance costs
FERS Supplement and Monthly Social Security
Survivor Benefits and costs
TSP projections
and more . . . Federal Employee Service Center 2012
Federal Employee Service Center 2012
TaxableIncome
Tax FreeIncome
FESC Strategic Planning
Tax DeferredIncome
Stocks TSP Roth IRASocial Security 401k’s TSP Roth Pensions IRA’s Life Insurance Real Estate 403b’s (cash value)Checking Accts 457’s Muni-Bonds Savings Accts CD’sMoney Market Accts
Income Streams
Federal Employee Service Center 2012
Top 5 Reasons
Reference: TSP website
Federal Employee Service Center 2012
Compared to
Reference: TSP website
Federal Employee Service Center 2012
Opinions
Reference: TSP website
Federal Employee Service Center 2012
Federal Employee Service Center 2012
Federal Employee Service Center “Serving Federal & Government Employees”
Office 281.741.1502 Toll Free 1. 888.206.3352 Fax 713.634.2733
521 N. Sam Houston Pkwy E Suite 623www.WebFederalService.com
www.FederalBenefitAnalysis.orgFederal Employee Service Center 2012
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