OPM also saw improvements in the inventory backlog shrinking it by 2,786 bringing the current number of claims to 16,823. This is the lowest backlog the agency has seen since December 2023. OPM is still 3,823 claims above the steady state goal of 13,000.

After seeing improvements in February, OPM ‘s average processing time increased from 47 days to 55 days in March.

OPM said March retirement cases completed in less than 60 days on average took 39 days to process, while cases that took more than 60 days on average took 134 days to fully process.

The post OPM retirement backlog continues improvement in processed claims for March first appeared on Federal News Network.

The Department of Veterans Affairs is reviewing more than 4,000 positions at risk of a downgrade in their respective pay scales.

The six VA positions under review include a mix of white-collar General Schedule (GS) and blue-collar Wage Grade (WG) positions.

The American Federation of Government Employees (AFGE) estimates about 56% of VA employees in these 4,000 positions are veterans. Some of the positions under review cover VA employees who make less than $20 an hour.

The positions the VA is reviewing cover all 18 Veterans Integrated Services Networks (VISNs). More than 1,700 positions under review are located in the Veterans Health Administration’s Finance Revenue Operations and Procurement and Logistics Office.

AFGE says affected employees have received notices in the mail about the consistency reviews. But Thomas Dargon, supervisory attorney for AFGE’s National VA Council, said the union hasn’t received notice from the VA yet about any imminent downgrades.

However, if the VA decides to downgrade any of these positions, Dargon said the department will face an even harder time filling these positions.

“The bell’s already been rung here. I’ve seen the letters that have gone out to impacted employees, and VA doesn’t have a lot of answers to the questions they’re asking,” Dargon said.

The VA put a moratorium on downgrading employee positions in 2012, allowing the department to revise a national handbook, computer software and other administrative tasks to ensure it classified employees fairly and consistently.

The VA, however, ended that moratorium earlier this year, and is conducting “consistency reviews” on six of its occupations, at the direction of the Office of Personnel Management.

VA Press Secretary Terrence Hayes told Federal News Network in a statement that OPM directed the VA to conduct agency-wide consistency reviews of these six occupations, after VA employees appealed the classification of their positions to OPM.

OPM, following a classification oversight review of VA in spring 2023, determined that two positions, industrial hygienist GS-0690-12 and purchasing agent (prosthetics) GS-1105-06, were not properly classified at the correct grade level.

VA, in a memo obtained by Federal News Network, said its Office of the Chief Human Capital Officer, “is working to strengthen consistency and oversight of classification determinations across the department by taking action to ensure employees are in appropriately and consistently classified positions, reduce geographical and organizational pay disparities and decrease hiring times.”

The VA is conducting consistency reviews on the following positions:

• File Clerk (GS-0305-05 and above)
• Financial Accounts Assistant (GS-503-all grades)
• Industrial Hygienist (GS-0690-12 and above)
• Purchasing Agent (OA) (GS-1105-07 and above)
• Housekeeping Aid (WG-3 and above)
• Boiler Plant Operator (WG-5402-10 and above)

Reviews of these occupations will occur in two phases. The first phase of reviews began on March 1 and will conclude on April 26. The department will start a second phase on April 29, and complete the reviews by May 1. VA expects to submit all its reviews to OPM by May 1.

“VHA Consolidated Classification Units will be required to initiate a consistency review process, which will require the identification of [position descriptions] in need of review. [Position descriptions] determined not properly classified will be sunset through attrition and positions impacted will be recruited at the appropriate grade levels, as applicable,” the VA memo states.

Once VA conducts its consistency reviews, it will provide reports back to OPM on whether their internal findings demonstrated that those positions are properly classified as compared to OPM standards.

“From there, I suspect some decision will be made,” Dargon said. “AFGE has not been notified of any imminent downgrade at this point, but I do not suspect the consistency reviews to result in employees being upgraded.”

Dargon said AFGE “does not support any downgrade whatsoever, and that “there is already a significant pay disparity between the public sector and the private sector.”

“VA has a notoriously difficult time not only recruiting, but retaining employees, and downgrading these positions is not going to make it any easier to fill them. And it is not going to bolster morale in the workplace,” Dargon said.

Hayes told Federal News Network that the VA issued a letter temporarily suspending changes to lower grade actions on June 29, 2012. Hayes said OPM assessed VA’s classification process in March 2023, and in September 2023, “determined there were no barriers prohibiting VA from conducting the reviews.”

VA, he added, expects to complete its consistency reviews of these positions by May 31.

“Should the reviews conclude that any positions were improperly classified, VA will consider all potential options to correct this misclassification,” Hayes said. “VA will do all we can to mitigate any potential adverse impact to our current employees. VA is committed to partnering with OPM to update classification standards and ensure they reflect the work done at VA and across the federal government.”

According to slides obtained by Federal News Network from a VA briefing presentation, VHA directed its Workforce Management and Consulting Office to cancel any VHA job opportunity announcements (JOAs) for occupations and grades that are subject to the consistency reviews.

As part of the consistency reviews, VHA classifiers will take a closer look at the qualifications required to perform the work for each occupation, and whether the agency has properly applied OPM’s classification or job-grading standards.

Classifiers cannot compare these six positions to other VA jobs or positions, consider any qualifications the employee has that are not required to perform the job, or account for how well an employee performs the work or the amount of work the employee performs.

“The goal of a classification consistency review is to ensure positions are classified in compliance with OPM classification standards and graded consistently VHA-wide,” the presentation slides state.

VHA is outlining “mitigation strategies” for pay-related staffing challenges. They include supplementing the base pay of these six positions with recruitment and retention incentives — such as critical skills incentives and special salary rates available under the toxic-exposure PACT Act.

“I can appreciate that the HR community at VA is trying to create a soft landing for employees who may be impacted by these downgrades through various recruitment and retention incentives, or ‘mitigation strategies,’ as they call them. But that’s not good enough, Dargon said. “There’s no reason to downgrade these employees, to make these positions harder to fill than they already are.”

Under Secretary for Heath Shereef Elnahal included housekeepers as part of a “Big Seven” list of occupations outlined in the VHA’s top hiring priorities in 2023. Those “Big Seven” positions cover VHA jobs that have a direct impact on patient care — and include physicians, nurses, licensed practical nurses, nursing assistants and food service workers.

Dargon warned that any potential reduction in pay for housekeepers would “be felt very quickly and sharply by folks in that field.” He said VA housekeepers in Pittsburgh, for example, are currently making about $16 an hour.

“These jobs are difficult to fill, and it’s difficult to retain workers,” Dargon said. “We have people who have military backgrounds themselves, who are veterans coming back to the VA, continue giving back, who believe in the mission, who are making just over $15, $16, $17 an hour — and you’ve got VA considering a downgrade.”

Dargon said the VA, by sending these letters to impacted employees, puts them in a position of “feeling undervalued or not seen.”

“Housekeeping aids are very much the backbone of health care institutions. You do not need to be a nurse or a doctor to be considered a vitally important part of the healthcare system that is VA,” he said. “Telling those employees who are working, in some instances, in really difficult environments, every hour of the day, to keep the VA clean and safe, that their position is actually compensated too highly — I can’t imagine what that feels like.”

Dargon said that if VA were to downgrade any of these occupations, it would probably lead to the department contracting out more of this work, “because the positions have become so unattractive through pay or other working conditions.”

VA saw record hiring last year, but is now looking to manage the size of its largest-ever health care workforce.

VA in its fiscal 2025 budget request plans to reduce its total workforce headcount by 10,000 positions. Most of the workforce reduction would come from VHA.

VHA Chief Financial Officer Laura Duke told reporters last month that the workforce reduction is necessary, because the agency far exceeded its hiring goals last year, and because it’s seeing higher-than-expected retention rates.

VHA earlier this year rescinded some temporary and final job offers to prospective hires. But the agency later issued a memo, telling leadership and HR officials to only rescind job offers as an “action of last resort.”

AFGE and VA finalized a new labor agreement last August, updating the terms of their labor contract for the first time in more than a decade.

VA Secretary Denis McDonough, at the signing ceremony, said the new contract would help with “easing the process by which we can fill vacancies,” and will allow the department to make new hires more quickly.

Dargon, however, said recent events suggest the VA is no longer making an effective pitch to prospective hires.

“I was on the negotiating team for the master agreement, and sat at the bargaining table with department officials who insisted that the reason they could not quickly hire employees was because of the provisions in the collective bargaining agreement — that it took too long that these were hurdles or impediments to quick hiring. We knew that was never the case, but we agreed to certain revisions in our contract to allow for more streamlined hiring procedures,” Dargon said. “Now they’re telling us they’ve hired too many people, maybe they’re not going to hire as quickly, they’re not going to fill vacancies through attrition. And now we’re looking at existing positions, and the idea of downgrading them.”

The post VA reviewing 4,000 positions at risk of pay downgrade first appeared on Federal News Network.

In frequent flyer plans, the more you take-to-the-air, the closer you get to elite status. And, the more you put away in your Thrift Savings Plan (TSP), the closer you will get to having TSP-millionaire status. For more on what that money can do for you, the Federal Drive Host Tom Temin talked with retired federal manager Abe Grungold of AG Financial Services.

Interview Transcript: 

Abe Grungold We always talk about how to become a TSP millionaire, but we really need to talk about why it’s so important to be a TSP millionaire. And I have three critical, reasons to be a TSP millionaire. And the first one is, in retirement, you may need to supplement your income. The second one is, how will you pay for your long term care needs in retirement? And the third one is, you never want to run out of money in retirement.

Tom Temin Well, those are pretty good reasons. And how does it fit in? We’re talking about the bulk of federal employees are [Federal Employees Retirement System (FERS)] retirees. And maybe just review for us what the FERS annuity is all about, in addition to Social Security and the relation of those two.

Abe Grungold Yes. The FERS annuity is based on a formula of the number of years that you have as a federal employee service time, multiply times your salary. And then there’s a multiplication factor. So you get a FERS annuity. It comes out to about one-third of your salary prior to retirement. So that is built together with Social Security. And you can have Social Security at age 62 or a later year, whichever year you decide to select it. So let’s say you are 62 and you are receiving a FERS annuity, and you have elected to take Social Security. What happens when both of those monthly, income payments to you cannot pay for your monthly expenses? How will you pay that difference in your monthly expenses? And if you’re a TSP millionaire, you would make a withdrawal from your TSP to supplement your income. And a lot of federal retirees have to do this. They have to, and it’s called filling the gap of your monthly expenses, especially if you don’t want to work part time in retirement.

Tom Temin Well, at some point you have to take a minimum withdrawal, by law. But 62 is way ahead of when that would happen. So it sounds like to supplement your income before the required minimum distribution of your TSP, your RMD, then you would have to withdraw from the principal at that point.

Abe Grungold Yeah it’s a required minimum distribution mandatory. It starts around age 73. But if you decide to retire at 62 and you still are carrying a mortgage, you want to start doing some travel and you want to do some other things, before you know it, your monthly expenses may far exceed your monthly income of your FERS annuity and your Social Security. So you need to make up the difference. And if you do not want to work part time in retirement, making up the difference can be done with making a withdrawal from your TSP. I did that when I first retired from the government, and I did have a part time job. I wasn’t collecting Social Security. I did have my FERS annuity, but I was making a TSP withdrawal to make up the difference.

Tom Temin Now 62. How realistic is that for people to retire in mass? Some people may want to work because they like their work, but 62 is kind of young these days to retire unless you’re rich.

Abe Grungold It is. There are federal retirees who retired at 57. There’s a large bulk of them. Law enforcement, air traffic controllers, they face mandatory retirement at 57. And certainly I have clients who are working for the government in their 70s. But 62 seems to be a popular time for retirees. And they start thinking about it very seriously at 62, because they know that they can collect that early Social Security. So they think that, oh, if I get my FERS annuity, along with my Social Security, that should be enough. But you may have to draw a little bit from your TSP, or you’re going to have to go back to work part time.

Tom Temin We are speaking with Abe Grundgold, proprietor of AG Financial Services in Florida and a retired federal manager. And we know how many millions you had in your TSP from earlier interviews. But if you retire at 62, you can have a reasonable expectation of living at least 20 more years. Very likely 30 more years. And so at some point, that you have to make sure that your investment strategy supports the required minimum distributions and not shrinking the principal.

Abe Grungold So that falls under my third reason, Tom. And that is you do not want to run out of money in retirement. So let’s take that scenario. Let’s say you do have $1 million in your TSP. You retire at age 62 and you want that million dollars to last. So let’s just assume that you have your entire million dollars in the G fund. You have invested in the G fund. At age 62 you have $1 million. And you start withdrawing $30,000 a year from your TSP to supplement your income or to do anything extra that you want to do travel wise, etc.. Spoil your grandchildren. That million dollars is going to last 33 years, and you’ll be 95 years old. Now, even if you invested in the G fund, you’re still going to have a balance in your TSP at age 95. And we should all be so lucky to live to be 95. But this is important that if you want to be in a position that you do not want to run out of money.

Tom Temin A couple of points. 95 can be a curse or a blessing. I’ve seen 95 year olds that are both ways, but their RMD is more than $30,000 on $1 million, wouldn’t it? Isn’t it 4%, so that would be 40,000.

Abe Grungold Yes.

Tom Temin So how long will it last then?

Abe Grungold It should still last, because your TSP will be growing in the G fund. But if you want to make sure that it’s going to be, certainly enough money to 95, you may have to invest a little bit more aggressively other than the G fund. But yes, it will last to 95. Even if you have to take out, your RMDs, you still will have a significant balance at age 95.

Tom Temin And if you spend like a few years, say, from 90 to 95, and you’re pulling out more than the RMD and reducing the principal, so what, you’ll still probably check out before the principal disappears.

Abe Grungold So let’s say you are 90,  you may have to go into a nursing home that falls under my second critical reset. So how will your long term care needs be paid for your nursing home? Well, nursing homes cost anywhere from 75,000 to $150,000 per year, depending where you are in the United States. And your TSP is going to fund that. It’s going to fund that, because you’ll be giving the nursing home your FERS annuity. You’ll be giving them your Social Security. And you can still have money from your TSP that covered that large expense of long term care from the age of 90 to 95. And that is a very important reason to have a TSP of $1 million.

Tom Temin So a very good rule of thumb might be to develop a budget and see where it stacks up against FERS plus Social Security plus withdrawal of TSP, followed by a replaced by the required minimum distribution when you reach that age.

Abe Grungold Right. It’s always good to have a budget, but it’s always better to know that you have a pile of money that you can go to. That rainy day fund that our parents always tell us. It’s good to have that available for whatever you need. Supplement your income, needing to go to a nursing home and you never want to run out of money during your retirement, so it is critical.

Tom Temin And don’t forget to budget $2 a week for a Powerball ticket.

Abe Grungold Absolutely, I still play.

The post Three good reasons to save toward TSP-millionaire status first appeared on Federal News Network.

The year-to date for the F fund is still positive, rising to 5.30%, as is the G fund, which is up to 4.65% in the last 12 months.

With all funds seeing positive returns in March, the common stock index C fund posted the highest Year-To-Date return at 10.55%,  and a 11.03% return over the last 12 months.

All Lifecycle funds posted positive returns. The L 2055, L 2060 and L 2065 all posted a 3.26% return, with year-to-date returns of 8.38%, and 14% returns for the last 12 months.

The post TSP sees all positive returns in March first appeared on Federal News Network.

With the era of near-zero inflation over, retirement planning has taken on some new urgency, simply because a fixed income and rising prices do not make a good combination. For some of the latest think on all that, the Federal Drive with Tom Temin spoke with Thiago Glieger, with RMG Advisors of Rockville, Maryland.

Interview Transcript: 

Tom Temin And you’ve got a lot of good advice for retirement planning at the season when people start to think about the end of the year, and this is when you start putting in papers and so forth. And inflation, though, can really be something. I think people have forgotten about how corrosive it can be.

Thiago Glieger They certainly have. Tom, I loosely call inflation the silent retirement killer. Because for a very long time we’ve not really had inflation like we have, here very recently. And when people think about risk, they often just think about volatility. So, investments in the TSP like the CSI funds but if you think about not growing your money fast enough, that’s also a pretty big risk. So having too much money inside the G fund, especially as you enter retirement, makes sense because you want to protect your wealth. But if you stay in the G fund, that could mean over time you may not be able to keep up with your spending. Imagine having to pay for things today, but with a salary from ten years ago, it would be very difficult to keep up and the concept is pretty much the same.

Tom Temin You would either have to trim your spending or figure out a new investment strategy, and I guess then you might be saying that don’t be overly conservative even though you are retired, you don’t want to bet in Bitcoin and futures and commodities, but maybe you should be a little more aggressive in the funds you pick.

Thiago Glieger Yeah, especially retiring feds who tend to be a little bit more conservative. You have to be prepared for an environment where you’re going to need to be growing your money fast enough to both outpace inflation, as well as replacing some of the spending that you’re doing. Because if you look at 10 or 15 years down the line, you may not be able to have the same kind of spending power if you’re just not keeping up because you’re in things like the G fund for the next decade.

Tom Temin Yeah. And if you look at things like automobiles or replacement roofing and other capital, so to speak, expenditures on your home if you are in your home, these things have gone well, no pun intended, through the roof.

Thiago Glieger They really have. The cost of material has gone up, the cost of labor has gone up, and people generally just spending money on things that they do most, which is food, travel in their home expenditures. Those are the things in which people are really seeing those price increases and struggling to be able to keep up.

Tom Temin And that gets to the topic of being realistic, simply about how much it’s going to cost you to live in retirement.

Thiago Glieger That’s right. I think that a lot of people just think about replacing their income. But really, that might not be all that you need. You know, the first thing is you always have to be thinking about, well, when are you going to file for Social Security? You’re potentially going to have a FERS pension that’s going to kick in at some point. And with those two, the third leg of the three-legged stool, as it’s commonly known, is your portfolio. So, then you start to determine how much do you need to take from your portfolio. But often I suggest to people be thinking about a higher degree of spending, especially in an early retirement. You know, Tom, you were telling me, last time we talked about that amazing trip that you went on recently, and that’s the kind of thing that people want maybe 2 or 3 times a year, while they still have their health and their energy. There’s more travel, there’s more experiences, more spending. You know, maybe you have grandkids at that point. And you start to see a whole lot of one-off expenses that creep up that you need to start beginning to plan for.

Tom Temin Right. So therefore, then the required minimum distributions from that third leg, if that’s all you can do and you’re worried about that, that gets back to the idea of being a little bit more aggressive. So maybe you could take more than the RMD. Confident that the principal will keep growing more than you’ve taken out as your withdrawal.

Thiago Glieger Right. Especially with RMDs where there’s a minimum amount that you have to take out. And so, you’re accelerating these distributions. And at some point you may want to be considering being a little more aggressive.

Tom Temin And how do you plan on what your withdrawals should be. Just simply whatever’s not covered by your FERS pension and Social Security.

Thiago Glieger I think that’s one way to start, you know, is really getting a base for what are your needs? But also, retirement is a time. We call them the golden years. Right? It’s a time where you really want to enjoy your time doing things, and you want to have these experiences that maybe you’ve been putting off for a while. In fact, with our clients, we call the first several years of retirement, maybe 5 or 10 years. We call that the Gogo phase. And that’s when you have the most time that you’ve had the most money you’ve ever had, and you still have a whole lot of energy. And so, thinking about how do I want to design these years? What kind of memories do I want to create? Is it more travel? Is it more this? Is it helping the grandkids? And that will begin to help you understand what kind of cash flow you’re going to need. Then you think you factor in Social Security and FERS and figure out how much more you need to draw from your portfolio.

Tom Temin Right. So that presupposes, at least for that first 5 or 10 years, when you have the intersection of some wealth you’ve accumulated and you’re still able because you won’t be able to forever. Nobody is. Even though the guy peddling pills on cable TV that’s 90, you know, and bench lifts 500 pounds. That’s not really what most people are going into. Then you need to plan for higher spending, perhaps, than you have been just commuting to the drudgery of your cubicle or your dining room.

Thiago Glieger Exactly. And that’s where it becomes really important to begin to finalize and implement that, initial short-term bucket of your portfolio. So, this is the part of your portfolio that’s going to have to be the most conservative, because it’s going to be the one that’s supporting you when you first retire. You know, the problem in investing in stocks is that they tend to be very volatile. And if you are close to retirement or you’re starting to use your money, then you really have to be cautious about how much you’re investing in stocks. The closer you are to using that capital, the more diversification you’re going to need in your portfolio. And one of those buckets is your short-term bucket. I often use the example of when you visit a doctor and the doctor says, Tom, we’re going to need to prescribe this medication for you to take. How much of it do you want to take? Your answer is, obviously, I don’t know as little as possible. Right. The medicine often comes with side effects, and investing for growth is very similar. Having too much in the form of growth investments can actually begin to hurt you in the long run because of that side effect of volatility and other risks that it introduces.

Tom Temin And there’s also tax planning, which can get complicated.

Thiago Glieger That’s right. Taxes are a huge part of every decision in retirement because when you’ve been working you don’t really have very much control over your taxes. You get a W-2 salary and maybe you’ve got some investment income and perhaps some rental properties, things like that. But in retirement, you’re the one that’s designing your income. And so, you get to pick which accounts the money comes from. You get to pick when you take those distributions. And if you think about what your cumulative lifetime tax liability is going to be, where you can estimate what that will be. It’s to the tune of several hundred thousand. Sometimes for some clients, it’s millions of dollars in estimated taxes throughout their whole retirement. And anything you can do to begin to keep some more of that capital for yourself is more living and more spending that you get to do yourself.

Tom Temin And you mentioned the go phase of retirement. What are the phases past that or should I ask?

Thiago Glieger Yeah. After you go through your go phase, we call the next phase the slow go phase. This is where life tends to slow down a little bit. You’re still active, but life has settled into retirement. And maybe your kids and grandkids are a little bit older now, so your priorities will begin to change. Maybe you’re spending more time with the kids rather than traveling. And then beyond that, once you hit the later stages of life, we call that the no go years. So, you have the go, the slow go and the no go and the no go years. You’re really focusing more on your health and taking care of yourself, maybe spending more time with family. And so, the expenses that tend to go for lifestyle are now maybe going towards medical.

Tom Temin And you may have disposed of your house by that point and living in a lower cost situation. Although some of the assisted living and independent living places, they are not low rent.

Thiago Glieger That’s right, many of those are very expensive and despite the cost, I think people are just generally looking for less maintenance. At that point, they may not be able to upkeep with the size of their house or all of the things that are required. So, either they downsize to something more manageable, or they actually move into a place that has some assistance for them to be able to live.

Tom Temin All right. So, you mentioned the go, the slow go and the no go. I guess beyond that is the undergo. No, I mean, it doesn’t matter at all anymore in some sense. Right. What are some good practical ways that if you’re still working to actually do this, start with a budget. Is that what everybody says? Or I mean, what should you be doing to plan for it because you don’t really know when the go will morph into the slow go.

Thiago Glieger Right? I think if you are still working and you are, at least 5 to 7 years from retirement, your priority at that time is still continuing to grow your wealth. And so, utilizing the TSP choices like the C, S and I funds, make sure you’re doing at least the agency maxing, matching contributions amount. If you can match your TSP. Absolutely put more into that every time you’re getting a raise. If you’re not yet maxed, split that raise in half and put half of it as a TSP contribution. And beyond there, as you begin to phase to retirement, that’s when you can start to be thinking about the more. Conservative portions of your portfolio, maybe start diversifying a little bit less. Maybe start taking some risk off the table. Because if you think about how long it takes for a bear market from what we call peak to trough, so that’s from the top to the bottom and back up again, it’s somewhere on average about two and a half years. And so, we tell people to really be thinking about twice that long. So about five years’ worth of a short-term bucket. If you know you’re coming up to that phase of life, that gives you enough time to be able to ride out some of that market volatility, if you’re going to use that money in the very short term, and the bottom falls out.

Tom Temin And right now at this as we speak, we seem to be in a peak. I think the Dow headed toward 40,000, although that’s a really terrible indicator because the Dow has almost no relation to anyone’s actual portfolio, does it?

Thiago Glieger That’s right. The Dow represents a market index, and most people are not invested 100% in the Dow. Same thing with the S&P 500 right. The TSP fund the fund. Those are representative of some of those market indices. But you’re really not 100% invested in that actual index.

Tom Temin And you can probably make yourself prematurely crazy if you watch your portfolio minute by minute.

Thiago Glieger Yeah. And we find that the stress level tends to increase the closer people get to retirement, they start to pay a little bit more attention to what’s happening in the markets than the economy. And the minute it reverses on you because that’s just a natural part of investing. It causes a lot of stress and anxiety for folks. So, we tell people, make sure you’re keeping track of things, but don’t look at it every single day because it’s really not necessary for you to do so.

The post Retirement planning enters era of renewed inflation first appeared on Federal News Network.

The results of our 13th annual financial readiness test show career military families struggle in this area. Only 2% of military test takers correctly answered all nine questions, which is designed to measure basic money knowledge associated with financial readiness. This compares to 6% of civilian respondents.

While financial education plays a role in improving military families’ money mastery, it’s not the only solution. There are two other key elements — which go hand-in-hand — that can help military families improve their financial readiness.

Using good habits to pursue goals

The role of everyday habits cannot be overstated. In his book “Atomic Habits,” James Clear asserts “habits are the compound interest of self-improvement.” He makes the case that daily, seemingly insignificant choices — saving a few dollars, investing consistently, or avoiding unnecessary debt — compound over the years into something powerful. Clear proves the point that small habits can lead to big transformations. First Command Financial Advisors see this in action every day as they coach military families in their pursuit of financial security.

We recommend consistency in simple habits, like automatically depositing a portion of each paycheck into savings or an investment account or sticking to a budget. While this can be easier said than done, 2024 might be an ideal time to increase your savings. Service members are expected to receive a 5.2% pay raise in January, one of the biggest annual pay raises in the last 40 years. Consider stashing a little more money into a savings or investment account. First Command Advisors believe in the merits of the 50/50 Plan. The idea is to allocate half of every pay raise to upgrading your current lifestyle and the other half to building a foundation for your financial future.

Creating systems to form good habits

Many people set out to adopt new habits but fail without a system to achieve the habit. For example, you may have a goal to stick to a budget. While this is a worthy aim, without a budgeting tool and time set aside to make sure you’re staying on track, you likely won’t. In many cases, the probability that you’ll form a long-lasting habit is as likely as the strength of the system you have in place.

Katy Milkman, author of the book “How to Change,” advises this five-pronged approach to habit formation.

• Set a specific goal. Try a specific goal like “I’ll save $100 each month.” Research shows a benefit to being specific about exactly what you want to achieve.
• Create a detailed, cue-based plan. You need to think about exactly how you’ll fit this goal into your life. For a budget-based goal, this could be “I’ll review my budget every Tuesday after dinner.”
• Make it fun to repeat. If the idea of reviewing your monthly budget sounds like pulling teeth, consider adding a positive reward to sweeten the routine. This could look like trying a new restaurant for takeout or enjoying your favorite beverage.
• Foster flexibility. If your routine becomes too brittle, you’ll follow through less often. If your original plan doesn’t pan out, be OK with pivoting.
• Find the right kind of social support. Milkman emphasizes the importance of social support in building and maintaining habits. For some habits, this could mean sharing your goals with family and friends. For financial habits, this could be the support of a financial advisor. 

Financial advisors: Your financial habit building support team

The second way you pursue financial readiness is by enlisting the help of a financial advisor. The First Command Financial Behaviors Index shows that, on average, military families who work with an advisor report average monthly contributions to savings and retirement accounts totaling $3,316 per month versus $1,298 for their colleagues without an advisor. If you’re looking to improve your financial literacy and set good habits, start by reaching out to a financial advisor who knows the military lifestyle.

You work hard in service of your family and the nation. Don’t neglect to pursue your financial goals. By establishing a system to nurture good financial habits and working with a financial advisor, even your most far-fetched goals may be possible.

Mark Steffe is president and CEO of First Command Financial Services, Inc.

The post Harness the power of good habits to pursue your financial goals first appeared on Federal News Network.

• Open Season is not until this fall, but some feds may want to start looking at their health care early. A special enrollment period starts today for Postal Service annuitants. USPS retirees who are eligible for Medicare Part B, but do not have it, can sign up between now and September 1 without having to pay a penalty. The USPS is covering the cost of the penalty for any annuitants who do choose to sign up. The special enrollment period comes ahead of the launch of the brand-new Postal Service Health Benefits program for plan year 2025. And for everyone else, Open Season will run Nov. 11 to Dec. 9.
  (Postal Service Health Benefits program - Office of Personnel Management)
• Nearly a two-year effort has concluded with agencies receiving their first update to the standards for collecting federal data on race and ethnicity in more than 25 years. The Office of Management and Budget's Chief Statistician Karin Orvis said the interagency working group made several significant changes to the standards, including adding Middle Eastern or North African as a new minimum category. Agencies are to begin updating their surveys and administrative forms as quickly as possible and must submit an agency action plan for complete compliance within 18 months. Orvis said the working group reviewed 20,000 comments and held almost 100 listening sessions as part of its effort to finalize the new standards.
  (OMB updates standards to collect federal data on race, ethnicity - White House)
• The Defense Department has established the Office of the Assistant Secretary of Defense for Cyber Policy. The new office, officially launched on March 20, will oversee all cyber-related policy issues at the Pentagon. That includes certifying the department's cyber operations budget and overlooking cyber workforce development programs. Ashley Manning will serve as the official performing the duties of the assistant secretary until the Senate confirms an official for the position. President Joe Biden nominated Michael Sulmeyer, who is currently serving as the principal cyber adviser to the Army Secretary, to serve in the new role.
  (Establishment of the Office of the Assistant Secretary of Defense for Cyber Policy - DoD)
• There is a new section to the FAR and it may be the most important change in decades. Get used to hearing about FAR Part 40. It's the new consolidated section of the Federal Acquisition Regulations for all things cybersecurity and supply chain security. The FAR Council issued the final rule today establishing this new section, bringing together clauses and regulations covering broad security requirements for most acquisitions. The new FAR part will provide contracting officers with a single, consolidated location to find these requirements. While the new FAR section does not create any new requirements or contract clauses, the council currently is reviewing three rules that would be added to Part 40 when finalized.
  (FAR Council formally established new cybersecurity section - Federal Register)
• Senate lawmakers are pushing to bring federal record-keeping practices into the 21st century. Agencies would need to make sure employees back up their texts and other digital chats used for official business under the Strengthening Federal Records Act of 2024. Sens. Gary Peters (D-Mich.) and John Cornyn (R-Texas) are co-sponsoring the bill. They say the Federal Records Act needs to keep with rapidly changing technology. The bill would also strengthen the role of the National Archives and Records Administration in holding agencies accountable to record-keeping rules.
  (Senate bill aims to bring federal records law into the age of ‘WhatsApp’ - Federal News Network)
• The Navy has created a sort of one-stop-shop of efficiency when it comes to Navy Culture. A new initiative dubbed Culture of Excellence 2.0 aligns several Navy programs and concepts, allowing the leadership to better understand the needs of its sailors. New materials released as part of the initiative include a playbook on mental health and a suicide-related behavior response guide. The women’s initiatives team and the new policy for the assignment of pregnant sailors also fall under the umbrella of Culture of Excellence 2.0. And there will be a new tool for commanders to better understand the risk of destructive behaviors within their commands.
  (Navy updates its culture campaign - U.S. Navy)
• A new leader has taken the reins at the National Security Agency’s Cybersecurity Directorate (CSD). Dave Luber formally took over as CSD Director on Friday, replacing Rob Joyce, who had led the directorate since 2021. Luber previously served as CSD’s deputy director. He is a longtime veteran of the intelligence community, having also served as executive director at U.S. Cyber Command and in various positions throughout the NSA. The Cybersecurity Directorate is responsible for helping to secure defense industrial base networks and issuing public advisories on cyber threats.
  (New NSA CSD director - X)
• When candidates go online to apply for a federal job, they will see a brand new look. USA jobs.gov has updated its homepage design and some key features of the website. There is now a "search tips" option for anyone who might need help narrowing down a search. A link at the top of the homepage will take users to a list of upcoming hiring events and information sessions. And there is info about what career fields are hiring right now, and how the federal hiring process works.
  (Website homepage update - USAJobs.gov)

The post Medicare Part B special enrollment period for USPS annuitants begins today first appeared on Federal News Network.

• Agencies continue to struggle with giving too much money to citizens when doling out benefits. New data from the Government Accountability Office shows 74% of all improper payments in fiscal 2023 resulted from overpayments. These are payments made to people who have died or who are no longer eligible for government programs. GAO found agencies reported about $236 billion in improper payments last year, down about $11 billion, as compared to 2022. The Medicaid program reduced the amount of improper payments it paid out by $30 billion, while the Labor Department's unemployment insurance program saw an increase of $44 billion in payment errors last year.
  (Improper payments dropped by $11B in 2022 - GAO)
• The Education Department is getting pushback over its latest return-to-office plans. All bargaining unit employees at the Education Department will soon be expected to report to work in person at least five days per pay period. Secretary Miguel Cardona made the announcement to employees in an all-staff email Thursday morning. Cardona noted that the changes are subject to bargaining obligations with the agency’s union, the American Federation of Government Employees. But AFGE local president Sheria Smith said the announcement came as a shock to some: “We received at least 100 messages from employees saying, ‘Hey, I want a reasonable accommodation — I moved — am I supposed to come back now?” The change for employees will take effect May 20.
  (Announcement on increasing in-person presence of agency employees - Education Department)
• Top officials at the Department of Veterans Affairs said the latest rollout of a new Electronic Health Record is a step in the right direction. Under Secretary for Health Shereef Elnahal said the VA’s recent go-live at the James A. Lovell Federal Health Care Center in North Chicago is the most successful rollout so far. “We’re going to watch this closely, and we’re going to be on top of it, not just in the next few weeks, but in the coming months," Elnahal said. A successful EHR rollout would give the VA the chance to move on from problems that have hampered the project since 2020. A recent inspector general report found a scheduling error with the Oracle-Cerner EHR in Columbus, Ohio, contributed to the death of a veteran in 2022.
  (Recent VA EHR rollout ‘most successful’ so far, but IG outlines recent problems - Federal News Network)
• A new roadmap to improve the cloud security authorization process is out. The first piece of the Federal Risk Authorization and Management Program’s overhaul is out. The program management office released a new roadmap for the cloud security program outlining four primary goals, six initiatives and 28 near-term priorities. FedRAMP will take on several pilots over the next 18 months to lower the cost and to speed up the authorization process. One pilot program will support machine-readable “digital authorization packages” through automation using the Open Security Controls Assessment Language framework. The new roadmap comes before the Office of Management and Budget finalized its updated FedRAMP guidance, released in draft in October. OMB is current reviewing more than 285 comments.
  (FedRAMP’s overhaul begins with 28-near term initiatives - Federal News Network)
• The Defense Department wants its vendors to be more cyber secure, and it already has a lot of tools to help them. But as of now, they are a bit of a scattered mess. That is one of the things DoD wants to fix via a new Defense Industrial Base Cyber Strategy. The Pentagon published the strategy yesterday. DoD also wants to significantly expand the number of companies that can take advantage of its free cyber defense services. That eligibility will expand under a new rule set to take effect in a few weeks.
  (DoD seeks single point of entry, new governance to boost vendors' cyber defenses - Federal News Network)
• Data analytics tools used to fight fraud in COVID-19 emergency programs might be redeployed to look at more government spending. The Government Spending Oversight Act would preserve analytics tools built by the Pandemic Response Accountability Committee (PRAC), and would require their use to uncover more fraud in federal spending. The bill would create a Government Spending Oversight Committee to manage those tools. PRAC said its tools have flagged nearly $2 billion dollars in pandemic fraud so far. Senate Homeland Security and Governmental Affairs Committee Chairman Gary Peters (D-Mich.) and Sen. Mitt Romney (R-Utah) introduced the bill.
  (Peters and Romney introduce bipartisan bill to strengthen oversight of government spending - Senate Homeland Security and Governmental Affairs Committee)
• The Army’s Innovation Exchange Lab is up and running. The new lab will allow companies to test their solutions within the Army’s Unified Data Reference Architecture (UDRA). The Army is particularly interested in solutions serving as data catalogs within the framework of UDRA. The lab is accessible to all industry partners. Companies can include a detailed description of their product during registration. The Army is in the midst of the implementation phase of UDRA, an effort that will allow the service to build out a data mesh across all of its programs.
  (Army implementing new data architecture, launching innovation exchange lab next month - Federal News Network)
• The Army has opened a central office to manage the relocation of military families with special needs. It is called the Exceptional Family Member Program, which provides support to soldiers whose family members require special medical or educational assistance. The program is mandatory for all active-duty families with special needs. The program staff works with military and civilian agencies to provide medical, housing and educational services to over 40,000 enrolled families.
  (New Army office will provide centralized support for families with special needs - U.S. Army)
• A bipartisan pair of senators is calling for more oversight of the Federal Employees Health Benefits program (FEHB). Sen. Rick Scott (R-Fla.) and Sen. Tom Carper (D-Del.) introduced the FEHB Protection Act, which would require the Office of Personnel Management to verify eligibility before adding new members to the health care program. If enacted, the bill would also require an audit of FEHB to remove any invalid members who are currently enrolled. The bill comes in response to a recent report showing that ineligible FEHB members are costing the government up to $1 billion each year.
  (FEHB Protection Act - Sens. Rick Scott (R-Fla.) and Tom Carper (D-Del.))

The post Agencies continue to struggle with overspending when doling out benefits first appeared on Federal News Network.

Nobody has a guaranteed tomorrow. That doesn’t mean you shouldn’t plan for a good retirement. Presuming you don’t climb 1,000-foot rock cliffs without ropes or scuba dive to pet tiger sharks, you can expect some good years after work. The Social Security figures show a man at 65 — the classic retirement date — will live on average another 17 years. A woman at 65 has another 20 years on average. In reality more and more are making it to 90 and beyond.

Why a retirement column today? With two weeks until the tax incoming filing deadline, people are thinking about their finances. Baseball opened yesterday, and wouldn’t it be great to get to those precious few day games without a lot of schedule rigmarole? Plus, given that most federal employees pick December 31st to retire, April 1 still gives you some time to get retirement affairs lined up.

I credit Thiago Glieger of RMG Advisors in Rockville, Maryland, and a regular Federal Drive guest, for the idea. He said his federal clients often knuckle down to retirement planning now, with the holidays, winter and tax filing behind them. My own two cents: Solid retirement planning is also good financial planning generally, no matter how far away your retirement.

Glieger says to think of retirement in three phases — go-go, slow-go, and no-go. Go-go, you’re still relatively young and active. This is when you pack in the more active or strenuous things you want to do while you can. Slow-go, you’re still okay, but maybe slowing down to enjoy more chilling, say with younger family members. No-go is later old age, which might entail assisted living or other forms of help.

You can’t control anything fully. Inflation, though, lies in the zone of totally uncontrollable. Glieger calls inflation the silent retirement killer. You can control how your react in terms of Thrift Savings Plan or 401K strategy. He cautions against substituting  the volatility of higher growth funds like the C  Fund or S Fund for the steadiness of, say, the G Fund, on which inflation will have the most corrosive effects.

In that sense, your TSP is the one element in the TSP-FERS annuity-Social Security trio that is not fixed, or at least not tied to nominal inflation adjustments. Certified financial planner Art Stein, also an alarm-ringer on inflation, points out that FERS and your annuity won’t run out, either, whereas you can wipe out your investments fairly easily. You might be tempted to take more from your savings if inflation reduces the buying power of your FERS annuity, Stein adds.

Like a noxious vapor, inflation seeps into everything.

So, don’t shy away from keeping relative to wide swings, “if you think about not growing your money fast enough, that’s also a pretty big risk. Over time, you may not be able to keep up with your spending,” Glieger said.

Any retirement plan must include a spending plan. Glieger cautions against underestimating what you’ll spend. Some people spend more when they retire; say, because of more travel. Plus, cars, roofs, furnaces and washing machines don’t last forever.

Or at least initially, you buy that bass boat or sewing machine or Beretta shotgun you now feel you’ll have the time to use. Therefore, you’ll want a TSP investment strategy that grows your nest egg at no less than the rate at which you take withdrawals. Or at least ensure the principal lasts until you’re 95 or 100. You don’t want to undershoot the runway.

Nearly Useless Factoid

By: Michele Sandiford

The ratio of women to men over 65 years old is 100 to 76. The ratio of women to men over 85 years old is 100 to 49.

Source: DoSomething.org

The post Planning on retirement? Beware of killer inflation first appeared on Federal News Network.

No one avoids death and taxes. But you can make sure an element — that is crucial to a comfortable retirement — lasts the rest of your life. For what it is and how to preserve it, the Federal Drive with Tom Temin talked with certified financial planner Art Stein of Arthur Stein Financial.

Interview Transcript: 

Tom Temin  All right, give us the big story. What needs to last the rest of your life?

Art Stein Tom, federal retirees or, you know, let’s talk about FERS retirees. They have two sources of income during retirement. And one, of course, is guaranteed income. And guaranteed income is Social Security and their FERS annuity. And those are great. They’re guaranteed to last the rest of their life. And they both have cost of living adjustments. But most FERS retirees at some time during their retirement are going to have to start taking money from their investments to supplement their guaranteed income, and that’s something that may happen to them. You know, as soon as they retire, it may be 5 or 10 years into retirement. Of course, one problem for FERS retirees is that any time inflation is more than 2%, the purchasing power of their annuity declines. And for most FERS retirees are going to have to make that up by taking money from their investments.

Tom Temin But the investment presumably it’s a TSP. I mean, you’ve got to make the minimum withdrawal at some point.

Art Stein Yeah, absolutely. But you don’t have to spend it. You can reinvest it, you know, after you pay the taxes.

Tom Temin Got it.

Art Stein So it means that they never have to worry about running out of money because they’ll always have the guaranteed income. What they need to worry about is running out of investments. And that’s when being too conservative over a long period of time can really hasten the day that people run out of investments. Because the G fund, which is, you know, the most popular fund and even the F fund pretty much guaranteed to lose purchasing power once you take into account taxes and inflation. And that’s also true of bank accounts. And lots of federal employees and retirees have very significant amounts and bank accounts. And those lose purchasing power over time too. So let me just give you a really simple example. And the simplest example is going to be about bank accounts. Let’s say you’re going to give a party in 12 months. A couple is going to give a party in 12 months. And they estimate the cost of the party to be $1,000. So, they want to be very prudent. So, they take $1,000 and invest it in a bank account, money market fund. It’s considered 100% safe, guaranteed by the federal government. And it does not fluctuate in value. So, if they leave it in there for 12 months and they earn 2% simple interest, at the end of 12 months, I’ll have $1,020. Now they have to pay tax on the interest. They paid $6 in tax. They’d have $1,014 left. So, it sounds pretty good. They had $1,000 party. Now they have 1014. But we forgot to take into account inflation. Inflation’s only 3%. The thousand-dollar party is now costing $1,030. They only have $1,014 after taxes. So, they’re $16 short. They lost purchasing power after taxes and inflation. Now clearly in this example not a big deal. It’s only $16. It only compounds over, you know one year. But many retirees have heard and read that when they’re retired, and even as they approach retirement, they should have the majority of their money in bonds and bank accounts, which for the TSP means the G fund in the F fund. And for most TSP participants, it mainly means the G fund because they don’t like the F funds. So yeah.

Tom Temin That’s the preaching of safety. In other words, above all else.

Art Stein Preaching safety above all else. And that’s because those types of investments, when we say they’re safer, that’s very misleading, Tom. What they are is less volatile. And volatility is not the only investment risk. And really, for long term investors, the most important retirement risk is taxes and inflation reducing the purchasing power of their investments. It’s very difficult because people put their money in the G fund, and they see it gradually increase in value and they don’t think about, well, is it keeping up with taxes and inflation. And many people, you know, really, when they judge the amount of money they have, if they look at the amount in the TSP and say, I have $1 million in the TSP, I’ve got $1 million to spend. Well, of course that’s not true. It’s $1 million minus taxes, so it’s a much lower amount.

Tom Temin We’re speaking with certified planner Art Stein of Arthur Stein Financial. I guess I’m still trying to get my mind around the idea of $1,000 party. I guess in today’s inflation, that means a case of Budweiser. And four of your best friends at this point.

Art Stein What other kind of party is there?

Tom Temin That’s right. But if you take that million versus 1000, and you take your calculations out for 20, 25, 30 years, it’s tens or hundreds of thousands of dollars you might be forgoing in intrinsic value of your investments. That will never be.

Art Stein Absolutely. You know, I can tell you that, you know, with the cost-of-living adjustment for FERS retirees, if inflation were 3% a year, they’re only going to get a 2% per year inflation adjustment after ten years. That would reduce the purchasing power, their annuity 8%. After 20 years, you would reduce at 17%. They’re going to have to make up that difference.

Tom Temin So you really have to look at your future life and retirement, not so much from how many dollars are sitting in the different accounts, but what those accounts are doing and also what you actually need to maintain your lifestyle.

Art Stein Yes. And that’s what you know, retirement planning is all about, is looking, well, how much do I have? What kind of rate of return can I expect based upon, you know, what funds I’m invested in and how much do I expect to spend in retirement? And this is where, again, I think a lot of people make a mistake. How long a retirement do I need to plan for? Now, none of us know how long we’re going to live, but if we’re healthy now and say we retire at 65, people need to assume that they’re going to have a 30-year retirement, at least because many of us are going to live that long. And, you know, ten years from now, medical care is going to be much better than it is now. And same thing, true 20 and 30 years from now. Medical system, it’s great at keeping us alive. And it means that we could live a very long time and be very healthy. And a lot of people don’t think of it that way. I mean, I just spoke to a couple of yesterday and the wife is 82, and, you know, I was explaining this, and she said, well, you know, I’m 82. How long a retirement do I need to plan for? And I said, well, how’s your health? She said, well, I got some vision problems on there and that I’m 100% healthy. How long did your parents live while their mom lived to 92? Well, her mother died 20 years ago. If her mother could live to 92 with the medical care they had 20 years ago, why couldn’t she live another 10 or 15 years?

Tom Temin And just a practical question. Some people feel they need, and they do need, people need liquid assets. You might want to pay cash for a car or vacation or something, and that would not be in your TSP, because you don’t want to try to withdraw the principal if you can avoid that. What is a good way to keep cash? Or let’s say not so much cash, but a liquid asset that you can turn to cash quickly because you have a legitimate call for it.

Art Stein Yeah, absolutely. Everybody should have an emergency fund, which is not a great name for that, because it sounds like something bad happened, a new car and need to pay for a wedding for my son or daughter, or I want to get money to my grandkids. And you know, banks are great for that. But you also want to make sure you don’t have too much in low yielding bank accounts. I mean, if you look around in today’s world, you can find online bank accounts that are paying five, 5.25%. But many people are letting money just sit in their local bank account and getting a quarter of a percent, a half, a percent, 1%. That’s a big loss.

Tom Temin Then with respect to your TSP distributions. You can always change the distribution if you want to. You may not get that 25 years’ worth of better growth, but you can get better growth while you’re at it.

Art Stein Yeah. And money, you know, you expect to take out and spend in the next 3 or 4 years. I mean, the G fund is a good place for that. And the F fund in most normal years is also a good place for that. The stock funds C, S and I, the money that’s in there is money that you would need ten, 20, 30 years from now because stocks are much more volatile than bonds. But over long periods of time, historically, stocks have outperformed bonds by enough to make it worthwhile to put up with the bad years.

Tom Temin Good advice for making sure you can have that $1030 party, certified planner. Art Stein of Arthur Stein Financial. As always, thank you so much.

Art Stein Thank you Tom.

Tom Temin We’ll post this interview at Federal news network.com/Federal Drive. Subscribe to the federal drive wherever you get your podcasts.

The post How to make sure you outlive your investments after you retire first appeared on Federal News Network.

The fiscal 2024 homeland security appropriations measure includes $1.1 billion to continue the pay increases at TSA that began last July. Those raises brought TSA salaries in line with the rest of the federal government. The agency is already reporting drastically reduced attrition rates as a result of the pay bump.

Some Republican lawmakers had advanced legislation to reverse the higher pay rates for some non-Transportation Security Officer employees. The issue was reportedly among the areas of contention this week as appropriators raced to reach an agreement on the homeland security spending bill.

But the final bill ultimately continues the new pay rates, at least through the end of this fiscal year. In a statement, American Federation for Government Employees President Everett Kelley applauded the provision for TSA pay.

“We are very happy that Congress is providing the Transportation Security Administration with the funding it needs to competitively pay its workers and address recruiting and retention challenges that affect everyone who travels by air,” Kelley said.

However, the funding of TSA pay, separate from other federal employees, through the appropriations process means the issue will continue to be subject to the often-protracted annual battle in Congress over spending.

Meanwhile, TSA recently reached a landmark, seven-year collective bargaining agreement with AFGE. The union ratified the contract last week. TSA leadership is reviewing the final details before signing off.

Border Patrol hiring

With border issues taking center stage in the debate over the spending bill, the agreement ultimately provided $496 million to swell the Border Patrol’s ranks to 22,000 agents. It also includes $125 million for Border Patrol overtime pay.

Customs and Border Protection is currently recruiting Border Patrol agents at the GS-11 level. The agency is offering a $20,000 recruitment incentive for agents who successfully complete the academy and another $10,000 to those who complete three years at a “hard-to-fill” location.

The spending bill also includes $20 million to hire an additional 150 CBP officers to support counter fentanyl efforts.

Meanwhile, the Biden administration is forecasting additional hiring increases for CBP and TSA in fiscal 2025 budget plans.

The homeland security package also includes $11.5 million for CBP’s suicide prevention and wellness efforts, as well as “employee onsite clinicians and child back-up care,” according to a summary of the legislation.

CISA funding cut

For the first time in years, the Cybersecurity and Infrastructure Security Agency will see a slight cut to its annual budget. The bill allocates $2.873 billion for CISA in fiscal 2024, about $34 million below the fiscal 2023 levels and $183.3 million below the Biden administration’s budget request.

Compared to last year, CISA will receive about $47 million less for the Joint Collaborative Environment program and $66 million less for the Continuous Diagnostics and Mitigation (CDM) program. At the same time, CISA will see a new funding line of $145 million for its Cyber Analytics and Data System effort.

CISA’s Chemical Security program also received a $15 million year-over-year cut in the bill. Lawmakers have yet to reauthorize the agency’s key chemical security inspections program.

The post TSA employees will keep their pay raises under 2024 spending deal first appeared on Federal News Network.

Join us for Federal News Network’s 2024 Open Season Exchange on Nov. 12. During this exclusive event, Federal News Network reporters and editors will sit down with agency and industry experts to share details about what to consider when making your 2025 FEHB selections during Open Season.

Our 2023 Open Season Exchange event featured speakers from the Office of Personnel Management, Defense Health Agency and Consumers’ Checkbook.

Register today to save the date on your calendar and receive updates!

The post Federal News Network’s Open Season Exchange 2024 first appeared on Federal News Network.

Because our tax-law is relatively friendly on inherited assets, many of the items that you inherit – including the house and any non-retirement investment account – receive a step-up in basis. This means, according to the IRS, it’s as if you purchased them on the date that your relative passed away and you don’t have to pay taxes on any of the gain that happened during their lifetime. Pretty nice, right?

But if those rules only apply to non-retirement assets, how do retirement investment accounts get considered?

Since the passing of the SECURE Act in 2019, here are the basic rules for inherited retirement accounts for owners that passed after Dec. 31st 2019:

• If you are the spouse of the original owner, you may move the account into your name and treat it as your own, following the required minimum distribution rules based on your own age.
• If you are not the spouse of the original owner you have 10 years to distribute the entire balance of the account.

Now this is where the tax considerations come into play.

Inheriting traditional retirement accounts:

If the retirement account was “traditional” or “pre-tax” (like the traditional TSP) all of the distributions are taxable to the beneficiary.

In other words, you are required to distribute and pay tax on the entire account balance within 10-years. And the distributions count as income, so the more money the recipient makes, the higher the tax rate on the withdrawals.

For a sizable TSP, 401(k) or traditional IRA, that could be a hefty tax bill each year – especially if the recipient is already a high-income earner.

Inheriting Roth retirement accounts:

Because taxes on traditional retirement accounts have been tax-deferred, the IRS wants to make sure they get their hands on those tax dollars eventually. So if they don’t get them from the original owner, they get them from the beneficiary.

Taxes on Roth accounts, on the other hand, have already been paid by the original owner when they funded the account.

Because of that, if you inherit a Roth retirement account, you still have to fully distribute the account within a 10-year period, but the distributions are tax-free for that entire ten years!

Now let’s be honest with each other for a moment.

If you were to inherit a large traditional retirement account and had to pay taxes on the withdrawals, would you be upset about it? Probably not. Paying taxes isn’t the end of the world, especially considering you’re only paying more taxes because you have more money.

That being said, if you knew there was a way that some or all of it could have been tax-free, would you be slightly disappointed? Probably.

Let’s look at an example scenario where recipient 1 receives a $500,000 traditional IRA and recipient 2 receives a $500,000 Roth IRA.

In both scenarios, we’ll assume that the account grows at 5% per year.

Recipient 1: Traditional retirement plan

In this scenario, the recipient decides to distribute the account in equal portions over the 10-year period to make sure they don’t spike their income in any given year.

They’re able to take a $60k distribution each year, which comes out to $46k after taxes (assuming they’re in the 24% tax bracket).

In the end, they’re able to receive a net after-tax total of $460,000.

Recipient 2: Roth Retirement Plan

In this scenario, the strategy changes.

Because a Roth retirement plan can continue to grow for 10 years without any tax liability, the beneficiary decides to wait until the very last year to withdraw the funds.

Since the entire balance is able to grow over that time period, recipient 2 is actually able to withdraw $815,000 from the account tax free.

That’s a difference of $355,000.

And 5% is a relatively conservative growth rate. Imagine if the growth was higher.

Planning with the end in mind

So what should you do, now that you know it’s so much nicer to inherit a Roth retirement account instead of a traditional account?

First, it may be helpful to explore if Roth contributions to your TSP or Roth conversions outside of your TSP are helpful to you during your lifetime. Because of our current “friendly” income tax brackets, there are many scenarios where making Roth contributions now can save an individual tens of thousands of dollars over your lifetime alone.

We don’t have enough space here to take a deep dive into the individual benefits of Roth contributions and conversions, but we wrote another article that does just that.

If it’s mutually beneficial, and choosing Roth benefits you and your loved ones, then your answer becomes pretty easy.

There are, however, situations where Roth contributions and conversions may not be beneficial to you in your lifetime. Then the question becomes what would the contributions or conversions cost me, and am I willing to pay that cost to ultimately provide a larger benefit to my heirs?

In our work with federal employees, we run into retirees all the time who are fully supported by their pension and social security, and have no need to touch their TSP. In this scenario, some may say “well, since I’m not going to need it, and I have an opportunity to pay the taxes at a lower rate than my beneficiaries will, I’ll go ahead and convert this to Roth as a ‘gift’ to my heirs.”

Of course, this decision is unique to each individual and there’s no right or wrong answer, but for those that want to be mindful of how they pass down money to the next generation, it’s a question that’s worth considering.

It’s also worth noting that this article only explores accounts being passed to individuals – not charities, trusts or any other entities. If passing funds to one of those other entities is in your plans, the strategies mentioned above could change.

Austin Costello is a certified financial planner with Capital Financial Planners.

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Years of pay caps have pulled the long-standing pay system for blue-collar federal employees away from the structure’s original intent.

The Federal Wage System (FWS), covering about 192,000 federal employees, was initially created to try to keep wages aligned with “prevailing,” or market rates in localized areas. But for the last 45 years, since fiscal 1979, many blue-collar feds have seen limits on their annual pay raises.

The intention of the pay caps is to ensure annual raises don’t exceed the raises that General Schedule (GS) employees get, and to address budgetary concerns, the Office of Personnel Management, which manages the pay system, has said.

But as a result, wages for blue-collar feds in 75% of FWS localities no longer align with local pay rates for similar jobs, according to a March 5 report from the Government Accountability Office.

There are also two different locality maps for GS and FWS employees. While the GS locality pay map contains 58 different areas, the FWS map has 248. The number is much higher for FWS because the map is connected to more targeted concentrations of federal employees working at, for instance, specific military bases, or Department of Veterans Affairs medical centers, GAO said.

“Employees in different FWS wage areas might find themselves with different annual pay increases. That has resulted in some, I think, confusion,” GAO Director of Strategic Issues Yvonne Jones, the report’s author, said in an interview. “[There have been] questions over the years for why the pay schedules for the two different sets of employees would be different, when the employees are working in what may look like the same place.”

Currently, out of the 248 Federal Wage System localities, 117 FWS localities are above prevailing rates, while 69 are below the market, GAO said.

The Biden administration said it’s “pursuing structural reforms” to some of the government’s largest pay systems — including the Federal Wage System for blue-collar feds, according to the 2025 budget request.

The Office of Management and Budget specifically pointed to what it said are long-standing “pay limitations” for blue-collar federal employees, as a result of aligning the pay ceilings and floors with those on the General Schedule.

One possible response to the issue may be “removing current ceilings in the FWS wage schedules and establishing a statutory minimum for annual pay rate adjustments,” OMB said in a budget request document.

Although the budget request alluded to some possible fixes, there is not yet a specific legislative proposal addressing the topic.

A proposal to merge FWS, GS maps

The Federal Prevailing Rate Advisory Committee is looking into another way to resolve some pay challenges for FWS employees.

In December 2023, the council, composed of members of OPM, the Defense Department and other stakeholders, voted 9-1 in favor of a draft proposal to merge the FWS locality map with the locality pay map for GS employees.

FPRAC has been considering possible reforms to the FWS map for 15 years. But the current draft proposal comes from a more recent 2022 request from Congress, which asked OPM to consider ways to merge the two locality pay maps.

Even though the council approved the proposal, some members said they still have “substantive” concerns about the cost and implementation of the changes.

A map-merger could lead to recruitment and retention issues for the Federal Wage System workforce in areas where the pay rates might decrease — possibly opening the door to federal positions moving to contract employees to save money, Nancy Speight, deputy assistant secretary of Defense for civilian personnel policy, said in December.

GAO’s Jones also said there are a number of complicated issues that need to be considered and assessed, if OPM were to merge the two maps.

For instance, aligning the maps would affect the wage survey DoD uses to help calculate wage rates in different FWS localities each year. DoD’s annual survey for FWS looks at data like job descriptions and numbers of employees in local areas to help set the pay rates each year.

“If you change the definition of the area, you will change the wage rates,” Jones said. “The point of the FWS system is to provide a wage rate which is close to the market rate in a particular geographic area. So, if you redefine the boundaries of that area, then of course you will change the data inputs into the survey.”

Those changes could lead to more Federal Wage System areas having either a lower or higher pay rate than the prevailing rate, Jones said, adding that “it’s hard to know without actually doing the exercise.”

Currently, OPM Director Kiran Ahuja and other agency officials are reviewing FPRAC’s recommendations. OPM is expected to issue a decision on the recommendations in April.

“We will be waiting with the interest, as others wait with interest, to see what that decision is,” Jones said.

GAO plans to publish another report in the near future on FWS. But right now, it’s in the very early stages of the process. Eventually, the report will look at wage rates for a range of military facilities across the country, and some of the issues associated with setting the priorities.

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What’s the old saying? Never a lender nor debtor be? For most of us, no problem not being a lender. But for buying a house or a car — that entails taking on debt for the average working stiff. Not all debt is evil if you manage it correctly. Retired federal manager Abe Grungold of AG Financial Services joined the Federal Drive with Tom Temin with some advice.

Interview Transcript: 

Tom Temin And people retire even with debt and people carry debt and the debt levels if you look at it nationally Abe. It’s not a pretty picture, is it?

Abe Grungold In preparation for today, I looked up some statistics, and the numbers were just staggering. For credit card debt. There is $1.1 trillion of credit card debt, and that pertains to 49% of all credit card holders. And with respect to mortgage debt, there’s $12.2 trillion in home mortgage debt. And that is for 70% of all households. That number made a little bit more sense to me. But if you are a federal employee, and I remember this early on in my career, that when I first got the job with the government, I was a GS-9, and I immediately started looking to buy my own home. And I realized something very important that with my mortgage and my other expenses, I wanted to make sure that I was going to be able to contribute to the TSP as much as I could afford to do. And what I learned was I needed to put my money in the TSP first before I paid my other bills. It’s very important if you are an active federal employee or a young federal employee is to pay yourself first, and you must at least put in 5% of your salary in the TSP so you can receive the government match of 5%. You have to do that at a minimum. And I heard a statistic recently, I think there’s about 85% of all federal employees who are at least putting in 5%. So, there are some active employees who cannot meet the 5% because they are possibly in a very expensive city like New York or San Francisco, or they just feel it financially cannot do it. So, this is very important, very important to pay yourself first and to put in as much as you can afford.

Tom Temin You know when I started out. People were content almost to be house poor. And the reason was real estate values just went up and up and up in the 70s, 80s, 90s, you know. Well, till they didn’t. Now they’re going up again in most places, but it’s not a guaranteed thing. I think the thinking now is, you know, maybe don’t be house poor, but live in what you can afford comfortably again. So, you can do some of those other things for your long-term financial benefit. Now, like you say, investing in your 401 K or your TSP. What’s your thinking on house poor and housing cost?

Abe Grungold This is an excellent question, Tom. When I first was a federal employee, I was a GS-9 and I was looking for a condominium, and I was single at the time. And I wanted this two-bedroom condominium, and I couldn’t afford it Tom. I could not afford it. So, I ended up buying a one bedroom in the same building. And I said, you know, as my federal career advances, I will be able to afford a bigger home. But right now, I need to buy what I can afford. And I ended up buying the one bedroom. I owned it for ten years, and then later on I did buy the two bedroom, and then later on I bought a home and etc. etc.. So, you really need to be realistic with buying what you can afford. That’s the most important thing. But before you buy something, you have to factor in your contribution to your retirement. That has to be part of your budget, and you need to think about that immediately as a new federal employee. To start right away contributing.

Tom Temin And if you are making comfortable, say, mortgage payments and you are headed to the retirement end of things, a lot of people psychologically say, I got to get rid of my mortgage, sell the house, buy something less, whatever the case might be, or sell the house or pay it off. That’s not necessarily the right knee jerk thing to do, though, is it?

Abe Grungold Well, certainly if you can afford to pay your mortgage, while you are in the latter part of your federal career, it’s okay to carry that mortgage with you into retirement. If you are doing your calculations properly, you have at least, 80%, retirement income stream from your salary going into retirement. That’s fine. That’s fine. But what happens is a lot of people, when they get into retirement, they tend to spend more. And I see it, you know, in my own neighborhood, I live in a retirement community, and my friends and neighbors are spending like crazy. They’re going on, you know, trips, and they have their grandchildren over a lot, and they’re buying motorcycles and they’re buying a boat. And that’s fine, too, if you can afford to do all those things, if your budget doesn’t allow for that, your retirement is not going to be what you expect it to be Tom. And there is a possibility that you are just creating more debt in retirement, and you may have to end up getting a part time job to supplement your income. It’s always wonderful to go into retirement with no debt, but if you do have some, you certainly have the budget for that before you put in your retirement papers.

Tom Temin But it could be that the mortgage tax deduction, you know, is a factor that would weigh in favor of maybe not paying off the mortgage. Again, if the mortgage is a reasonable piece of your income, even in retirement. Yes. I always tell my clients to continue paying their, mortgage into retirement. But most important, try to maximize your contribution to the TSP before retirement. Try to build up that retirement, nest egg as much as you can before you actually go out the door. And I remember I had two months left, in the beginning of the year in which I retired, and I was doubling my payments to the TSP every paid period because I knew I was leaving at two months. I wanted to put in the absolute maximum that I could.

Tom Temin And what about credit card debt? Because that’s a really tough thing, people. We just use cards now. You can’t even. They’re places that don’t even take cash. We’ve got an expensive coffee shop, you know, near our studios. And for a little tiny, it looks like a teacup. Teensy little cup of cappuccino. They want seven bucks. They don’t take cash. You’ve got to use a credit card.

Abe Grungold That’s true. Many retail places just do not take cash. And I have found myself lately using a credit card wherever I go. But the most important thing about your credit card is you have to pay it off at the end of the month. Because if you’re not doing that, you’re spending 13 to 18% in interest on that money that you have spent on coffee and, going to, you know, McDonald’s or wherever you went. And really, you should not be spending that extra money, Tom. You shouldn’t spend that extra money. It’s okay to use a credit card, but you have to know and understand, I have to pay this off at the end of the month. My daughter is learning this now at the age of 22. So, it’s a life skill that that everyone has to work on every day. It’s so easy to give them the card, swipe it. It’s painless, but it’s something that has to be built into your DNA.

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