Good Investment: Learn About Government Plans


Most people just focus on salary when considering a new job, but that's a mistake. Other benefits can make a job much more valuable than it initially looks, especially investment plans.

The money you put away at the beginning of your career can pay off big later on. For example, if you start investing $100 per month at age 25 in a stock fund that has an 8 percent return and then stop after 10 years, you'll still have $125,000 by the time your 60th birthday rolls around. On the other hand, if you put off investing until you're 35, you'll only have $91,000 by your 60th birthday even if you invest the same amount -- $100 per month -- and keep it up for 25 years.

Despite the obvious benefits of starting early, many people still put off saving because it can be so difficult. However, working for the federal government offers investment opportunities that could contribute significantly to your future financial security.

Investment Options

Federal employees are eligible to participate in the Thrift Savings Plan (TSP), a retirement savings and investment plan similar to 401k plans offered by private-sector employers, but with some notable differences.

To begin with, federal employees may choose to invest in any of five funds professionally managed by an independent government agency, the Federal Retirement Thrift Investment Board. These funds -- a government securities fund, a bond fund, a large company stock fund, a medium and small company stock fund and an international stock index fund -- have all performed well in the past and are considered a stable investment. This is an important advantage over the stock incentive plans offered by many private-sector employers because those programs require you to essentially bet the farm on the fortunes of a single company.

You can contribute up to 12 percent of your basic pay each pay period to your TSP account as soon as you become a federal employee.

Matching Contributions

Many private-sector companies will offer only one type of "match" to the amount of money you contribute to your investment plan. Not so with the federal government. It offers two types of contributions.

First, when you become eligible for agency contributions, your employer will automatically contribute an amount equal to 1 percent of your basic pay each period to your investment plan, whether or not you are contributing to your account. Under this Agency Automatic Contribution, you are guaranteed that an amount equal to at least 1 percent of your pay each period is being contributed to your investment plan.

Second, your agency will also make Agency Matching Contributions once you are eligible for them. The government will match you dollar for dollar for the first 3 percent of the pay you contribute each pay period to your investment plan. For the next 2 percent you contribute, the government will match you 50 cents on the dollar.

Federal employees are eligible to receive these contributions beginning the last month of the second "open season" after the date of hire.

Retirement income received from your TSP account will depend on how much you and your agency have contributed to your account during your working years and the earnings on those contributions. If you start early and invest often, your service in the federal government can enrich your financial future.

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