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7 Financial Mistakes Federal Employees Make Thumbnail

7 Financial Mistakes Federal Employees Make

Today we're revisiting some of the top mistakes federal employees are making in their financial situations. This is a topic we touched on several years ago with an update of some of the more important things we've discovered over time.


What mistakes are you making? What can we do better to optimize your plan or create one?

Many of the top mistakes we see are easy to correct, let's go ahead and get right into it.

Not having a financial plan.

According to Schwab’s 2021 Modern Wealth Survey only 33% of Americans have a written financial plan.

And from our experience many federal employees fall into the category of not having a plan. Because there is so much focus on federal benefits the value and importance of creating a plan is often overlooked, and while FERS benefits are a great foundation and advantage there is more to

So many federal employees don't have a financial plan. They think federal benefits are the plan. And while they're a great foundation, a great advantage, they're not a financial plan.

Your benefits are a pension, a retirement account that you can contribute to, and insurance coverages that you have access to. A great financial plan includes so much more than that. It takes into consideration your goals and objectives, your vision for the future, your risk tolerance. How should you be investing your funds, what your tax situation looks like. Do you have an estate plan, do you have documents in place to protect your loved ones? All these things and so much more.

Not having a plan and waiting too long to get started. The time to start is now, and then we can adjust the plan along the way.

Not contributing at least 5% to TSP

 This one has changed for the better with automatic enrollment – all new employees are automatically enrolled to contribute 5% - but not contributing enough to the TSP is still a very common mistake.

Unless you are facing a financial hardship, it’s absolutely a must to contribute at least 5% to get the full matching contribution from your agency,  

Taking Too Much or Too Little Risk

 Investment risk plays a big role in your ability to achieve your financial goals. Being too conservative with your investments can hold you back from achieving your goals for growth. And likewise, if you're getting close to retirement and being too aggressive, you're putting yourself at a lot of risk, with volatility in the market. Too much or too little risk is a mistake we see a lot of federal employees making. 

Not Looking Outside of FEGLI for Life Insurance Coverage

 Next on the list, is not looking outside of FEGLI for life insurance coverage. FEGLI is a great benefit, it gives you access to a group insurance plan to protect your family. But its age banded, that means that every five years you graduate into a new band and prices increase on your insurance coverage. It gets pricey the older you get. Looking to the open market, you may be able to find term policies, or other insurance that may be a good fit and/or more cost effective where you can lock in premiums over the longer term.

No Estate Plan 

Unfortunately, this one is far too common. Inside of not having estate plan is not updating your beneficiaries - sometimes there are parents from pre-marriage days, former spouses, or no beneficiary named. Outside of beneficiary designations a lot of folks don't have basic estate planning documents in place, such as a will, power of attorney, health directives, or a trust (if you need it). These are all important to ensure your wishes get carried out and you have people you trust in place to make decisions for you. 

Lifecycle Funds, Not Rebalancing Allocations

Two more common mistakes include using lifecycle funds and not rebalancing investment allocations periodically. Look, we're just not a big fan of Lifecycle Funds. With the TSP being limited to only five investment options to choose from, it just takes a little bit of time to put the right mix together and then pay attention to it. Make sure to change it over time – rebalance and change your allocations as you get older, and your goals and objectives change. Avoid these two mistakes and make sure to look at your investments on a consistent basis. 

Not Incorporating Effective Tax Planning 

Finally last on the list is not performing tax planning and failing to take taxes into consideration as part of your plan.

Within tax planning one of the big mistakes is only making contributions to the TSP plan and making those investments 100% traditional. Asset location plays big role in being able to create a tax efficient withdrawal strategy. 

We want to pay less tax whenever possible especially in retirement.  Using a traditional retirement account in combination with Roth and taxable investment accounts can give you the flexibility to create a smart approach retirement income. Each type of account carries different rules and benefits allowing us to design a withdrawal strategy that can be optimized to lower your taxes.

Outside of that it’s always wise to be looking for deductions and credits, and just thinking about taxes from a holistic standpoint in your financial plan.


I hope this brief summary provides insight on some of the mistakes we see federal employees making. If you'd like to talk about your situation and your retirement plan, I’d love to hear from you.


I also publish a biweekly newsletter with insights into topics like this and more. If you’d like to join the list, please subscribe here. 



*The content is developed from sources believed to be providing accurate information.

 This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.