{"id":52612,"date":"2025-07-09T23:28:11","date_gmt":"2025-07-09T23:28:11","guid":{"rendered":"https:\/\/www.europesays.com\/us\/52612\/"},"modified":"2025-07-09T23:28:11","modified_gmt":"2025-07-09T23:28:11","slug":"new-data-on-tsp-withdrawals-and-social-security-sustainability-for-federal-retirees","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/us\/52612\/","title":{"rendered":"New data on TSP withdrawals and social security sustainability for federal retirees"},"content":{"rendered":"

Terry Gerton:<\/strong> We\u2019ve got a couple of reports to talk about. So let\u2019s first start with Social Security. The Social Security trustees released a new report on the health of the Social Security Trust Fund. What in there caught your eye?<\/p>\n

Tammy Flanagan:<\/strong> Yeah, every year about this time, the Social Security actuaries come out with a report. And I think it\u2019s mostly to tell Congress, hey, we got to do something, because every year so far in the past several years, we\u2019ve seen that the trust fund is not gonna be able to pay full benefits starting about 10 years from now. In fact, that\u2019s now in the year 2033. So that\u2019s really less than 10 years from now. And if nothing happens to change Social Security benefits, they\u2019ll only be able to pay about 77% of the benefits payable even to current retirees. So I have a feeling Congress won\u2019t let that happen. It\u2019s just a matter of when will they make the needed changes to avoid that serious reduction in benefits.<\/p>\n

]]><\/p>\n

Terry Gerton:<\/strong> We\u2019ve talked about this before, but what are some of the policy changes that Congress could make that would sustain the trust fund?<\/p>\n

Tammy Flanagan:<\/strong> Well, almost any of the changes that they\u2019ll make will probably make some people unhappy. So I think that\u2019s why they\u2019ve been pushing this can down the road a little bit further. Because I think it\u2019s either a matter of raising tax revenues or reducing benefits. I think in the area of reducing benefits, Social Security has always been a system that\u2019s been kind of tilted towards the lower wage earner. So people who have worked at pretty relatively low or moderate wages throughout their career will get a higher return on their investment in Social Security. Whereas higher wage earners, in theory, weren\u2019t as dependent or won\u2019t be as dependent on social insurance. So those benefits will be less of a replacement of income. So I think we may see more of a tilt in the future where the higher wage earners will get even maybe a little less replacement income, but it will be protected for those low wage earners to avoid them becoming impoverished. Now, on the side of increasing revenues, that 6.2% FICA tax that we\u2019ve been used to paying for a few decades now, that could go up. Who knows by how much? Another thing that I think is likely to change is the amount of income subject to the FICA tax. That income is under $200,000 a year. I would think they\u2019ll either lift the cap entirely or raise it to a much higher limit. So those things are yet to be seen. Congress has a lot of options to make changes. I\u2019ve seen a laundry list of roughly about 100 different things, little things here and there that can be tweaked. So it\u2019ll be real interesting to see how those changes play out.<\/p>\n

Terry Gerton:<\/strong> Well, make no hard decision before it\u2019s time, though. Speaking of hard decisions, faced with this kind of news, for people who are thinking about when to draw Social Security, might they have the reaction, well, I\u2019m going to draw as soon as I can and get it while I can while there\u2019s still money in the bank?<\/p>\n

Tammy Flanagan:<\/strong> I hear that a lot: get it while the getting\u2019s good. So I\u2019m gonna take it as soon as I turn 62. But be careful, because those who draw Social Security at 62 and then decide retirement\u2019s not quite what I thought it was gonna be, and they go back to work, remember that there\u2019s an earnings limit that\u2019s relatively low. So if you start to earn above that limit, you\u2019re gonna lose some of that Social Security benefit. And if you don\u2019t tell Social Security that you returned to work, you might find yourself with a large overpayment that has to be repaid. So that earnings limit doesn\u2019t go away until you reach your full retirement age, which is 67 if you were born in 1960 or later, and a little bit under 67 if you\u2019re older like I am. So for me, I think it\u2019s 66 and eight months. But you\u2019ve got to be careful about those earned wages if you are drawing Social Security before that age.<\/p>\n

Terry Gerton:<\/strong> That\u2019s an important caution. I\u2019m speaking with Tammy Flanagan. She\u2019s a principal with Retire Federal. All right, Tammy, let\u2019s switch to the second report that you brought to our attention, which is a recent update from the TSP \u2014 their Office of Participant Experience.<\/p>\n

Tammy Flanagan:<\/strong> That\u2019s right. The TSP often \u2014 actually almost every month or every time the board of the TSP meets \u2014 they put out the statistics of a lot of different things regarding TSP participation. And the one I was looking at in particular, because we have so many federal employees leaving government service, is what are people doing with the money in their thrift? What are the most popular withdrawal options? And the one thing that may or may not surprise most people is that the annuity option offered through the TSP through a contract with MetLife is not a real popular option, although it has gained a little bit in popularity. On an average year, less than 1,000 people or 1,000 participants take the annuity option from the TSP. In 2024, that number was just under 1,000 people. So that\u2019s really low when you compare that to how many people are taking monthly payments on an ongoing basis, which averages around almost 3 million participants. So I always wondered, why is that?<\/p>\n

Terry Gerton:<\/strong> Really treating it more as income replacement than as opposed to that once-a-year kind of annuity payment.<\/p>\n

]]><\/p>\n

Tammy Flanagan:<\/strong> Well, the annuity is actually monthly. But I think the problem with the annuity payment is once you turn that money in your TSP over to MetLife, they keep it, and they\u2019re only going to give it back to you once a month. So you can\u2019t make changes to that, you can\u2019t take out a lump sum. So I think a lot of people don\u2019t like that restrictive nature of the annuity option.<\/p>\n

Terry Gerton:<\/strong> Well, we\u2019ve been talking a lot in the last several weeks to folks about making changes in their TSP balance as they get older and as they\u2019re thinking about income replacement, balancing between equity and bonds and the lifetime funds. So this would align with that kind of behavior.<\/p>\n

Tammy Flanagan:<\/strong> Right, because as long as you leave your money in the TSP \u2014 or at least some of it there \u2014 you can still make those transfers between the different core funds: the G, F, C, S & I fund, or move money in or out of the lifecycle fund. So I think we like that flexibility and that control of the money that we\u2019ve been saving throughout our career.<\/p>\n

Terry Gerton:<\/strong> So Tammy, as you\u2019re looking at this report that\u2019s documenting saver behavior in the TSP, what might you expect to happen if some of the provisions in the reconciliation bill go through, especially the ones that affect retirement contributions?<\/p>\n

Tammy Flanagan:<\/strong> Yeah, so if and when those take effect \u2014 where it\u2019s going to require new hires to make a really difficult decision between becoming an at-will employee under the Schedule F, as it\u2019s sometimes known, or I think they call it policy career in the bill \u2014 that\u2019s either pay the lower rates of contributing to the retirement plan or not become an at-will employee and pay much higher rates into FERS, into the Federal Employees Retirement System. And I think as a result of having to pay those higher contributions to FERS, it\u2019s gonna be much more difficult to get employees to save voluntarily in their TSP account. I hope that people still contribute 5% so they at least get the matching agency funds. But I have a feeling those nonparticipation rates may rise as a result of new hires coming right out of school in some cases who can\u2019t afford to pay rent, let alone save for their retirement that could be decades into the future.<\/p>\n

Terry Gerton:<\/strong> Right. And that 10% payment to maintain your protected status is a pretty hefty bill, especially as you say, for young federal employees.<\/p>\n

Tammy Flanagan:<\/strong> Right, because you pay that in addition to FICA taxes, and then try to save in the TSP. All of those go towards future benefits that new hires might be more worried about \u2014 paying off a student loan or paying rent \u2014 rather than retirement planning.<\/p>\n

Terry Gerton:<\/strong> Well, I know we\u2019re all watching those provisions with bated breath to see how they manage through. Let\u2019s tackle one more topic today. I think we have some time \u2014 the online retirement process. We talked about that the last time you were here \u2014 that OPM is moving to an online retirement application process that they say is going to speed processing.<\/p>\n

Tammy Flanagan:<\/strong> Well, it is going to do some things. I think it will be an improvement, certainly over the way things are done now when everything goes into a FedEx envelope and gets mailed to the mailroom at OPM. So I think what\u2019s going to be a little faster and less onerous is the process for an employee to submit their application. Right now, that involves a paper application \u2014 either typing it in or even handwriting it in \u2014 and giving it to your HR specialist who can be in another state. So being able to submit that on your computer with little delay, I think that will help. And maybe even avoid some of the errors that employees make when they\u2019re filling out that application \u2014 maybe they forget to sign something. So I think this will prompt them to make sure they make those applications more accurate. I think it will also help the agency when they are submitting that whole retirement package to OPM \u2014 and again, in an effort to make fewer errors because that can be a problem that does cause delays. But once that application gets to OPM, whether it\u2019s electronically or by mail, it has to be adjudicated or finalized. And for some employees, there are some things that will cause delays \u2014 such as what if you\u2019ve gone through a divorce and now you have to go through the Court Ordered Benefits Branch to have those folks look at that application, look at your divorce decree and figure out how much of that retirement or survivor benefit is gonna go to that former spouse?<\/p>\n

]]><\/p>\n

Tammy Flanagan: <\/strong>That can be an area that\u2019s gonna cause a month, maybe two or three months of delay, depending on how backlogged those folks are in the Court Ordered Benefits Branch. Some folks are retiring under CSRS Offset \u2014 that requires a coordination with the Social Security Administration. That\u2019s kind of out of OPM\u2019s hands, of how long it\u2019s gonna take Social Security to respond to those requests. So the average retirement, where an employee has stayed at the same agency for 30 years, never gone through a divorce, never moved between agencies \u2014 those claims can get processed really quickly, even without electronic applications. But those ones that have missing documents for service history or divorce decrees or certain things that require coordination with other offices \u2014 those are still gonna take some time. So I think we\u2019ll see some employees still complaining about delays. But hopefully the majority of employees who retire will get things processed fairly quickly.<\/p>\n

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\n \u00a9\u00a02025 Federal News Network. All rights reserved. This website is not intended for users located within the European Economic Area.\n <\/p>\n","protected":false},"excerpt":{"rendered":"Terry Gerton: We\u2019ve got a couple of reports to talk about. So let\u2019s first start with Social Security.…\n","protected":false},"author":3,"featured_media":52613,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[64,255,711,39300,39301,67,132,68],"class_list":{"0":"post-52612","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-personal-finance","8":"tag-business","9":"tag-personal-finance","10":"tag-social-security","11":"tag-tammy-flanagan","12":"tag-thrift-savings-plan","13":"tag-united-states","14":"tag-unitedstates","15":"tag-us"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/114825875228841042","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/52612","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=52612"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/52612\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/52613"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=52612"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=52612"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=52612"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}