I love success stories.
The people who have made the sacrifices to achieve something always fire me up, and today is no exception.
A few weeks ago, FedSmith posted an article I wrote on the Top 5 Tips for Young Federal Employees. In it I outlay some things that I think can help young federal employees achieve financial success (something I’m passionate about and is unique to each person.)
In the thread, there were many comments, but one stuck out to me the most.
The comment came from a federal employee who disagreed with one of my points. He talked about how he had done it a different way and was able to retire at 49 years old with 26 years of service! Initially, I was a bit skeptical, but I followed up and asked if he wouldn’t mind answering some questions that I think could help my readers.
Upon reading the answers to my questions, I found some very wise advice from someone who made many great decisions to allow him the opportunity to retire early and live the life he wanted to live. In my opinion, the most important takeaway is not the fact that he revealed how he was able to retire early, but that he was able to create the life he wanted for himself.
This is a longer article, but there are many, and I mean many golden goose eggs in this interview so pay attention.
So, without further adieu, here is the interview (the person interviewed requested anonymity and therefore will go by “Federal Employee” in the interview:
Cooper: Just to start off and to give some background, how old are you, what year and age did you retire, and are you CSRS (Civil Service Retirement System) or FERS (Federal Employee Retirement System)?
Federal Employee: I’m currently 51 and retired at 49. I was very fortunate that our agency offered an early out retirement, otherwise I would have had to stick it out until my minimum retirement age of 57. I was under the FERS retirement system.
Cooper: When you were working, what agency/agencies were you with?
Federal Employee: I started with the Defense Mapping Agency in Brookmont, MD in Feb. 1988. After quickly discovering the DC lifestyle (and traffic) was not my style, I was offered a position with the US Geological Survey in Denver in Nov. 1988 and worked there until I retired in Sept. 2014.
Cooper: Did you serve any military time? If so, did you buy back your military time and is that something you would suggest to others?
Federal Employee: No, I didn’t. But, after recently giving some financial advice to a couple of cousins who are in the marines and after seeing what the military retirement benefits are, I think (at the time) I would have seriously considered joining the ROTC in college and making a career out of it. The military retirement benefits are far superior to the regular federal employee retirement benefits – especially when calculating your retirement annuity.
Advice for Young Federal Employees
Cooper: That’s a good point, many military members do receive better benefits, which in my opinion they greatly deserve. When you joined federal service, was there anything about the benefits that lead you to start working for them?
Federal Employee: Not really. I knew that at the time, it was stable employment and the benefits were good. In my career field, the govt. was one of the few places to work. With that said, with all the changes over the years and the politics involved in each office (this is a whole different story), I’m not certain I’d still recommend the federal govt. for new college graduates. If you’re the type of person that likes to show up at work and “go with the flow” and just put in your 8 hours, yes, it might be a perfect fit. But, if you’re the type of person who’s a go-getter (type A personality), from what I’ve seen in the agency I worked for, no, I would not recommend the federal govt. in any way, shape, or form.
Cooper: Unfortunately, this is something I hear more and more and probably plays a part in why OPM is having trouble recruiting new graduates. When you started federal service, were there any mistakes you made early in your career that you could shed light on for those just starting out?
Federal Employee: I would have thoroughly researched all my benefits and totally understood them. They didn’t have any training for new employees back then that fully covered your employee benefits and the financial benefits of the types of investing that were available. I strongly feel that there should be a mandatory course for all new employees that cover in extreme detail the individual benefits as well as some financial advice for long-term investing.
Importance of Side Income
Cooper: I greatly agree, I also believe there needs to be more education on investing and just money in general in the public education system. But, that could take me down a rabbit hole. Did you have any side income while working for the federal government? Is this something you would suggest federal employees seek out?
Federal Employee: Yes and definitely YES. There were a couple of times during the 26 years I spent with the feds that we had the real possibility of going through a RIF (reduction in force). Trust me you DO NOT want to go through one of these. It brings out the worst in people and you’ll quickly find out that management does NOT have your best interest at heart. I’d always recommend having something to fall back on in case you find yourself no longer working for the govt.
Personally, I had a couple of side businesses/hobbies that I thoroughly enjoyed doing in my free time that I have now turned into business that I can spend as much or as little time as I desire. For my first business I was (and still am) a professional nature photographer. It was a passion just to get outdoors to go hiking and exploring. I quickly discovered that companies and people would buy my images for publications and personal use/display. I started doing art shows during several weekends in the summer and later on, I opened a gallery for several years during the Christmas shopping season in one of the major shopping malls in the area. It didn’t seem like work since I enjoyed every minute of it. It also educated me over the years on how to run a small business.
The other side income was (and still is) rental properties. I can’t recommend this option enough if you’re handy and can repairs things. It can be VERY profitable. A couple of years after I bought my first condo, I decided to buy a house. Instead of selling the condo I turned it into a rental. I quickly discovered this was a great passive income with not too much effort required. From that point on I would save up enough for down payments and purchase other rentals. I would also purchase properties and flip them for a profit. You need to be careful if you do this and really understand the market. In 1999 I got tired of paying broker commissions so I got my real estate license and basically used it only for properties for myself and friends and family. I can’t stress enough the research that is required to assess current market conditions. There are times to buy and times to sell and you really need to know what type of market you’re in. You also need to be extremely patient and wait for just the right deal. I spent over 2 years looking/waiting for the house we live in now.
I know everyone reading this is going to say something like “well he couldn’t have retired at such a young age if he didn’t have some side businesses”. This would be totally incorrect. The key to retiring early is to eliminate all debt (live beneath your means) and save as much as you possibly can during your career. Yes, this includes paying off your house. Once you do this, you’d be amazed at the freedom you have acquired. The main advice I’d give anyone is that if you can’t pay cash for something, don’t buy it. This includes everything except for your house. With real estate you don’t really have a choice when just starting out. How to buy a house and how much to put down is a whole separate topic.
What I recommend to new employees is find what your passion is and see if you can turn it into a side business. You might surprise yourself. Don’t be afraid to ask for help from someone who has already done it. Odds are, they will be more than willing to share information with you so you don’t make the same mistakes along the way that they did.
Federal Employee Group Life Insurance
Cooper: I think we could end the interview here and people would more than get their time’s worth. There’s so much wisdom in your answer, I especially loved the discussion on eliminating debt, an idea that I believe is often overlooked. What is your opinion of Federal Employee Group Life Insurance? Any advice for both young and older employees?
Federal Employee: There’s good and bad. If you’re in good health, then FEGLI is NOT your best option. Chances are you can buy two or three times the amount of term life insurance from the private market for the same price FEGLI charges. BUT, if you’re in poor health or have pre-existing conditions, FEGLI is well worth a look since they can’t deny you coverage (unless the rules have changed since the last time I looked into it). I’m in great health so getting a 10 year term life policy from the private market was a breeze and costs less than half of what FEGLI would have charged per year. It’s unfortunate the govt. doesn’t have a yearly open season for FEGLI. So, if you have an open season for FEGLI (which is quite rare) take a serious look as to where you’re at in life and evaluate if this would be a good option.
A person’s goal should be to get to the point in life that you no longer need life insurance (no debt and no dependents). But with that said, it can also be used as a great investment tool later in life to leave money for your heirs since proceeds are not taxable.
Cooper: Good advice, any tips on Federal Employee Health Benefits?
Federal Employee: Over the years I’ve seen what private companies offer and in my opinion, it would be tough to beat the Federal Employee Health Benefits. This was basically the ONLY reason I stayed on with the federal govt. I had too many years in and knew if I could make it to retirement I’d be set for life with some of the best health insurance available. Both young and older employees need to realize/understand that to take the Federal Employee Health Benefits into retirement, you must have coverage uninterrupted for 5 years prior. I’ve heard of folks that dropped it and went on their spouses plan (to save a minimal amount of money) within that 5 year window thinking they could get back on it right before they retired so they’d have coverage the rest of their lives. They were sadly mistaken.
Thrift Savings Plan
Cooper: What was the most important thing you did regarding your benefits that helped you retire at such a young age?
Federal Employee: From day one, I contributed the absolute maximum to the TSP every single year. I stayed out of the G-fund until several years ago when an early out retirement became a real possibility. I wanted to protect what I had. My situation was probably different from most since I knew I wouldn’t need to touch it in retirement and my TSP would be a safety net if I ever needed it. If I didn’t have the side businesses, yes, I would have used the TSP for my retirement and could have easily done so.
Cooper: What TSP Strategy would you suggest to those who want to set it and forget it? (a passive investor)
Federal Employee: Do whatever you can to get up to the full contribution limit allowed by the IRS ($18,000/year for those under 50). You need to pay yourself first. When first starting out you need to make a life decision – do you want to retire early and make some sacrifices along the way or do you want the new car/toys every couple of years, expensive vacations, etc.? Your answer to this question is one of the most important decisions you’ll ever make. Invest only in the C, S, and I funds and do not move the money around thinking you’ll time the market. You’ll almost never beat the return you’d get by just not looking at it. Once you’re within 5 years of retirement (and if you’re going to depend on the TSP), I’d move 20% each year into the G-fund to protect it from a market crash during your last 5 years.
For newer employees, I’d go all Roth TSP. The tax benefits of 20-40 years of compounding FAR outweigh any taxes you’ll pay upfront.
For employees 50 and older, you should already be at the IRS maximum contribution. If so, you can contribute an additional $6000/year catch up contribution. Do it. Once you retire, you cannot make more contributions to the TSP so your goal is to get as much in there by your retirement date as possible.
For the small percentage that are really planning and doing everything right, once you are at the IRS maximum contribution to your TSP, seriously consider an individual IRA or Roth IRA depending on your situation. Again, IMO, this should ONLY be done AFTER you are making the full contribution to your TSP.
IMO, there simply is no better long-term investment than the TSP especially when factoring in the insanely low administrative fees vs. anything else on the market. The key here is LONG TERM INVESTING (20 or more years).
Cooper: I disagree somewhat with your recommendation on only contributing to the TSP until reaching the IRS limit, but these are both our opinions and you offered some great insight for all ages. I especially love your point on long-term investing. Any advice regarding the retirement process and paperwork?
Federal Employee: It was way easier than I expected! Just be sure you have someone in HR that is on top of things and will answer your questions in a timely manner. The HR person is your key to a smooth retirement process. I do want to mention one thing here though. I AM NOT impressed with OPM after you retire! They got the paperwork done on time and did it correctly (I’ve had friends retire with horror stories about OPM). BUT, good luck if you ever have a question for OPM and want to actually talk to someone. It is the most inept federal agency I’ve ever tried to contact in person. If you can ever get their phone to ring and not get a busy signal (I literally spent hours and over 100 calls just to get a ring tone), you will then sit on hold for hopefully an hour. The person I finally spoke to said this was the norm! Also, good luck if you ever email them. If it’s a simple question where they don’t really have to do any work and research an answer, their response email said they’ll get back to you in 2 to 3 weeks. But, if they have to actually do any work, it will be 6 to 9 weeks! The answer I got back via email after many weeks said to write them a letter and mail it to the address I already had from their website!
Cooper: Unfortunately, I’ve heard these same sentiments from many Federal Employees and it’s unfortunate, but I have hope that it could change in the future. Any advice regarding the Survivor Annuity Plan for married couples?
Federal Employee: Yes, absolutely go with the max. Why? If you pass away the survivor annuity plan is the ONLY option for your spouse to pay for and continue your federal health benefits. If past history is any indication of the future, rates are only going one direction – up. You want to be certain that your survivor annuity will be enough in future years for your spouse to continue to receive this benefit.
Cooper: Were there any resources that helped you retire at such a young age such as books, radio, etc?
Federal Employee: Definitely – the one book I read many years ago which had a major impact on me was “The Millionaire Next Door” by Stanley and Danko. This should be required reading in every high school in the country. I’ve read numerous other books, magazines, and articles on investing over the years. I’m always trying to learn more since I have a passion for investing which has served me well. Yes, I’ve made tons of mistakes along the way. But, I always look at my mistakes as a learning experience. The one magazine I currently subscribe to which has a ton of great info is Kiplingers.
Cooper: I absolutely loved “The Millionaire Next Door.” Truly one of the best books on finance and played a part in me coming into the Financial Planning industry. Last question that everyone is dying to hear, is retirement as good or better than you imagined?
Federal Employee: This is a great question! Over the years I’ve seen literally hundreds of my co-workers retire. Whenever I could I would ask them if they had any regrets. The ONLY regret that most of them replied with was that “they wish they would have retired earlier”. Most of them didn’t realize the overwhelming sense of freedom you get until after you retire.
I would also ask them if they missed working for our agency/office. I have yet to find a single one who said yes. Yes, they miss some of the coworkers but certainly not the hierarchy or politics that were involved in the day-to-day operations.
So to answer this question for myself, the answer is BETTER!!