I recently wrote an article that exhorted Thrift Savings Plan participants to put as much as they can in the TSP. Those of us who were unaffected by the coronavirus might find ourselves in a position where we can ramp up the amount we are setting aside for retirement. But what about those of us who were affected?
Not many federal employees or uniformed services members found themselves personally affected, but many of us might have had family members who lost income, or perhaps even lost jobs, due to the pandemic. How does someone who has just taken a financial hit increase their retirement savings? How do they even continue to save what they were saving before the virus hit?
First and foremost, we all should attempt to set aside money for emergencies in a separate fund that is not raided for any other expenses. Popular finance writers suggest that anywhere from three to twelve months’ worth of expenses be in your emergency fund. Federal employees probably can err towards the three month end, as our jobs are relatively secure – at least that’s what I used to say. After all, furloughs rarely last more than a month; and we’re paid for them when they’re over.
Well, COVID-19 has thrown a wrench into the works for all of us who have family members whose livelihood was threatened by the economic fallout of the shutdowns and other aspects of the current crisis. Some readers may have spouses that have been out of work for more than three months – and counting. I would now suggest that we all strive for 6 months’ worth of living expenses in our emergency funds. In the interest of full disclosure; I don’t have that much money in mine.
If you receive matching contributions to your TSP (FERS, BRS) and you’re just starting to build up an emergency fund, don’t forget to put your 5% in the TSP before you sock any money aside for emergencies. We never want to miss out on free money. Put your emergency money where it is easily accessible and safe. A search at bankrate.com turned up several savings and money market accounts with interest rates slightly above 1%. Compare that rate to what the G Fund earns and it is competitive. The G Fund’s monthly return for August was 0.625% and it is on target to finish the year somewhere around 1%.
Do whatever you can to sock money aside in an emergency fund; it can keep you from depleting your TSP when you run across an emergency. And, if there’s no emergency, the money will be there for retirement and other items.
Back during the furlough, the TSP noted a spike in the number of financial hardship withdrawals, even though those withdrawals permanently reduced the TSP account and, at that time, precluded those who took them from contributing to the Plan for six full months. A recent Fidelity study found that, among respondents who had an emergency within the previous two years and who did not have an emergency fund, 42% of them took either a loan or withdrawal from their workplace retirement plans.
Savings, whether it is for retirement or for an emergency fund is a gradual process. Setting aside a little at a time can get you to your goals.
You say you don’t have enough money to allow yourself to set money aside. Analyze your budget and look for ways that you can cut expenses. Maybe you could coax an extra year out of your car. Maybe you can cut back on one or more of your premium channels on cable or dish. The odds are that we won’t see another economic crisis like the one brought about by the coronavirus for a long time. But odds have been wrong in the past.