Hopefully, you wouldn’t think of raiding your TSP or IRA during a RIF situation unless it were absolutely necessary. Image: Ariya J/Shutterstock.com
By: John GrobeHave you heard that there are going to be “large scale RIFs” coming in the next few years? If you’ve been paying attention to the federal news, then you are aware of this threat to your bankroll. If you’re one of those who has an emergency fund you don’t need to be nearly as worried as those who don’t.
We don’t know yet if the large-scale RIFs are going to appear, though there’s no guarantee that they won’t. As Richard Pryor said in an album whose name I cannot repeat here, “We will see!”
Even in the best situation, you should have an emergency fund big enough to cover at least three months of expenses. During the government shutdown that ran from December 22, 2018, through January 25, 2019, there was a big spike in hardship withdrawals from the TSP. This should not have been the case. Federal employees should not be so financially fragile that a one-month furlough (for which they were almost certainly going to be paid) causes them to raid their nest egg. They should have had an emergency fund from which they could have withdrawn money to tide them over and then replaced that money once they were paid for the furlough time.
Now, if it’s more serious this time, the bigger your emergency fund, the more likely you will be to emerge unscathed (or relatively so), and the more likely it will be that your family financial situation will still be viable. So, get saving now! If it’s just another false alarm (ref; the boy who cried wolf) you’ll still end up in a better position than those who were not prepared.
Hopefully, you wouldn’t think of raiding your TSP or IRA during a RIF situation unless it were absolutely necessary.
You can keep your TSP after your federal employment and, should you remain employed, you are allowed to take hardship withdrawals or loans from your TSP in case of emergencies, though the Thrift Board discourages them.
Hardship withdrawals also come with a 10% early withdrawal penalty if you are under 59 ½ when you take one. Yes, you can take early withdrawals from IRAs, but you will be subject to the same 10% early withdrawal penalty.
Of course, if you do lose your job, you won’t be able to take loans from your TSP. Any withdrawals you take might be subject to penalties based on your age.
Saving for retirement is important, as is saving for your children’s education and saving to purchase a home. But, until you have set enough aside for an emergency fund, you should have a line item in your budget for emergencies.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
Agency RIFs, Reorganizations Starting to Take Shape
Order Formally Launches ‘Schedule Policy/Career,’ Adds Category of Appointees
Top 10 Provisions in the Big Beautiful Bill of Interest to Federal Employees
A Pre-RIF Checklist for Every Federal Employee, From a Federal Employment Attorney
Work Longer or Take the FERS Supplement Now: Which is Better?
See also
Alternative Federal Retirement Options; With Chart
Primer: Early out, buyout, reduction in force (RIF)
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
