Foreign Service Money Matters

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2017 Financial Resolutions

Did you make any financial resolutions for 2017? You will be more successful if you write them down. Here are a few that I suggest for members of the Foreign Service:

  1. Increase your TSP contributions to the maximum allowed, if possible.
  2. Consolidate your bank accounts. Many FS folks have multiple checking and savings accounts. Life is a lot simpler with fewer accounts to track. And there is less chance for identity theft.
  3. Create a budget to get an idea of your cash flow. It doesn’t need to be elaborate, just enough to answer that nagging question about where all your money is going.

TSP catch-up contributions

The TSP “over 50” catch-up contribution limit for 2017 is $6,000. Catch-up contributions do not count against the $18,000 elective deferral limit. To qualify to make catch-up contributions, you must: be age 50 or older, or will turn 50 in the calendar year the contribution is deducted from pay; be in a pay status; not be in a 6-month non-contributory period after taking a financial hardship withdrawal; and be making the maximum regular TSP contributions (i.e., $18,000) for the year in which you are making the catch-up contributions.

Employees wishing to make catch-up contributions in 2017 must make an election to do so even if they were in the catch-up program in 2016. To make the maximum catch-up contribution in 2017 via level bi-weekly payments, you should set your contribution at $231 per pay period effective December 11, 2016 (pay date January 5, 2017) via Employee Express. There is no restriction on accelerating the payment of catch-up contributions over a few pay periods. Anyone retiring prior to the end of the year who wants to reach the annual contribution limit will need to accelerate their contributions.

Do human advisers that clients happier than robos?

Where do robo-advisers fit into the overall wealth management process? Below is a very interesting article on the subject. Many consumers would like to have the perceived cost savings of a robo-adviser combined with the advantages of a human adviser. We offer that at Carrington Financial Planning. We found a way to offer robo level investment fees combined with comprehensive planning. While I am not a fan of the robos, I have to admit that the robot adviser in the photo below looks pretty cool.

Do human advisers make clients happier than robos?

Individual Retirement Accounts (IRAs) and the TSP

Employees sometimes ask if they can contribute to an Individual Retirement Account (IRA) even if they are contributing to TSP. The answer is yes. Employees may contribute up to $5,500 in 2017 to an IRA. Employees age 50 or over may make an additional $1,000 “catch-up” contribution. Those limits apply to the combined total of traditional IRA and Roth IRA contributions. Almost all employees may contribute to a traditional IRA. The extent to which those contributions may be tax deductible will depend on the employee’s income level. Many employees may contribute to a Roth IRA, but that option phases out for higher earning employees. For more information, consult a financial advisor.

Let’s Talk TSP #1: The LifeCycle Funds

The TSP LifeCycle funds are target date funds. This means that the fund’s allocation automatically becomes more conservative as the ‘target date’ of the fund approaches. These are common investments in retirement savings accounts. The TSP version of target date funds have a relatively high allocation to cash (G fund) and to the S&P 500 index (C fund). As time passes the cash allocation increases rather quickly – perhaps more quickly than is appropriate from some investors. This can cause loss of potential growth in the TSP account. However, allocation to the G Fund provides less account balance volatility.

While it is very important to reduce volatility as one approaches retirement, this can be accomplished without such a high allocation to cash. Everyone’s situation is unique and the LifeCycle funds are appropriate for some participants. It is a function of a number of variables and your financial adviser can help you make that decision.

 

 

Foreign Service Resources

Useful Guides
Thrift Savings Plan

TSP Roth calculator – TSP paycheck estimator that shows the impact of using the TSP Roth vs. the Standard TSP.

Insurance

FEGLI – The primary USG life insurance.

WAEPA – The main competitor to FEGLI.

AFSPA – A popular source for Foreign Service disability insurance.

USAA – A good source for level-term life insurance.