Senior Executive Service (SES) employees are government employees. As such, the retirement benefits package falls under the Civil Service Retirement System (CSRS). When an SES employee retires, he gets benefits under the government retirement system. You should understand your SES retirement benefits before you retire so that you can make proper retirement plans in advance.
The CSRS is a federal program that gives you two ways to contribute toward your retirement. You contribute 7, 7 1/2 or 8 percent of your pay to the basic annuity that you'll receive when you retire. The government matches any contributions you make to this plan. You may enhance the basic annuity account by adding an optional 10 percent to a voluntary contribution account. Finally, you may contribute additional money to a Thrift Savings Plan (TSP).
The CSRS does not participate in Social Security. This means you pay no Social Security tax. You also do not pay survivor and disability tax during your lifetime. This allows you to contribute more money to your TSP than you otherwise would. When you retire, you receive a guaranteed annuity payment as a base pension payment. Your TSP may then be used to supplement this payment. You may convert some or all of the account to a guaranteed monthly payment. Otherwise, you may keep the TSP as a savings.
The disadvantage to your retirement plan is that there is no government matching contribution on your TSP contributions. Additionally, all of your income is taxable as ordinary income when you retire. While private retirement plans allow for Roth-designated contributions, the federal government does not provide for this. Roth accounts allow after-tax contributions in exchange for tax-free income at retirement. This is beneficial when tax rates rise.
Even though you do not have the option to contribute to a Roth account, you should still consider contributing as much as you can to your TSP and basic annuity. When you retire, the benefits you receive could be substantial. This income is meant to support you entirely when you retire from service, so the more you contribute to the plan, the better. Remember that you do not receive Social Security benefits under the system, so it's important that you try to maximize your contributions.
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- "Practicing Financial Planning for Professionals (Practitioners' Version), 10th Edition"; Sid Mittra, et al.; 2007
- U.S. Office of Personnel Management: CSRS Retirement