Government retirement benefits are still considered generous by many people. Unlike a private company employee takes who can take their 401k money with them when they change jobs, government employees do not have this kind of career mobility. Government employees trade their career mobility for government retirement benefits.
Federal government retirement benefits
The current federal government retirement is based on three components: the Basic Benefit Plan, the Thrift Savings Plan, and Social Security. In theory each components is worth approximately 33% of a federal employee's retirement. A newly hired civilian federal government employee can expect the following retirement benefits:
Basic Benefit Plan
The Basic Benefit Plan is the pension portion of the federal government retirement plan. The federal employee pays 0.8% out of every pay check for the pension. The annual amount paid at retirement is 1% of the average last 3 years salary.
A federal employee can estimate the annual amount from their government pension by doing the follow math:
Number of years of federal service x average last 3 year salary x .01 = estimated annual pension
For example, a federal employee worked for the federal government for 25 years and made $45k, $48k, and $52k for the last three years, then their estimated annual pension is $12,083.
Federal government employees do not get the Basic Benefit Plan unless they are vested, which mean they have to work for the federal government at least 5 years.
Thrift Savings Plan (TSP)
The Thrift Savings Plan is the 401k match portion of the federal government plan retirement plan. The government agency matches up to 5% any contributions a federal employee makes to their TSP account. The agency contributes 1% regardless of whether the federal employee decides to participate in the TSP. At retirement, the government employee has the choice to buy an annuity with their TSP balance that pays them an annual amount like a pension.
Do you expect to get anything from Social Security when you retire? This component is supposed to make up 33% of a federal government's employee's retirement benefit.
State and local government retirement benefits
Most government retirement is based on three components: the government pension, the 457b (Deferred Compensation) Plan, and Social Security. In theory, the main component of the government retirement is the pension. In most cases, the pension makes up 40%-60% of a government employee's retirement. The Deferred Compensation Plan is optional so some government employees do not even participate.
A newly hired government employee can expect the following retirement benefits:
Most state and local governments' retirement benefits still have pension plans. The government employee pays approximately 5% of every pay check towards their pension. The annual amount paid at retirement is 2% of the average last 3-5 years salary.
A government employee can estimate the annual amount from their government pension by doing the follow math:
Number of years of government service x average last 3 year salary x .02 = estimated annual pension
For example, an employee worked for the government for 25 years and made $45k, $48k, and $52k for the last three years, then their estimated annual pension is $24,167.
Government employees do not get a pension unless they are vested, which mean they have to work for the government at least 5 years.
457b (Deferred Compensation) Plan
In most cases, the government employee has the option to contribute additional money towards their retirement through a Deferred Compensation Plan. A Deferred Comp Plan is similar to a 401k, but without the match from the government. In theory a retired government employee should be able to get by at retirement with a government pension (if they worked 30 years or more with the government) and social security.
Government retirement benefits are generous, but not overly as generous as some people might believe. Government employees have limited career mobility because the government retirement benefits are directly tied to the number of years they work for the government.