Broker Check
Financial Pitfalls Federal Employees Should Avoid

Financial Pitfalls Federal Employees Should Avoid

October 21, 2021

Everyone experiences financial pitfalls, and federal employees are no different. From not having a financial plan, starting to save for retirement too late, or not being aware of your expenses, to being underinsured, the list could go on. However, if you do fall into the category of a federal employee, there are specific financial pitfalls to be on the lookout for to ensure your financial future stays on track. 

Let’s go over a few points to help federal employees navigate some of the intricacies involved with their financial situations and special benefits.

Thrift Savings Plans

One important benefit that federal employees are entitled to is a thrift savings plan (TSP). A financial pitfall that is common among these retirement savings plans has to do with how they are invested. It is important for the federal employee to understand that TSPs are intended for long-term investing, not just to the point when retirement hits but all the way through retirement. Because of that long time horizon, the federal employee must invest in funds that align with that long-term goal. The funds that are allowed inside a TSP are not available to the general public. Some of these funds are titled C, S, I, L, F, and G funds. With the long-time horizon, the federal employee should check how the TSP is invested, making sure that it is allocated more so with stock funds (C, S, and I). However, when finding oneself in the later years of retirement, it is important to ratchet down the allocation of stock to an increased allocation of the fixed-income funds (F & G).

In addition to how the funds are invested, it is equally important to do your best to contribute the maximum amount allowed when you are younger and when you reach age 50 (eligible to contribute an additional “catch-up” contribution).

Failure to Include or Update Beneficiary Designations

Some of the special accounts or forms that federal employees may have to be aware of include the following:

  • Unpaid compensation and unused annual leave of a deceased federal employee
  • Federal employees group life insurance
  • Thrift savings plan
  • CSRS or FERS

The financial pitfall that we typically see here is not including or updating beneficiary designations on the above-mentioned accounts or forms. This is important, especially if the federal employee gets married, has children, gets divorced, or faces any other major life change.

Emergency Funds

Having adequate emergency funds applies to all individuals, but this point is also important to make in considering pitfalls for federal employees. While federal employees have very strong job security, emergency funds still play a major part in their financial plans. The reason for this is because of the potential for a government shutdown, which could eliminate certain sectors or lay off less-tenured employees.

Failure to Stay Informed

Benefits for federal employees can get complicated, and they may change over your career. Because of that, many federal agencies offer multi-day seminars for mid-career employees and employees nearing retirement. To stay abreast and more informed, it’s a great idea to attend and actively participate in such seminars when possible. The earlier you start understanding the nuances that federal employees are faced with, the better off you will be to make decisions today that have a big impact on your financial future.

Take the Next Step

Your financial life can be complicated, and sometimes it’s challenging to know which direction to go. And that’s why it’s wise to enlist the help of an experienced professional to give you trustworthy and objective advice to help you avoid these pitfalls (and others). 

Our team at Security Financial Management works closely with our clients to design financial strategies that provide confidence and clarity while also helping to protect their future. Using customized strategies that are created through a true partnership, we empower our clients to weather the inevitable challenges that our complex financial world presents. If you are a federal employee and you don’t already have an advisor helping you on your financial journey, let’s see if we’d be a good fit to partner with you. Schedule a call today or reach out to us at

About Security Financial Management

Security Financial Management is an independent financial services firm dedicated to delivering exceptional service built on reliability and trust. With 3 locations in Central Florida and 1 in Rochester, MN, SFM has been partnering with clients for over 25 years, providing comprehensive financial planning. To learn more about Security Financial Management, connect with them on LinkedIn.

Advisory services offered through Investment Advisors, a division of ProEquities, Inc., a Registered Investment Advisor. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member, FINRA & SIPC.

Security Financial Management is independent of ProEquities, Inc.