One of the main goals of the White House and current Congressional leadership is to change how the federal government approaches retirement. The executive branch is looking to reduce costs for retirement and pension plans while making federal jobs seem more appealing in the job market.
However, these savings plans have left several employees wondering how federal pension cuts could affect their future. We have answers to your questions. Here is what the proposed budget changes mean for federal employees as well as total fiscal savings.
How Much Will Federal Pension Cuts Save the Government?
The proposed federal pension cuts will have an immediate impact on the government’s finances, which is good news for the executive branch and Congress members who want to make dramatic changes on how the government is run. The team at FederalSoup reports that the government will save $6.5 billion in the 2018 fiscal year by making these cuts.
Over the course of 10 years, this savings is exponential, with some experts estimating a savings of $76 billion in retirement benefits cuts along with a $72 billion increase from employee contributions. This savings can be used to fund other programs or reduce the federal deficit, placing the government in a more balanced position financially.
How Will Proposed Budget Cuts Affect Individual Employees?
There are currently five proposed plans to achieve these savings goals, and each is being reviewed by the Congressional Budget Office for their viability and impact on both the government and individuals. In most cases, employees will receive fewer federal benefits from the government and will be expected to save more on their own.
In the short term, these plans reduce take-home pay, as employees will need to contribute more to their personal savings plans and 401(k)s. In the long run, these plans create uncertainty for retirement, particularly for employees who decline to start saving now. The burden to prepare for retirement is placed almost entirely on the individual, not the employer.
Will These Plans Impact Employees Who Are About to Retire?
Employees who are just starting to save for retirement (or who have several years of saving left) might notice a short-term setback in their income because of these cuts, but a few of the proposed plans can have a bigger impact on older workers who are about to start their retirement.
One proposed savings option reduces the average pension payment to the last five years instead of the last three. Employees who have been planning to live off pension savings based off of their last three years of income could find themselves receiving fewer benefits because of these federal pension cuts. In some cases, this could lead to a significant financial strain on future retirees.
Will Federal Pension Cuts Affect Current Retirees?
Fortunately, none of these plans will affect existing retirees. All of the proposed federal pension cuts by Congress are forward-facing, meaning future employees and future retirees are the ones who will be affected. Ideally, this gives workers time to organize their finances and prepare for retirement around these cuts.
In some cases, current employees won’t be affected at all and only future hires would face changes. This only depends on the plan types that get passed by Congress.
Why Is the Government Making These Cuts?
Not all of these budget cuts are meant to save money. Some of the plans were created as restructuring options for new hiring practices. The cuts to federal contributions closely match those offered by private sector companies, and some of the plans move the proposed contributions into higher salary benefits. Even if new employees have to contribute more to their retirement savings plans, they should be paid more, which would balance the cost and benefits.
If government agencies are able to offer higher salaries to employees, they might be able to recruit better talent and retain workers longer — which leads to a more effective organization as a whole.
What Steps Can Employees Take to Maximize Their Benefits?
Despite these federal pension cuts, there are still steps that employees can take to protect their benefits and make sure they’re prepared for retirement. A few of these steps include starting to save early. You’re never too young to organize your retirement benefits. This includes life insurance plans, savings plans, and multi-year investment portfolio. The sooner you start setting money aside, the better off you will be despite any cuts.
Another step you can take is to talk to a benefits specialist. Our professionals can review your financial situation and look for opportunities to save more or better prepare for your future.
These federal pension cuts haven’t been passed yet. By following the budget discussions and proposals, federal employees can protect their benefits and set up their financial situation now for a comfortable retirement. Prepare yourself now by contacting us today.