Top 3 Financial Hazards for Veteran, Military, or Federal Employees

  • By Lauren C. Coverdale, CFP®, MBA
  • June 2024

Top 3 Financial Hazards for Veteran, Military, or Federal Employees

We all encounter financial hurdles at some point in our lives. From lacking a sound financial plan or delaying retirement savings, to overlooking expenses and being underinsured, there’s a range of pitfalls to watch out for. However, if you’re a federal employee, veteran, or in the military, there are unique financial traps you must sidestep to safeguard your financial future. 

Let’s explore some strategies to navigate the specific aspects of your financial situation and capitalize on the benefits offered to you.

1. Thrift Savings Plans

One important benefit federal employees are entitled to is a thrift savings plan (TSP). A common financial pitfall among these retirement savings plans has to do with how they are invested. The federal employee must understand that TSPs are intended for long-term investing, not just to the point when retirement begins, but through retirement. Because of this, the federal employee should invest in specific funds that align with that long-term investment approach. 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 this long-term approach in mind, 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, if you’re nearing retirement, it may be wise to gradually shift from stocks to fixed-income funds (F and G) for a more balanced approach. Each person’s situation is different so seeking the advice of a financial advisor is advised.

In addition to how the funds are invested, it’s 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), as this allows you to take full advantage of compound interest, which can significantly grow your savings over time

2. Pension Maximization Strategy for Retirees

Pension maximization is a strategic approach to retirement planning that aims to maximize the benefits received from a pension plan. For federal employees and military personnel, this involves evaluating the trade-offs between opting for a single-life annuity versus a joint-and-survivor annuity and using life insurance to provide for a surviving spouse.

Here’s how pension maximization works and why it might be considered:

      • The Single-Life Annuity option provides higher monthly payments because the benefit is based solely on the retiree’s life expectancy.
      • The Joint-and-Survivor Annuity option provides lower monthly payments but continues to pay a portion of the benefit to the surviving spouse after the retiree’s death.
      • Step 1: The retiree opts for the single-life annuity to receive the highest possible monthly benefit.
      • Step 2: The retiree then uses a portion of the higher monthly benefit to purchase a permanent life insurance policy with the spouse as the beneficiary.
      • Step 3: In the event of the retiree’s death, the life insurance policy pays out a lump sum or provides ongoing income to the surviving spouse, effectively replacing the pension income they would have received from a joint-and-survivor annuity.
      • By choosing the single-life annuity, the retiree enjoys a higher monthly income during their lifetime.
      • The life insurance payout can offer more flexibility to the surviving spouse in managing their finances, as they receive a lump sum that can be invested or used as needed.
      • The retiree must be in good health to qualify for a life insurance policy at a reasonable premium. If the retiree is uninsurable or the premiums are too high, this strategy may not be feasible.
      • The cost of life insurance premiums must be carefully evaluated to ensure that the strategy is financially advantageous compared to the joint-and-survivor annuity. Term life insurance, often sold to these individuals, may not meet their needs as it only covers a specific period and does not build cash value. If the retiree outlives the term, the surviving spouse could be left without coverage. Permanent life insurance, such as whole life or universal life, offers lifetime coverage and can accumulate cash value, providing additional financial flexibility. Though more expensive, it ensures lifelong coverage, making it a more suitable option for pension maximization.
      • If the retiree lives much longer than expected, the accumulated cost of life insurance premiums could outweigh the benefits of higher monthly income from the single-life annuity.

Pension maximization can be a powerful strategy however, it requires careful planning and consideration of various factors. Consulting with a financial advisor is essential to determine if this approach is suitable for your specific situation. 

3. Failure to Stay Informed

Benefits for federal employees can get complicated and they may change over your career. Because of this, many federal agencies offer multi-day seminars for mid-career employees and employees nearing retirement. An example of what you may learn about in these seminars is the LEO (Law Enforcement Officer) early retirement rules, which offer a pathway for law enforcement professionals to retire before the standard retirement age. Typically, these rules provide certain benefits, such as reduced penalties for early retirement and eligibility for pension benefits after completing a certain number of years of service. However, specific eligibility criteria and benefits can vary based on factors like the individual’s years of service, age, and the law enforcement agency they work for. 

To stay abreast and more informed, it’s a good 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.

Prepare for Your Future Today

At Wealth Advocate Group, we partner with our clients to craft a financial road map that offers confidence and a clear path forward as you pursue a stable financial future. Whether you’re approaching retirement, already savoring your golden years, or a government employee seeking financial guidance, we’re here to help you realize your retirement dreams.

If you’re ready to take the next step on your financial journey with a dedicated advisor by your side, reach out to us at or 440-505-5578 to schedule an introductory consultation.

About Lauren

Lauren Coverdale joined Wealth Advocate Group in 2019 as an intern. Upon completion of her undergraduate degree, she joined the team as a paraplanner. As a paraplanner, Lauren provides analysis of client investments, estate planning, cash flow, and retirement readiness for her team. Lauren graduated from John Carroll University in 2020 with a Bachelor of Science in Business Administration in Finance with a concentration in Wealth Management and Financial Planning as well as a minor in Entrepreneurship. In 2021, Lauren also obtained her MBA from John Carroll University. Lauren received her CFP® designation in 2023. She also holds her Series 7 license through LPL Financial and 66 securities licenses through LPL Financial and Stratos Wealth Partners. In her spare time, she enjoys being outdoors, traveling, and spending time with her husband and their dog, Indi. To learn more about Lauren, connect with her on LinkedIn.

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