Retirement investments revisited

A Reader Writes:

Please explain: How exactly do voluntary contributions affect your retirement? Do they merely increase your tax-free return or do they increase your monthly retirement? If you contribute $10,000, what impact does it have, or does it roll over into a $10,000 annuity?

Milt Replies:

At retirement, each $100 in a voluntary contributions account (including interest earned) will provide an additional annuity of $7 a year, plus 20 cents for each full year you are over age 55 at the time you retire.

You also may choose to share the additional annuity by electing to provide a survivor annuity. However, your additional annuity would then be reduced by 10 percent to 40 percent, depending on the difference between your age and the age of the person designated to receive the survivor annuity. Any person, related or unrelated to you, may be designated and need not be the same person for whom regular survivor annuity benefits were elected.

If you will receive an additional annuity as a result of your voluntary contributions, it will be taxed under the "General Rule." Please refer to IRS Publication 721, "Tax Guide to U.S. Civil Service Benefits," for further information.

A Reader Writes:

Am I missing something here as it relates to voluntary retirement contributions for Civil Service Retirement System people? Somehow getting an additional $7 or so annually for each $100 additional contribution made doesn't seem to be of any real value. Any thoughts?

Milt Replies:

That's better than 7 percent a year. Sounds pretty good to me!

A Reader Writes:

What is the duration, average maturity and yield for the Thrift Savings Plan F Fund?

Milt Replies:

The F Fund yielded 7.36 percent for the 12-month period ending Nov. 30, 2002.

The TSP F Fund (Fixed Income Index Investment Fund) is a market-capitalization weighted index of investment-grade, fixed-rate debt issues — including government, corporate, asset-backed, and mortgage-backed securities — with maturities of at least one year.

A mathematical model determines the amount in which this fund distributes investors' money among the various types of U.S. government, mortgage-backed, corporate and foreign government sector securities.

For more information on the F Fund, see the TSP Web site's page about investment options for fixed-income funds.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.

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