Order Code RL30387
CRS Report for Congress
Received through the CRS Web
Federal Employees’ Retirement System:
The Role of the Thrift Savings Plan
Updated June 10, 2004
Patrick J. Purcell
Specialist in Social Legislation
Domestic Social Policy Division
Congressional Research Service ˜ The Library of Congress

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Federal Employees’ Retirement System:
The Role of the Thrift Savings Plan
Summary
Prior to 1984, civilian federal employees did not pay taxes to Social Security,
nor were they eligible for Social Security benefits. Federal employees were instead
covered by a separate pension plan called the Civil Service Retirement System
(CSRS). The 1983 amendments to the Social Security Act (P.L. 98-21) required
federal employees first hired after 1983 to participate in Social Security. Because
the CSRS was not designed to coordinate with Social Security, Congress directed the
development of a new retirement plan for federal workers. The result was the
Federal Employees’ Retirement System (FERS) Act of 1986 (P.L. 99-335). The
FERS has three elements: (1) Social Security, (2) the FERS basic retirement annuity
(a defined benefit plan), and (3) the Thrift Savings Plan (a defined contribution plan).
The FERS basic retirement annuity is determined by three factors: (1) the salary
base, (2) the accrual rate, and (3) the employee’s years of service. The salary base
is the average of the highest three consecutive years of pay. Under FERS, the accrual
rate is 1.0% of the salary base per year of service. A worker with 30 years of service
will have accrued a pension benefit equal to 30% of the average of his or her highest
three consecutive years of pay. The Thrift Savings Plan (TSP) is a defined
contribution retirement plan similar to the “401(k)” plans provided by many
employers in the private sector. The income that a retired worker receives from the
Thrift Savings Plan will depend on the balance in the account. In 2004, employees
covered by FERS can make voluntary contributions equal to the lesser of 14% of pay
or $13,000. Employee contributions of up to 5% of pay are matched by the federal
government. Federal workers covered by CSRS also can participate in the TSP, but
they receive no matching contributions from their employing agency.
One measure of retirement income adequacy, called the replacement rate, is the
ratio of first-year retirement income to the worker’s salary in the last year of
employment. For an employee retiring at age 62 after 30 years of service, the FERS
basic annuity will provide first-year retirement income equal to 32% of final salary.
Social Security replacement rates decline as a worker’s income increases because the
Social Security benefit formula is “tilted” in favor of low-wage workers. Because of
this tilt, higher-wage federal workers need to contribute more to the TSP in order to
reach the same rate of income replacement as lower-paid workers can achieve from
just the FERS retirement annuity and Social Security. For a federal worker retiring
at age 62 at the GS-4 level after 30 years of federal employment, monthly Social
Security benefits will replace an estimated 25% of final salary. For a worker retiring
at the GS-15 salary level, Social Security will replace just 14% of final annual pay.
The TSP is a key component of FERS, especially for workers in the middle and
upper ranges of the federal pay scale. These workers are unlikely to achieve adequate
retirement income — as measured by the replacement rate — from just Social
Security, the FERS basic annuity, and the government’s automatic contribution of
1% of pay to the TSP. Even at a modest annual rate of return of 6.0%, income from
the TSP can replace about 44% of final pay for a worker who contributes 10% of pay
over 30 years.

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Contents
Defined Benefit and Defined Contribution Retirement Plans . . . . . . . . . . . . 1
Two Types of Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Basic Retirement Annuity Under FERS and CSRS . . . . . . . . . . . . . . . . 2
Retirement Age and Service Requirements Under FERS and CSRS . . 2
Determinants of FERS and CSRS Annuity Amounts . . . . . . . . . . . . . . 3
Cost-of-Living Adjustments (COLAs) . . . . . . . . . . . . . . . . . . . . . . . . . 4
Retirement Income Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The “Replacement Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Replacement Rates Under CSRS and FERS . . . . . . . . . . . . . . . . . . . . . 6
The Thrift Savings Plan: An Integral Component of FERS . . . . . . . . . . . . . 6
Increase in Allowable Thrift Savings Plan Contributions . . . . . . . . . . . 8
TSP Withdrawal Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TSP Participation Rates and Investment Returns . . . . . . . . . . . . . . . . . 9
Illustrations of the TSP’s Role in Providing Retirement Income
Under FERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Estimated Replacement Rates for a 30-Year Employee . . . . . . . . . . . 11
Estimated Replacement Rates for a 20-Year Employee . . . . . . . . . . . 15
Workers Who Leave Federal Employment Before Reaching
Retirement Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
List of Tables
Table 1. Government Matching Rate on TSP
Contributions by FERS Participants in 2004 . . . . . . . . . . . . . . . . . . . . . . . . . 7
Table 2. Annual Rates of Return for Thrift Savings Plan Funds . . . . . . . . . . . . 10
Table 3. Illustration of Replacement Rates for FERS-Covered Employee
Retiring at Age 62 After 30 Years of Service . . . . . . . . . . . . . . . . . . . . . . . 13
Table 4. Illustration of Replacement Rates for FERS-Covered Employee
Retiring at Age 62 After 30 Years of Service . . . . . . . . . . . . . . . . . . . . . . . 14
Table 5. Illustration of Replacement Rates for FERS-Covered Employee
Retiring at Age 62 After 20 Years of Service . . . . . . . . . . . . . . . . . . . . . . . 16
Table 6. Illustration of Replacement Rates for FERS-Covered Employee
Retiring at Age 62 After 20 Years of Service . . . . . . . . . . . . . . . . . . . . . . . 17

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Federal Employees’ Retirement System:
The Role of the Thrift Savings Plan
Pensions for civilian federal employees are provided through two programs, the
Civil Service Retirement System (CSRS), which was established in 1920, and the
Federal Employees Retirement System (FERS), which began operating in 1987. Prior
to enactment of the Social Security Amendments of 1983 (P.L. 98-21), federal
employees were not covered by Social Security. Because the Social Security system
needed additional cash contributions to remain solvent, the 1983 amendments
mandated coverage for civilian federal employees hired in 1984 or later. Congress
recognized, however, that CSRS provided some of the same benefits as Social
Security. Moreover, enrolling federal workers in both plans would have required
payroll deductions equal to more than 13% of employee pay. Consequently,
Congress directed the development of a new federal employee retirement system with
Social Security as the cornerstone, and which would incorporate many features of the
retirement programs typical among large employers in the private sector.
The result of this effort was the Federal Employees’ Retirement System Act of
1986 (P.L. 99-335). FERS consists of three elements: (1) Social Security, (2) the
FERS basic annuity (a defined benefit plan), and (3) the Thrift Savings Plan (a
defined contribution plan). FERS now covers all federal employees whose initial
federal employment began on or after January 1, 1984, as well as employees who
voluntarily switched from CSRS to FERS during “open seasons” held in 1987 and
1998.1 Of 2,595,000 participating federal and Postal Service employees in March
2003, 1,825,000 (70%) were covered by FERS and 770,000 (30%) were covered by
the Civil Service Retirement System.
Defined Benefit and Defined Contribution Retirement Plans
Two Types of Retirement Plans. Retirement programs generally can be
classified as either defined benefit plans or defined contribution plans. A defined
benefit plan typically pays a pension based on years of service and some measure of
average salary during those years. Social Security is a defined benefit pension plan
in which years of service are counted as the 35 years of highest earnings and the
measure of salary is the worker’s average indexed monthly earnings during those 35
years. Both CSRS and the FERS basic retirement annuity are defined benefit plans.
With each year of service, the worker accrues pension benefits equal to a percentage
of average pay during his or her three highest consecutive years of earnings. To
determine the amount of the retirement annuity, this percentage is multiplied by the
number of years that the employee was covered by the plan. For example, a worker
1 Relatively few employees who were covered by CSRS chose to switch to FERS. Only
about 5% of eligible employees switched in 1987 and fewer than 2% switched in 1998.

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CRS-2
covered by FERS accrues retirement benefits at the rate of 1.0% for each year of
service. Over a 30-year career, this would yield a retirement annuity equal to 30%
of an employee’s “high-3” average pay.2
A defined contribution plan is like a savings account maintained by the
employer on behalf of each participating employee. The employer contributes a
specific dollar amount or percentage of pay into the account, which is usually
invested in stocks or bonds. In some plans, the amount that the employer contributes
depends on the amount the employee contributes from his or her pay. When the
worker retires, the amount of retirement benefits that he or she will receive depends
on the balance in the account, which is the sum of all the contributions that have been
made plus interest, dividends, and capital gains (or losses). The retiring worker
usually has the choice of receiving these funds in the form of a life-long annuity, a
series of fixed payments over a period of years, or a lump sum. The Thrift Savings
Plan (TSP) is a defined contribution plan.3
An important characteristic of a defined contribution plan is that the employer
has no financial obligation beyond its commitment to make contributions to each
employee’s retirement account. In these plans, it is the employee who bears the
investment risk. If the contributions made to the account by the employer and the
employee are insufficient, or if the securities in which the account is invested lose
value or increase in value too slowly, the employee risks having an income in
retirement that is not adequate to maintain his or her desired standard of living.
Although the employee bears the risk of investment losses in a defined contribution
plan, he or she also reaps the reward if investment returns produce more retirement
income than was expected.
The Basic Retirement Annuity Under FERS and CSRS
Retirement Age and Service Requirements Under FERS and CSRS.
Under FERS, a worker who has at least 30 years of federal service is eligible for an
immediate, unreduced retirement annuity at age 55. This age is scheduled to increase
beginning with workers born in 1948, eventually reaching age 57 for federal
employees born in 1970 or later. An employee with 20 or more years of service can
retire with an immediate, unreduced annuity at age 60, and an employee with at least
five years of service can retire at age 62. For employees covered under CSRS, the
earliest retirement age is 55 for employees with 30 years of service, 60 for those with
20 years of service, and 62 for employees with at least five years of federal service.4
2 Workers who retire at age 62 or older with 20 or more years of service are credited with
an accrual rate of 1.1% for each year of service.
3 The Thrift Savings Plan is a “cash or deferred arrangement” as defined at I.R.C. §401(k).
4 Members of Congress and congressional staff can retire with an immediate, unreduced
annuity at age 50 after 20 years of service or at any age after 25 years of service. Special
early-retirement rules also apply to federal law enforcement officers, firefighters, air traffic
controllers, and nuclear materials couriers.

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CRS-3
Under FERS, employees (or former employees) who have completed 10 or more
years of government service can elect to receive a reduced retirement annuity at age
55. For those who choose this option, their benefit is permanently reduced by 5% for
each year below age 62 at the time the annuity begins. An employee who retires at
55 with fewer than 30 years of service will have his or her annuity reduced by 35%
below the amount that would have been paid if the individual were age 62 or older.
CSRS has no provision for early retirement with a reduced benefit, except for special
circumstances such as when an agency is implementing a reduction in force.
Of the 38,999 federal employees covered by CSRS who retired under normal,
voluntary rules in 2002, 52% were between the ages of 55 and 59. They had an
average of 34.4 years of federal service.5 Thirty percent of federal workers who took
normal retirement under CSRS in 2002 were age 62 or older. The average age of all
federal workers covered by CSRS who retired in 2002 under normal, voluntary
retirements was 60 years. Their average length of service was 32.5 years. Because
relatively few employees hired before 1984 elected to switch to FERS, those who
have been retiring under FERS have tended to be those who joined or rejoined the
federal work force relatively late in their careers. In FY2002, 11,150 federal
employees retired with immediate annuities under FERS. Their average age was 62.6
years, and their average length of service in the federal government was 16.4 years.
The average length of service for workers retiring under FERS will rise over time as
the proportion of federal employees who spent their entire careers covered by FERS
continues to increase.
Determinants of FERS and CSRS Annuity Amounts. Both CSRS and
the FERS basic retirement annuity are defined benefit pension plans. The amount of
the pension benefit in both plans is determined by multiplying three factors: the
salary base, the accrual rate, and the number of years of service, as is shown in the
following formula:
pension amount = salary base x accrual rate x years of service
Salary Base. Many defined benefit plans use salary earned in the years
immediately preceding retirement (called “final average pay”) to determine the initial
amount of a pension. Earnings generally rise over time as a worker’s experience and
productivity increase, so the years just before retirement usually will be the years
when a worker’s earnings are highest. Defined benefit plans in the private sector
typically base the retirement annuity on the average of a worker’s last five years of
earnings.6 In both CSRS and FERS, the salary base is the average of the three highest
consecutive years of federal pay, sometimes called “high-3 pay.”7
5 “Normal, voluntary” retirements exclude those occurring due to disability, involuntary and
voluntary retirements resulting from reductions in force, and mandatory early retirement for
federal law-enforcement officers, firefighters, and air traffic controllers.
6 If earnings rise each year, the average of the five highest years of pay will be lower than
the average of the three highest years.
7 This calculation is based on nominal (current) dollars rather than indexed (constant)
dollars.

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CRS-4
Accrual Rate. The accrual rate is the percentage of the salary base that a
worker earns in pension benefits for each year of service. Under FERS, benefits
accrue at the rate of 1.0% per year. A worker with 30 years of service will have
accrued a pension benefit equal to 30% of the FERS salary base, which is the average
of the worker’s highest three consecutive years of pay.8 Employees with 20 or more
years of federal service who retire at age 62 or later are credited with a FERS accrual
rate of 1.1% for each year of service, resulting in a higher replacement rate. For
example, a worker covered by FERS who retires at 61 with 29 years of service would
receive a FERS annuity equal to 29% of high-3 average pay. Delaying retirement by
one year would increase the annuity to 33% of high-3 average pay.
Federal employees covered under CSRS accrue pension benefits at rates that
increase with length of service. Under CSRS, benefits accrue at the rate 1.5% for
each of the first five years of service; 1.75% in years six through 10; and 2.0% for
each year of service after the 10th year.9 This results in a retirement annuity equal to
56.25% of the CSRS salary base for a worker who retires with 30 years of service.
Early Retirement, Social Security and the “FERS Supplement”.
Congress intended FERS to be a complete retirement package comprising three
components: Social Security, the FERS annuity, and the Thrift Savings Plan.
Because Social Security retirement benefits cannot begin before age 62, Congress
included in this package of benefits a temporary source of income for federal workers
who retire before age 62. This FERS supplement is paid until age 62 to workers who
retire at age 55 or older with at least 30 years of service, or at 60 with at least 20
years of service. The FERS supplement is equal to the portion of the Social Security
benefit to which the worker will be entitled at age 62 that is attributable to the
worker’s years of FERS coverage.
Cost-of-Living Adjustments (COLAs). Cost-of-living adjustments protect
the purchasing power of retirement benefits from being eroded over time by
inflation. COLAs increase the nominal amount of retirement income, but they do not
affect the real value of this income, provided that the measure of inflation used to
determine the COLA is an accurate measure of price increases in the economy.
COLAs have been in effect since 1962 for CSRS and since 1963 for military
retirement. Retirement benefits paid under both of these programs are fully indexed
8 Under FERS, Members of Congress, congressional staff, and certain public safety workers
accrue benefits at the rate of 1.7% per year for the first 20 years of service and 1.0% per
year for service over 20 years. These rates yield a pension equal to 34% of the FERS salary
base after 20 years of service and 44% after 30 years of service, provide that both the age
and length of service requirements for retirement with a full FERS annuity have been met.
9 Under CSRS, initial benefits are capped at 80% of high-3 average salary. Members of
Congress and congressional staff accrue benefits at the rate of 2.5% for each year of service.
This yields an annuity equal to 75% of the CSRS salary base after 30 years of service.
Certain public safety workers accrue benefits at 2.5% per year for up to 20 years of service
and 2.0% per year for service beyond 20 years.

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CRS-5
for inflation, as measured by the Consumer Price Index for Wage and Salary Workers
(CPI-W).10
To reduce costs, Congress limited the indexing of the basic retirement annuity
under FERS. The FERS basic annuity is fully indexed for inflation under 2% per
year but only partially indexed for inflation in excess of 2%. If the CPI-W increases
by 2% or less, the FERS monthly benefit is increased by the percentage increase in
the CPI-W. If the CPI-W increases by 2% to 3%, the increase in the FERS annuity
is limited to 2%. If the CPI-W increases by more than 3%, the increase in the FERS
annuity is equal to the rise in the CPI-W minus one percentage point. COLAs under
FERS are limited to retirees who are age 62 or older, annuitants under age 62 who
retired because of a disability, and survivor annuitants.
Retirement Income Adequacy
The “Replacement Rate.” One of the fundamental goals of a retirement
plan is to enable a worker to maintain a standard of living in retirement comparable
to that which he or she had while working.11 The adequacy of retirement income is
often measured by calculating the ratio of retirement income to the worker’s salary
in the last year of employment. This measure, called the replacement rate, is
expressed by the following ratio:
annual retirement benefits
annual pre-retirement wages
Because retirees do not have the expenses that are associated with having a job,
most people are able to maintain their previous standard of living with less income
than they had while working. Most financial analysts agree that retirees typically will
need between 60% and 80% of their pre-retirement income (adjusted for inflation)
to maintain their accustomed standard of living in retirement.12 Workers who had
low-wage jobs generally need a replacement rate near the high end of this range
because a relatively high proportion of their income is spent on non-discretionary
items such as food, clothing, shelter, health care, and taxes.
10 Under both CSRS and FERS, COLAs are effective in January each year, based on the
percentage increase in the CPI-W in the most recent third quarter (July-Sept.) since the
previous third quarter. In 1994, 1995, and 1996, COLAs for civil service annuitants were
delayed from Jan. until Apr. to achieve budgetary savings.
11 Generally, adequate retirement income can be achieved from a single pension (plus Social
Security) only by workers who have spent most of their working careers with one employer.
The Tax Reform Act of 1986 requires (in most cases) employees to become fully vested in
pension benefits after five years of service. Thus, it is easier than it was previously for
workers to accrue small pension benefits from a number of jobs over the course of their
careers.
12 President’s Commission on Pension Policy, Coming of Age: Toward a National
Retirement Income Policy (Washington: GPO, 1981), and U.S. General Accounting Office,
Federal Pensions: Thrift Savings Plan Has Key Role in Retirement Benefits, HEHS-96-1,
Oct. 1995.

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CRS-6
Replacement Rates Under CSRS and FERS. CSRS replaces 56.25%
of high-3 average pay for a worker who retires after 30 years of federal
employment.13 The FERS basic retirement annuity was designed to replace a lower
percentage of pay than the CSRS annuity (33% of high-3 average pay for a worker
retiring at 62 with 30 years of service) because FERS participants also receive
income from two other sources — Social Security and the Thrift Savings Plan.
Social Security benefits are based on the individual’s earnings (indexed to inflation)
over a 35-year period The amount of retirement income provided by the Thrift
Savings Plan will depend on the amount that was contributed to the TSP each year
and the investment gains or losses of the funds into which the TSP contributions
were deposited.
The Thrift Savings Plan: An Integral Component of FERS
The Thrift Savings Plan (TSP) is a defined contribution retirement plan similar
to the “401(k)” plans provided by many employers in the private sector.14 The TSP
is a key component of FERS, especially for workers in the middle and upper ranges
of the federal pay scale, because these workers are unlikely to achieve adequate
retirement income (as measured by the replacement rate) from the combination of
Social Security, the FERS basic annuity, and the federal government’s automatic
contribution of 1% of pay to the TSP. The TSP also adds an important element of
portability to federal retirement benefits that is absent under CSRS. Workers who
leave the federal government for jobs in other sectors of the economy can leave their
money in the TSP — where it will continue to accrue interest, dividends, and capital
gains according to the performance of the funds in which they have chosen to invest
— or they can “roll over” their TSP funds on a tax-deferred basis into another tax-
qualified retirement savings account such as an IRA or a 401(k). All TSP
participants are immediately vested in their contributions to the plan, federal
matching contributions, and any growth in the value of their investment from
interest, dividends, and capital gains. Participants are fully vested in the 1% agency
automatic contributions to the TSP after three years (two years for congressional
employees and executive-branch political appointees).
P.L. 106-398 (October 30, 2000) allows uniformed military personnel on active
duty or in the ready reserve to participate in the TSP under the same terms and
conditions as civilian federal employees. P.L. 106-361 (October 27, 2000) allows
“rollover distributions” into the TSP from other tax-qualified retirement savings
plans, such as those authorized for private for-profit firms under Section 401(k) of
the tax code and for private non-profit organizations under Section 403(b). This law
also allows employees to begin making tax-deferred contributions to the TSP
13 The total replacement rate under CSRS may be higher for CSRS-covered employees who
participate in the TSP. Employees covered by CSRS may to the TSP, but they are not
eligible for agency matching contributions
14 “401(k)” refers to the section of the Internal Revenue Code that authorizes deferral of
income taxes until the time of withdrawal for contributions to certain kinds of savings plans
and for the interest and dividends on those contributions. According to the Bureau of Labor
Statistics, 51% of full-time employees in private-sector establishments worked at firms that
sponsored defined contribution retirement plans in 2003.

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CRS-7
immediately upon becoming employed by the federal government. Employees
continue to be ineligible for a government match on their contributions to the TSP
until the second open season after they are hired, a delay of 6 to 12 months after the
date of hire.
Employee and Agency Contributions. Federal agencies contribute an
amount equal to 1% of base pay to the TSP for each employee covered by FERS,
whether or not the employee chooses to contribute anything to the plan. In 2004,
workers covered by FERS can make voluntary contributions of as much as 14% of
pay up to a limit of $13,000, which is set by the Internal Revenue Service according
to a formula established by Congress.15 Contributions to the TSP are made on a pre-
tax basis, and neither the employee’s contribution nor any investment earnings that
accrue to it are taxed until the money is withdrawn from the account. In addition,
employee contributions of up to 5% of pay are matched by the federal government,
according to the schedule shown in Table 1. Federal workers covered by CSRS also
may participate in the TSP, but their total contribution is limited to 9% of pay in
2004, and they receive no matching contributions from their employing agency.
Table 1. Government Matching Rate on TSP
Contributions by FERS Participants in 2004
(as a percentage of salary)
Employeea
Government
Total
0.0%
1.0%
1.0%
1.0
2.0
3.0
2.0
3.0
5.0
3.0
4.0
7.0
4.0
4.5
8.5
5.0
5.0
10.0
6.0
5.0
11.0
7.0
5.0
12.0
8.0
5.0
13.0
9.0
5.0
14.0
10.0
5.0
15.0
11.0
5.0
16.0
12.0
5.0
17.0
13.0
5.0
18.0
14.0
5.0
19.0

Maximum
14.0%
5.0%
19.0%
a. Subject to a maximum $13,000 in 2004 under I.R.C. §402(g).
15 Maximum annual salary deferrals are set forth at I.R.C. §402(g).

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CRS-8
Increase in Allowable Thrift Savings Plan Contributions. Prior to
July 1, 2001, employees covered by FERS could contribute the lesser of 10% of pay
or the maximum tax-deferred contribution permissible under section 402(g) of the
Internal Revenue Code. P.L. 106-554 (December 21, 2000) increased the maximum
allowable employee contribution to the TSP by one percentage point each year for
five years. The percentage-of-pay limits on contributions to the TSP then will be
eliminated, and employee contributions will be subject only to the limits applicable
under IRC § 402(g). Beginning in July 2001, employees covered by FERS were
allowed to contribute up to 11% of pay to the TSP, and employees covered by CSRS
were allowed to contribute up to 6% of pay to the TSP. The maximum permissible
contribution will rise by one percentage point each fiscal year until reaching 15% for
FERS and 10% for CSRS in FY2005. In FY2006, the percentage-of-pay limits will
be eliminated, but, the contribution limits under IRC § 402(g) will continue to apply.
The contribution that the TSP will make to a federal employee’s retirement
income depends on the value of the account at retirement. The value of the account
in turn depends on the worker’s salary during his or her federal service, the
percentage of salary contributed to the TSP, the number of years over which
investment earnings accrued to these contributions, and the performance of the funds
into which the employee directed the contributions. Currently, participants in the
TSP can deposit their contributions into one or more of five funds:
! The “C” fund is a common stock index fund invested in stocks of all
of the corporations that are represented in the Standard and Poor’s
500 index. These corporations comprise most of the largest and
best-known companies in the United States. Because the prices of
stocks can both rise and fall, the value of a TSP account that is
invested in the “C” fund might increase or decrease over time. Over
the 16 years from 1988 through 2003, the “C” fund earned an
average annual rate of return of 12.1%.
! The “F” fund, or “Fixed Income Index Investment Fund,” is invested
in a bond index fund that tracks the performance of the Shearson
Lehman Brothers Aggregate (SLBA) bond index. These securities
consist of government bonds, corporate bonds, and mortgage-backed
securities. Like the “C” fund, the securities purchased by the “F”
fund may fluctuate in value. Thus, there is a risk that contributions
to this fund may lose value in some years. From 1988 through 2003,
the “F” fund earned an average annual rate of return of 7.9%.
! The “G” fund consists of U.S. government securities and pays
interest equal to the average rate of return on long-term U.S.
government bonds. The “G” fund is considered to be the safest of
the TSP funds because the principal is guaranteed not to decline in
value. Over the 16 years from 1988 through 2003, the “G” fund
earned an average annual rate of return of 6.8%.
! The “S” fund (Small Capitalization Stock Index Fund) invests in a
portfolio of common stocks that matches the stocks in the Wilshire

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CRS-9
4500 index. The average annual rate of return on the Wilshire 4500
from 1988 through 2003 was 12.4%
! The “I” fund (International Stock Index Fund) invests in the
common stocks of foreign corporations represented in the Morgan
Stanley Capital Investment EAFE (Europe, Australia-Asia, Far East)
index. The average annual rate of return on the EAFE Index from
1988 through 2003 was 5.3%
TSP Withdrawal Options. A retiring employee can withdraw funds from
the TSP immediately or at a later date. There are four ways that an employee may
withdraw funds from the TSP:
! as a life annuity,16
! in a single “lump-sum” payment,
! in a series of monthly payments, either for a fixed number of months
or in a fixed dollar amount, until the account is depleted, or
! partly as a lump sum, and partly as an annuity or series of
payments.17
Section 72(t) of the Internal Revenue Code imposes an additional tax equal to
10% of any amount withdrawn before age 59½, unless the individual has retired at
age 55 or older. There is no tax penalty for withdrawals taken before age 59½ if the
payments are based on life expectancy, or are made through an annuity. The Internal
Revenue Code requires that withdrawals, called “required minimum distributions,”
must begin by April of the year after an individual reaches age 70½ unless he or she
is still working.
TSP Participation Rates and Investment Returns. As of September
2003, there were 3.2 million active and retired participants in the Thrift Savings Plan,
including both current and former civilian employees and members of the armed
services. Among civilian federal employees who were covered by FERS, 88% of
those who were eligible to participate in the TSP made payroll contributions in 2003.
Among employees enrolled in CSRS, 67% participated in the TSP in 2003.
As of November 30, 2003, assets invested in the TSP totaled $124.6 billion.
The “C” fund held assets of $53.5 billion; the “G” fund held assets of $53.4 billion;
and the “F” fund held assets of $10.8 billion. The “S” fund held assets of $5.2 billion
and the “I” fund held assets of $1.7 billion. As a share of TSP assets, the “C” fund
and “G” fund each held 42.9% of the total, the”F” fund held 8.7%, the “S” fund held
16 A life annuity is a contract between the individual and a financial institution, usually an
insurance company, in which the individual exchanges a lump sum for a guaranteed stream
of monthly payment for the rest of his or her life, and often for the lifetime of a surviving
spouse. The insurance company invests the lump sum and uses the earnings of the
investment as well as the principal to make the payments to the annuitant, which are based
both on the estimated rate of return from the investment and actuarial estimates of the
annuitant’s remaining life expectancy.
17 The annuity or series of payments must begin at the time the lump sum is paid.

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CRS-10
4.2% and the “I” fund held 1.4% of total assets in the TSP. The share of total TSP
assets held in each fund reflects both the historical rates of return among the funds
and the distribution of contributions among the funds by participating employees.
Among FERS-covered employees, the average TSP account balance in 2003
was $45,000. The median TSP account balance for FERS participants in 2003 was
$31,000. Among CSRS-covered employees the average TSP account balance in
2003 was $29,000. The median TSP account balance for CSRS participants in 2003
was $22,000.
Table 2. Annual Rates of Return for Thrift Savings Plan Funds
Year
G Fund
C Fund
F Fund
S Funda
I Funda
1988
8.8%
11.8%
3.6%
20.5%
26.1%
1989
8.8
31.0
13.9
23.9
10.0
1990
8.9
-3.2
8.0
-13.6
-23.6
1991
8.1
30.8
15.7
43.5
12.2
1992
7.2
7.7
7.2
11.9
-12.2
1993
6.1
10.1
9.5
14.6
32.7
1994
7.2
1.3
-3.0
-2.7
7.8
1995
7.0
37.4
18.3
33.5
11.3
1996
6.8
22.8
3.7
17.2
6.1
1997
6.8
33.2
9.6
25.7
1.6
1998
5.7
28.4
8.7
8.6
20.1
1999
6.0
21.0
-0.8
35.5
26.7
2000
6.4
-9.1
11.7
-15.8
-15.2
2001
5.4
-11.9
8.6
-2.2
-21.9
2002
5.0
-22.1
10.3
-18.1
-16.0
2003
4.1
28.5
4.1
42.9
37.9
1988-2003
6.8%
12.1%
7.9%
12.4%
5.3%
Source: Federal Retirement Thrift Investment Board. Returns are net of TSP expenses.
a. Actual rates of return for S and I Funds since May 2000. Rates of return for Wilshire 4500
Index and the EAFE Index, respectively, before May 2000.
Illustrations of the TSP’s Role in Providing Retirement
Income Under FERS
The following tables illustrate the role of the TSP in assuring an adequate
income during retirement for federal employees covered by FERS. Each table shows
the annual salary in the year before retirement for four employees: one at the GS-4
level, one at GS-8, one at GS-12, and one at GS-15. The salaries shown are the
estimated pay at step 8 of the pay grades in the year 2033 (Tables 3 and 4) or 2023
(Tables 5 and 6), assuming that future federal salary increases average 3.9% per year.
The salary amounts are expressed in their 2004 dollar equivalents, based on an
assumed future inflation rate of 2.8% per year. The tables show the estimated

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CRS-11
replacement rates during the first year of retirement for each of three sources of
retirement income: the FERS basic retirement annuity, Social Security, and the
annual income provided by converting an employee’s Thrift Savings Plan into a
level, single-life annuity.18
Within each of the four tables, two factors are varied: pay grade and the
employee contribution to the TSP. Final salaries and retirement income replacement
rates are shown for each of four illustrative pay grades. The replacement rate is
shown for employees who make no contribution to the TSP, and thus receive only the
agency automatic 1% contribution; for workers who contribute 5% of pay, and
therefore receive a 5% contribution from their employing agencies; and for workers
who contribute 10% of pay, which results in the same 5% agency contribution as
would a 5% employee contribution.
Across the four tables, two factors are varied: the assumed rate of return on
funds invested in the TSP, and years of service at retirement. The results in Table
3 and Table 5 are based on a nominal rate of return on investment of 6.0% per year.
In Table 4 and Table 6, the results are based on a nominal rate of return of 8.0% per
year. Because the rate of inflation is assumed in these estimates to average 2.8% per
year, the real rate of return on investment is 3.2% in Table 3 and Table 5, while in
Table 4 and Table 6 the real rate of return on investment is 5.2% per year. In Table
3 and Table 4, the replacement rates have been estimated for a federal employee who
retires on December 31, 2033 at age 62 after 30 years of service under FERS. In
Table 5 and Table 6, the replacement rates have been estimated for an employee
who retires on December 31, 2023 at age 62 after 20 years of service under FERS.
The results presented in each of the following tables assume that the employee
contributed the same percentage of pay to the TSP over the length of his or her entire
career. The tables illustrate the effects of career-long employee contribution rates
of 0%, 5%, and 10%. Table 3 and Table 4 show the replacement rates after a 30-
year career, assuming nominal rates of return on investment of 6.0% per year and
8.0% per year, respectively. Obviously, actual rates of return on an employee’s TSP
account will vary from year to year, and over 30 years an employee could achieve
average rates of return that are higher or lower than the results shown here.
Moreover, many employees begin their careers contributing little or nothing to the
TSP, gradually increasing their contributions as their incomes increase, or as they
become more aware of the need to save for retirement. Consequently, these
examples should be regarded as illustrations only.
Estimated Replacement Rates for a 30-Year Employee. For a federal
employee who begins his or her career in 2004 and retires after 30 years of service,
the FERS basic annuity will provide first-year retirement income equal to about 32%
18 A “single-life annuity” pays benefits until the annuitant dies. A “joint and survivor
annuity” pays a smaller monthly benefit, but guarantees continued payment until the death
of the annuitant or the annuitant’s spouse, whichever comes later. A “level annuity” pays
a fixed monthly benefit year after year. A “graded annuity” pays a smaller initial monthly
benefit, but the benefit is increased by a fixed percentage (often 3%) as a means of
preserving the real value of the benefit against the effects of inflation.

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CRS-12
of the worker’s final annual salary. (See Table 3 and Table 4). The dollar amount
of the annuity will be higher for higher-paid employees, but the replacement rate will
be approximately the same, regardless of the employee’s final salary level. The
replacement rate of Social Security benefits, however, declines as a worker’s income
increases. The benefit formula for Social Security is “tilted” in favor of low-wage
workers; therefore, the percentage of earnings replaced by Social Security is greater
for low-wage workers than for high-wage workers.19
The lower rate of income replacement provided to high-wage workers by Social
Security is one of the main reasons why these workers need a higher rate of personal
saving in order to reach the same rate of income replacement as lower paid workers
are able to attain through the combination of the FERS retirement annuity and Social
Security. For a federal worker retiring at the GS-4 salary level at age 62 after 30
years of federal employment, monthly Social Security benefits will replace an
estimated 25% of final salary. (See Table 3 and Table 4). For a worker retiring at
the GS-8 salary, the replacement rate for Social Security drops to 21% of final pay.
For a worker retiring at the GS-12 salary level, Social Security will replace only 19%
of final pay. Social Security will replace just 14% of final pay for a worker who
retires at the GS-15 salary level.
The proportion of pre-retirement income that will be replaced by converting the
employee’s Thrift Savings Plan into a retirement annuity will depend on the balance
in the account and the interest rate at which the account balance is converted to an
annuity. The account balance at retirement depends on the percentage of pay that the
employee contributed throughout his or her career, the rate of return earned by the
funds in which these contributions were invested, and the length of time over which
the employee and employer contributions to the TSP were in the fund earning
additional interest, dividends, and capital gains. For any given account balance, a
higher annuity interest rate will provide a larger annuity. The annuity interest rate is
determined by the prevailing long-term interest rates in the nation’s credit markets.
Employees covered by FERS have an amount equal to 1% of pay contributed
to the Thrift Savings Plan by their employing agencies, even if the employee makes
no voluntary contributions to the TSP. This amount is not deducted from employee
pay. It is paid by the employing agency from sums appropriated to it by Congress for
salaries and related expenses. Assuming a nominal annual investment return of
6.0%, an employee who retires after 30 years of federal employment will be able to
replace only about 3% of final salary from his or her TSP account if he or she never
makes a voluntary contribution to the plan. (See Table 3). Assuming a 8.0% rate
of return, the TSP could replace about 4% of pay for a worker who makes no
voluntary contributions. (See Table 4).
With only the agency automatic 1% contribution, the combined income from
FERS, Social Security, and the TSP would leave workers at all four illustrated pay
levels at or below the 60% income replacement rate that many pension professionals
19 Social Security is intended to replace a relatively higher percentage of career-average pay
for low-wage workers than for high-wage workers in part because Congress recognized
when designing the program that low-wage workers are less able to save for retirement.

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CRS-13
regard as the minimum necessary for maintaining one’s accustomed standard of
living in retirement. By contributing 5% of pay, however, the replacement rate can
be boosted substantially. Even assuming a relatively low rate of return on investment
of 6.0%, annual employee contributions of 5% of pay to the TSP would boost the
replacement rate to 76% at the GS-15 level and to 87% at the GS-4 level after a 30-
year career.
Table 3. Illustration of Replacement Rates for FERS-Covered
Employee Retiring at Age 62 After 30 Years of Service
(Assuming an average annual rate of return on TSP of 6.0% (nominal))
GS-4
GS-8
GS-12
GS-15
Final salary in 2004 dollars:
$40,072
$61,508
$98,513
$162,846
Percent of pre-tax final salary replaced by
Source of retirement income:
each source of income:
FERS basic retirement annuity
32%
32%
32%
32%
Social Security
25%
21%
19%
14%
TSP monthly annuity with only 1%
agency automatic contribution
3%
3%
3%
3%
Total replacement rate, first year
60%
57%
54%
49%
TSP monthly annuity with 5% from
employee and 5% agency match
30%
30%
30%
30%
Total replacement rate, first year
87%
83%
81%
76%
TSP monthly annuity with 10% from
employee and 5% from agency
44%
44%
44%
44%
Total replacement rate, first year
101%
97%
95%
90%
Source: Estimates prepared by the Congressional Research Service.
Notes: Includes only Social Security benefits earned while a federal employee. Estimates reflect
current law, including scheduled increases in retirement age. Estimates of income from the TSP are
based on a level single-life annuity at 5%.
The impact on replacement rates of the first 5% of employee contributions is
especially large because each additional percent of pay contributed by the employee
brings matching contributions from the employer. The first 3% of pay contributed
by the employee is matched dollar-for-dollar by the employing agency, and the next
2% of pay is matched by the employer at the rate of 50 cents on the dollar.

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CRS-14
Table 4. Illustration of Replacement Rates for FERS-Covered
Employee Retiring at Age 62 After 30 Years of Service
(Assuming an average annual rate of return on TSP of 8.0% (nominal))
GS-4
GS-8
GS-12
GS-15
Final salary in 2004 dollars:
$40,072
$61,508
$98,513
$162,846
Percent of pre-tax final salary replaced by
Source of retirement income:
each source of income:
FERS basic retirement annuity
32%
32%
32%
32%
Social Security
25%
21%
19%
14%
TSP monthly annuity with only 1%
agency automatic contribution
4%
4%
4%
4%
Total replacement rate, first year
61%
57%
55%
50%
TSP monthly annuity with 5% from
employee and 5% agency match
40%
40%
40%
40%
Total replacement rate, first year
97%
93%
91%
86%
TSP monthly annuity with 10% from
employee and 5% from agency
60%
60%
60%
60%
Total replacement rate, first year
117%
113%
111%
106%
Source: Estimates prepared by the Congressional Research Service.
Notes: Includes only Social Security benefits earned while a federal employee. Estimates reflect
current law, including scheduled increases in retirement age. Estimates of income from the TSP are
based on a level single-life annuity at 5%.
Higher investment returns would result in a higher replacement rate. For an
employee who contributes 5% of pay over a 30-year career, an 8.0% annual rate of
return on investment would result in a TSP account balance that, when converted to
a retirement annuity would by itself replace 40% of final salary. (See Table 4).
Employee contributions above 5% of pay are not matched by the employing
agency, but they still have a substantial impact on replacement rates. Assuming a
6.0% annual rate of return, a 10% employee contribution to the TSP over a 30-year
career would result in a replacement rate from the TSP of approximately 44% of final
pay. (See Table 3). When combined with the FERS basic annuity and Social
Security benefits, the TSP can increase the replacement rate for those who
contributed 10% of pay to the TSP over a 30-year career to more than 90% of final
pay. Assuming a rate of return on investment of 8.0%, employees who contribute
10% of pay over a 30-year career can replace more than 50% of their final pay from

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CRS-15
the TSP. When combined with the FERS basic annuity and Social Security benefits,
the retirement income resulting from a 10% annual employee contribution and a
8.0% annual rate of return could result in replacement rates of more than 100% in the
initial year of retirement. (See Table 4).
Estimated Replacement Rates for a 20-Year Employee. Table 5 and
Table 6 show the estimated replacement rates achieved by the combination of the
FERS basic annuity, Social Security, and the TSP for an employee who retires at age
62 after 20 years of service under FERS. (Note that the Social Security benefits
shown in all examples are only those that the worker earned during the period that
he or she was a federal employee). For a worker retiring at 62 with 20 years of
service, the basic FERS retirement annuity would replace about 22% of final
earnings, regardless of the GS-level from which he or she retires. Because Social
Security’s benefit structure favors low-wage employees, Social Security benefits
replace a higher percentage of final earnings for a worker retiring at the low end of
the general schedule than for one who retires from a job at the high end of the pay
scale. Social Security benefits earned during a 20-year period of federal employment
would replace approximately 21% of final earnings for a worker who retires from a
job at the GS-4 level, compared to a replacement rate of 18% at the GS-8 level, 15%
at the GS-12 level, and 12% at the GS-15 level. (See Table 5 and Table 6).
The estimates presented in Table 5 and Table 6 make clear that the FERS
retirement annuity and Social Security benefits accumulated over a 20-year period
will not provide a level of retirement income that would meet the minimum 60%
replacement rate recommended by most financial advisors. In these examples, the
combined replacement rates achieved by the FERS annuity and the Social Security
benefits attributable to the worker’s period of federal service range from 36% for a
highly-paid employee to 45% for a lesser-paid employee. For employees who make
no voluntary contributions to the Thrift Savings Plan, the TSP would add a negligible
amount to these replacement rates. For an employee with 20 years of service who
makes no contributions to the TSP, the agency automatic 1% contribution would
replace about 2% of final pay based on a 6.0% annual rate of return. (See Table 5).
Assuming a 8.0% annual investment return, the agency automatic contribution would
still replace only 2% of pay for an employee retiring after 20 years of service. (See
Table 6).
The estimates displayed in Table 5 and Table 6 also show that a worker who
participates in the TSP only during the 20 years immediately preceding retirement
will achieve a much lower income replacement rate than an employee who
participates for 30 years. Table 5 shows that an employee contributing 5% of pay
and earning a 6% annual rate of return would be able to replace about 17% of final
pay from his or her TSP account. This is much lower than the 30% replacement rate
achieved by an employee who contributes 5% of pay over 30 years and earns a 6%
annual return. Contributing 10% of pay over 20 years at an annual investment return
of 6.0% would raise the employee’s replacement rate to 26%; however, this is about
18 percentage points below the replacement rate achieved by an employee who
contributes 10% of pay over a 30-year period, assuming a 6.0% rate of return.

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CRS-16
Table 5. Illustration of Replacement Rates for FERS-Covered
Employee Retiring at Age 62 After 20 Years of Service
(Assuming an average annual rate of return on investment in TSP = 6.0%)
GS-4
GS-8
GS-12
GS-15
Final salary in 2004 dollars:
$36,026
$55,297
$88,567
$146,404
Percent of pre-tax final salary replaced by
Source of retirement income:
each source of income:
FERS basic retirement annuity
22%
22%
22%
22%
Social Security
21%
18%
15%
12%
TSP monthly annuity with only 1%
agency automatic contribution
2%
2%
2%
2%
Total replacement rate, first year
45%
42%
39%
36%
TSP monthly annuity with 5% from
employee and 5% from agency
17%
17%
17%
17%
Total replacement rate, first year
60%
57%
54%
51%
TSP monthly annuity with 10% from
employee and 5% from agency
26%
26%
26%
26%
Total replacement rate, first year
69%
66%
63%
60%
Source: Estimates prepared by the Congressional Research Service.
Notes: Includes only Social Security benefits earned while a federal employee. Estimates reflect
current law, including scheduled increases in retirement age. Estimates of income from the TSP are
based on a level single-life annuity at 5%.
At an 8.0% annual rate of return, an employee who participates in the TSP only
for a 20-year period can bring his or her total replacement rate closer to the range that
is generally considered necessary for maintaining one’s standard of living in
retirement. At this rate of return on investment, an employee contributing 5% of pay
each year can achieve a replacement rate of 21% from the TSP. Combined with the
FERS basic retirement annuity and Social Security benefits, this would yield a total
replacement rate ranging from 54% for a worker retiring from a GS-15 job to 63%
for the lower-paid worker retiring from a GS-4 job. By contributing 10% of pay each
year, the 20-year employee can replace an estimated 31% of final pay from the TSP
alone. This would yield a total replacement rate of 64% for the GS-15 employee and
73% for the GS-4 employee.

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CRS-17
Table 6. Illustration of Replacement Rates for FERS-Covered
Employee Retiring at Age 62 After 20 Years of Service
(Assuming an average annual rate of return on investment in TSP = 8.0%)
GS-4
GS-8
GS-12
GS-15
Final salary in 2004 dollars:
$36,026
$55,297
$88,567
$146,404
Percent of pre-tax final salary replaced by
Source of retirement income:
each source of income:
FERS basic retirement annuity
22%
22%
22%
22%
Social Security
21%
18%
15%
12%
TSP monthly annuity with only 1%
agency automatic contribution
2%
2%
2%
2%
Total replacement rate, first year
44%
40%
38%
35%
TSP monthly annuity with 5% from
employee and 5% agency match
21%
21%
21%
21%
Total replacement rate, first year
63%
59%
57%
54%
TSP monthly annuity with 10% from
employee and 5% from agency
31%
31%
31%
31%
Total replacement rate, first year
73%
69%
67%
64%
Source: Estimates prepared by the Congressional Research Service.
Notes: Includes only Social Security benefits earned while a federal employee. Estimates reflect
current law, including scheduled increases in retirement age. Estimates of income from the TSP are
based on a level single-life annuity.
Workers Who Leave Federal Employment Before Reaching
Retirement Age. For employees who switch jobs one or more times over the
course of their careers, a defined contribution retirement plan such as the TSP has an
advantage over the traditional defined benefit pension in that the value of the accrued
benefit can continue to increase until the employee reaches retirement age. All that
is required for this to occur is for the employee to refrain from spending any lump-
sum distributions that he or she may receive before retiring and for the accrued
benefit to remain invested in an asset that achieves a total rate of return in the interim
before retirement that is greater than the rate of inflation.
Employees who have become vested in a defined benefit pension are legally
entitled to the benefit they have earned upon reaching the plan’s normal retirement
age, even if they are no longer employed by the firm at which they earned the
pension. For example, consider an employee who leaves the federal government for
another employer at age 40 after 10 years of service. If this individual’s highest three

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CRS-18
consecutive years of earnings averaged, say, $40,000, he or she would be entitled to
an annuity of $4,000 per year beginning at age 62.20 In most defined benefit pension
plans, including FERS, the annuity is based on the employee’s actual earnings during
their period of employment with the firm, and these salary amounts are not adjusted
for inflation between the time the employee leaves the firm and the date of
retirement. The worker in this example would be eligible to collect his or her $4,000
annuity at age 62, 22 years after leaving the federal government. If inflation were
to average 3.0% per year over those 22 years, the retiree’s first-year annuity would
be worth only about $2,100 in 2004 dollars.21
In contrast to the example just cited, the value of a defined contribution plan like
the TSP can continue to grow throughout an individual’s working life, regardless of
how often he or she changes jobs. If the employee had contributed the maximum
permissible amount to the TSP each year and these contributions had earned an
average rate of return of 6%, the TSP account would have reached a value of
approximately $65,000 after 10 years.22 If the employee leaves this money invested
in the TSP or transfers it to another qualified retirement savings account, this sum
can continue to grow until the employee reaches retirement age.23 Assuming that the
funds earn a relatively modest annual return of 6.0%, the total will have risen to
$279,000 by the time this individual has reached age 65. At current interest rates,
this would be sufficient to purchase an annuity that would pay the retiree $24,250 per
year ($2,021 per month) for the rest of his or her life.24
Conclusion
The Thrift Savings Plan (TSP) plays a pivotal role in helping federal workers
achieve adequate financial resources for retirement. Employees covered by FERS
who do not make voluntary contributions to the TSP, and thus receive only the 1%
agency automatic contribution, will be able to replace only 2% to 4% of final annual
salary from the TSP at retirement. Most workers in the lower and middle ranges of
the federal salary scale will be able to achieve the 60% salary replacement
20 FERS employees accrue benefits each year equal to 1.0% of the average of their high-3
pay. An employee with five or more years of service can receive a full annuity at age 62.
An employee with 10 or more years of service can receive a reduced annuity at 55.
21 Once payment of a FERS annuity begins, it is protected from inflation by annual cost-of-
living adjustments — but only partially and only for retirees age 62 and older. See CRS
Report 94-834, Cost-of-Living Adjustments for Federal Civil Service Annuities.
22 Based on contributing 10% of pay (plus 5% employer match) on a starting salary of
$27,000 and ending salary of $42,000 earning 6.0% compounded annually.
23 Departing employees who have not reached age 55 have the option to leave their TSP
accounts intact, in which case they will continue to accrue interest, dividends, and capital
gains until the individual withdraws the money. They also can “roll over” their TSP
accounts into another tax-qualified retirement account such as an Individual Retirement
Account (IRA) or another employer’s 401(k). Alternatively, a departing employee can
withdraw his or her funds from the TSP without rolling them over into another account, in
which case both regular income taxes and a 10% tax penalty will apply.
24 Based on a single-life, level annuity at an interest rate of 4.125%.

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CRS-19
recommended by pension analysts from the benefits paid by Social Security and the
FERS basic retirement annuity, but this is not so for higher-wage federal workers.
Federal employees at all income levels can significantly boost their retirement
income by contributing to the TSP, and such contributions are essential in order for
those in the upper third of the federal pay scale to achieve a level of income that will
allow them to maintain their pre-retirement standard of living.

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