Will You Have Enough Income in Retirement — Part 3

5.1.26: Audio automatically transcribed by Sonix

5.1.26: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker 1:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski with American Benefits Exchange. And I really appreciate, as always, you taking time out of your busy schedule to join us to view our content. That's what it's here for. It's for you, the federal employee, that's looking for accurate information when it comes to your benefits and retirement situation. And we've been in the middle of a series. In fact, I didn't even realize it was going to be a series, but it was talking about income in retirement. You know, will you have enough income? And as new information is coming, as I'm doing digging and research throughout the weeks, we've turned it into a three part series. So today we're talking about will you have enough income? Part three. And the whole point is for you, a federal employee that's preparing for retirement and you are doing so from day one of your employment. We had a guest on a while back, one of our reps, her name is Brandi Person, and she Reiterated that and said you are planning for retirement from day one of your employment. So utilize all that time that you have. Take advantage of all that time to properly prepare, because retirement is not something that you can cram for, not something that you can just do at the last minute. You take advantage of all that time. There are so many scenarios showing the time value of money and and saving all this time using the time you have, it's not going to take as much as long as you start early to get to the same result.

Speaker 1:
So this again series, this is part three of will you have enough income? So let's dive into today's content and talk about part three of will you have enough income? So we mentioned about the three parts of your retirement. And this is the guaranteed income options for you in retirement. Typical guaranteed lifetime income options that a federal employee will have. And why is that important? We've talked about this before and I'll reiterate it. I cannot reiterate this enough. If this is your first time listening to the Federal retirement show, go back and view our previous episodes so you can hear me say this over and over again, but you want to 100% make sure that you're going to have enough guaranteed lifetime income to cover your basic living expenses and then some basic living expenses and then some because y guaranteed lifetime income streams are just how they say they're guaranteed for your lifetime, they're not going to run out. The number one fear that we've talked about for retirees based on surveys is running out of money, not having enough money to live on. You can 100% make sure that that will not be the case. You will have plenty of guaranteed lifetime income.

Speaker 1:
And what are your three choices that you typically have as a federal employee? You have your first pension, you have your Social Security, and you have your TSB. If you choose to turn that into another guaranteed lifetime income stream, you might have others, you might have a previous 401 K. You might be prior military, you might have a military pension, you might have a VA benefit. You might have some other retirement plan that you set up years ago. Whatever it is, you want to ensure that you have enough to cover your basic living expenses and then some. That way the bills are always going to be paid because that that check is always coming. It's not going to be dependent upon the market or the world conditions, or the price of gold, or the price of silver or AI something or Bitcoin or whatever. These are guaranteed lifetime income sources. They cannot be turned off. They will continue for your lifetime, and they're not subject to market conditions. So today we're going to talk again in part two. We did talk about Social Security. We're going to talk about Social Security one more time because I came across some new news. And relatively speaking it's new news. But what have we been talking about with Social Security that the Social Security Trust Fund is indicating that by 2033, without any changes being made to Social Security, that the Social Security Trust Fund, the one that pays regular beneficiaries, is going to become insolvent, it's going to run out of money, causing a decrease of about 23% to people's future payments.

Speaker 1:
So the numbers were 2023 and go look it up 2033 and a decrease of about 23%. So they were going to only be paying $0.77 on the dollar for people's benefits. So your expected benefit that you're going to get when you turn 62 or 67 or whatever, could be cut by nearly a quarter. Now, what does a new, uh, study show? The results are? Well, the Congressional Budget Office, CBO, okay, they came out with some new numbers and they said and they projected that it's incorrect, the 2033 number, it actually could run out by 2032 a year sooner. This has to do with a number of factors. You look at our, um, our deficit out there. It's, you know, in the multiple trillions of dollars, right? It's, it's up there in the trailer and people don't even understand a lot of times how much $1 trillion really is, but we're talking about 33 trillion or 38 trillion. You know, the interest on the debt alone is, is ridiculous, right? So that's where we're thinking because of the deficit, because of other conditions, because of the fact that more people are becoming eligible for Social Security and taking it. We're not even at the, uh, done with the baby boomer era yet.

Speaker 1:
The trust fund for Social Security could be exhausted a year sooner. And what are they also predicting? They're predicting that it's not going to be 23% when it comes to the cut in benefits. It could be as high as 28%. That's a big difference also, right? We're talking about an additional 5% off of your your future benefits. Now, if you're already collecting benefits, I'm not sure. And this is I'm not the expert in this. If they're going to cut people's benefits that are already taking it. But for the younger folks, those that are planning for retirement and maybe retirement is near, you're only a couple of years away, or maybe it's 20 or 30 years away, and you're counting on Social Security being there in a certain capacity. And now maybe you're saying, oh, it might drop by 23%. Well, now it's even more more 28%. You have to plan accordingly. And this is this is a big jump. This is a big change. And there's a lot of different solutions that they can put in place. None of them are great for you. Anyway, we've talked about this. We've talked about some of the solutions in part two of will you have enough income of how the changes of Social Security can be made? And here now we're hearing it could be worse than originally thought. And this is coming from the Congressional Budget Office.

Speaker 1:
This is coming from a report that they're showing You can find it online and you can go to that report and see the new numbers. There was also an article, um, and I apologize for the typo there, but the Economic Policy Innovation Center, Economic Policy Innovation Center is an article called the CBO baseline says Social Security insolvent one year earlier in 2032, followed by a 28% benefit cuts. This is by Rachel Greszler. Um, you can go see this article. We can provide a link to the article, but this is showing the impact on different scenarios of people, whether you're you're a single filer or a widower, um, you know, younger person that's going to file early. So just, you can see some of the scenarios and some of the projections. And that's why we do the benefits every time reviews to look at the, the different scenarios for you. And we like to talk to federal employees and just say, you know, we cannot count on Social Security based on the estimates that you're getting from Social Security, because that's based on assuming that Social Security is going to be fully funded. They're not. Those aren't reduced numbers based on what the future looks like and how Social Security is going to be affected, because there's not a solution in place just yet to fix this. And as we've talked about, none of those solutions are great for you.

Speaker 1:
I mean, if it requires everybody to start putting in more money, well, you're going to have less money today, more money going in to get out the same in the end. It's kind of a you have to pay benefits so that future people will pay benefits. And then you're relying on people that are a lot younger than you to continue to pay benefits. So you can get the ones that you're expecting. Okay. It is a retroactive type of thing. Your benefits that you're paying or your deductions are coming out of your paycheck for, for Social Security are not going into account labeled your name at Social Security. Those are going into the fund so they can pay out the beneficiaries, the people that are collecting Social Security. So the money you actually receive will receive is going to be paid for by younger folks. So just understand that's how that works. And it doesn't. None of these solutions are great for you, the consumer. So we've got to figure figure this out. But anticipation or expectation should be that I've got a plan as if Social Security is not going to be there, not going to be there. The news that we've gotten in the recent years has not been good. Now, there might be a solution that I'm not seeing that they're not talking about. That fixes everything and it goes back to normal.

Speaker 1:
That's fine. But I tell people, plan as if Social Security is not going to be there. I hope it is. I've been paying into it. I hope to collect what I expect, but I'm being real is I'm going to prepare as if it's not going to be there. I do not want to rely on this as a major source of my future retirement income. I then come to find out, oh, it's a lot less than I thought it was going to be. Uh, it's cut by more. Maybe it'll go up to 3,035% projected cut in the future? Who knows? I haven't seen it go down. I haven't seen the projected cut be decreased and go down to 15 or 10%. It's only increased since they've been talking about this and who knows where it's going to be in the future. So when it comes to planning, because the questions I put here, you know, what additional changes will occur. Um, how will this get resolved? Again, we talked about that. Can you afford a 28% reduction? If you are really counting on Social Security, how can you protect yourself? You can plan ahead, plan ahead, plan as if again, Social Security is not going to be there. And if you can sustain yourself and have enough guaranteed lifetime income without Social Security being factored in, if it's there for you in some capacity, then great.

Speaker 1:
That is bonus money. That is extra money. That's going to be a joyful time for you to know that you've got this extra retirement income stream that you didn't anticipate or count on. Now, protecting yourself. What can you do? You can get a benefits review done. I'm going to pull this up again. Get your review done. Run the numbers. See if you're on the right track. We can eliminate Social Security. Take that out. How would my numbers look then? How can I prepare? Well, it's not a magic trick. We can't put a few dollars here and expect $1 million in the end. We have to start and be consistent. I was talking to a federal employee earlier today. We're trying to get this person up to a certain percentage of their pre-retirement income and doing a good job so far, but still falling behind. We need to supplement, need to put more money aside as much as you possibly can to produce the result that you want. This is not, again, a magic trick. We're not trying to get rich quick. Scheme it. We're not trying to do something you know, that's unethical or illegal. We're not trying to risk it all in the market by, you know, let's just say we're playing roulette and putting it all on black or red or betting on a single number and hope that comes out. I've said this before. Hope is not a strategy for your retirement.

Speaker 1:
You want to be 100% sure that you're going to have the retirement you want, and that takes planning, that takes effort, that takes consistency, and it takes starting early. The earlier you start, the better because who knows what changes are going to be coming down the pike by the time you retire, especially if you just got hired. If you're younger and you're watching this, get a review done, see where you stand, see how much additional money you should be putting aside to plan properly for your retirement. Now, you might not like it today. You might have to sacrifice a little bit today. But trust me, your future self, when you turn 60, 62, 65, whatever it is, when you retire, they're going to love you for the decisions that you made. I have not met a single federal employee that has hated saving too much for retirement, but I have met several that say, I wish I would have talked to you 15, 20, 30 years ago and planned accordingly. That happens all the time. All the time that I hear that from federal employees. But not once have I said or have I heard a federal employee say that they have a problem with over planning for retirement. They have too much money in retirement. It's a problem. I've said this, I think, on every episode that we've done, but I want to warn you on this.

Speaker 1:
This is not a doom and gloom. This is not a scare tactic. But I'm telling you, they are telling us in plain English what's going on with Social Security. And if you're counting on that as one of your three main retirement income sources, a lot of federal employees I talk to rely heavily on that. Social security, we need to plan as if it's not going to be there or not going to be there in the same capacity as you are counting on. So take advantage of the time you have left. Let's plan accordingly, get your review done, and see how much more you can save by setting up additional funds outside the government or even with the government. You know there's two ways you can do this. It can be done with your TSP or outside of TSP, creating your own accounts. So if you do want that done, go to our website, federal retirement show.com. Fill out the form one of our experts. If it's not me personally, we'll be reaching out. Run a full review for you, run some scenarios, show you what everything looks like. Ensure that you're set up properly today. Take advantage of all the time you have left. If you have questions, comments, concerns, whatever it is, go to the same website, federal retirement show.com. Fill out the form will be in touch. Be. Be certain that somebody will be reaching out.

Speaker 1:
Make sure to respond to that person. Set up a time schedule an appointment, go over all of your questions and all of your your individual situation. Well, I really appreciate you taking the time again out of your schedule to be with us. Um, I highly recommend if you like our content, uh, on this episode, go back and view all of the previous episodes. We have over 170 of them now. It's awesome. Uh, it's all there for you. A lot of great feedback. So if you like this episode, you have not been to the federal retirement show before. View all of the other episodes. Uh, they range from 5 to 30 minutes long. Very simple, but it should be easy for you to understand, comprehend and make sure you're doing the right things. Lastly, I will encourage you also share this with a friend if you've liked it and you've been listening for a while, share it with a colleague. We want to help out as many federal employees as possible. The only way we're going to do that effectively is by you, a federal employee, referring this show or sharing this show with one of your colleagues that you're working hand in hand with. But thank you again for watching the federal retirement Show. My name is Val Majewski, and I look forward to seeing you on a future episode.

Speaker 2:
Well, nearly 1 in 4 Americans have no emergency savings at all and would struggle to cover an unexpected expense. That's according to Bankrate. And having an emergency fund is really, really an important thing because we never know what's going to happen in life after all. Joining me now to talk more about that is Rod Griffin. He's senior director of consumer education and advocacy at Experian. Rod, thanks so much for taking some time for me. I really appreciate it, sir. Well, thanks for having me. Well, no problem at all. It really is crucial to have some sort of backup, some sort of safety net, right? I mean, but a lot of people, as we just said that that, uh, statistic there from Bankrate, 1 in 4 Americans almost have absolutely no emergency savings. Why is it so difficult for so many of us to save money right now? Yeah, it's life is expensive. Uh, and when you look at where inflation was over the last several years, coupled with the holidays just being, you know, just passed and people have what I kind of call the holiday hangover with their debts, you know, they're trying to pay down those credit card bills and debts they may have taken on during the holidays. Mhm. That puts a pinch on on the bank account and can make it hard to set aside savings when it feels like all of your money is consumed in just paying the the day to day expenses and reducing you the debts you may have.

Speaker 2:
So, um, that makes it hard. Uh, and it's, it's difficult to get started, uh, because of that. Yeah. It really is, uh, very difficult these days, as you say there. And I mean, you know, how much should people save in an emergency fund? I know that I've, I've heard different things from different folks, sort of, you know, general guideline is like 3 to 6 months of expenses. Some people say up to a year, some people say not quite so much. What would you say is a good kind of goal for people to set for their emergency fund? Yeah, and you're right. The rule of thumb has been for many years, 3 to 6 months of sort of your daily of your monthly living expenses, really. So things like your utility bills, your rent, your mortgage, Food costs, those sorts of things. And that can be a really daunting number if you're trying to, you know, set a number to it and reach that goal. The problem with a goal that's large like that can be that it becomes discouraging. And so you, you emotionally kind of check out and give up. And that defeats the purpose. So my recommendation is start small and you maybe don't put a large number on it. Maybe it's, I'm going to save $10 a month or $20 a month, whatever you have sort of cushioned to do and start setting that aside.

Speaker 2:
And over time, it will build toward that larger amount. The key is to be able to stay motivated to build that habit of savings so that you are just kind of naturally putting savings aside over time. Um, the other thing that is important to focus on is finding ways to reduce your expenses, because that gets in the way of saving And you know, that means tracking your expenses, knowing where your money is going, where it's coming from. You know, I kind of think about, you know, you should be in control of your money. It shouldn't be in control of you. But that's the way it often feels. Uh, and so if you track your expenses and know where they are and then look at ways you can reduce those expenses and not just the don't buy coffee once a week, which is kind of the common one. Um, but think about just the regular bills you have every month. Can people think of Experian as a credit bureau, which we are, but we're much more than that today. And one of the things that we kind of think about and aspire to be is to be a person's big financial friend, meaning we want to help them take control of their finances and to reduce the costs of everyday life. So we have, for example, a service that can help you reduce your auto insurance payments each month.

Speaker 2:
We have a service that can help you identify streaming services that perhaps you've forgotten about, or other subscription services and signed up for. For a sporting event or a movie that you wanted to watch and then just didn't use it again. But it's still, uh, you know, being deducted every month and it's an expense. We can help you find those and cancel them. We have a service that can help you negotiate regular monthly bills, things like utilities for many people to reduce those monthly costs. We have a credit card marketplace that can help you find credit cards that would be at a lower interest rate or lower fees that perhaps you could transfer balances to and pay them off faster. So, you know, think of Experian as more than just a credit bureau. It's really about your overall financial health. And saving means having money to set aside to save. And that requires reducing your your monthly expenses. Yeah, absolutely. Right. And I sort of always think of it as, you know, pay yourself first, right? It's like your future. You will thank you if if you do that and and an emergency fund is a big part of that. And of course, one of the ways too, that I often hear about, you know, sort of makes makes things easier. You were just talking about, um, the subscription services and things like that that we all sign up for.

Speaker 2:
And then maybe we forget about, uh, you know, after a certain amount of time, the same thing could be true in a positive way, though, if you kind of automate some savings, right? Just have a certain amount go into a savings account or whatever it might be. Um, and just really, you know, set that up to just automatically happen. Maybe you forget about that. And then before you know it, you've got enough saved up for your emergency fund, right? Right. It's that the old out of sight, out of mind thing, uh, and out of sight, out of mind can be good if you're automating those deposits and they're automatically going into a savings account, you don't think about it and it just becomes habit and you work with. Then living within the means that you have the funds that are left over and. But it could also be bad if it's out of sight, out of mind. And I'm just not going to think about the bill I have to pay. Forgot about it and then I didn't pay it. Um, that's exactly the opposite. Now you you're damaging your credit history potentially. Uh, you're reducing your access or making access to financial services more expensive. So, um, automating payments, uh, and automating savings can be a great tool for building that, that habit that just sort of becomes natural over time. Yeah, absolutely. Right. Well, just about time for us to wrap things up, but, uh, anything else that you wanted to mention, rod, that we haven't touched on that comes to mind? Yeah.

Speaker 2:
Well, I mean, being, uh, you know, the retirement radio network, think about saving for retirement. If you work for a company that offers a 401 K, for example, and they have a match, never forego that match. Make sure you take advantage of that. If it's pre-tax, you can save potentially tens of thousands of dollars over your career. If you're taking that match and putting money in the 401 K, and if it's pre-tax, it likely won't affect your take home pay or will have very minimal effect. So if you are not doing that, it could cost you a lot of money over over the 20 or 30 years. So, you know, make sure you're taking advantage of every savings opportunity you have, not just what we think of as an emergency savings, but also retirement savings as well, because they play a part in that too. Yeah, 100%. I always tell people, if you're not taking the the match with your employer, if it's offered, you're telling me you don't like free money. And I don't believe that for a minute. So there we go with you on that one. Rod Griffin, senior director of consumer education and advocacy at Experian. Thank you so much, rod, for spending some time with me. Really do appreciate it. Great. Thank you. Glad to be here.

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