Are You Ready to Retire as a Federal Employee?

2.16.23: Audio automatically transcribed by Sonix

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

Val Majewski:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski with American Benefits Exchange. As always, I appreciate you taking the time out of your busy schedule to join us to learn this information that we're sharing with you. That's what we're here for. For you, the federal employee looking for more information regarding your benefits and retirement. And that is the main goal of our show, right? We want to share with you stories from other folks like you. We want to share with you unique situations. Maybe you're a part of this. Maybe it sparks an interest in you, or you want to reach out and say, hey, I've got a question. I have a situation that I want you to review. This is where you go to our website. The website is Dot Federal Retirement Show.com. And you can fill out our form one of our representatives. If it's not me personally, we'll be reaching out to you can answer your question. Do a full benefits and retirement analysis for you, get you all the information that you're looking for, get you all of your questions answered. Now, today's discussion comes from some recent conversations, recent meetings I've had with federal employees, presentations that I've been giving face to face to federal employees in different parts of the country. And really, some of the the webinar questions and podcast questions that we get asked and it revolves around retirement. Now, if you haven't seen, maybe you're keeping up with the news, maybe you're seeing some of the stats that come out.

Val Majewski:
But when it comes to retirement, filling out your retirement paperwork, there's a process and we want you to have a plan. So today we're going to be talking about making sure you're planning ahead, making sure you have a roadmap for retirement and not just making sure the numbers are good on the back end. We want you to have a plan and roadmap for how that process goes down, from filling out your retirement paperwork to getting it submitted, to tracking the progress, to understanding when your payments are going to come, what those payments are going to look like, and what you can expect going forward. Because recently I've been talking to federal retirees. Why? Because the end of the year is a very popular time for federal employees to retire. So a lot of folks will put in their paperwork looking at December 31st. Now we're a little over a month out and people are starting to get or should start to get their retirement paychecks so that we're having questions. Why is why is my paycheck not what I expected? Um, why is it not as much? Why are these things not taken out? Why why, why? And I want to explain those things to you so you don't run into the same situations. You don't have the same questions because you're going to know all of this going into retirement. So again today we're discussing having a game plan. I've got my handy notes here.

Val Majewski:
So if you see me looking down I apologize. I just want to make sure I cover all of the things that I think you need to know when it comes to this process. So let's let's use this example right. This example of retiring at the end of the year. What first of all, when should you retire? In my opinion. Right. And this is just my opinion. Uh, there's not a right or wrong time of year to retire. You can leave whenever you want to, but the best day of the month to retire, if you're going to retire at any point of the year, is the last day of the month. This is generally for Fers employees the last day of the month. Why is that? Because no matter what day you decide to retire, then the effective retirement date is the first of the following month. So we are currently in February 2024. If I were to retire today, any day in the month of February, my effective retirement date would actually be March 1st and my first annuity paycheck, my first Fers annuity paycheck would be due the first of the month after that, April 1st. So I'm going to go at least a month without getting paid. But if I left at the beginning of February, the first week in February, then I'm going to go the rest of February and end the entire month of March without collecting a paycheck, without earning any money. So just understand you want to minimize that gap.

Val Majewski:
I generally would say retire at the end of the month, if not the last day of whatever month you're looking at retiring. Some people say, well, I'm going to retire when I turn 60. I hit my I'm 60. I've got 20 years of service. I'm retiring on my birthday. Well, if your birthday is the second of the month, it's really not doing any service. You should just retire at the end of the month. Again, in my opinion, the last day of the month in which you hit that benchmark age, whatever that is. Now, why is it important to plan ahead and work on your retirement paperwork in advance? I generally would recommend that all the things that I'm going to give are guidelines based upon my experience in working with federal government employees. If I haven't said it before, I've probably said it a million times, but I've been working with federal employees exclusively for the past 12 years. Um, I certainly don't know everything, but I've seen a whole lot talk to people in all different walks of life, all different situations. I highly recommend that if you have a date in mind, this isn't some spur of the moment deal where you're just going to walk out tomorrow. If you have a plan ahead and you have a date in mind. Retirement paperwork and get that in at least two months in advance. At least two months in advance of your retirement date. So if I was going to retire December 31st of last year, I wanted to have my retirement paperwork in at least by November 1st two months in advance.

Val Majewski:
Why is that? You may or may not be keeping up with the news, but OPM is backlogged and their backlog just surged, meaning the amount of applications that they're still waiting to work on just surged and went up by 46% 46%. Now that has to do with, again, some of the bump or the increase in retirement applications at the end of the year because a lot of federal employees retired the last day of the year, but they are backlogged. They have been for the past 12 years. I've been working with federal employees, and they just saw a big surge, an increase in that backlog number. Again, it went up 46%. The average processing time for applications is 66 days. So let's look back, okay. Two months in advance. 60 days. I say at least two months in advance because it takes them an average of 66 days currently to process retirement paperwork. Now, that doesn't mean that it's going to get done right away. And this is where we get into the next step, okay? So just because you get it in two months in advance, just because you've prepared, you filled everything out correctly. You've made sure there's no errors on the application because that's another thing. Errors could delay your process. The average percent or the percent across the country of retirement applications that have errors on them, which can cause more delays is 15%.

Val Majewski:
So 15 out of every 100 applications that goes in will have some sort of error on the paperwork. Now, I don't know exactly how it works. I'm not sitting there in OPM, but if I know I've got a stack, I've got a bunch of papers to process. I've got a bunch of things. If I see something that's got errors in it. Personally, I'd probably be like, hey, I'm going out to the next one. That one's clean. Let's process that. We'll come to the ones with errors later. We'll get those fixed, but it's going to delay. Your process is my point. So you want to make sure that it's filled out properly. You want to make sure that it's on or completed and submitted within two months or, uh, longer, at least two months before you're going to retire. So that's the guidelines for getting the paperwork in and waiting for your retirement date. Now, once your retirement date happens and you go through that month of not getting paid, that's where any left over, you know, partial payments from a pay period that you work will come to you. That's where you should get your annual leave lump sum. If you don't know what that is, you can go back to our previous videos and learn about leave and how that's treated in retirement. But when you start getting payments in this example, let's say I'm retiring at the end of December last year, 2023, and I should expect my first retirement paycheck on February 1st.

Val Majewski:
Now, 2024. What am I going to receive? What happens now is you do not receive the full amount. You go into what's known as interim pay. Now, interim pay is a temporary payment status or retirees until they complete everything, complete your full processing and then you get your full pay. And what I've seen is that sometimes people aren't getting their interim pay right on time or right as they should. Let's say it was I was due February 1st. They may not get it right away, which is unfortunate. This is another part of why you have to plan ahead. So you're planning ahead not only for a gap between when you stop working and when your retirement paycheck comes, but you also have to plan ahead. What if it doesn't come on time? And what if it's not exactly what I expect? That's what interim pay is. So what is interim pay? Interim pay is going to get you approximately 40 to 80% of what you should owe. That's a big gap, 40 to 80%. You could talk to people that recently retired, talk to friends, colleagues that have left. Ask them what are you currently getting compared to what you should, what what percentage are you receiving? And you can get a temperature reading as to how much they're getting in this interim pay status. Now you may be thinking, well, that's not fair. Why would I get paid less than I should? And how long will I stay in that lesser pay status, this interim pay status? Well, typically I've seen 3 to 6 months before everything gets cleared up before your interim pay status goes to now full pay status.

Val Majewski:
However, you've still got to live those 3 to 6 months without receiving your full paycheck, getting lesser amounts in your retirement paycheck. You have to plan ahead for this, because if that could be significant, it doesn't mean that your bills don't have to get paid. It doesn't mean that everything else, all of your other obligations don't have to get paid. You're just going to temporarily be receiving less money. The good news is, when they do get you back to full pay status, they will back pay you everything that they owe you. However, however, it just doesn't mean it's going to be comfortable for those first 3 to 6 months. So plan ahead. Plan ahead if you have time. If you have, uh, enough time frame between now and when you plan on retiring, you can plan ahead, set up some emergency savings, set up some money that you can have as a supplement for when you do retire, because you're not going to be getting the full amount if you're nearing your entering retirement. Now, I just want to give you the proper expectation that this is what's going to happen based on the current situation. So just understand how interim pay works. So I said 40 to 80%.

Val Majewski:
Sometimes it may take up to 60 days for those payments to start. So I've seen that where some people again aren't getting them timely. In my example February 1st would be my first paycheck and maybe it doesn't show up on time. Maybe I have to go another month without getting paid now that hopefully that does not happen, but that could happen. I said. Normally I've seen 3 to 6 months. That's the average. The longest that I talk to. A personal client of mine took 12 months to get out of interim pay again. They will back pay you everything that they owe you, but it means you can go longer without getting your full paycheck. And if you're down to the 40% range, that can be a drastic difference compared to what you were expecting. A couple other things to be, uh, considerate about or to think about when it comes to this interim pay status. If you are retiring with full benefits as a first employee prior to age 62, prior to being Social Security eligible, I'm sure you're aware you will be entitled to the Fers retirement supplement. This is an entitlement to free benefit. That benefit will not be paid to you during interim pay. So if you were expecting this little bridge, this little gap filler called the Fers Retirement supplement, then you're not going to be getting that while you're in interim pay that will be back paid to you when they get to full pay status.

Val Majewski:
But just be aware that this is not something you're going to be receiving while in interim pay. Another thing comes to your benefits now your health insurance. You do need to pay premiums on your health insurance, but your health insurance, your fhlbb will remain active, will remain active while you're at interim pay status now, premiums will not be coming out for your fhlbb while you're on interim pay status, but your health insurance will stay active. When you do go back to full pay, they are going to recoup all of those past premium payments you should have been making. So just understand, when you go back to full pay and you get that first paycheck, they are recouping all of the fhlbb premiums that you should have been paying for the months that you were in interim pay. If you have a supplemental benefits, um, whether you've got the life insurance, whether you've got the, um, dental vision, those things will be paying separate. So you will have to keep if you want to keep those alive, you're going to have to make separate premium payments to keep those things alive. You'll work with benefits. I think they're the ones that will be controlling the the sponsored dental and vision plan. If you've got that one to work on a payment to get those premiums paid to those policies, those coverages, those benefits can remain active. So just understand dental vision payment. Those will not be coming out of your interim pay.

Val Majewski:
You will have to make a separate payment for those when you get back into full pay status. Those should be coming out as usual, so Fhlbb will remain in place. Premiums will be recouped. You will have to make separate arrangements while in interim pay if you want to keep your dental and vision. Another thing that will not come out of your interim pay is state tax. State tax. Now federal tax comes out of your interim pay but state tax will not. So just understand that when you get your full payment there might be more taxes due or things of that nature. You're just going to have to talk to your CPA, your tax preparation person, if that's not you, and understand that there may be some state taxes due, uh, because those were not coming out of your interim pay payments. So why are we talking about this and why did I go through these lists here? Because I want you to plan ahead, okay? We we talk about this on a regular basis with federal employees, whether again, it's one on one or it's in person seminars or virtual webinars. When we're going over benefits and retirement, the whole goal is to get you information so you can create a plan. I know benefits. Retirement may not be the first thing you think about every day when you wake up, but you want to know and go to bed feeling comfortable about the plan that you have for your future.

Val Majewski:
You want to make sure that all of those loose ends are tied up, that every situation you've thought about and you've prepared for. So when you get to here, when you get to this spot where you're going to be an interim pay status and you're going to retire, that you can sleep well at night knowing all those angles are covered. All of those situations have been accounted for and you've prepared for this. Now, in worst case scenario, let's say you're prepared for six months of interim pay. Let's say you prepared for not getting paid for 60 days instead of the customary, you know, 30 days until you retire. What if you've over prepared? I've said this before. I'll say it again. I have not had a single federal employee call me up in retirement and say, Val, I don't know what we did wrong. We've got a major problem here. But I prepared way too well for retirement. I have too much money in retirement. It's not going to happen. So you are going to be upset though, if you underprepared, if you've assumed everything was going to go smooth and it did not, you were underprepared and didn't have the proper funding. You didn't have the proper reserves. You didn't have the proper planning in place to get all this done appropriately. And you might be up the creek a little bit when you first retire. We don't want that to happen. We want you to retire how you want, when you want, under your terms with the money, the income that you're planning on to live a comfortable life in retirement.

Val Majewski:
We want you to live the same, if not a better lifestyle in retirement than the one you were living while you were working. That's what you're working for. So go to our website. I'm going to recommend this. Fill out the form Federal Retirement Show.com and we will be in touch to review your personal situation, answer all of your questions and make sure that you are set up properly again. Why? Because this information is not readily available. It's not given to you on a daily basis. We want to fill in all the blanks, answer the questions, and give you the information that maybe you did not know that you needed to know. So saying that we have all the time, you don't know what it is you don't know. You may not have known a lot of things that we talked about today when it comes to retirement, the steps, interim pay status, what's included, what's not, etc. so reach out to us, we'll fill in more of the blanks. We'll give you more of the information that we believe you need to know, and make sure that you are on the right track both now and as you go towards retirement. So I really do appreciate, once again, you coming out and joining us for today's session on the Federal Retirement Show. And I look forward to seeing you on a future episode. And.

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