How Federal Employees Generate Income During Retirement: Audio automatically transcribed by Sonix

How Federal Employees Generate Income During Retirement: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement show. I'm your host, Val Majeski, with American Benefits Exchange, and we've been going through again the different mistakes that we see federal employees make and really how to avoid them, giving you the guidance that we've acquired over the years of working with federal employees. Like I've said before, this is our area of expertise. You know, I talk to a lot of folks nearing retirement. Ninety nine point nine percent of them are going to be federal employees that have questions about what to expect. How do they calculate their retirement? When are they eligible for retirement? All of these things, and we always wrap up our conversation with how much do you need? What is the number that you need to have when you retire? And we're going to talk today about retirement income because you may or may not know everything that goes into your total retirement income. What the bottom line is going to look like, how to add everything up and how that is all calculated because we get two main questions and I can narrow it down. There's a lot of questions that we get, but the two main questions we've been getting asked recently. First is when am I eligible to retire? But even bigger than that is how much can I expect? What can I expect to take home when I retire? How do I calculate that? And some people have done their own estimates, and sometimes they're pretty accurate. But we like to give them kind of a third party analysis, right? Or give us give them our opinion.

Speaker1:
Our calculations, so they can either validate the numbers that they currently have. Get a second opinion so that it's validated. Or maybe we kind of introduce some different numbers and they didn't realize some of these calculations and how things are adding up and to see if it's going to be something that they can live on, if it's money that they can retire on. So what are the income sources? Well, let's dive in to those main areas that you have as a federal employee. And we can see here we've listed four different retirement income sources. The first is your pension, your retirement annuity, whether your CSRs are first. Now, if you're a CSRs employee, you're relying really on one retirement. Check your pension and it's a pretty simple calculation. The more years that you work, the higher the percentage of your high three you're going to take home. For the bulk of you that are watching this, you're going to be first. So I apologize to the CSRs, folks. I'd be happy to talk to you. Sidebar after this and we can run your analysis, run your report. But I'm going to talk mostly to the first employees. Why? Because when the first system came out, it was positioned as this new and improved system. This better way for you to plan for retirement, but there's more parts to it. For the FIRs employees, your traditional model is a three legged stool.

Speaker1:
You get your first annuity, you get Social Security or the first supplement and you have your TSP. Those are your three main income sources. Now the first two, you really can't do much about, right? As far as affecting how much you get, you can, but you can. I'll explain that the really the only way you can affect those first two numbers your first annuity, Social Security and first supplement is you can try to make more money, which is get promoted, step increases, pay raises all of that and work more time. So the longer you can work, the bigger your calculation is going to be, the more money hopefully you'll make. That's how you effect it, but you don't affect the way the money is invested. You don't affect the way that your deposits into the retirement system grow. That has nothing to do with it. It's just a strict calculation based on the amount of money you've made and your Social Security and the first supplement very similar. Now, the first supplement, something we can do an entire episode on. But this is a benefit if you're not familiar for those that retire as FIRs employees with full benefits prior to being Social Security eligible. So there are ways that you could retire as a first employee with full benefits for retirement, but you're not yet Social Security eligible. And this is where the entitlement of the first supplement comes in.

Speaker1:
But the first supplement, or Social Security, is your second piece of your retirement income puzzle. Now, Social Security is really not something that you're going to change the calculation of, either. It's based on your earnings over time and when you take Social Security. Most federal employees that I talked to do not have the choice to wait or delay Social Security in order to maximize their benefits. Most federal employees I talked to have to take it right when they retire because this is a necessary part of their retirement income. So we can run an analysis, we can take a look at, Hey, what's your best Social Security strategy? How do you maximize your Social Security benefits? So that way, you can have some options, maybe you still do take it right away, but at least you have that option because Social Security, there's a lot of money that people leave on the table by not maximizing it, not using it properly. And I want to make sure that you're maximizing your benefits so we can increase your total retirement income over the course of your retired career, right? Because this is the second part, you all want you to live long and happily in retirement. Now, TSP is the wild card. Ok, we've got over tsp. In a different episode on the federal retirement show, but TSP is one hundred percent reliant on you. You decide how much comes out of your paycheck. You decide how it's invested. You need to make those changes over time.

Speaker1:
It's an administrative account. It's not a managed account. You don't have somebody that calls you and says, Hey, you know, the G Fund is doing better. The C fund is doing better. The SE fund is the way to go. You have to make your own decisions. And how much is there at the end is going to be relying on again the money you've deferred into that plan and the investment strategies or choices that you've made now for the most part. What I've seen with federal employees is TSB is going to carry the bulk of the weight when it comes to retirement income. If we're looking at it as a percentage and we'll get into the percentages here on the bottom of this slide. The next one is supplemental accounts. Now this is where people may have additional retirement income sources, and this is a variety of things. You may have a previous 401k from another company. You may have an IRA or a Roth IRA that you've been putting money into. You may have a military pension, you may have a VA disability benefit. You may have some other source of income outside of the traditional three four FIRs employees outside of the pension, Social Security and TSP. You may have some supplemental accounts. Ok, but let's look at the first three pension. Social Security TSB Most federal employees that I talked to, if we're looking at the bottom here want to get to this nice green circle, which is one hundred percent of their net pre-retirement income net.

Speaker1:
Now why? Net because net is what you live on, right? The net money is what you take, what you get to take home, what goes into your bank account. Now there's something to be said here in retirement because you're not going to have as many deductions coming out of your paycheck like you do when you're working. So when you stop working, you're no longer putting into the furs or CSRs system. You're no longer putting into Social Security or Medicare. You're no longer putting into TSB. These are big deductions that are no longer coming out of your paycheck. Essentially, when you retire, you're going to be paying for your health insurance and taxes. You may have a deduction for fugly. You may have some others, but for the most part, health insurance and taxes. So we want to make sure that you're getting as close to your pre-retirement net income as you can. And most people that I talked to say, if I can retire what I'm taking home now, I'm going to be happy. I'm going to be able to live comfortably in retirement. Why not? Why not want to live the same lifestyle? You currently are taking home the same money, so most want to get to one hundred percent of their net pre-retirement income? What do I normally see? I normally see federal employees getting to about 50 to 80 percent of their net pre-retirement income.

Speaker1:
Now, hopefully you're closer to 80 than you are 50, but this relies a lot on maybe not saving enough or taking advantage enough of TSB, OK, or not looking at how the pension is calculated or just making a poor decision when it comes to when to retire. Because you think, OK, I'm going to work for the government, I'm putting in my time. I'm going to get my gold watch and I'm out of here and the government's going to take care of me without knowing how everything is calculated and what it's all going to add up to. So most that I talked to again want to get to one hundred percent, but a big mistake that we see mistake number five in our top 10 mistakes the federal employees make is neglecting to save and plan well enough for retirement. Not looking ahead, thinking I'm just going to get to this age or this point or this many years, and I'm out without knowing what the bottom line is going to look like, what my take home is going to look like when that happens, OK? And I said most federal employees are getting to 50 to 80 percent of their net pre-retirement income when the desire is to get to one hundred percent. Now, hopefully, there are rare cases where I've seen people who are making more money in retirement than they were before because they get some additional sources or reserve pension or military pension, or whatever it might be.

Speaker1:
But that is very rare. Now what percentage are you in? Right. We hear this all the time when we see our kids, hey, they're in the 90th percentile, the 80th percentile, whatever. Are you in the 50 percentile? Are you in the 80 percentile? Are you closer to one hundred percent of your pre-retirement income? Have you gotten an estimate done? Do you understand how this works right now? For most people, when we talk about 50 to 80 percent? This is not adequate. It's not adequate. What do I mean by that? Well, if you want to live comfortably on what you're taking home now and you're going to take home significantly less in retirement? Of course, that's not going to be adequate. So you have two choices. And what are your two choices at this point? If you're going to absolutely retire, even though you know it's not adequate, then you have to drastically reduce your lifestyle in retirement, which I know most do not want to do. Or number two is you have to continue to work and continue to prepare until you're absolutely ready. So to avoid those two things, to avoid having to reduce your lifestyle and to avoid having to work longer than you should, it's ideal to properly prepare. Now, whether you have one year from retirement or you're going to retire 30 years from now, it's never too early and it's never too late to properly prepare. So how do you prepare? Well, you have to know first where you currently stand.

Speaker1:
How do you know where you currently stand? You have to get an estimate done. You have to talk to a professional that knows federal benefits and retirement. We'll take a snapshot of what your situation looks like today, and then we will project out what that's going to look like in the future. And we can run a couple of different scenarios, depending on an ideal situation or maybe even a poor situation going on out there, because some of this stuff has to do with the performances of the markets and things like that when it comes to TSP in your investments. We can run a full analysis for you. So again, you see where you currently stand and how you're projecting how you're trending as you move closer and closer to retirement. And generally speaking, our estimates, even if you're 30 years out, are going to be in the ballpark. We've been doing this for a long time. We're going to get in the ballpark and even comparing pre and post retirement income. You can see if you're on track. You can see if you need to make some changes to what you're doing in order to prepare properly. Now this is all about you preparing for your future, you write. This isn't about, Hey, you're giving money here, you're providing money more for yourself in the future, your future self. I've never once had a single federal employee when we've done the report.

Speaker1:
Ok, here's because you can see on this slide there's two different reports that we can provide to you. One is our federal employee workbook and the other is a retirement estimate. It's more of a snapshot where the workbook is more detailed. We'll give you both of those. I've never had one federal employee when we looked at the workbook and we decided, Hey, we need to make something happen here. You can see there's changes that need to be made and then they get to retirement down the road. I've never had one single person call me up and say, Val, I don't know what we did, but we messed up. I have way too much money in retirement. I don't know what to do with it. We messed up somewhere. You're never going to say that if you've overprepared, if you get to that point in your overprepared, you're going to be the happiest person ever in retirement. But you're not going to feel so hot if you underprepared or neglected to prepare in time for your retirement. So you want to make sure that you are taking advantage of all the resources that are out there. Groups like Ours American Benefits Exchange that specialize in are experts in federal employee benefits in retirement. We have proprietary software that we can utilize and analyze your situation. Let you know where you currently stand. Make some projections. As I said, we can tweak numbers based on how we think things are going to go.

Speaker1:
Or maybe you make changes. Hey, I'm going to when I get a pay raise, I'm going to put more money towards TSP or whatever we can simulate. If I put a supplemental retirement account in place, you know, if I put extra money outside the government or I set up my own. Roth IRA or I set up my own supplemental account. What is that going to look like? How much is that going to add to my retirement income? Is that worth doing? And lay it all out so that you can make the best choice? Ultimately, it's up to you. You can decide, Hey, I'm on the right track. Great. Or I need to make some changes. Let's put some additional funds aside things like that. But the idea again, we're talking retirement income and avoiding that number five mistake. You have to properly plan, and it's always a good idea to get ahead of it to over prepare because I've never seen. I'll reiterate one more time. A federal employee be upset with having too much money in retirement or being over prepared for retirement. So I appreciate you taking the time to join us on this episode today, where we're talking about your total retirement income, how to avoid that neglect and to make sure that you're properly prepared for when it's time to retire. Again, my name is Val Majeski with American Benefits Exchange. This is the federal retirement show and look forward to seeing you on a future episode.

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