12.9.22: Audio automatically transcribed by Sonix

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

Val Majewski:
Well, welcome back to another episode of the Federal Retirement show. I'm your host, Val Majewski, with American Benefits Exchange. And today's topic is coming from experiences I've had recently in talking with federal employees just like you about their benefits and retirement situation. Several folks that I've talked to lately have started later in life working for the federal government. And what I mean by that is maybe in their mid to late forties or early fifties started working for the government. Maybe this is you, maybe this is your situation and this topic is really pertinent, which is why you clicked on it and decided to listen in. But what do I mean by starting late? Well, they're kind of behind the curve, right? Their timeline is not as long as somebody who started in their twenties or early thirties. So starting later in your career has some catching up to do. So to speak. And there's some advice that I've given these folks based on their situation, and I think it's also going to be helpful for you. Now, this is going to be general in nature. It's not going to be specific to your situation, which is why I'd love to chat with you and go over it. So please fill out the form that's on FederalRetirementShow.com and we'll be happy to follow up. Go over your personal situation and see if some of these bullet points that we're going to discuss are right for you so you can prepare properly for retirement.

Val Majewski:
So let's dive into the content and we're going to talk today about starting late. What if you are later in life coming to the federal government? Now let's back up in first, talk about what your retirement is going to look like. And I'm typically talking about FERS employees, right? If you're a CSRs employee, you didn't start later in life or maybe you did, but you are later in your career and you've got a lot of years. We're going to be talking about FERS employees. But this is in general what a federal employees retirement income is going to look like. You've got your retirement, your CSRs or your FERS pension, your FERS annuity, you've got Social Security or the first supplement. If you qualify that for if you qualify for that as a FERS employee who retires with full benefits prior to the age of 62, you can check out our episode on the first supplement if you need more information. Tsp, that's another retirement income source, so that rounds up the traditional three retirement income sources that a federal employee has. Pension, Social Security, TSP. Now, some may have supplemental accounts. If you're prior military, maybe you have a military pension, maybe you have a VA disability payment, maybe you have a previous 400 and 1ka previous pension from another job.

Val Majewski:
Maybe you have an outside IRA or a Roth IRA that you contribute to. This all adds up to your total retirement income. Now, the goal for most federal employees that I talk to, at least on the front end, is to say, Hey, I want to get to as close to 100% of my pre-retirement net income in retirement. So basically, I want to take home the same amount of money in retirement that I was making while it was working. What do I see most federal employees get to though? If the goal is 100%, I see most get between 50 and 80%. Now hopefully you are closer to the 80% than you are to the 50 or below, But the goal is to live the same type of lifestyle, meaning you have to take home the same amount of money in retirement that you do now. Maybe you can be okay with a little less. Maybe 80% would be enough, but 50% may not be enough. Now, how do we know what this is going to look like? Well, that's where a retirement estimate of benefits and retirement review comes in. And we can project these things out and see where you stand. Now, recently, again, when I've been talking to some federal employees who started later in life, they did not have all of these things. They did not have the time that it takes to build up these things.

Val Majewski:
So let's see, what does it mean or what does it look like if you are behind, if you started later, when you started later in life. I mentioned, you know, mid to late forties, early fifties or later you started your career with the government. Later in life. Nothing wrong with that. But you need to understand that your time horizon, if you want to retire at and I say a normal age. And what I mean by that is this is in my experience, when I see people, federal employees wanting to retire age 60 to 65, sometimes people will go a little bit later. But that's generally an area where I see federal employees wanting to retire between age 60 and 65. So if you started later, your timeline is a lot shorter than somebody who started in their twenties or thirties, you have less time to play catch up and to get to that 80% or 100% of your take home pay that you had while you were working. So you may have and most likely will have less than 20 years of further service by the time you retire. Now let's let's go back and talk about pension calculation. You can certainly watch our video, our episode on the first pension system and go over the calculation. But just the general rule of thumb for a FERS employee is that you're going to walk away with approximately 1% of your high three for every year of service that you have.

Val Majewski:
So you've got a three part plan pension, Social Security, TSP. Let's say you have under 20 years, you've got 15 years. General rule of thumb is you're going to have about 15% of your high three. There's a lot to make up for now with the other two things Social Security and TSP. Compare this to somebody who worked 30 or 30 plus years. They have 30% of their high three. They have less than make up with the other two things. So your time horizon, your shorter time horizon, because you started later in in life. Is putting you behind as far as what you're going to get in your pension from a percentage standpoint. Social Security may be the same. So Social Security I typically see will make up about 20, maybe 25% of your total retirement income. Just depends on when you take it. And there's a totally different strategy we could talk about. Again go to federal retirement show dot com, fill out that form. We can talk to you about Social Security maximization strategies. But if we're looking at your pension, the difference between something that worked 30 years or 15 years or less than 15 years could be pretty drastic when it comes to their pension. The last piece of the puzzle is TSP. Now you've got less years to accumulate that money in your 401k

Val Majewski:
Your TSP. Your thrift savings plan. So how do you play catch up there? We're going to talk about that in a second. But let's say somebody started later in life they still want to retire at a normal retirement age between 60 and 65. They've got less than 20 years of service. Maybe I'm talking right to you right now. And perhaps you did not have any previous retirement savings, meaning you didn't have a previous pension previous for one K, you weren't prior military. You don't have a VA disability benefit. You're not saving in an outside IRA or Roth IRA. You are starting from scratch when you got hired from the government. So what do we do and what can we talk about? The experience that I recently had with the federal employees and what did we discuss? What were the questions that they had? Well, they said, well, how much should I put towards TSP? Now everybody's situation is different, so I can't give a blanket number or percentage, but I will say at least 5%. At least 5%. Why? Well, how much money do you get in matching contributions in your TSP? You get up to 5%. I've said this before and I'll say it again The matching money, the 5% is the best investment you can make. Why? Because it is free money. In my opinion, that is the best type of money that you can get.

Val Majewski:
Free money. The government doesn't give you much for free. They want to give you some free money in your pension or sorry in your thrift savings plan. Your 401. K. Put in at least 5%, get the maximum amount of matching funds. Now with anything additional if you want to try to play catch up. Anything additional you can and this is up to you depending upon how you want to invest your money or put it aside. You can put anything above and beyond the 5% into your TSP. You can put it into your checking and savings account. You can put it into a supplemental account. That's up to you. But understand, your pension calculation is pretty much set in stone. You can't increase your contribution there. Your Social Security calculation is pretty much set in stone. You can't increase your contribution to Social Security to try to bump that situation. Your pension and Social Security is to try to earn more money and work longer. But if you still want to retire at a normal age and not have to work until 75 years old, then we have to play some catchup now. Tsp does allow you to do so. The maximum contribution currently as of the recording of this podcast, this episode, November or sorry start of December 2022, is $20,500 per year. Now, if you're 50 or older, you can put an additional $6,500 in.

Val Majewski:
Per year in catch up contributions for a total of 27,000. Those will increase in 2023. So just understand you can play catch up with TSB. You can play catch up elsewhere now. Tsp will be your wild card or any other retirement savings that you have will be your wild card when it comes to total retirement income, because that's where you can decide to put in a lot more money. I already said your pension calculation. You can't increase the contribution. Social Security, you cannot increase the contributions. So TSP, the first thing, get as much free money as you can, at least 5% into TSP. Number two, let's think about the opposite of saving as far as retirement savings. Let's talk about savings on interest. We think about paying off all of your debts, all of your debt. I'm talking mortgage cars, student loans, credit cards, Get rid of all of it prior to retirement. Why? Well, if you're not going to have as much in retirement, I don't want you to have as much going out and paying high interest. On your your debts, on your loans. I'm the money that you owe. If we can eliminate all of that while you're working, take that additional money and pay off your debts before you're done working. Then if you're earning less money in retirement, well, you don't have as many expenses. And that's going to go into the next thing, minimize expenses.

Val Majewski:
Let's go back to the debt. Och, if you've got a car payment, you have a mortgage, student loans. Some of these things may be higher interest depending on when you got them. That interest is money that's just going to your lender. Why not pay it off? And that way, that money, that money, those payments that you're making can then go into your pocket or go towards your retirement savings. The sooner you can pay off your debt, the better. We have programs to help federal employees eliminate debt and build wealth towards retirement. Eliminate debt in a fraction of the time. In fact, we did an entire episode on it. You can go back and check that out. But pay off all of your debt if you're behind the curve. If you're behind you started later in life, you have debts. Let's get rid of them as soon as we can. That way you can focus just on your retirement and not owing other people, minimizing expenses. Let's look at your benefits that you have from the government and make sure that you're not paying for things you don't need. So as much as we want to say, maximize what comes in, try to earn as much as you can and save as much as you can. You want to eliminate or minimize the amount that's going out. So it's not just expenses for bills and living expenses, loans that you have outside the government.

Val Majewski:
We're talking about looking at your leave and earnings statement, your pay stub, and making sure there aren't things on there that you don't need. So Fegley could be one of those. Maybe you have benefits with your family that you no longer need. Maybe you have allotments going somewhere for accounts that don't exist. There are things that we can help eliminate now. Maybe you're set up properly, but it's always worth a second look. I've talked to federal employees before and I've looked on there and said, Hey, what is this allotment? What is this payment, this deduction that's going to some bank account somewhere? Oh, that was the payoff X, Y and Z, or that's for a bank account that doesn't exist anymore. Well, guess what? It's still coming out of your paycheck. The government doesn't know it doesn't exist or the government doesn't know that something already got paid off. It's going to keep coming out of your paycheck. So just understand that and I want to make sure we're minimizing expenses. Save as much as you can towards retirement. This seems like a no brainer, right? So if we're doing everything on the top end, you're putting as much as you can in the TSP, at least getting the 5% matching we're paying off all your debts or putting a plan in place where you can pay off your debt in a fraction of the time, minimizing what goes out on top of paying off debt.

Val Majewski:
So being as efficient or as effective as possible. Now, once we've got that all set up, let's put as much as we can towards your future. Money's not going to get there on its own. And we don't have three wishes by rubbing the magic lamp. We can't wish for a good retirement. We have to make it happen. So putting as much as you can towards your future. Now, look, I don't want you to go into the poorhouse today and sit and eat peanut butter and jelly sandwiches and ramen noodles. Now, there's nothing wrong with that. I love both of those things, but I don't want to force you to be in that boat. So save as much as you can for your future while still being able to live today. But there may be some things we can sacrifice, right? That extra thing that you buy or those those expenses or those payments that you have for items that maybe you don't need or maybe, you know, the Amazon specials come up and we just start clicking on things, we have to be a lot more efficient and effective if you want to have that retirement that you desire, that you're looking forward to understand that there are some sacrifices that might need to be made because you started a little later.

Val Majewski:
There's nothing we can do about when you started to work, right? But we want to capitalize on everything the government gives you. Make sure that you are prepared properly for. When that time comes, you leave. And you know, without a shadow of a doubt that you're going to have the retirement that you want and you're not forced to live a lesser lifestyle or forced to work longer because what you have saved and what you've done is not adequate enough. We want to make sure you're there. Now, this would could mean not only saving more in your TSP, but setting up a supplemental account. And that can be done in a number of different ways, right? It can be an IRA, a Roth IRA. There are numerous types of accounts that you can utilize to save additional money for your future, for your retirement. Now, how do you know if everything is going to be effective? How do you know? Well, that's where we have to talk about your benefits and retirement review. You have to get an analysis done. You have to plan ahead. What are we able to do for you? Well, if you've never gotten one of these reports created for you. Let me explain why it's beneficial. You not only see where you currently stand, we enter in all of your data. We take a look at your current situation, and that's where we make sure that you're being as efficient as possible with everything today.

Val Majewski:
But we can also project and look into the future so you can see how you're trending, you can see how you're doing, and if you're on track to hit the retirement that you desire. We can make some simple projections. Now you can see it in plain black and white, and you understand, okay, I'm heading in the right direction. This is great. You're getting that peace of mind and we can review that on an annual basis to make sure you are still on track to hit the retirement goals that you want to hit. However, if you realize through this analysis that I'm not really going in the right direction, I'm not trending how I want to and I'm not going to end up by the age I want to retire where I want to be. You have time to make some changes. I say this a lot. It's never too early and it's certainly never too late to plan for retirement. Now I talk to a lot of federal employees and the goal of this particular episode is not this side of it, but I've talked to a lot of federal employees who are younger, twenties and thirties that say retirement is so far out. I don't need to think about that or talk about it now. Absolutely. Yes, you do.

Val Majewski:
You are planning for retirement the day you got hired. The very day you got hired. Now the opposite of that, that's the purpose of this episode, is talking about what if you started late? Well, it's never too late to start planning. I've talked to people saying, Hey, I've only got three years left to retirement. It's too late for me. No, it's not. You still have three years left. You know how long three years is to do something now. You may not be able to do as much as you would like, but you still can do something. Doing nothing is guaranteeing that it's not going to happen the way you want it. You have to give it your best effort. You have to go for it. And if you do nothing, you're guaranteeing that you're not going to get there. But if you do something, you can chip away at it. You might surprise yourself. You may get closer than you think. So when we talk about this analysis and we talk about doing a benefits review, when we talk about looking into your situation regardless of when you start it, but specifically for those who started later in life. We want to make sure that you are trending or heading in the appropriate direction and setting up a plan to make sure you get to that adequate retirement income. Or that amount that you're making sure that that you can live on and live comfortably.

Val Majewski:
Because I don't want you to retire again and have to reduce your lifestyle. I want you to retire the way you want to. You've put the time in. You've worked, you've qualified for retirement. You should get rewarded for that. And we want to make sure that that's the case. So if you've got anything out of this episode today, it's designed for those that have started later in life. But if you're watching this and you actually started earlier and you've got that time, it's still beneficial for you to see where you stand and see how you're trending. But if you have if you started later, later in life, your time horizon is shorter and you're saying, how do I plan properly? How do I make sure I can get to where I want to go? Well, we need to get one of those analyses created for you. You have to see the reports. You got to see the numbers in black and white so you can make sure you're trending in the appropriate direction. The best way to do that, go to FederalRetirementShow.com. Fill out the form. We'll be in touch and we'll create your reports for you so you can see all the numbers. Well, I really appreciate you joining us today to learn about preparing for retirement if you've started later in your career. Thank you for joining me and we'll see you on a future episode.

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