On this episode of The Federal Retirement Show, Val explains how you can maximize your retirement benefits by redirecting inefficient dollars. Topics covered include Fegli Option B, risk mitigation, debt management and using survivor benefits options.
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2.17.23: Audio automatically transcribed by Sonix
2.17.23: 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 the Federal Retirement show. I'm your host, Val Majewski, with American Benefits Exchange. And over the course of our show, we've been providing you interesting, at least in my opinion, information, guidance, recommendations, just based upon our history of working with federal employees just like you. And today is not going to be any different. Today's title is called Maximizing Benefits and really Redirecting Inefficient Dollars. The idea of today is going to talk about ways to redirect money that's not working well for you. Redirecting money that is going out the door unnecessarily, making sure that you are using your money while you're working and preparing as best you can for retirement. So that's the purpose of today. We're going to talk about a couple of different topics that we have mentioned before, but just reiterate those things because we believe they're extremely important. So let's dive into the information and let's get into maximizing your benefits. Redirecting inefficient dollars. So what do I mean by this? Well, we're going to talk about a couple of different things. A couple of different specifics with regard to your benefits, your retirement structure, choices that you're going to be making. And you need to know what those consequences are after making those choices. So we want to ensure that you are optimized and getting the most out of what the government offers. The government gives you a very good benefits package if it's used correctly. Now, there are some ways in which money can be going out the door unnecessarily.
Val Majewski:
The dollars that you're spending are not as efficient or not as effectively spent as they could have been. So we want you to take advantage of all the positive opportunities. So not everything is negative. We want to make sure you're taking advantage of all the positive opportunities. As I mentioned, avoid unnecessary spending money that's just going out the door, money that you shouldn't be losing and money that could be saved either in your pocket or put more towards your retirement. And this will allow you to build an effective build a confident retirement so you can retire when you want and how you want. And the how is very important because when most people that I talk to want to leave basically as soon as they're eligible, that may not be you. You may love what you do and want to stay and work as long as you possibly can. But a lot of federal employees that I talk to would like to put in their time and retire when they're first eligible so they can enjoy their retirement. So the how is enjoying your retirement, making sure you can do what you want, travel, go see family. If you want to play golf every day. If you want to just sit and relax, I want to make sure you're going to be able to retire when you want. How you want. So here are some of the things that we're going to discuss today. The topics of redirecting inefficient dollars.
Val Majewski:
The first thing, and this is I cannot stress this enough, paying way too much for option B if you have not watched any of the episodes that we've done on option B, please go back and check those out. See how those costs, although very, very cheap when you first get hired, how they increase over time. We're going to show a little bit more about what I mean by that. Number two, choosing the wrong survivor benefit option and or not properly using those survivor benefit plans funds. So the survivor benefit plan, this is you, the federal employee. When you decide to retire, you can elect to provide a benefit to your spouse in the event that you predecease them in retirement. You want to make sure that you choose the appropriate option because there are consequences to that option. We're going to talk about risk mitigation. Why is that important? Well, this is early 2023. What happened in 2022? All of your TSP funds, except for the G Fund lost money and some lost significant dollars. So as you're nearing or entering retirement, you're going along your working career having way too much at stake and way too much at risk may not be an ideal scenario for you. We're going to be going over that. And then debt management. So everything was great when the market was was going up like gangbusters. Interest rates were extremely low and people were saying, well, I've borrowed money at a very low rate and I'm making money hand over fist in my investments, in my retirement.
Val Majewski:
I'm basically I can throw a dart at the wall and everything is going to work out. But now it doesn't look as well, right? When you're losing money in your retirement, when you're losing money in your outside investments, if you have those, maybe interest rates on your debts have gone up. We want to make sure that as you're going through your career, that you are managing your debt and ultimately eliminating your debt so you can retire again. How you want, when you want, how you want should be as close to debt free as possible, if not completely debt free. So we're going to dive into each one of these topics. So let's start with option B, And I said before, if you have not seen any of our previous episodes on Phegley, go back. We've got a more detailed dive into PHEGLEY Option B, But the the easy thing to understand with option B is you. When you first get hired, you elect your options. And most times they did not properly explain they being whoever your h.r. Person is, whoever your onboarding person is did not properly explain how these option b costs will change over time. You can get up to five times your salary in additional life insurance group life insurance and as a result, costs are very cheap when you're younger. That's how a group plan works. Costs are cheap while you're younger, but they start to increase.
Val Majewski:
And in this plan, they increase every five years, starting at the age of 40. And if you did not know this and you are not aware of this, they end up doubling or practically double each five year period until the age of 60, at which point you're paying paying over 20 times what you paid at age 39. So if you first got hired and you were paying for option B, you didn't see a major cost coming out of your paycheck by the time you turn 60 it. The amount of money that you paid at age 39, at age 60 for the same amount of coverage, same amount of coverage, 20 times more cost in a 20 year period. That is pretty ridiculous if you ask me. Now, you're not going to get letters in the mail. You're not going to get updates on your phone that say, hey, congratulations, you just hit a new five year mark. Your cost just doubled or almost doubled. That's not going to happen. So you need to see and look at your paycheck to understand how these costs are affecting you. Now, you can better redirect those dollars. You can look at different ways in which you can get the same amount of coverage at a much lower cost and especially a much lower cost over that same period, whether it's ten, 15, 20, 30 years. You can find a plan that provides the same amount of life insurance that you want to get for you and your family at a much lower cost over the same period of time.
Val Majewski:
Now, what can you do with those cost savings? Well, we said redirecting inefficient dollars. What if you redirected your payments not towards the of the Option B program, but towards your own private life insurance program. And you saved tens of thousands of dollars over the course of your career. Where can those dollars go, Redirect them towards your bank account or towards your retirement savings? Survivor benefit options. Now, again, just like the other topic about Phegley, go back and watch our episode on the Survivor benefits plan and the options that you have, whether your CSRs or a FERS employee. But here are the highlights. This allows you, the federal retiree, to choose how much of your pension you want to leave to your spouse should you predecease them in retirement. Now you can certainly leave nothing to them, and that means that you're going to keep your full pension amount, maximize your pension. But when something happens to you, if something happened to you first, your spouse would not get any further payments. A lot of federal employees choose to leave something to their spouse. And I'll get into why here in a second. But this causes when you choose a survivor benefit option, there is a cost involved. So it does cause a permanent reduction in your pension. Your pension is permanently reduced by whatever that amount is, and we can go over that on a personal level. If you do have questions about your particular situation and the survivor benefit options that are available to you, reach out to us, go to our website.
Val Majewski:
Federal retirement show.com fill out the form. We'll be in touch. We'd be happy to answer your specific questions on this topic. But understand this, in my opinion, is a bad piece of life insurance. Now, let me let me explain. How does life insurance work? Well, we just talked about option B, You do have a premium. You pay monthly or per pay period for your life insurance. If something were to happen to you now or down the road, your beneficiary or beneficiaries would get a lump sum tax free payment, lump sum. Tax free payment. With the survivor benefit plan, you pay a premium. It's called a pension reduction, but you are paying money for this. You are losing money for this death benefit option. And if you die, your spouse gets a monthly taxable payment for the rest of their life. Now, if they live three months or 30 years beyond you in retirement, they're going to get that payment for the rest of their life. But it's not a lump sum. It's a monthly payment and it's not tax free. It is taxable. There's no cash accumulation built into this plan. So why is that important? Because if your spouse died first and now you no longer need that survivor benefit. Good news is you can cancel it and regain your full pension. Bad news is you can't get back any of the money that you put into the plan.
Val Majewski:
So there's lack of options when it comes to that. There's lack of options in retirement, meaning you can't just willy nilly change your mind. So if I selected a survivor benefit plan, I'm the retiree at and let's say five years down the road, my wife and I, my spouse and I, we look at each other and say, hey, we can really use that money back in the pension. We don't need the survivor benefit anymore. Let's cancel it. Let's get rid of it. You can't do it. There is about an 18 month window from the time of retirement when you can make a change. Now that rarely occurs, but there is a chance that you might be able to make a change within the first 18 months after that. You're out of luck. It's a permanent set in stone. Decision. The only way you can cancel it is. The scenario I said before is if your spouse dies first, you can cancel the survivor benefit, but you don't get any of the money back in death in your death, your spouse has a lack of options as well. The spouse cannot choose a lump sum option. The spouse cannot choose a tax free option. It's just one type of payment. Taxable monthly payment. So if you and your spouse enjoy a long retirement 20 years, 25 years, and then something happens and that person's health, your spouse's health is not as good and they're only going to live a few months or a few years.
Val Majewski:
They may not get back all of the money that you put into the plan. That's the risk that you run. So you can redirect these inefficient dollars, use them a little better, and get yourself an actual life insurance plan using the same amount of money or even less or even more, because you might want to choose more than what the survivor benefit plan would normally give. A general rule of thumb, a survivor benefit plan will max out at about 50%. Csr is a little higher, but let's just say for FERS employees, the most you can leave your spouse is 50% of your pension. The government says that one person can live on half as much as two. So the most you can give is 50%. Well, what if you want to leave your spouse more than 50%? You can customize that with a private plan. Now, why do federal employees still choose the survivor benefit option? The only. Hook if there is a better word. The only catch is that they attach your federal employee health benefits to it. So if you want to make sure or ensure that your spouse can continue the health benefits in the event you die first in retirement, you need to elect at least a minimal survivor benefit option. Other than that, I think it's a bad piece of life insurance. That's just my opinion. We can certainly go over your personal situation, see if there are any options that work out better for you, your spouse, your family.
Val Majewski:
Moving on to risk mitigation. I said it earlier, but risk and volatility are not ideal when nearing or entering retirement. Let me give you an idea, an example we can use last year, let's say at the end of 2021, you're like, This is awesome. I've got one year left for retirement. I'm going to retire December 31st of 2022. Countdown is on and I'm just letting everything ride the way it is. I've been happy with the way my investments are going. I'm happy with the way my retirement pension looks. All of this stuff, I'm going to keep it where it's at. And you had a healthy mix of money in the the stock funds or the funds, which, by the way, a misconception is that L funds take away risk. That's not the case. It just diversifies risk. But they're still at risk, as you saw last year. But let's say you won. You just said I'm letting it ride. One year left. What can happen? I'm not saying that you have that opinion, but I have seen that before. And you lost 1,520% in your GSP over that last year. How would that affect your retirement? If you've got a lot of money in your GSP? A significant amount. That could be a lot of dollars that went out the door at the last minute unnecessarily because risk and volatility taking too much is not ideal. Now, some people like to gamble, but that's not the majority.
Val Majewski:
And I'm talking from experience when I when I consult with and go over benefits with and retirement with federal employees just like you, most do not want to lose any money and certainly do not want to lose any money at the last minute as they're leaving. So make sure that you understand where all of your percentages are when it comes to TSP as you're nearing entering retirement. I say nearing. That could be two years, three years, five years from now. Different, different opinions of when nearing for retirement is. But how comfortable are you with losing money? Most that I talk to say, well, I don't want to lose any money. I'm not comfortable at all losing it. I like making it. We all do. And I want to shoot for the moon as well. I want you to get 20, 30% return like some have gotten in the past. But understand, with that risk of or that opportunity of gaining large percentages on the plus side, you are at risk for losing large percentages on the downside like we saw last year. So if you're looking for safety, security, peace of mind guarantees, making sure your hard earned money doesn't go out the door at the last minute, talk to us. This is an area of expertise for us. Our company, our reps across the country is helping federal employees 100% guaranteed protect their money from loss when it comes to market volatility and market fluctuation.
Val Majewski:
As you're nearing retirement, this is not ideal. So if you are concerned about losing money as you near retirement or you want to say, you know what, I don't want to completely keep all of my money safe, I want to take some risk. Well, what portion is it that you want to keep safe? What portion is it of of your retirement nest egg? Do you want to keep 100% secure and away from the risks of the market? That's something we can help with. Now, the only way you can do that within TSP is in the G Fund, and if you're aware of the G Fund is only averaging about 2% over the past ten years, not really even keeping up with current inflation. But there are opportunities to earn much better interest than the G Fund with the same guarantees and protections of the G Fund. These are things that we can bring to your attention and see if they're right for you and your situation. So risk mitigation, making sure you don't put yourself in a poor situation as you're nearing retirement. And I wouldn't want to leave you vulnerable to losing money as you're walking out the door. Debt management. Now, we don't harp on this as as much as we used to. Well, I shouldn't say we didn't harp on this in the past. We're harping on it now because this has been a very hot topic with federal employees over the past year or two. But we normally talk about.
Val Majewski:
Eliminating as much debt as possible when you enter retirement. Now, why is that? Or before entering retirement. Why is that? Because when you're retired, chances are you're going to be making less money. Or a little slightly less money than you were before. When it comes to total take home. And we want to make sure you don't have any large bills, large payments, large things that are still out there, debts, money that you owe while you're in retirement, because you're going to be on pretty much a fixed income at that point. If you want to enjoy your retirement. I don't want you to be thinking about these debts and these things that you are obligated to pay while you're on a fixed income or a lesser income than you are making the day before you left. So we want to help you eliminate all of your debts in a fraction of the time. What if we can do that? What if we can help you become completely debt free in a fraction of the time while also building tax free wealth? Is that something you'd be interested in? Most people that I know want to eliminate their debt as quickly as possible. Most people I know do not want to owe people money. And the same could be said about federal employees just like you that as you near or into retirement, retiring with any debt. For me, I'm going to go back to the same word I used on the previous slide is not ideal.
Val Majewski:
Retiring with debt not ideal. Actually picking up new debt right before retirement is generally not ideal. But what if we can help eliminate all of that debt in a fraction of the time? That way, when you're entering retirement, you have that peace of mind knowing that your money is not going to be going out the door to creditors or banks or paying high interest rates. Or paying too much in interest. What if we can help you eliminate that debt, put you on a plan and show you a way in which you can do so? Eliminate all of your debt. I'm talking even your mortgage in a fraction of the time while also building tax free wealth. We've talked about this on a previous episode, but we're talking about redirecting inefficient dollars. That's the topic of today. What if we can use the same money that you're currently spending and help you eliminate your debt in a fraction of a time redirecting some of this inefficient money, money that you could have saved on your option B, money that maybe you saved because you chose a different survivor benefit plan. You created your own custom plan, money that you've protected because you kept your TSP safe and sound at the last minute. You didn't necessarily lose money and have it go out the door. You made sure that you were using every dollar that you made as effectively and as efficiently as possible. So when you do retire and it's all said and done.
Val Majewski:
The stress is off. You have a you walk out the door with your head held high. The confidence of knowing that you're retiring when you want, how you want. And knowing that all of the worries, all of the stresses, all of the things that you may have had in previous years are gone and you can just sit and enjoy your retirement. That is the goal that we have for you as federal employees. And those listening in to our show is we want to make sure again that you are set up properly set up in the most effective and most efficient way possible. So I really appreciate you taking the time out of your schedule, taking the time to learn about how to maximize your benefits, how to redirect some of those inefficient dollars, how to put yourself in the best situation possible. So again, you can retire how you want when you want, do so on your terms with your head held high and have the confidence that you're going to live the life you want to. Once you're working, days are up again. My name is Val Majewski. You're listening to the Federal Retirement Show. Looking forward to seeing you on a future episode.
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