3.31.23: Audio automatically transcribed by Sonix

3.31.23: 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. I really appreciate you joining me for today's episode where we're going to be talking about supplemental retirement income. Now, you may have some questions. First of all, what is supplemental retirement income? Well, as a federal employee, you have traditional income sources that will be provided to you as a result of your employment with the federal government. Supplemental retirement income involves ways in which you've saved additional money, income sources that you've provided yourself that will supplement what you're going to be getting traditionally from the government. Now, another question you may have is do you need this? Is this something that applies to you? Should you already have this in place? And we're going to go over a couple of those details and hopefully answer your questions along the way as we go through today's episode. But without further ado, let's dive into the information today and talk about supplemental retirement income. So first question, do you need to save more for retirement? Do you need to? Now, the next question that follows that is, well, how do you know if that's the case? We're going to answer those questions, dive into a little bit more info as we go. But this is a question that we get asked a lot. Do I need to save more? Will I have enough in retirement? First of all, what will my retirement income be then? Will that will that be enough? Do I need to save more? How do I save more? What type of ways can I save more? We're going to answer those questions along the way today in our episode.

Val Majewski:
But really, as a federal employee, it's important to know all these answers. It's important to ask yourself these questions. It's important to find out as much as you possibly can about your situation, about where you currently stand, what the projections look like, what you're going to be taking home at your planned retirement date. And I say planned because you may plan to retire at a certain time. And once you see all the numbers, that plan might change. Now, it might change in a good way. But most of the time when I'm talking to federal employees, they realize the numbers aren't going to look as attractive as they thought they would. And now the plan has changed where you have to work a little longer or try to save a little bit more to be prepared properly. So do you need to save more for retirement? Hopefully we'll answer that question. And how do you know? Well, you need to take a look at your situation. What is a typical federal retirement look like? If you're a FERS employee, you have a three part plan, older system, CSRs employees. It's a one part plan traditionally. So CSRs employees, you're relying heavily on your pension, your CSRs annuity. You did not pay into Social Security. You did not get TSP matching.

Val Majewski:
You're mostly relying on a one check retirement your CSRs annuity. Now let's look at FERS employees and they said they have a three part plan. What does that look like? Well, you have your FERS annuity. Then on top of that, you've got Social Security. But if you retire prior to being Social Security eligible and you retire with full benefits, you now are entitled to the FERS supplement. That's part two of your total retirement income strategy or total retirement income situation. And the third piece of the puzzle is TSP. Now, when you add all of these things up, most veteran employees that I talked to and perhaps you're the same, want to get to as close to 100% of their pre-retirement take home pay, whatever it is they're taking home prior to retirement. Most veteran employees want to take home the same amount in retirement. That just seems logical, right? You want to live the same lifestyle you were living prior to retirement. You want to live that in retirement. You don't want to go eating ramen noodles and peanut butter and jelly sandwiches. Nothing wrong with that. I like both of those. But you want to be able to live the lifestyle and the retirement that you've envisioned since you started working. You put in the time you want to live the way you want to live in retirement. How do we do that? We have to have enough money. And I said, most want to get to 100% of their pre-retirement income in retirement.

Val Majewski:
But what do I typically see in my history of working with federal employees? I typically see federal employees falling between 50 to 80% of their pre-retirement income. Now, hopefully, if you're in this category, you're closer to the 80%. But if you're towards the 50%, we need to have a talk and we need to sit down and game plan a little bit. So if 100% is a goal, hopefully you're close to that. But I typically see federal employees falling between 50 to 80% of their pre-retirement income in retirement. Now, how do you know if you're in this category? You don't want to just get to the end, fill out all of your retirement paperwork, have all these checks come to you, and then realize I don't have enough money to live on. You need to find out in advance so you can properly prepare. And there you might find out that you need to save additional money and create a supplemental retirement income source. Well, what does that mean again? What other questions do you have to ask yourself when it comes to supplemental retirement income? Do you need to save more? Did you realize that you need to save more because you've run the numbers, you've looked at your situation and you realize you're not going to have enough in retirement. You didn't prepare properly. Do you need to save more? How much can you save each pay period or each month? What type of money can you put aside for your future? How long are you looking to save for? What is your time horizon? How much time do you have until retirement? What ultimate goals do you have for this money? Are you looking to use it as another income source? Do you need emergency savings? Most if you're looking for a retirement or supplemental retirement income, this is going to be used as a income source or in retirement, something that's going to provide additional money so you can get closer to that 100% level that you want to be at.

Val Majewski:
What are your risk tolerances for this fund? Are you worried about losing money? Are you looking to take risk with this additional money? Are you worried about taxes when it comes to this additional money? Do you want it to be a tax deferred vehicle like a traditional IRA? Do you want it to be tax free like a Roth account? Have you had a full review of your debt? Recently, we've done other episodes of this radio show about debt elimination. Well, having debt in retirement is not ideal. We talked to a lot of federal employees and most their goal is to be as close to debt free as possible in retirement. Why? Because they don't want those payments. To be a factor or a negative factor when it comes to their overall take home pay. So if they're eliminating their car loans, their student loans, their credit cards, their mortgages, even, those are payments.

Val Majewski:
Those are deductions. Those are are things that are going to cause money to go out the door in retirement and not get you to that pre-retirement income that you want to. I don't want those things to be liabilities for you in retirement. So have you had a review of your debt lately or have you taken action in trying to pay off as much of your debt as possible before you retire? Because not only do we want to save more for retirement, but we want to make sure less is going out the door once we are retired. So supplemental retirement. First of all, the biggest question is, do you need it? Do you need to save additional money? Now, how can you provide supplemental retirement? How can you provide more money for yourself, your family, once you're retired? There are several different options, and by no means is this list comprehensive to the point where these are only the options that you can choose from. These are not all of the options that are available to you as a federal employee. But these are some of the ones that I see federal employees taking advantage of the most. The first you can increase or max out even your TSP contributions. If you've seen the new rules, you can put into 22 or sorry, you can put up to $22,500 per year into your TSP. If you are 50 and older, you can put an additional 7500 for a total of 30,000 per year into your TSP.

Val Majewski:
You can certainly do that and provide more retirement income for yourself. You can certainly save more in your just your checking and savings accounts. Cash. Put more money aside and make sure that it's setting aside for retirement specifically. Now, here's a problem. If it's in your checking your savings account, a lot of times it feels like it's burning a hole into that account and you want to spend it. So I don't see a ton of people take this route, but it is certainly an option if you want to be ultra conservative and just save in checking and savings, you can start your own IRA outside the government or Roth IRA. Now TSP has a Roth portion. You can put up to $30,000 a year into that. If you're 50 and older, you can also have a Roth IRA outside the government. Just understand there are certain regulations when it comes to Roth and your ability to contribute to an outside Roth IRA. But this is a way, either through traditional IRA or Roth IRA, that you can set up an account where you put additional monies aside that could be for your retirement or retirement income. Now there's another type of tax free retirement vehicle that you can utilize. And it's a properly designed and I emphasize that properly designed cash value life insurance plan. Life insurance is a great way, in my opinion, to build up cash value on a tax free basis as long as the plan is designed properly and you have a long enough time horizon.

Val Majewski:
So it's not for everybody, but in the right situation, this is a way you can set up or set aside additional monies, put it into a vehicle that is going to build cash, protect it from the ups and downs of the stock market, have the potential to earn solid interest and come out tax free. In the end when you decide to take withdrawals from your plan. Some people call that a Super Roth IRA. Some people call it the best retirement plan you've never heard of. Some people call it a Roth IRA on steroids. It is an awesome, in my opinion, tax free retirement savings vehicle. If you're looking to save additional money on a tax free basis. So just to review everything, you're looking at ways in which you can put additional money aside if you realize that your traditional setup between your first pension, Social Security or the first supplement and TSP are not going to cut it. They're not going to provide enough income for you. And you need to set aside additional money on top of those three traditional retirement income sources, or else you're going to have to completely or drastically alter your lifestyle once you're retired. I don't want you to do that. I certainly want you to live the lifestyle that you've desired, that you've designed, you've put in the time, you've worked hard, you've gotten to retirement, live it up the way you want to, but the way the world works and the way this goes is we need to have enough money to do so.

Val Majewski:
We need to be comfortable. Well, if you're three traditional income sources aren't cutting it, it might be beneficial for you to set up a fourth. Now, here's the thing to say. You run the projections. We look at the numbers, you decide you need to save additional money and you find out that you've over saved. Well, I've never had a federal employee call me at the time of retirement to say, Val, I don't know what happened. We messed up. Something's wrong. I have way too much money in retirement. I don't know what to do with this. I can't spend it all. That's not going to be a problem. Your future self is not going to dislike you for having too much money. Have having over prepared for retirement. So I'd rather somebody be overprepared than underprepared. I don't want you to think it'll be okay. We'll be close, but it'll be okay. I'd rather you overprepare. Now, I certainly don't want you to go. You know, poor while you're working and save way too much that way. But if you have extra money that you can set aside, it can be extremely beneficial for you. And your future self, I said, is going to love you for it. If you've over prepared, you end up having too much money.

Val Majewski:
A great problem to have is making more money in retirement than you were when you were working. That is a great problem to have. But unfortunately, not everybody I talk to is in that situation because they did not properly prepare or take the time to learn early enough so they can prepare and have those years to build up that extra retirement income. So what do I recommend? What are your next steps? Now you may be watching this thinking I've got everything figured out. I've already got all my answers. I know what my situation looks like. I'm prepared and I'm happy for you. I'm glad. But the bulk of the federal employees out there that are looking for information are not as informed as you are. So I'd highly recommend if you're a federal employee and you want to know exactly where you stand, schedule A comprehensive benefits and retirement review. What does that mean? That means we're going to go over your family. We're going to show you a calculation of what your future CSRs or FERS annuity looks like. We have specifically designed software for federal employees that will run all of the projections. So whether you've got 30 years for retirement, 20 or you're retiring next year, we can run accurate ballpark projections. So you can see not only where you currently stand, but how you're trending as you get closer and closer to retirement. And if you're not trending in the proper direction or you're not going to hit the levels of income that you want to hit when you retire, and we're going to compare your pre and post retirement income if you're not hitting those levels or there's a major gap.

Val Majewski:
The good news is if you're planning early enough, you have time to make a change. You have time to make a plan or take a plan of action so that you can be properly prepared. We'll also go over, in addition to your CSRs or FERS annuity calculation, the cost, first of all, the options, but then the costs of those survivor benefit options. So you can make sure that you are making the proper decision. If you don't know what survivor benefit options there are, please check out our previous episodes about ESP and the Survivor benefits plan. You'd be surprised to see what's out there in the options that you have. We'll take a look at Social Security and your FERS supplement projections if that's something you're entitled to because you qualify for it. Again, you retire with full benefits prior to the age of 62. You're entitled to the first supplement. I'm going to refer back to the episodes we've done on the first supplement. Tsp projections. Now, granted, this is tough to accurately project because you could be invested in different funds that are subject to the ups and downs of the market, but we can make some ballpark projections and see what your TSP is going to look like when you retire and if that's going to be enough for you, if that's a number that you think would be beneficial or adequate for your retirement income.

Val Majewski:
But we'll also get all of your questions answered. You may have a ton of questions. So it's not just us giving you information. You know, on this podcast. It's pretty one sided. It's me spitting out a whole lot of information to you all because we feel like it's valuable. This is based on our experience in working with federal employees on a daily basis. We get questions, we see situations, and we want to pick out certain ones where we think they're going to be most beneficial for you. So if you have additional questions on top of all the information that we're providing, this is an opportunity to get your specific questions answered by scheduling a personalized benefits and retirement review. We call it comprehensive because we want to cover everything. We don't want to just talk about phegley or just talk about your pension or just TSB. We want to go over all of these things so that you are equipped and you are prepared and you have all the knowledge because in this case, knowledge is power. When it comes to being a federal employee and planning for retirement, you have all the knowledge you need to make the right choices and decisions along the way. We had a guest on our show, Brandi Pearson, and she talked about the fact that you are planning for retirement from the first day you get hired from the first day.

Val Majewski:
And she is an amazing rep with our company. She does a phenomenal job with the federal employees that she consults with and she talks to, But that is a true statement. You are planning for retirement, so why not maximize that, optimize that situation, make sure you are properly prepared, taking advantage of everything that the government offers. And if that's not enough, you can set up a supplemental plan to make sure that you're filling in any gaps. So get your questions answered by scheduling a comprehensive benefits review. Don't leave anything to chance and have zero doubt when it comes to your career and your future retirement. So I really appreciate you all joining us again on the Federal Retirement Show. I hope that you find the information that we provide to be valuable. We wouldn't be providing it to you if we didn't get these questions asked to us by federal employees on a daily basis. So if you do have suggestions for new episodes, you have comments, you have questions, go to our website. Federal retirement show.com fill out the form, let us know what additional information you want to see and we'd be happy to reach out to you, get those questions answered, get you scheduled for your own comprehensive benefits and retirement review. My name is Val Majewski with American Benefits Exchange. Thank you so much for joining us to learn more about supplemental retirement income and look forward to seeing you on a future episode.

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