Income Streams Every Federal Employee Should Know

5.9.25: Audio automatically transcribed by Sonix

5.9.25: 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 Majewski with American Benefits Exchange. As always, really appreciate you taking the time out of your busy schedule to view our content. It is aimed at giving you, the federal employee, the accurate and honest information when it comes to your benefits and retirement situations, and that way you can make some decisions out there about how to set yourself up properly as you go through your working career. And then ultimately, like everybody's goal is get to retirement how they want, when they want, with the lifestyle that they want to have in retirement. And that's what we're going to talk about today because I've been reading articles, I've been seeing stuff on the news. Um, I've been seeing the commentary, talking to federal employee clients of of ours. And also, you know, those that we've we've spoken to and people are concerned about some of this new budget legislation and things like that, and properly planning and making sure they're going to have enough money and they don't want to feel like the rug is being pulled out from underneath them with all the hard work that they put in. And maybe you're in the same boat. Maybe you're thinking, man, I've been a federal employee for so long and I've been putting in all this time. I've been planning for retirement, doing the right things, but some of this stuff is out of my control, and it's going to be taken away from me at the last minute.

Speaker1:
What can I do about it? What's going on? And last episode, we did talk about some of the budget legislation that's out there, some of the things that might pass and might go through. And, and you can see how those changes are going to affect you going forward. So if you have not seen that, go back and view not just that episode about budget legislation updates, but all of the previous content that we have out there. If you've not seen it, it's over 130 episodes at this point, and it's a lot of great information for you to listen to, for you to watch, for you to check out and ensure that you're doing the right things as a federal employee. But for today, we're going to talk about retirement planning, specifically supplemental retirement planning and planning for the what ifs. So let's dive into today's content and talk about supplemental retirement planning and planning for that. What if when it comes to your benefits and retirement situation? So going back to it, what are your retirement income sources? We've reviewed this numerous times. What are they? What are the main retirement income sources for you, a federal employee, as you're going through your working career and looking at your retirement? What are you going to expect when you get to that point, when you've put in your time and you're ready to leave? First is your pension.

Speaker1:
Now, most of you that are watching this are going to be fers. But I did put on there pension. If you're old system civil service retirement system, you're looking at basically one pension check in retirement. That's what your system was designed for one income source. You might have a little bit of Social Security from a job you took outside. You might have a little TSP if you did participate in the TSP when it came out, but for the most part, your plan or your retirement system was designed around one income source. When it was all said and done, Fers employees Fers employees. It's a three part plan, right? We've got the Fers pension. Then there's the first supplement or Social Security and then TSP. These are the main retirement income sources. We've done this before. We've talked about this before on this show. But I got to reiterate, you know what? They are just to remind you because I want you to take advantage of all of these things to make sure that you're planning for all three of these things to be a part of your income. Now, then there's the last one when we're talking about supplemental accounts. Now, what do I mean by that? That means you could have worked a job prior to coming on with the government. And maybe you have a previous IRA.

Speaker1:
400 1K4 hundred 3B4 57 another pension. Maybe you're former military and you put in your 20 years, you got your military pension or your your VA disability, whatever it might be, you're you're planning on a reserve pension. Those I would consider supplemental accounts. Right. Additional retirement income sources that we can factor into the equation. Um, maybe you set up your own plan that you've gotten your contributing to over time, right? It could be something like that. It's an extra in addition to account other than your first pension, your first supplement or Social Security and your TSP. These are the the three main things that then you might have one or multiple supplemental accounts. The whole goal, as we've talked before. And this is really where the the rubber meets the road here. This is where we want to see what the the end result is. You know, we've been baking this cake this whole time. What does it taste like? Most federal employees that I talk to want to get to 100%, or as close to 100% of their pre-retirement take home pay as possible in retirement. What does that mean? That means you want to take home the same amount of money when it's all said and done that you are taking home the day before you left? Now that means you can live the same lifestyle, hopefully in perpetuity, because most of these, if not all of your retirement income sources that you're going to have should be lifetime incomes, Fers pension, lifetime income, social security should be lifetime income.

Speaker1:
If you turn your TSP into a lifetime income stream, that'll be lifetime income. And maybe some of those other ones that you have outside those supplemental accounts, they could be lifetime income sources. What I mean by that is guaranteed lifetime income. It's going to continue forever and ever. You cannot outlive those lifetime sources. That's what I'm trying to say, is you want to get to 100% of your pre-retirement income in retirement, take home pay. Okay. But with the budget reform, all of our topic today is planning for the what if. Right. The what if and if you saw our last episode, we did talk about one of these things. We talked about the Fers retirement supplement, and the new budgeting is planning to eliminate the Fers retirement supplement. However, they said they indicated in the legislation that it would just be for new hires. People that are going forward would not be eligible to get the first supplement. This would make them probably want to work to at least age 62 so that they can get Social Security. So we talked about the first supplement. What if it's a weight going away for new hires? But a lot of folks out there are under the idea that it's going to be eliminated for them as well.

Speaker1:
And a lot of them are the folks that are planning on taking that fork in the road. Or they did take the fork in the road. They took the deferred resignation. And they're thinking when if this passes between now and September 30th, when that retirement is up, when that deferred resignation is up and everybody's got to then make a decision if they're retiring or not, that they're thinking that the first supplement is going to be gone at that point. Now, hopefully that's not the case because that's not what the legislation says. They said it's for new hires, but we're looking at the what ifs in life, right? What if we're planning now for folks that are retiring this year? Yeah. Planning for the what if there's not a whole lot of time there? So the people that I'm talking to more on this stage. Right. What we're talking about on this episode are people that have a little bit longer time horizon. So I just want to assure the folks that did take the deferred resignation or the fork in the road, and they're planning on retiring very soon when that comes up, September 30th, that the new legislation did not say that it was going to be eliminated for those folks. They're talking about new hires. Again, I'm not going to guarantee things can't change between now and then, but that's just not what the way the the budget or the legislation was written.

Speaker1:
It may be something that people interpreted and it's some misinformation out there, but from what I've seen, it is for new hires only. Okay. So let's say you are a younger federal employee or you're just getting hired. And now we have to look at all the different options. What's the next? What if? What if the Fers retirement supplement and or Social Security drastically change? Now we just said the budget legislation is to eliminate the first supplement. We don't know what the final thing is going to be until it's all passed. Okay. So maybe it doesn't get eliminated immediately, maybe it gets reduced, or maybe Social Security gets affected and gets eliminated, right? Or drastically reduce. We've seen that over and over. If you read the Social Security Trust Funds report, they're telling us in plain English that Social Security, if no changes are made, that it's going to be depleted by 2033. The regular fund is going to be depleted, and they're not going to be able to pay 100% of the obligations going forward. So what if your future Social Security that you're relying on is drastically reduced? What if that first supplement that you're relying on gets eliminated. And maybe it's not just for new hires, maybe it's for people that were hired after a certain date. I'm just throwing some other what ifs out there. You have to make sure that you're properly planning.

Speaker1:
And if one of these are eliminated now, that's one of your three main retirement income sources that's not there. How do we make up the difference? What do we do? What's going to be the next step? And this is again planning for the what ifs. So what is the next step or what can we do if this is down the right down the line and we can protect ourselves? How can you protect yourself from this? What would seem like a tragedy when it comes to your retirement income? How can you protect yourself and be unaffected if this comes down the pike? This is where your supplemental accounts will really come into play. So maybe I said you do have a previous 401 K that you're relying on. You're thinking, I'm going to be okay. Maybe you've got another pension that you're relying on and you're gonna be like, I'm gonna be okay. But perhaps you don't have anything. And I just mentioned fers pension. First supplement of Social Security and TSP. Those are the only three things you had because that's what people have told you. Hey, you work for the federal government, you're going to get three income sources of retirement pension, social Security, TSP. You put in your time, you're going to be set, you're going to be taken care of. And there's this false sense of security that it's locked in. It's good to go.

Speaker1:
But again, what if things change? What if Social Security doesn't pay out as much? What if the first supplement goes away? And these were things that you were relying on. Now your supplemental accounts are going to have to, you know, pull more weight in order to get you back to even if you want to go back to that 100% level of what you were making before retirement, you want to be able to take that home in retirement. So this is where thinking about saving more money, because how is that money going to get there if you need to make up money because the first supplement is no longer there, or Social Security is not there at the same capacity. Then how are you going to have that money there? How's it going to get there? Does it magically show up? This is going to take a dedicated effort. It's going to take some diligence, persistence. It's going to take some calculation on your part in order to ensure that you're going to be in a comfortable place when you do retire. And that's our goal. We want every federal employee to to be able to work as long as they want, but also not have to work more than they have to. Right? I want you to be able to retire when you want, and not be forced to continue to work because you don't have enough income. You can't do it financially.

Speaker1:
You can't financially retire and live comfortably. We want to ensure that you're using all the time that you have available to you, which is the time from now, today, until you retire. Take advantage of all of that time to plan properly. Do not leave it to chance. Do not leave that. What if or I hope so type retirement. We've talked about that. So if the supplemental accounts are going to take over then what are some of the questions that you need to be asking yourself? First of all, you need to ask what function is this supplemental account going to serve? What function is it to make up more retirement income? Perhaps. Perhaps you've realized the income streams that you're going to get from your pension. And they said, if we're eliminating the first supplement in Social Security or they're not going to be there at the same capacity, we're trying to make up the difference there. Along with TSP, you want to give it some more flexibility. Maybe you want to have options. You don't want to rely on just what the government gives you. You want to have some more flexibility when it comes to your retirement income. Maybe it's for an emergency savings fund. Maybe it's just for a what if? What if something happens that I don't know other than, you know, my benefits changing, you know, some some other sort of thing going on, you want to be prepared properly.

Speaker1:
I've never had a federal employee tell me when it's all said and done. We get to retirement and we've been helping them along the way. And they say, Val, you know, we really messed up. There's a problem here. I ran all the numbers, and I have too much money in retirement. That's never been a problem. It's never been an issue. It's never been something that we've had to go up against, because it's a delight to know that you've got too much money that you've over planned in order to get to the place where you want to be in retirement. So what function, what purpose do you want this money to serve? How much each month or each pay period? Do I want to save or can I save? Remember I said, this is going to take a dedicated, a persistent, a consistent effort to do it. It's not just a one time dump some money in and let it set and forget about it. No, you want to actively participate in this kind of plan the same way you're putting money aside in TSP each pay period, and hopefully getting the maximum matching funds you want. If you're going to set up another account, you want to consistently put money into this plan and do it, uh, obediently over time, Overtime, right? Be consistent with it. Persist it with it. You want to make sure that you're you're doing that on a regular basis.

Speaker1:
And you can set it up as a payroll deduction, too, if you do have a plan that allows for that. But, uh, what function, what purpose and how much how much can you put aside each pay period or each month? I kind of say, let's let's see how much comfortably you can you can set aside to let it grow. And I'll give you an example of why here in just a minute. But then what is your time horizon? How long do you have. And maybe that affects how much if you have less time, well, how's the money going to get there? You got to put in more money today with the less time that you have. If you have more time, then you can start small. Maybe you ramp that up as you get pay raises, step increases, promotions, whatever it might be, you can put more money aside. I'm telling you, your future self is going to love you. It's going to thank you for having too many options, too much money in the future. Now, this is not the same for everybody, right? It's not the same of the same amount. It's not the same function. It's not the same purpose. It's is not the same time horizon. But I'm telling you, you want to look at all the numbers and ensure that you're going to have enough when it's all said and done.

Speaker1:
Then ultimately, when it comes down to how much do you need, right? If it's going to be for income, we can reverse engineer it. And you're thinking, how much extra money do I need to have on a monthly basis, an annual basis as far as another lifetime income source? And will what I want to put aside right now be enough to do that or do I have to put in more? We can help reverse engineer it so we can start with first, how much can you save and hope that that's going to generate enough income for you? Or we could go the opposite way and say, well, how much do I need? Then we can determine how much you have to put away with the time that you have left. We can reverse engineer it. So look at those two things. And the bigger question most of the time is the one that I've got in red, which is how much do you need? When we run the numbers and we do the projections, here's what your income is going to look like. Can you live on this? Is this enough to live on? No. How much more do you need on a monthly or annual basis to live comfortably in retirement? Let's reverse engineer it and find out how much you need to put away to get to the amount that you need.

Speaker1:
Fairly, fairly simple math here. I know there's a lot of assumptions, because we don't know how things are going to play out over the next ten, 15, 20 years, whatever you have left. But we can make the the best educated guess as possible today and alter that plan as we go along. But you need to start somewhere. If you realize that there's a lack in retirement income, or that you need more retirement income when it's all said and done, let's look at an example. Right now, this is just a simple thing that we're putting together. Simple math. Let's say I put I started with zero, I needed I put a supplemental account together and my time horizon was 15 years. I put in a place where I got a decent interest rate. Nothing remarkable. Right. We're not looking at 20% returns, but you're going to get a 4% return in something like this. And there are plans that are a little bit more, a little bit less, but it can be a very consistent and guaranteed types level. And you had $200 a pay period that you can put aside in a, in your supplemental plan that can be classified as a lot of different things, including a Roth IRA. It could be a tax free account. And let's say you're doing $200 a pay period, right? That's that's 5200 per year. That's going aside into this into this plan.

Speaker1:
And you got a very conservative 4% interest rate in perpetuity going forward. How much would you have available for you when it's all said and done over 15 years, you have over $104,000. Now, that's not a conservative level, right? Putting 200 a pay each pay period for 15 years. Conservative interest rate, an extra 100,000. When it's all said and done sitting there that you can utilize for retirement now that can generate income for you. Maybe that generates an extra six, seven, $8,000 a year for you in guaranteed lifetime income, depending upon your age at retirement. Okay. There's a lot of things that you can do with this. This can be your emergency savings. It can be your vacation fund. It can be whatever. If you've got everything else, uh, working out for you in retirement, if this is just extra, you got to the end and you're like, wow, I have plenty of income with my traditional sources. And I've also got this extra 100,000 that's sitting there. Okay, this is great. Let's let's let it sit and continue to earn interest. And I could pull that money out as needed for for big things or for vacations or for rainy day money. But you'd be thankful that it's there now, if you needed it and it wasn't there, you wouldn't be as happy. So what am I saying here? And what's the end result? You've got to get, uh, retirement analysis performed, whether it's by us or somebody else.

Speaker1:
You've got to be run through, uh, retirement review calculator. Or we use our workbook software to run a federal employee through their whole situation. We'll talk about your family. We'll talk about your retirement system. We'll talk about your pension calculations. Survivor benefits. First supplement Social Security. Tsb will take into consideration your supplemental accounts, your additional retirement savings accounts, and we want to get you to a point where you can see where you're projecting and what your numbers look like, and it's not a once and done thing. You're going to continue to get that review done every year so you can ensure that you're still on the right track. But if you realize there's a gap, you realize there's a shortfall. You realize you're not going to have as much money. You can sit and go, well, this is it. I'm just going to have to live a lesser lifestyle in retirement. Or you can take action and you can do something about it. You can put this amount less amount, you can put more away. But in the end, you want to ensure that you're going to have enough. When you do retire, you walk out that door. Do people fail this? Why do I see that federal employees fail with this? Because there have been times where people have gone through a review. We've gone through all the numbers and they realize they have to do something, but do not.

Speaker1:
Why is that? Why do people fail? Well. It's lack of planning, right? You might recognize that you need something, but it's failure to put something into action, right? Failure to plan is planning to fail. Old cliche, old adage. But you need to plan ahead. And part of planning ahead is knowing how you're trending and how you're projecting that false sense of security I mentioned earlier. I've heard people go through their employment with the federal government and think, I just put in my 30 years, I'm good to go. I'm set. And unfortunately, that's not the case. And we're seeing that things can be changed with or without your say so. If you're not up to speed on the latest budget reform or the benefits, modifications or changes or other things that are available to you, then you're just you're doing yourself a disservice and it's not going to help your future. So planning ahead, that starts with education. It starts with seeing where you're currently at. That's also part of getting a review every single year, so you can continue to make sure you're on track. That's like going to the doctor every year. You're not going to go to the doctor once gives you a pat on the back, your health looks good, and then you never go again. You've got to go continually so you can ensure you're on the right track, that everything is looking good still because stuff pops up.

Speaker1:
Same thing here. You want to make sure that stuff does not pop up in a negative sense when it comes to your benefits and retirement situation. The other thing is, maybe you've gotten a review done. Maybe you've realized that you have to do something and perhaps you just never took action. Inaction is more comfortable, right? Uh, there's less hassle involved, and it's easier to do. It's easier just to say, oh, I'll get to it. I'll do it later. I'll wait till my next pay raise. I'll wait till this, this, this and this happen. And guess what? It never happens. Procrastination is probably the biggest reason I know. I put it as number two, but it is probably the biggest reason why people fail when it comes to pension planning or retirement income planning. Okay, so many times I've talked to federal employees. I wish I would have done this ten years ago, 20 years ago, 30 years ago. I wish I would have talked to you then. I wish I would have set this up earlier because time goes by fast. It goes by very fast and it will be here. Before you know it. You'll be walking out that door thinking, man, time flew by. 30 year career. Wow. It happened in an instant. They tell us that with our kids, right? Enjoy the time.

Speaker1:
They're going to be gone before you know it. It's it's a very short it feels like it's a blink of an eye snap of a finger. So when it comes to your working career, yes, it seems like retirement could be forever away, but it's going to be here faster than you think. And do not procrastinate. Take action now and you can modify that plan as you go. But you've got to take some sort of action if you want to be where you want to be when you retire. It does. It takes, it takes. It doesn't just happen by chance. Take action and ensure that it's going to happen. Right? That proper plan of attack and then take action. So we're talking about retirement income, uh, supplemental retirement. You're planning for the what ifs. What if things drastically, drastically change? You want to be more in control of your retirement income. But if you realize you need more. And how did you do that? Because you got a benefits review. You got a full analysis of your situation. You realize I don't have enough. Well, how much do you need? Right? Do you know if you have enough, you've got to get a review done. You've got to reach out to us. You can go to our website, Federal Retirement Show.com. You can fill out the form, one of our experts across the country. If it's not me personally, we'll be reaching out to go over your benefits and retirement situation so you can see where you're currently at, and you can plan to do something about it if it's not where you want it to be.

Speaker1:
And I encourage you, do not procrastinate in number one. Signing up for a benefits review. Number two, taking action. If you realize there's a problem, right? What if you went to the doctor? I'll use that analogy again. He says, you know Mr. and Mrs. Smith, um, there's some real concerns here with your health. We recommend that you do x, Y, and Z. And you say, okay, great. Thank you doc. And you never do anything about it. Is your situation going to improve? Probably not. And then you see the doctor again. Hey, why didn't you get the medication? Why didn't you get the treatment? Why didn't you do this? Oh, I just, you know. Well, let's start it now. Well, it may have gotten worse, and now it takes a little bit longer. You're playing catch up. It becomes the same with our financial health. If we don't take action right away, then that burden of me needing more retirement income in this example here is going to be greater. And it's going to take a bigger effort in order to have more money there so I can retire the way I want. So do yourself a favor. Get get a review done, check it all out, be up to speed on the benefits and retirement legislation.

Speaker1:
I don't want there to be any misconceptions out there. And then if you do realize there's a way to make your situation better. Take action. Do not procrastinate. This is not cramming for a test at the last minute or doing a project. Staying up all night to finish a project you cannot last minute cram your retirement. It just doesn't work that way. It takes a dedicated effort over many, many years to plan properly. So I really appreciate you taking the time out of your schedule again to view our content. If you like this content, you can go back and view all of the other episodes that we have available for you. As I said, there's over 130 of them, uh, like subscribe. Get notified when new things come out. Share this with your colleagues. That's how we we get this information out there. That's how, uh, we try to impact and help as many federal employees as we possibly can. It comes through, uh, you know, an overall effort by everybody to pass this out to everyone. It's there for you. It's there for you all. We want to make sure that you have this info. So again, my name is Val Majewski with American Benefits Exchange and your federal retirement show host. I really appreciate you taking the time and look forward to seeing you on a future episode.

Speaker2:
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Speaker3:
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