Planning for Retirement, No Matter What Stage of Life You’re In

3.1.23: Audio automatically transcribed by Sonix

3.1.23: 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. As always, appreciate you taking the time out of your schedule to be with us to learn about all this information that we're sharing with you. The federal employee looking for advice on retirement benefit information, guidance, some of the little nuances that you may or may not have known about. That's the purpose of this channel, of this show, of this podcast, is to make sure that you have all the information necessary so you can make the best decisions for you and your family. Now, today, we're going to be talking about retirement, and we've had a lot of different episodes on this topic, but I'm going to take a slightly different angle because when I give presentations to federal employees, I see a lot of times people say, well, I don't need to go to this thing. I don't need to go to this benefits briefing. I don't need to be there because I'm nowhere near retirement. This is only for those that are thinking about retiring soon. And that's a big misconception. And I want to dispel that. I want to, you know, negate that. I want to get that out of your mind because it's never too early to plan a retirement. Now, in the same token, it's never too late. I've talked to a lot of federal employees where they say, well, I'm too far gone.

Val Majewski:
You know, I've been working for 20 years. I've got a few more years left and, you know, it is what it is. No, it's never too early. And it certainly is never too late to plan for retirement. Now, today we're going to be talking about it is never too early, and I'll get into that in a second. Let's dive in to today's content. Talking about it's never too early to plan for retirement. So what do I mean by this? Well, employees that I talk to and I said I give presentations either virtually or in person all across the country to different groups of federal employees, different agencies, all shapes and sizes. And I do get a lot of times people tell me I'm not near retirement, you know, I'm not anywhere close. Um, this is not for me. I'm not, uh, you know, an older person. That's correct. You may not be, but it is never too early. I had a guest on the show. I highly suggest you go back and view this episode. One of our regional reps, Brandi Pearson, was on, and she said, whether you know it or not, you are planning for retirement from day one and that is 100% true. The more you can take advantage of, the more you can understand your benefits and your situation, the better chance you have of maximizing everything the government gives you and preparing as properly as possible for retirement.

Val Majewski:
So I want to tell you, even if you think you're new, you just got hired. You have so many years. Retirement is light years away. It's never too early now, even if you're only a few years from retirement. I said earlier, it's never too late, but it's never too early now. Why would you want to plan early? Well, understand how your federal retirement works. You generally and I'm talking to the firm's employees in the in the house here, the the bulk of you, the majority of you, um, over 95% of you are going to be Fers employees. Just statistically speaking, if you are CSRs, I apologize. You can go view our other videos on the older system CSRs, but I'm speaking to the Fers employees here that your income sources in retirement, as provided by the government, you're going to have the ability to collect a pension. You're going to get a Fers annuity, that is your lifetime income from your Fers system. You meet the minimum requirements for retirement. You can go back and watch our videos on those our episodes. And you can see what those minimum requirements are to retire with full benefits from the first system. Now Fers, you're going to get about 1% of your high three for every year of service, okay, 1% of your high three for every year of service. So you work 30 years good career.

Val Majewski:
You can expect to get approximately 30% of your high three. Now where do people want to go? People want to get to or as close to 100% of their pre-retirement income. They want to have that amount in retirement. Now we're talking about net take home dollars. So imagine you're at 100% of your pre-retirement income. You can expect 1% for every year of service you do the math. It's 20 years, 2530. You can expect 2025 30% of your high three of your essentially pre-retirement income in retirement. Now, social security. Social security is the other lifetime income that you can get in retirement. As a Fers employee, you can expect Social Security to be about 20 to 25% of your total retirement income. So even if you work 30 years, let's say you got 30% of your high three from your Fers annuity. Add social security even at the high end is 25%. So now we're at 55%. Just using rough numbers. Rough estimates 55% of your pre-retirement income you're covering with your Fers annuity and Social Security. Is that going to be enough for you? Most likely know most likely know. A lot of folks that I talk to. They're not going to be able to sustain the same lifestyle that they had before retirement by using only those two income sources. So whereas our third one, that's where your TSP comes in now, TSP, uh, just recently did an episode calling TSP the wild card of your retirement.

Val Majewski:
Go back and please watch that episode. You can see why I call it a wild card, but this is going to be left to make up the difference. And if, say, we're at 55% in this example, right, 30% from your Fers annuity, 25% from Social Security, and you want to get to 100. Well, maybe after 100, you know, you're looking at I need 85%. Well that's another 30% that we're going to have to have TSP cover, right, to get to our comfortable level. If you wanted to get all the way to 100, well, that's another 45% that we're looking at TSP to cover. So TSP generally will need to bear the largest weight when it comes to your retirement income sources. So you have to prepare properly and take advantage of your TSP again. I mentioned it in our recent episode about TSP being the wild card. All of the options, all of the things, all the reasons why you need to take advantage of your TSP, the 5% matching the different investments that you can choose from because that nest egg, that retirement amount that you have in there is going to be utilized in some way, shape or form in most cases for retirement income. And we can't make something out of nothing, right? If you're saying, wow, I need an extra 40% of my pre-retirement income from TSP, but there's not enough money in.

Val Majewski:
Tsb to generate that amount of guaranteed lifetime income from TSB. Well, again, we're not magicians. We can't turn something from nothing or we can't create something from nothing. The money has to be there. So take advantage of all that TSB provides to you. Now what if. What if you get to the end of these three and it's still not enough? How's that going to work out? As I mentioned earlier, it's never too early to plan. How do you know if you're on the right track? That's where getting a benefit and retirement analysis or a review comes in handy. We can project out those kind of things. If you're talking to somebody who's an expert in federal benefits, they should have an understanding of what your projections look like, how to properly calculate what those numbers are going to be. Take a look into the future, if you will, to see if you're on the right track. And if you look at your numbers today and they're not where you want them to be, there's no like, ah, it is what it is. I guess I'm just going to make less money. No, it is not too early to start planning more for retirement to provide that extra income. As I mentioned, a lot of people want to get to 100% of their pre-retirement income.

Val Majewski:
We're talking about net take home pay income. But where do I normally see federal employees? Normally I see federal employees between 50 to 80% of their pre-retirement income in retirement. You may say, well, that's not going to be me. I can't live on 50%. Well, then hopefully you're closer to 80 on our scale. You've seen this chart before and our past episodes, but understand this is reality. Absolutely reality. And I'm not saying this to be tough, but time flies when it comes to your career. People told me about my kids when they were born. They said, appreciate it. Appreciate every second. Time flies. Next thing you know, they're going to be driving off to college and they're out of your home. Take advantage of every moment. Appreciate every second it's going to go by. Like that. You can say the same thing about your career. I've talked to so many federal employees and say, wow. I remember felt like just yesterday that I got hired at my first position. This is the first place I worked, the first building, my first assignment, whatever it might be, it goes by quick. It does. And if you don't take advantage of all that time in preparing for retirement, you may be unprepared or not as prepared as you'd like to be. And I've talked to a lot of folks again that say, well, I've got time, right. It's it's way out in the distance.

Val Majewski:
Um, retirement's not for a while. As I said, it goes by quick. I don't want it. 240 I want you to appreciate I want you to utilize every second you have. But talking to people that are nearing retirement, they feel like it goes by quick. Just like that analogy with our kids. So if you want to get to 100%, make sure you're getting to 100%. Talk to a person that is an expert in federal benefits. Get some projections. Run. We have our own software at American Benefits Exchange. Um, there are other softwares out there as well. I highly recommend ours. I'm going to be biased. I love the fact that we created this, and we're able to run proposals that are easy to understand, easy to see, easy to update numbers as you get pay raises or change your timeline, but get some projections done so you can see how you're trending, how you're going, if you're going towards the 50%, if you're going towards the 80%, if you're going towards 100 or even higher, you know what the cool thing is over preparing is not that big of a deal. Now, obviously we want you to prepare properly and still live your lifestyle today. We don't want you to, you know. Uh, eat peanut butter and jelly, ramen noodles and, uh, a saltine crackers all the time. Not that there's anything wrong with that.

Val Majewski:
I love all three of those things, but we don't want you to have to do that because you're putting so much to retirement that you can't live for today. We want you to have the best of both worlds. But what if, again, will you have enough? Is the question on this slide. What if you need to create an additional income source? What if you needed another puzzle piece. You've got three. You've got your first annuity, Social Security and TSP. If you need a fourth puzzle piece, a fourth income stream to go on top of the previous three, you can do that. You can create that yourself. Now this is the cool thing. You can take advantage of everything. You can work the time that you work because your pension is going to be calculated based on your high three and the amount of years you have social Security. There's not much we can do to affect that other than try to make more money and work longer. Tsp, I mentioned is the wild card. You have a lot to do with how that works. But what if you didn't want to put above and beyond the 5% matching the free money the government gives you? You didn't want to put all your eggs in that basket, and you wanted to create a fourth income stream, another puzzle piece to fit into your retirement equation. You can do that.

Val Majewski:
You can set that up. You can create this fourth account, this supplemental retirement account. Now how do you determine if you need a supplemental retirement account? We've talked about these questions before, but we haven't taken really this path to get here. What if you don't understand it? What what if you don't know what's out there? What if you're unsure if you even need to set additional money aside? You got to ask yourself these questions to determine if setting up a fourth income stream or a supplemental account is right for you. It may not be right for everybody, but I do know this. I've talked to federal employees, and not once you've heard me say this before, not once. As a federal employee, come to me and say, Val, this is a problem. We've messed up. There's a big mistake with my retirement. I have too much money in retirement. I've saved too well, and I'm making more money in retirement than I did previously. That's not going to be a problem. That's going to be awesome. That's going to be a huge bonus for you if you do that. So if you're capable and eligible and able to put additional money aside for your future, your future self is not going to dislike you for doing so. So here are some questions to ask. How do you determine if you need a supplemental retirement account? Well, are you falling short of your retirement income needs? How do you know this? You've been getting consistent retirement benefits reviews.

Val Majewski:
And we've looked at and projected what your retirement income is going to be. And we've determined that it's not going to be as high as you desire it to be. It's falling a little short of your expectations of your desires. But get a review. If you find out you're in the right track or you're on the right track, you're in the right position. Great. Awesome. That is fantastic. You've done a good job, but it's giving you peace of mind. But if you've never got that review done and you're kind of guessing, uh, I'm not. I don't like guessing too much. I like knowing I like facts, I like data, I like numbers. So get your retirement and benefits review. Make sure you're on the right track. If you are not. Now you need to determine how much additional can I set aside each month, each pay period that again can go to TSP. You're certainly eligible to do that up to the maximum amount per year. You can set up your fourth account. You can set up a supplemental retirement account in order to put additional monies aside. How long do you have to save for? Is it three years, five years, ten, 20? Until you're going to use this money, until you're going to retire? What is your overall risk tolerance for this? Is this income for retirement or is it for savings? And what I mean by that retirement income.

Val Majewski:
Do I need this as more money in retirement or I think I'm going to have enough money in retirement. I just want to build another nest egg, more of a retirement savings, an emergency fund that I can pull from, that I can pick from. And I don't have to rely just on my income sources. I've got this buffer here. That's another way to do it too. Are you concerned about taxes in retirement? Because taxes can be a big thing. Well, you're going to have your pension, Social Security already subject to tax a portion of your TSP. At least the agency matching funds are going to be subject to tax. Are you concerned if you put additional money aside if this money is taxable or not? That's a big question because a lot of federal employees I talk to and they said, I give a lot of talks, I ask this question, which direction do you think taxes are going in, up, down or remaining the same? Nobody has said that taxes are going down. Not a single one in the past couple of years has said, I think taxes are going to be going down in the future. The majority will say taxes are going up, a few will say they're staying the same, but definitely nobody is is going to tell me that they're going to be going down.

Val Majewski:
So if taxes, future taxes are concern for you, that might be a question to ask or something to consider. If you're setting up a fourth retirement account or fourth income stream in retirement. Now, what kind of plans are available to you? What can you set up now? These are just a couple suggestions, right? I'm putting three ideas in your head. This is by no means encompassing every option that's out there, but if you're looking to set up a fourth income stream, a supplemental retirement account, what does that look like? Typically, I'll see people set up their own IRA or Roth IRA. Outside the government. There's a lot of different vehicles you can utilize. Some are directly attached to the stock market, some are fixed. There's a fixed guaranteed interest rate. Some are based on market performance without being at risk of losing money in the market. There's a lot of different opportunities for you for IRAs and Roth IRAs. They all depends on your risk tolerance, the type of account, what function you want it to serve in the future. There are a number of different things that you can utilize. Vehicles where you can set up your outside Roth IRA or traditional IRA as your supplemental retirement account, your fourth retirement income stream. Number two, there are tax free retirement strategies.

Val Majewski:
Well, you might think, well, you just mentioned Roth IRAs. That's a tax free retirement strategy. It absolutely is. But there are additional tax free retirement strategies that some of people out there that are very famous, prominent, wealthy, they utilize. And you can utilize those too. But these are ways where you can put money aside in an alternative solution to your Roth IRA and create a tax free retirement income stream for yourself in retirement, a tax free retirement savings, tax free retirement income stream using alternative methods and things that may not be mainstream, but it doesn't mean they're not awesome. So this is another way. If you say, hey, I want to put additional money aside each pay period or each month, this is something that you can discuss, or we can review to see if this is a good opportunity for you and your family. Okay. Again, just because I think it is doesn't mean that it absolutely is for you and your family. We have to look at your situation to determine if it's a suitable deal for you. But there are tax free retirement strategies out there that are less restrictive than your traditional IRAs, um, and can be more accessible than your traditional IRAs in a lot of different ways. So, uh, the third one and this is a combination deal. So I'm talking about saving money for retirement. But a lot of folks don't think about is how can we take home more money in retirement? Well, we need more money coming in, but we also have to eliminate money that's going out.

Val Majewski:
So if I want to plan better for retirement, set up my fourth retirement account or a fourth income stream in retirement, what if that fourth income stream not only paid me additional money in retirement, but also helped me eliminate the money that's going out the door due to debt, due to things that I owe. Right? Maybe some choices that I've made, whether it's car payments, student loans, credit cards, mortgages, other debts that you may have accumulated over time, you may think, well, I'm going to have a ton of money coming in. This is great. The money coming in looks awesome. But we also have to take into consideration the money that's going out to serve as debt. So there are plans out there and this is where it's never too early. It's never too early to get debt free. Some people, some that talk about retirement say, oh, I want to be debt free before I retire. Well, what if you can be debt free 20 years before retirement? How much would that save you in interest payments? How much would that save you in money that was going out the door to pay a creditor, a lender, a bank? So if we can also take care of what's.

Val Majewski:
Going out the back end. It'll help you keep more on the front end and help you have more in savings when it's all said and done for retirement. So what other plans are available? You can go the traditional method traditional IRAs, Roth IRAs. They set a lot of different vehicles, investment vehicles that you can put that money into depending upon your risk tolerance. There are tax free alternative strategies that are awesome. Again, may not be for you, but could be for the right person. And then in the end, what if we also made a tax free retirement savings account, but at the same time helped you eliminate debt and eliminate money that's going out the door on the bottom. You could fill up the bucket as much as you want with water, but if there's a hole in the bucket, you're not going to maintain or retain as much water as you think. So we want to shut off the leaky faucet, plug the hole, and have you keep more that's going in. Pretty awesome stuff. Now again, you don't know if this is right for you. You don't know if this is the best move for you. You don't know if if you need to do this. Why? Because you need to get your benefits and retirement review done. You need to see where you currently stand. Then if you determined. Yeah, I need additional money.

Val Majewski:
I need additional savings. I need to put more stuff aside. I can use more tax free dollars. I have a lot of debt that all factors into the money you're going to get in retirement, the income you're going to keep. And we want to make sure that you are planning properly so that you're going to have the retirement that you want on your terms, living the lifestyle you want to live. When it's all said and done, you've worked your entire life. You want to continue to live. Don't you want to be able to do what you want to do in retirement? Do you have to have a plan? And today's moral of the story is it is never too early. So if you're listening to this and you just got hired, somebody pointed you in our direction and said, you got to listen to this podcast. There's good information. Hopefully they said that and you go in and say, well, I'm not really close to retirement. I, I don't really need to think about that yet. Yes you do. Yes you do. It's never too early. So if you're 25, 30 years old, you just got hired your second day on the job. Reach out to US Federal Retirement Show.com fill out our form. One of our experts. If it's not me personally reaching out to you to review your benefits, go over all the projections, make sure you are on the right track, and guess what? You can continue to stay in touch with that person and redo your numbers every year if you like.

Val Majewski:
Every couple of years when you get pay raises, when your timeline has changed, you can do that. It's awesome. And we do that on a continual basis because we want to make sure that you are on the right track. I can't say this enough, so I hope you got something out of today's session, I really do. I hope that you realize that it is never, never too early to start planning for retirement. You're doing that from day one. The first day you get hired, you are planning for your future. You're planning for retirement. As I mentioned. Go back and check some of the other content. We've got a lot a lot of sessions out there, a lot of recordings out there for your benefit for you to look at all the information, review it, share it with your friends. Don't keep us a secret, please. I'll go to wherever you listen to podcasts, whether it's on our website, whether it's YouTube, whether it's SoundCloud, whether it's Spotify or Apple. Go there, check it out, watch the episodes, share them with your friends. We want to get this information to as many federal employees as we possibly can. Again, I appreciate you taking the time out of your schedule to join us today, and I look forward to seeing you on a future episode. And.

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