Retirement Without Social Security For Younger Employees?

FRS - EP. 187 Audio Podcast.mp3: Audio automatically transcribed by Sonix

FRS - EP. 187 Audio Podcast.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker 1:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And as always, I really appreciate you taking the time out of your busy schedule to join us to view our content, because that's what it is here for. It's for you, the federal employee, that's looking for accurate information when it comes to your benefits and retirement situations. That's what we do. We've talked about this and the information we cover and all of those things. There's a lot of information that we've given, and I will highly recommend that you go back if you like this episode, if you like today's commentary, then please go back and view our other episodes, go back and view all the other content. Because if you have questions, chances are we've covered it and we're going to be able to provide you answers now. Let me say this also, if there is an answer or to a question that we have not given you yet, if you have a question that we have not answered, reach out to us. Go to our website. Federal retirement show.com. Fill out the form. One of our experts again. If it's not me personally, we'll be reaching out to you to discuss your personal situation and get you the information that you are looking for. Now, today we're going to do it a little differently today because we've been talking a lot about mistakes that federal employees make. We've been talking a lot about Social Security. If you're following the show, um, we've been talking a lot about preparing for retirement and making sure you're covering all of your bases and, and not leaving it to chance, not having this false sense of security.

Speaker 1:
And as I typically do, uh, for, you know, content for the shows, um, I look at, you know, past conversations I've had with, um, federal employees just like you and situations and questions that have come up. And every now and then I get past articles and things to comment on. Well, I came across this article at Beth Smith. And if you're not familiar with Fed Smith, they're a website that has a lot of information for you federal employees when it comes to benefits, retirement news legislation, things like that, that are out there. But it coincides exactly with what we've been talking about. And as I'm reading it, I'm like, man, I could have written this myself based on our previous episodes and the stuff we've been covering. And I love getting somebody else's opinion on a topic that I've been covering. Hopefully you enjoy it the same way that I do. But what we're going to do today is we're essentially going to read this article and we're I'm going to give you my commentary on it and really explain why I think this is important to look at. So let's dive into the article today. And we're going to be covering, uh, this on fed smith.com. I want to give full credit to it.

Speaker 1:
So let's again, let's go to it and, and dive right in. Now the title of this is should younger Federal Employees Plan for Retirement without Social Security? If you've seen our previous episodes and if you have not, go back and view it, but we've been talking about the changes to Social Security that are coming down the pike and the reports that are coming out, the Congressional Budget Office report, the Social Security Trustees report, and and the news that's coming out about when the reserves, the trust fund reserves are going to run out and what the potential cut to benefits is going to be. And there's a lot of uncertainty because the the goalposts keep moving, the targets keep moving. You know, it used to be 20, 37. There's going to be changes. And a couple of years ago it was, hey, 2033 is when this is going to happen. And, and the cuts are going to be 23%. Well, now the recent reports came out that it's a year earlier, those reserves might run out in 2032, and the cuts might be up to 28%. And this all goes into retirement planning from day one of your employment with the government. From day one, take advantage of all the time you have because, you know, you never know what's going to come down the pike and what's going to change. And when I give presentations to federal employees in small and large groups, or if it's things like this or webinars, whatever, I say.

Speaker 1:
You have to take control of your retirement. You have to take control of it. You can't rely on all of these things to support you in the future. And this is not a fear tactic, but it's exactly what we're seeing is things can change. Benefits can change, retirement calculations can change. If you haven't seen the news also recent years, budgeting, um, concepts or, or proposals that they want to go to a, a high three calculation or they want to change the way things are calculated as far as retirement. And that would lower your future pension and pension calculation. So these things are real and they can happen. Changes can be made with or without your say so if retirement calculations are end up getting reduced down the road, hopefully they don't. Social security benefits might be paying out less in the future. Hopefully they figure it out. Um, you never know what's going to happen. So you need to take control. So we're going to be reading this. This is by Frances Bergmeister on Fred smith.com. Um, the subtitle is A surge in Social Security Claims and Growing Skepticism among Younger Workers raises new questions for federal employees planning for retirement. Exactly what we've been talking about. Now, there are a lot of people I'm not going to read everything word for word, but I'm going to comment on some sections now claiming Social Security. There has been a run on Social Security not for only this purpose of I need to get my benefits before they get reduced, but there's a lot more people retiring, baby boomer generation.

Speaker 1:
There's a lot more people that are turning 62 that are now wanting to get Social Security. And there there is a a big chunk of folks that think the main strategy with Social Security is get while the getting is good and start claiming Social Security right away at age 62 instead of waiting until your full retirement age. Now, if you want to do a Social Security report and find out the best strategies for you, that's a totally separate conversation. That's not what we're going to be covering today. I'm not talking about what I think the best timing is to claim Social Security, because there's a lot of factors to consider. But there has been a run on Social Security when it comes to it. People are claiming benefits. So what it goes on to say there, there's different trends that seem to be connected here when it comes to Social Security. I'm going up here and say a record number of people say they want to claim benefits before things get reduced or they want to get it while the getting's good. And there's the other the younger folks that wonder whether Social Security will exist when they retire. So that's the second kind of school of thought. But there's a common theme here, and this is a great word to use. And that's why I love reviewing articles like this.

Speaker 1:
Um, uncertainty. The connected common theme is uncertainty. Just uncertain about what's going to happen. And we don't have a crystal ball. We don't know what is going to happen. So we have to take what we can control into our own hands. Now I'm going to go back and I'm going to share a little story with you, because I think this is relevant for many of you that may or may not know, I played baseball professionally for ten years. I'm by no means anybody famous. Most of that time was spent in the minor leagues, but coaches always told us, do not worry about what's going to happen or what may happen or about results. Control the controllables control what you can control because you can't control what the pitcher is going to throw to you if you're a hitter, what the pitcher is going to throw to you, location and type of pitch. You can't control whether the umpire is going to call it a ball or a strike. Maybe you can a little bit with the the new challenge system nowadays, but you really you can't control that. You can't control the result because you might do everything perfectly. I might pick out the perfect pitch, put a perfect swing, hit it perfectly, and I can line out to somebody, whether it's a center fielder, right fielder, whatever. I can hit it so hard. It's the hardest ball I ever hit, but I can still get out. And technically, that is a failure, right? I failed, I did not succeed in my goal of getting a hit or getting on base.

Speaker 1:
Control the controllables. Because if you try to think about the things you cannot control all the time, it's going to drive you nuts. So we cannot control whether or not Social Security's can ultimately be there in the same capacity. When we get to retirement, we can't control entirely if the government is going to make changes to the pension calculations or things like that, but you can take control of your retirement by providing and planning ahead. So this is talking about financial advisors report that many young investors are taking the opposite approach instead of planning around Social Security, because that is a big thing. People are utilizing Social Security as a main retirement income source, and it is for federal employees. You've got your pension, Social Security, and TSP, but a lot of folks rely heavily on Social Security. And if it's going to get changed, the carpet can be pulled out from underneath them and it's going to drastically affect their retirement and their future. So instead of relying or planning around Social Security, they're building retirement plans that assume they may receive little or even none of their future benefits. You've heard me say this before. Plan as if Social Security is not going to be there. Plan as if now it should be. And it better be because it's something that we're paying into. Otherwise, you know, there's going to be a lot of, uh, uh, maybe legal action out there.

Speaker 1:
I can't say that for certain, but people saying, hey, you've taken all this money. It was mandatory that you took all this money out of my paycheck, and I'm not getting anything for it. Uh, what happened there? So there there should be something we're getting, but let's plan as if it's not going to be there and and see what happens. Now for federal employees, since both reactions deserve a closer look. I like the plan as if it's going to be there in a diminished capacity or not be there at all. But I'm going to go, uh, again to what I said here. Why are claims increasing? Well, baby boomers and people are getting older, people are living longer. So Social Security benefits have to last longer for those that are currently on the benefits. And there are more people that are claiming. So it's kind of a double whammy. Those that are collecting benefits are are living longer and collecting more. They're getting cost of living adjustments as well. So their payments are going up. And then more people are coming in to be beneficiaries of Social Security. And it's, it's causing a huge strain on the reserves that were created years ago. So the title of this section of this, should younger workers assume Social Security will disappear? And like I just said, the article talks about it says probably not. Now they are facing long term challenges.

Speaker 1:
That's the next sentence. The program is not expected to disappear, but it's going to be a diminished capacity. It's or they're going to have to make drastic changes to the way they collect benefits, which will hurt us on the front end. So either you're going to face more work that you're going to need to do or more money that you're going to have to put in on the front end to get the same, or they're going to just say, pay the same, and we're going to reduce on the back end or maybe a combination of both. I don't know, but we're trying to avoid, and this is where I don't want to get people into panic mode. And the article says the same thing. You know, we're not looking at elimination of benefits, but reductions and maybe a restructuring of Social Security. Most retirement professionals therefore recommend avoiding two extremes. Right? The first mistake, assuming Social Security will fully fund your retirement, that's in plain English. They're telling us that's not going to happen. And, you know, as a as a federal employee, you have a three part system pension, Social security, and TSP. So you can't just say, I'm relying heavily and solely on Social Security. And the second side is, and this is not a bad opinion to have, I will say. But the second extreme is assuming Social Security will not exist at all. It should be there in some capacity. But if you plan as if it's not going to be there, that's not the worst thing either.

Speaker 1:
It shouldn't stress you out to the point where you're in panic mode. But if you plan as if it's not going to be there or at a very diminished capacity, then you're going to over prepare and you're going to ensure taking, taking control of what you can control. You're going to control your retirement in the ways that you can. So what are, according to the article, what are financial advisors telling younger clients? It's really saying prepare two retirement projections. First, assume that Social Security remains largely intact. Now, I don't think that's going to be the case. But the second one I relate more with second assumes reduced benefits or later eligibility ages, meaning they're going to push back full Social Security ages, which will then reduce benefits for those claiming even more reduced benefits, even more for those claiming right away at age 62. So that's the side that I, I more relate to. And this approach allows clients to see how much flexibility they will have if Congress eventually changes the program. Now, here's what people are expecting future reforms could include. I mentioned a couple of them in just the previous section, but a higher full retirement age, like I said, that would reduce benefits for the earlier you take it. And if a lot of people still want to take it at age 62, your calculation would be even further reduced than they are today.

Speaker 1:
A later earliest claiming age. Yeah. So maybe they'll say, well, you can't claim at 62 anymore. It's 63 or 60 4 or 65. And that will reduce the strain of people collecting right away. And they'll have to wait longer. That means they'll be paying into Social Security longer. And on top of that, maybe paying higher payroll taxes. Right now it's 6.2%. That goes to Social Security. 6.2% out of your paycheck goes to Social Security. You don't have an opt out clause. As far as I know. You can't say I could do better with my 6.2%, so I want to take control of it. Unfortunately, it just comes right out. Part of the FICA taxes. Maybe they ask for more payroll taxes. So if they ask for higher taxes and they push back the age at which you can claim to 63, 64, 65, now they're going to be getting you to pay more for longer before you can start claiming it. Okay, that that could be something changes to benefit formulas and then higher income taxes on benefits for some retirees right now, up to the most that your Social Security can be taxed is up to 85% of it can be subject to tax. Another thing they didn't put in here, too, is increasing the earnings to pay into Social Security. Right now there's a cap. It's been going up every year, but there's a cap on how much you pay when it comes to Social Security. Right. If you make a certain over a certain amount, you, you, you cap out on how much you pay into Social Security.

Speaker 1:
They may uncap it. No matter how much you earn, you're still going to be paying into Social Security for the entire amount. That could be something else, but we don't know what they're ultimately going to adapt. So I love this sentences. While no one knows which reforms Congress may ultimately adopt, again, control what you can control where that's out of our control. Relatively few experts believe Social Security will simply disappear. And I agree with that. I do not think it will disappear, even though I say plan as if it's not going to be there. Ultimately, I don't think it's going to go away. It has to be there. They've been taking this money from you, from me, from all of us. It's got to be there in some way, shape or form. Although I do believe it's going to be drastically reduced benefits. So what does this mean for federal employees? And this is where we we round it all out. We circle back to what we've been talking about. And thank you for writing this article on Fred Smith, Mr. Bergmeister, because this is exactly what we've been talking about. We're we're thinking alike here. Federal employees occupy a somewhat unique position. Like many private sector workers, most career federal employees receive retirement income from many different sources, several different sources. A Fers pension, TSP, Social Security, then personal savings, and other investments.

Speaker 1:
This is where you can take control and create a fourth income stream for yourself in retirement. Awesome. A diversified retirement structure provides an important advantage, even if future Social Security benefits are somewhat reduced. Many federal retirees will still have guaranteed lifetime income from both their first annuity and Social Security, supplemented by TSP. And I'll say even other savings. So if you have a multi pronged approach like a general federal employees retirement is made up of a three part system when it comes to income pension, social security, TSP if you had a fourth leg to that with and you put into this category your personal retirement savings and investments. If one of these things gets reduced in some way, the other three or the other legs of the stool will pick up the slack. Okay. And now this is a good example of just planning ahead and over planning for your retirement. Taking control of it. So if Social Security gets reduced or let's say it's eliminated, just worst case scenario, which I don't think is going to happen, but eliminated now, you would still have a three legged stool to sit on when it comes to your retirement income, pension, TSP and personal savings, and other retirement investments. But if you're heavily relying on Social Security, which is what a lot of people do, and maybe they don't even put in the TSP much, that's a flawed strategy in my opinion. So, um, here's, here's some of the things I'm going to fast forward on this.

Speaker 1:
And it talks exactly what we talked about. Focus on what you can control. What can you control. No one can predict exactly what Congress will do over the next 20 or 30 years. What federal employees can control includes, and this is one of the biggest mistakes that we talked about in our top ten mistakes federal employees make contribute enough to receive full government TSP match that is free money. What is it? It's 5%. If you put in at least 5%, the government will match 5%. That's free money. Take advantage of all the free money the government wants to give you. Increase TSP savings whenever possible. Now that's a strategy. Up to the maximum and even some catch up contributions for those that are over 50 or. Super catch up for those that are 60 to 63. But increasing savings can increase above and beyond the. Match your retirement savings in TSP. Just understand that the extra money above the match is is not being equaled, and it's it's subject to the ups and downs of the market. Diversifying investments appropriately. And that goes to the the strategy of not just putting all of your eggs in the TSP basket, but creating your own personal savings and retirement strategy outside of the government and also diversifying risk. While there's not many risk free options within TSP, you can create a little bit of a risk buffer for you outside of TSB, where you can mitigate the risk outside of TSB by by diversifying into other strategies.

Speaker 1:
So we're talking about diversification with where you put the money and diversification on the the risk that you're taking within those strategies and the types of risk. Build an emergency savings. This is huge. This is this goes to like, you know, old school planning. Dave Ramsey, you talk about financial peace and other things. Like one of the first steps in a lot of, uh, plans is building an emergency savings. Why? Because we can't control everything, as we're mentioning. And you want to be prepared in case something happens. Now, how much emergency savings do you need? Some people say, you know, two months, three months, six months of, um, income. That's that's up to you and what you feel like you need. We can certainly have a conversation to see what's appropriate. This was a mistake that we talked about as well. The next one managing debt, managing debt. Why? Why is that a problem? Because debt is dealing with money that you owe and payments that are going out the door, payments that are going out the door to make somebody else money, the bank, the lender, the whatever, they make the money on, the interest you're paying on your debt, the credit card company. So managing debt, have an appropriate plan to get out of debt, will free up cash flow that you can then save more for retirement. And this can then help you prepare better in case there are changes being made.

Speaker 1:
The last bullet point understanding how Social Security fits into an overall retirement income strategy. Yeah, we can do projections all we want with Social Security. We could we can say, what if this and that happens? How will this affect your your overall pension? Right. We can run a regular Social security strategy and say, this is what's expected based upon your earnings record and where you currently stand. What if those benefits were cut by 2025, 30%? How is that going to affect you and what's the strategy? What's the plan to get out of that hole that the gap in Social Security is going to cause? So these are all things of a well-oiled machine when it comes to your retirement planning. And I mentioned it earlier, you were planning for retirement from day one. Take advantage of all the time that you have, all of the time that you have. Sit down with an expert and go over these things to ensure that your plan is as bulletproof as possible when it comes to retirement. That way, no matter what changes the government makes, you can pivot because you've got a contingency plan you've over prepared. So these decisions that will improve retirement security regardless of what changes eventually occur. That's what I just basically said. So understand that over preparing is not a bad thing. And looking at all the variables and preparing properly, never a bad thing. Um, this is in retirement planning. Flexibility has always been one of the most valuable assets.

Speaker 1:
And that is unlikely to change. Having flexibility and the ability to pivot within your plan is key. Now we hope. And hope is not a strategy on its own, but we hope that this all gets figured out. And yes, Social Security is going to be there in the, the, basically the, the capacity that we all think it's going to be. But I'm, I'm telling you, I'm I'm not certain of that at all. I'm probably 90 plus percent certain that there's going to be some cuts down the road and it's going to really hurt people that haven't planned. That is my opinion. So don't take that as, as as fact. And I'm saying even my confidence level is 90%, but I'm planning, I'm taking the actions to as a, a person that is still in the retirement planning stages to make sure I take control of what I can control. So if you like this article, yes, you can go to fed.com. I'm going to scroll up to the top again. So you see the title of it and the the author of the plan. I want to give credit where credit is due. Um, but the title of the plan should younger federal employees plan for retirement without Social Security again, by Frances Bergmeister. And it just it summarizes as a third party guy, we don't work together. I don't know, Frances, but we've been talking about the exact same things in our recent episodes and recent series that we've been going over.

Speaker 1:
So really appreciate, um, the, the article and the opportunity to review it with you all. If you liked it, please reach out to us. Um, let's do a full review of your entire situation, not just social Security and ensure 100% that you are planning properly. Again, if you like the show, if you like our content, you like everything about what we're doing here at the Federal Retirement Show. Do me a favor. Go to the website, federal retirement show.com, fill out the form, allow one of our experts to review your entire situation and give you that peace of mind, that confidence that you're heading in the right direction. We asked this question during every benefits and retirement briefing and training that we do. Are you 100% sure you're going to have a great retirement, or do you have some doubt? Perhaps you have some doubt about Social Security and the continued conversation that we're having about it. It's real. But we can turn that into 100% certain, because you're planning as if Social Security is going to go through some troubles or even planning, as if Social Security is not going to be there, and you've got your contingencies and the things that you can control wrapped up. So again, thank you for joining us. My name is Val Majewski with American Benefit Exchange. If you don't remember it from the beginning, you've been watching the Federal Retirement Show, and I look forward to seeing you on a future episode.

Speaker 2:
Well, pretty much everything is expensive these days, from the grocery store to the gas pump to everywhere in between. And so finding ways to save really is a very good thing, to say the least these days. And joining me to talk more about that and some ways that you can save is Stephen Perrine with AARP, is actually the executive editor of AARP, The Magazine and AARP bulletin. Stephen, thank you so much for being here. Really appreciate it.

Speaker 3:
I appreciate the opportunity.

Speaker 2:
Well, so talk about this, okay. You've got the 99 Great Ways to Save from AARP bulletin. And I feel like, you know, every year really it I think it's in its 17th year now. Every year it seems like, oh, this is great. There's a, you know, there's some great tips in here, but in a year like 2026, when we're, you know, inflation has been wreaking havoc for a while now. It's a really great thing to have. What are some of the biggest tips that maybe stand out for you when it comes to, you know, I mentioned, say groceries, for example, like some great ways to save there.

Speaker 3:
Sure. I mean, groceries are definitely where we're feeling maybe the most stress of all right now. So, uh, one of the things is that grocery stores are really great at getting you to buy extra stuff. You go in with a list of five things. You come out with five bags full of groceries. So do this. Use those online or in-store apps where you can order your groceries ahead of time, have them bagged up, and you just pick them up in the parking lot. That way, you don't have to go in the store. It saves you time, but it can also save you a lot of money because you don't have to fend off all those sales pitches. Another good idea is to try to move around at different stores. Don't just shop in one place. Go to the big box stores for that, the stuff you can save in your pantry. But then to go to some specialty stores or or discount grocery stores. Well, make sure you look for the, uh, the store brands, which can be exactly the same as bigger brands, but could save you pennies or even dollars. By the way, if you're ordering a lot of stuff online. Here's a tip that can save you a ton. Go ahead. And whatever realty retailer you're on. Go up and go ahead and fill up your grocery, your cart. But before you press purchase, take a breath, close your browser and step away from the computer. Now, chances are in the next hour or two, you're going to get one of those emails that said, hey, did you forget about us? Most people don't open those emails, but in about a third of cases, they contain discount codes that you can then use to apply to your cart and wind up with the same stuff you were going to buy in the first place, but a substantial savings.

Speaker 2:
Well, that is wonderful. You know, I am one of those people who does not open those emails. I'm like, oh, you're just bothering me now. I'll get around to it whenever I can. And I love that. I love that tip. Um, one of the big things too, you know, we talk, talk about inflation being one of the big things that are it's on people's minds. Obviously, the, you know, makes this interview very apropos these days. But also AI is becoming a much bigger part of everyday life. Um, are there any ways that people can actually utilize AI to help them save money?

Speaker 3:
Well, you can use AI to help plan things like trips or what have you. Ask it to find you the cheapest deals. It's pretty effective at that. But here's a great idea. We're all dealing almost on a daily basis, fighting with utilities, insurance companies, banks, credit cards. What are these late fees? What are these weird charges? Why am I being why am I spending money on this? But talking with customer service, it can be a little stressful. So do this. Go to your AI. Type in exactly the charges that you're trying to fight, why you're fighting them, and let it create a script for you. Now, when you call customer service, not only do you have all your points in front of you, but you have sort of a digital coach over your shoulder coaching you on what to say and helping you to call back those fees and charges.

Speaker 2:
I love that an actual, you know, good positive use for AI. One thing that's very expensive this year as well due to, you know, the rising and highly fluctuating gas prices has been travel. Are there places, you know, when planning travel that people are really, you know, overspending maybe without even realizing it?

Speaker 3:
Well, if you're road tripping this summer, uh, if you have any sort of an added roof rack on your car, like a bike rack or storage rack, go ahead and get that off before you head out on the highway. Those can add up to 25% to your fuel costs because of the drag they create when you are on the highway. Uh, don't do what I do, which is wait until the needle gets down to E and then panic. Instead, get off the highway early on and go a mile or two off. Out of your way. Uh. Gas stations right off the highway can charge as much as $0.40 a gallon more than stations just a mile or so down the road. So you can make real savings and also save yourself a lot of stress.

Speaker 2:
Yeah, definitely. So. Well, just about time for us to wrap things up here, Stephen. But is there somewhere people can go now? Once again, this the publication is a 99 Great Ways to save from AARP bulletin. Um, where can people go to see all of those 99 ways?

Speaker 3:
Well, you can find a lot of tips. All of these tips really, plus offers for all kinds of discounts@aarp.org slash 99 ways to Save.

Speaker 2:
Very good. Stephen Perrine, executive editor of AARP, The Magazine, and AARP bulletin. Thank you so much for taking some time for me. I really do appreciate it.

Speaker 3:
Thank you. I really appreciate it.

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