Securing Your Future: Guaranteed Lifetime Income for Federal Employees

8.15.25: Audio automatically transcribed by Sonix

8.15.25: 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. And as always, I really appreciate you taking the time out of your busy schedule to join us to view our content, because that is what we're here for. You, the federal employee that's looking for accurate information when it comes to your benefits and retirement situation. So again, thank you for joining us and taking the time. Um, before we get started, if you like what you hear, we have a ton of other episodes available for you there on all different formats, but ensure or make sure that you like subscribe. Get notified when a new episode is out and do me a favor. Share with your colleagues. Do not keep us a secret if they need to know this information, which I know they do, pass it along. Tell them you've got to check out the federal retirement show. You've got to learn some things. They have a ton of content that's out there. They're. Get in touch with them. Reach out to them if you have any additional questions. I really appreciate that. Thank you in advance. So today's conversation that we're going to have stems from a conversation I had recently with a federal employee. And it was talking about retirement income. Retirement income. We've done a couple other episodes on retirement income, but this one was a little unique, was different in the way that this person wanted it structured and the way that we ended up going forward with it, or proposing how to do it is different than what we would normally talk about.

Speaker1:
So let me set the stage here a little bit. Federal employees when you retire, you want to ensure make sure that you are going to have enough income to live on. And you want to make sure that that is coming in a guaranteed lifetime income stream. And there are several income streams that were designed for you, the federal employee, to live on. When it's all said and done, the first is your pension. You work a certain period of time. You make a certain amount of money. There's a calculation set forth that determines what your pension is going to be. We have other episodes on the first system if your CSRs. We have episodes on the CSRS system on how to calculate that. So I'm not going to go over it here in finer detail. But the first one is your pension. This is a lifetime income stream. It's not something you're going to outlive. They're not going to run out of money. You're going to get that for the rest of your life. Okay. The second one is Social Security. Now, as a Fers employee, you pay into Social Security. And this is the second of three main income sources that you have in retirement. And when you decide to take Social Security is completely up to you. But that is a big part of your retirement income.

Speaker1:
A lot of federal employees that I come across and I have conversations with, and we review their situation, are relying on Social Security to be there to be a major contributing factor to their retirement income. The third one is TSP. Now back up a second. The old system CSRs relied heavily on one check pension check they did not put into Social Security, and when CSRS was started, TSP did not exist, so they were relying heavily on one Czech Fers employees. They gave you a three part plan pension, Social Security, TSP, two of those things you can really not control. And I had to say not control because you have some control with Social Security, but your pension, you really don't have a whole lot of control with you work a certain period of time, you make a certain amount of money, they calculate what your pension is going to be and that's it, right? It's just it's given to you. You can't affect it other than trying to work longer, try to make more money. Social security similar. There's an automatic deduction from your check 6.2% every paycheck goes into Social Security. In the end, based upon your your earnings career and the age at which you take Social Security, they're going to determine this is the payment that you're going to get every month. Okay. The only thing you can really do to affect Social Security is to try to make more money.

Speaker1:
Perhaps you cap it out and delay more time before you take it, because the longer you delay, the greater your Social Security benefit is going to be. But you do not have an account there. You do not have an account like your TSP, where it's just accumulating over time, and you've got this big lump sum of money at TSB. Same with the pension system. You have your deposits, but it's not like it's growing with interest and you have access to a lump sum option or the lifetime income with both pension and Social Security. It's really just a lifetime income that you're going to get. So the third piece of the puzzle is TSB. And you can do a lot to affect this. You determine how much comes out of your paycheck and how much goes into TSB up to the maximums that they allow. You get the matching money. You determine also on how you want to invest those TSP funds and you could do better or worse whatever, depending upon the investment choices that you choose. But in the end, when it comes to income, if you need your TSP for income, you determine this. You have control over this. And this is where our conversation is going to go today. So let me go back. The federal employee that we were talking to were going over their benefits and retirement situation. And we really use this as a rule.

Speaker1:
It's kind of an 80% rule, but it's more of a guideline. If you're a federal employee, your retirement income should be approximately if you want to live comfortably. And what do I mean by living comfortably? You want to ensure that you have a lifetime income stream adding up from those three things pension, Social Security, and TSP, and maybe even whatever else you've saved up is going to be at least that lifetime income is going to be at least 80% of what you were making before you retired. Now, why is that? That's generally a guideline because you're going to have less deductions coming out in retirement. So 80% should mimic or should be close to your take home pay while you were working. And did we do this because you want to have enough money guaranteed for the rest of your life. You cannot outlive it to at least pay your bills. Live comfortably. Have everything taken care of, but anything you have left over in the end that can be your your fun money, your play money, your travel money, your let it sit and grow money, your pass on to your relatives money, whatever it is. Okay? But you want to again ensure that you have enough lifetime income to live on all of your living expenses, plus a little bit are taken care of with a lifetime income stream. Money you cannot outlive. Now good news is you get cost of living adjustments in your pension.

Speaker1:
You get cost of living adjustments in your social security, so those incomes will increase over time. That is great news. Tsp income may or may not, depending on the elections you choose, but you have the ability to set it up for it to increase the stay level, what have you. So we talked about this 80% rule. At least some people want to get to 100% of their pre-retirement income. Totally up to them, but at least 80% to make sure the daily living expenses, the monthly living expenses, it's not something you have to worry about. Most people, when they retire, they don't want to have to grab another job. They don't want to have to work in retirement while they're collecting a paycheck. Their pension while they're collecting Social Security because they just want to retire and retire. That's at least what I see when I talk to federal employees. They want to retire and now do something that they, um, been wanting to do for years, whether it's travel the world, play golf, sit and relax, go visit family, grandkids, whatever. They need money to do that. And you don't want to be gambling with it. Meaning, I hope this money lasts me for the rest of my life. And that's what a lot of folks do with TSP that I've seen. They think TSP is going to continue to grow because once you retire, you no longer contribute to that account. You no longer get the matching money.

Speaker1:
It's just at the mercy. Your balance is at the mercy of the market going up and down depending upon the investment choices that you make. And if you're pulling money out for an income stream, there's no guarantee that that's going to last forever. So again, talking to this federal employee going over their current income, they're going to retire relatively soon. What does their income look like in retirement. Is it getting them to where they want to be? And how can we make sure even with cost of living adjustments and things like that, that we're going to keep up with inflation and maybe provide them more income down the road? So in this example, this person had a very good amount of money in TSP. But I'm just going to keep it simple here. And let's say they had 500,000 in their TSP 500,000. And we're looking at their numbers and they're determining that they need to use at least some, if not all, of their TSB for income purposes. But initially they didn't need to use all of it to try to generate income because they do not need the maximum income available. And they were coming to me and they said, hey, what are some options? How can I set this up properly to where my TSB and this was them, this may not be you, but this was them where my TSB is guaranteed to pay me income for the rest of my life.

Speaker1:
I need at least this amount. That amount might grow over time as cost of living adjustments come up or inflation increases, things like that. And I have the option to either increase my income down the road or if I don't need it, I don't have to increase it. What can I do? And that's where with the title of today we're talking about staggered TSP income. Uh, came into play with this particular group, this particular family, this particular federal employee and their retirement situation. So what do we look at and what can you do right within TSP? There's really not an opportunity to guarantee and stagger what your income is going to be a different timeline, a different time frames. And what do I mean by that? Let's say you're going to retire in five years. In five years, you're 60 years old and you're going to retire in five years, and you want to know exactly how much income you're going to get from your TSP in five years. You cannot determine that within TSP today at age 60, you cannot because there's a lot of variables in place. How much is the return going to be? How's the market going to do? What other contributions are you going to put in. But outside of TSB you can 100% absolutely do that. So if you took a portion of your TSP, put it aside into a plan that was designed to generate you lifetime income.

Speaker1:
You can guarantee what that income is going to be five years from now, 100%. And it does not matter what the market does, if it goes up, if it goes down, it is guaranteed. I love that word. Guaranteed. There's also a guarantee that if you don't wait five years, if you wait four years, what that number is going to be? What if you waited longer than five years? We know what that number is going to be. The shorter you wait, the less income. The longer you wait, the more income. Kind of like Social Security in that regard. But we can guarantee that from day one. So here's what we looked at and could be a similar situation for for you and your and your family if this is what you want to do. But they said, okay, after we ran some numbers we looked at it and let's I was just using this example 500. You know, it could have been more or less, but let's just use this example 500,000. And they said, well we, we only need a little bit right. So we, we looked at how much income would 200,000 of the five generate and 200,000 worked out to be enough. Again, this is it is a real life conversation. The numbers are not real, right? I'm not going over the exact situation, but 500,000. We took 200 at age 60, guaranteeing what that's going to pay out at age 65.

Speaker1:
So they know 100% based on the income projections with their pension, social Security's projections, which are pretty, pretty good, pretty accurate. They're at age 60. What they're going to be at age 65. And then we took a portion of the TSB 200,000 and said five years from now it's going to pay this amount. And they're like, that's pretty much there. That's right. At that 80%. Maybe a little higher. It went up to about 85%. So what if our income need changes over time. So we know that again the pension is going to increase a little bit. And Social Security is going to increase cost of living adjustments. But they wanted the option to say, well, if this first 200 doesn't produce enough income, can I get some more? So we took an extra 100,000 and we set it up in a similar type of plan. But it was designed not just for the best guaranteed income five years from now. It's it's set up more for growth purposes with guaranteed income potential five years from now or more. And we did that with two other $100,000 pieces of the 500 total. So now they have the ability five years from now to turn on potentially three different income streams, because we have three different plans that we set up for this particular person. The first one, the 200,000. They know 100%. This is what it's going to guarantee. The other two 100,000. They can say, oh well things have changed.

Speaker1:
It's been five years. I need more income. So let me turn on one of the two 100,000. Let me turn both on. I don't need either one. Let's defer both of them. And the same type of thing happens. The longer they defer, the more that income grows. So I talked about a staggered type of plan because it's not all or nothing. We didn't just take 400 of the 500,000, put it into the best income plan and say, all right. Five years from now, you've got to turn on all of this income and that's it. We just said, let's start with 200. That's what we've determined based on today is going to be enough for you. We've set up two additional plans, $100,000 each that could pay you income, but are more designed for growth potential long term with an income component income option. And now when you get to age 65 of this particular person retires, they're going to have a guaranteed income stream that they know about at 65 from the 200,000. They have an optional two other plans at $100,000 each that have grown to their own income potential. They can choose to turn those on as well, or defer them longer to get more income down the road and to gradually increase their income. Get little jumps. So maybe, let's say at age 65, they retire, get their pension, Social Security, turn on the $200,000 TSP income plan and start living with that.

Speaker1:
The other two 100,000 are now deferred a little bit longer. Let's say two years down the road, they're like, oh, we can use a little bit more guaranteed income. Things have changed. I'm going to turn on one of the other $100,000 plants, and it will provide an extra guaranteed lifetime income plan again. That 100,000 is not going to run out. Uh, as far as producing income, it's going to be guaranteed for the rest of their life. And the remaining 100,000 can continue to grow. And let's say at age 70, they say, I need a little bit more. Okay. And they decide to turn on the third one to get now a bigger guaranteed lifetime income. And there's extra money that was left over that maybe we didn't touch and turn into income that can then be converted. I mean, there are so many ways to stagger this and set yourself up for increasing income down the road, making sure you're set up properly. When you do retire on a guaranteed basis with the option of increasing your income, and could increase it drastically depending on the amount of money over time. So there's a lot of ways you can get set up. It's and it's unfortunate that that's not really able to be done in or within TSP. These are things that are done outside of TSP because these plants are designed for specific purposes. And if it's guaranteed lifetime income and flexibility and control of your money, then it could be a good option for you.

Speaker1:
For this particular federal employee and their family situation, it was. And that's exactly what they were looking for. So we're able to not just take a lump sum of their TSP and cash it in and get the lifetime income from it, because they didn't need all of it right away. We were able to set it up best for them and prepare them for the potential of down the road, getting more income if needed. And if they didn't, great. Their money was just going to sit and grow. And when they do need the income, they can turn it on whatever they choose. But gave them flexibility, ownership, control of their TSP with the ability to stagger the income if needed so they can grow it over time and have it increase over time if needed. So I thought this conversation would be helpful because TSB, if you go to their website, right, they're not going to tell you all of these different options that you can do with your money. You could do with your TSP and how to set it up properly for your future based on what you need and all of that. It's a great vehicle for you to accumulate assets to build money up for retirement. You got the matching money, you got the investment choices, you got all these things. But when it comes to safety, security, guaranteed income and providing you the money in retirement so you can use it to the best of your ability, that's what you saved it for, is to utilize it in retirement so you can live comfortably.

Speaker1:
You need to get a review done. You need to check out your situation and understand all of your options. That's the big key. Understand all of your options because TSP is not going to tell you about everything outside of TSB. They're just going to talk about what you can do with them. Not knocking them entirely, but that limits your options. So if this resonates with you, if this situation is similar to something or conversations that you've been having within your family, with your spouse about your retirement, how you need to set yourself up to ensure that you've got enough guaranteed lifetime income to live on and live comfortably in retirement. Let's set up time to talk. Go to our website Federal Retirement Show. Com fill out the form. One of our experts. If it's not me personally, we'll be reaching out to schedule a complete benefits and retirement review, and we can touch on TSP and setting up your lifetime TSP income. Again, my name is Val Majewski with American Benefits Exchange. You've been watching the federal retirement show. Be sure to go back and check out our other content. As I mentioned earlier, and I look forward to seeing you on a future episode.

Speaker2:
In the rush of everyday life, it's easy to focus on the here and now paying bills, running errands, squeezing in time with family. But for many retirees, the biggest question still lingers. Did I really plan enough for the years ahead? I'm Jim Tarbuck, here for the Retirement Radio Network, powered by a matter of life. Financial planning isn't just for the wealthy. It's for anyone who wants to make smarter choices with their money. And it's never too late to start trying to envision the complexion of your financial future. And overall retirement can be an overwhelming endeavor. Morningstar Director of Retirement Planning Christine Benz tells CNBC she understands different financial and retirement approaches can be tricky, but reiterates that you don't and shouldn't go about this journey alone.

Speaker3:
The gold standard would be to work with some sort of financial advisor who is helping you calibrate how much you can safely spend, but the name of the game is to look at your portfolio, ideally every year and make some adjustments.

Speaker2:
According to a Charles Schwab 2024 Modern Wealth Survey, released in November of last year. Only 36% of Americans have a written financial plan. Of the rest, 43% said they didn't even have enough money to make a plan worthwhile. So here are a few important ways financial planning to help you save for the future. Financial planning can jumpstart savings. Planning, even in small steps, doesn't require large sums of money to start. The proper financial planning can help you create an investment portfolio, giving you a comprehensive view of how to reach each individual goal. And finally, financial planning can lead to better money habits. Planning isn't just about investing, it's about what money can do for your confidence, security and quality of life, financial planning and security. It isn't as much about perfection as it is progress. Your future doesn't plan itself, but with the right tools and a little guidance, you could be well on your way to a stress free financial future for the retirement radio network powered by a marine life. I'm Jim Tarabya.

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