On this week’s show, Val goes through a detailed retirement checklist, and explains how you can be sure you are on track at ten, five and two years out from retirement as a federal employee.
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4.14.23: Audio automatically transcribed by Sonix
4.14.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.
Val Majewski:
Well, welcome back to the Federal Retirement show. I'm your host, Val Majewski, with American Benefits Exchange. And again, I really appreciate you all joining and checking out the material, the information that we have via this radio show podcast. You can find it on YouTube. You can find it wherever you listen to podcasts as well as our website. Federal Retirement show.com. Check out all of the previous episodes and the other information that you may or may not enjoy depending upon your situation today. I think this is something that everybody is looking forward to and it's retirement and we're going to be discussing your retirement prep checklist and go over a few dates and time when you're going to need to really take a look at how things are going, how you're trending, how you're projecting to make sure that you can retire when you want and how you want. And that's kind of our theme throughout this show, throughout this podcast, is giving you the information that we believe will help you during your working career as you prepare for retirement and then as you venture into retirement because you want to be rewarded for your work and you want to retire again when you want and how you want. So let's dive into today's topic for your retirement prep checklist. So what do I mean by that? What do I mean by a retirement prep checklist? Well, as you're preparing for retirement, there are certain things that you should be aware of.
Val Majewski:
Now, this is not an end all be all comprehensive list for everybody's situation, but it's a good starting point for certain dates and time and certain time periods for when you should be looking into the various details that revolve around your retirement and your preparation for such. So we like to call it test driving your retirement, kind of looking into the future. Unfortunately, we do not have that crystal ball that tells us exactly how things are going to go. So as you're hitting certain benchmarks, certain timeframes, there are some things that you should be looking at and preparing for for both the best case scenario as well as the worst case scenario. So we're going to look at three different time periods today. We're going to look at ten years away from retirement. We're going to look at within five years of retirement and then two years and less two years and within. So let's look at ten years out. Now, when you're looking at retirement and you're thinking, man, ten years out seems like a really long time. Trust me, it goes by quick. You know, they say it about your kids, right? When they're young, they're like, Hey, cherish every moment. They're going to grow up fast and next thing you know, they're going to be driving away to college or you're going to be walking them down the aisle.
Val Majewski:
That's true. It does go by fast. And the same can be said about your working career. I'm sure you can refer back to the first day that you get hired and feel like, wow, this has gone by really quick. Well, the final ten years seem like a long time. That's a decade, but it's going to go by quicker than you think. So you want to take a look at a couple of things and be aware of a few things. When you're within ten years and I say ten years out, but let's say ten, nine, eight, seven, somewhere in that area, these are some bullet points that you want to consider looking at and considering taking a hard look at in order to prepare yourself for retirement. First, we say budget to be debt free. You've heard us talk about debt elimination. You've heard us talk about getting rid of debt, unnecessary interest, interest that just goes right out the door. But besides accelerating your debt, we really do want a budget to be debt free or as close to debt free as possible when we retire. Now, why is that? Chances are, if you're not prepared properly, you're going to be living on less income in retirement. So eliminating those extra payments that are going towards debt would be huge. So if you can be as close to or completely debt free in retirement, that's more money that is staying in your pocket, more money that is in your bank account and is not going to make payments on debt.
Val Majewski:
Like cars, credit cards, mortgages, things of that nature. Adjust your savings. So if you feel like, hey, I'm not saving enough for retirement or I'm not on the right track now, how do you know if you're on the right track? We talked to federal employees all the time. Whether you first got hired or you're retiring tomorrow, it's very important that you know exactly where you stand and how you're projecting. The longer you have to save, obviously the more time can work on your money. The time value of money can be a huge benefit. But even if you're within ten years out, there's still time left and you need to know exactly where you stand. You need to know how you're looking. You need to know what your projections look like. You need to know what your bottom line is going to be as far as retirement income. And you can adjust your savings accordingly. You can plan for more. And I've said this before, you are not going to hate yourself. Your future version of you, your retired self is not going to hate your current self for over preparing for retirement, but they will be a little disgruntled if your current self shook it off and did not prepare well enough and you're living a lot less of a lifestyle when you do retire.
Val Majewski:
So adjust your savings accordingly. Get that estimate done at any point. But especially as we're starting within ten years, know where you stand, see where you're heading when it comes to your projected retirement income. Relook at your insurance needs. Now, just prepare for this. What kind of life insurance are you going to be needing in retirement? What kind of health insurance are you going to be needing in retirement? Why is that? Why life insurance? Well, there's a couple of things in here. We're going to discuss more about the life insurance on the next slide. But if you're within ten years of retirement, this is when your optional coverages for your fegley, especially FEGLEY option B are going to get very expensive and it's going to be cost prohibitive to keep those things going forward. So if you need life insurance within ten years out or you want life insurance, that's going to last for forever, even through all the way into retirement, then this is a good time to start checking it out. Why? Because chances are you're going to be healthy ten years from retirement or healthier, you're going to be younger. And therefore, if you're looking to lock in a rate when it comes to your life insurance, you're going to be at a healthier, younger age to do so. It's going to be cheaper.
Val Majewski:
So take a look at that. Now, with health insurance, you want to just start thinking about what you're going to be doing for health insurance in retirement. It's not a requirement that you do something immediately, ten years out or nine or 8 or 7, but you should start thinking about it and we'll talk more about that on the next slide. What will you do in retirement? Do you have a plan? Do you understand what your job will be or lack thereof? Your hobby. What you want to do? Is it travel? Is it get a part time job? Is there some kind of passion that you have some kind of activity? Do you want to go see grandkids or your kids or wherever? Go see the world? Everybody's a little different. Everybody has different needs. What are yours? What is it that you want to do? And don't just mean by job, right? I'm talking actually do hobbies, activities, travel, whatever it might be. That way you know what you're preparing for? We can say, okay, am I going to have enough money in retirement? I don't know because I don't know what you're going to do or want to do. Most people would say, I want to live on the same amount of money that I'm making now or that I'm going to be making just before retirement. However, if your lifestyle is not conducive to that amount, you need more.
Val Majewski:
Then maybe you need to prepare more for retirement. Or if you're not going to do as much, maybe you don't need as much. In retirement, everybody's different. But have you considered what you're going to do ten years out and within? You should be thinking about what that's going to be. Now we're test driving, let's say five years out. Okay. We're five years out from retirement. I mentioned health insurance. Why is that important? Because if you want to keep your federal employee health benefits, your FB, you need to have that benefit for at least five consecutive years prior to retirement in order to keep that health insurance in retirement. Unless you have a valid exception. Typically the exception is if your spouse is also a federal employee and you did not have your own FB, you were on their FB plan. It does not count, however, if your spouse is working elsewhere, not for the federal government and you are on their plan elsewhere. You would need to then pick up the federal employee health benefit plan for the five consecutive years prior to retirement in order to keep your FB in retirement. Same goes with life insurance. If you want to keep life insurance in retirement, you have to have it for at least five consecutive years prior to retirement in order to keep it. I said, take a deeper look into your personnel file. What do I mean by that? Well, there could be some things in there that you want to make sure are in there.
Val Majewski:
Like if you purchased previous military time back, you want to absolutely make sure that that deposit amount paid in full is in your file and there's not any kind of mix up. Maybe you work some other kind of job. You had part time. You had some odd calculation when it comes to your service time or your retirement date or things of that nature. You want to make sure that your personnel file is accurate so you can request to see some information from there to make sure that your time and and everything that you've experienced or worked at within the federal government is in there and considered part of your retirement calculation. Reevaluate your debt. I said we're going to. Plan as if we want to be debt free in retirement. Well, how are we doing? If it was with ten years left, we wanted to say let's plan to be and try to be as close to debt free as possible. Well, let's track that. How are we doing now that we're five years out? If you're not on track, adjust your plans if needed. Maybe you're you're doing a bang up job. It's awesome. And you're on track to pay off all that debt prior to retirement. Great. Stay the course. But if you need to adjust your plans, you still have some time left.
Val Majewski:
What is your risk tolerance within five years? It's kind of tough to take too much risk if you are very conservative or risk adverse. Why would I say that? Because with five years left. You could still be earning positive interest. But what if the market what if your TSB funds showed a negative return like we saw in 2022? What if your TSB saw a negative return and now you don't have a whole lot of time to regain that loss back? You may be stuck with a lesser amount than you anticipated within your TSB because you took too much risk as you were on your way out. Now, within five years you may, if it happens in the first year, have another four years left until you retire for it to regain itself. But what if it happened three years out or two years out? You want to make sure that you are reevaluating your overall risk tolerance within TSB to be acceptable. To what you're willing to do. And what do we mean by that? Well, I'll put it to you this way. And you could watch our episode on how comfortable are you with losing money, but I'll ask you that question. How comfortable are you with losing money? You may say, well, I'm not that conservative, but if I put it to you that way, how comfortable are you with losing money? You might change your tune a little bit.
Val Majewski:
Are you comfortable losing some of your money, all of your money or none of your money? If you want to say none of your money, then you're pretty darn conservative. So let's make sure that your TSP within five years of retirement is within your risk tolerance. Overall risk tolerance. Check for current retirement changes is the last bullet point five years out. You never know what's going to happen and this is something to monitor along the way. Even within five years, two years, chances are things aren't going to change much. Right, for those that are actively employed. Hopefully if the government does make any changes, it's for those that are new hires. But you never know. The government can make changes with or without your say. We've seen that happen before, so see if there's any new retirement changes, any things that will affect your overall retirement annuity, your Social Security payout, things with your TSB will just affect your bottom line in retirement. You want to make sure 100% that you know what's going on and there aren't any changes at the last minute as you're walking out the door that could affect your retirement situation. So what if we're test driving our retirement, taking a look and we're two years or less from that magical day when you're walking out the door? What should we be looking at at two years now on top of everything we already mentioned? I will say it's kind of snowballing to this point.
Val Majewski:
If you are two years out now and you didn't do anything from the ten year or five year checklist, I would go back and do those things. But this is, in my opinion, a must within two years get an updated retirement estimate, you know, within two years, one year, six months, just to make sure that the numbers are making sense. It's not too late to change your decision, but if you're stuck on retiring, you want to make sure you know what you're going to get and what you can anticipate when you do separate from service, get an updated retirement estimate. Ideally. Now, here's an interesting concept that we don't really talk about much, but get an updated retirement estimate. And if it's less than what you're making now, try to live on that anticipated or expected retirement income. If you can then save the rest, put the remaining monies away in checking your savings, build that emergency fund, build up that fund that could help bridge the gap from when you initially retire to where you don't get paid that first month and then you're in interim pay and you're not getting paid the full amount. Save the rest of the money. If you can retire on your projected retirement income, assuming it is less than what you're making now.
Val Majewski:
Sbp contemplation. What does that mean? That survivor benefit plan and going over the different options that are going to be available to you. Talk to your spouse. Make sure when you fill out that retirement paperwork that you are making the correct choice. Because if you go back to our episode on Irreversible Mistakes, this is one of those choices, the Survivor benefit plan option that is essentially an irrevocable choice. It's going to be pretty much set in stone once you make it. So you want to choose the appropriate survivor benefit option. Once again, we're going to check our risk tolerance. This is important. Now, if we're two years or less, you do not want to take too much risk at the last minute and walk away with anything less than you're supposed to within your TSP. I used the example before about 2022 being a loss year. Well, what if you were going to retire January of 2023 and on January 2022 you said, Hey, this is great. The market's rebounded since COVID. I'm just going to let it ride for this last year and you lost 20%. How would a 20% loss the last year affect your TSP and affect your retirement? It wouldn't be fun, I'll tell you that. I would have a tough time stomaching that, knowing that I could have locked up some of those gains. I could have put them in a more secure fund or a more secure plan to make sure that they were not going to go anywhere.
Val Majewski:
Well, I recommend on the last bullet point filling out your retirement paperwork at least two months in advance. At least if you're asking your colleagues who have previously retired how they're doing or what their process was like. Opm is very backlogged. They are taking a while. So the earlier that you can get in your retirement paperwork, ideally at least two months in advance, completely filled out, properly filled out the likelihood or the more likelihood that they are going to finish your paperwork, finish and finalize your retirement income in a timely manner. They're still not going to pay you for that first month. They're still going to put you in interim pay, but the earlier you can get them the paperwork And I said fully completed, properly completed, the higher the likelihood that things are going to go smooth for you. It doesn't guarantee it, but it increases the chances, which are great. But I can tell you, if you're procrastinating, putting in that paperwork and doing it at the last minute and not completely filling it out or overlooking some sections, it's going to make the process a lot longer for you. So understand what it's going to take to properly prepare for retirement. As I mentioned earlier, this is not an end all be all list. These are. Just general bullet points that I like to go over with the federal employees that I talk to.
Val Majewski:
So you can have kind of a guideline of what to look out for when you hit these certain time frames ten years from retirement, five years from retirement, and then two years or less until that day where you separate from service. And head into the the retirement sunset. Right. We want you to do so in a fashion that is comfortable for you with your head held high, with a big smile on your face, knowing you did everything you possibly could ahead of time to prepare for this moment. And it's not something you're afraid of. It's not something you're going to worry about. You can confidently cross that finish line and live the retirement life that you've set out for yourself. So I appreciate you joining me for this episode and taking the time to learn about your retirement prep checklist and test driving your retirement at certain timeframes as you prepare for getting for that blessed day. If you have additional questions, you have comments. You want to learn more, reach out to us. Visit federal retirement show.com and you can fill out our form there. We'll be in touch and we'll get you the answers that you're looking for. Again, my name is Val Majewski with the Federal Retirement Show, an American Benefits Exchange. Look forward to seeing you on a future episode.
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