The Top 10 Mistakes Federal Employees Make with Their Retirement Benefits

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5.24.24: 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. Appreciate you taking the time out of your schedule to view our content. Listen to our episodes. As I've mentioned numerous times, this is for you, the federal employee. So if there is something that you want to hear, something that we are not touching on, please reach out to us. Let us know what we can discuss. If you have questions, we'll definitely bring them up in a future episode. Make sure you get the information that you and your colleagues are looking for. Well, today I've been having conversations with other representatives from our company that are working with federal employees, are going over their benefits or doing retirement seminars, or we're doing individual one on one analysis or just talking to federal employees in general. There were a number of things that have come up. And surprisingly, or maybe not surprisingly, a number of those topics coincide with some of the top ten mistakes that we see federal employees make. Now, there's a pamphlet. There's a brochure that we put together. You can request this in digital form. If you've been to any of the events that we've attended, have spoken at, you would see these at our table, at our booth, um, in printed fashion. But if you would like a digital copy, you can reach out to us and you can get a, uh, version of the top ten mistakes made by federal employees.

Speaker1:
But again, going back to those conversations I've had with our representatives across the country and the situations that they've run into recently, the ways in which they've helped federal employees out in in the last couple of weeks. A lot of those things, those areas that they've assisted with have been listed on our top ten mistakes. Now, this brochure is certainly not all encompassing. I'm not saying these are all the mistakes that federal employees make, and not trying to say that you all make mistakes on purpose. But this information, as we've discussed in previous episodes, is not given to you when you first get hired. Now, that's fortunate for us because it gives us a job to do. But I wish that you all, when you first got hired, had a proper education on benefits, retirement information so you can make the best decisions going forward and not be subject to any of these mistakes. So we're going to cover, uh, briefly, all of the top ten. As I mentioned, not all of the mistakes that federal employees do make. There's a couple extra that I might add at the end, but if you have questions about this, again, reach out. If you want to go over your personal situation, go to our website, Federal Retirement Show.com. Fill out the form one of our reps. If it's not me personally, we'll be in touch to review and dive into your personal situation, but let's look at today's topic and today's information.

Speaker1:
We're going to be going over the top ten mistakes made by federal employees and hopefully how to avoid them. So if we look at the content right again this is available in digital PDF form. Um, one of the things that we talk about, you don't know what you don't know. You've seen me say that before. But we also say what you don't know can cost you. This has been a staple on any of the the forms that we have, any of the the table displays that we've had at events, at least in my 12 plus years working with federal employees exclusively. But what does this mean? It just means that when it comes to your benefits and retirement situation, having the the incorrect information or not having all the information or not knowing everything can cost you money over the course of your career. And I mean that in two ways. It can cost you more money when it comes to deductions, things that are coming out of your paycheck. But it can also cost you money because maybe you did not prepare properly for retirement and you didn't save enough, or you didn't take advantage of things that the government gave you, and it cost you money because it wasn't properly saved for or prepared for in retirement. Either way, you need to know as much as possible so you can make the best decisions for you, your family, and make sure that you are on the right track.

Speaker1:
As you're nearing and approaching retirement now, nearing and approaching retirement can mean 30 years from now, right? It can mean two years from now. So we had a guest on the show. Her name was Miss Brandi Person. If you go back and view her episode, she's one of our reps. Um, out of Tennessee, she was talking about preparing for retirement from day one, and that is true. So the earlier you can learn this information, whether you just got hired or you're five years in, you're in the middle of your career, or if you're leaving tomorrow, the earlier you can learn this information, the better. Hopefully it will save you some money as far as what's coming out of your paycheck, and prepare better by providing more money when it comes to your retirement savings. So let's look at these and we're going to go over this ten in here. But the first is never attending a federal employee benefits or retirement training. The government may or may not offer these to your agency may or may not offer these to you. Your office may or may not offer these to you, but I can tell you that we do. Our company, our organization, as well as probably a number of others. But we prepare and perform retirement benefits trainings for you, for federal employees, for your team, for your group, for your association, for your agency, whatever it is that's available for us to come out and talk, whether it's in person or virtual, we would like to do perform that, just to give you some accurate and honest information when it comes to benefits and retirement.

Speaker1:
Again, so you properly prepare but never attending any of these things. Why do I see better employees not attending? And this was one of the conversations we had with our reps recently, was a federal employee had said to them, well, I'm not anywhere close to retirement, so I don't need to really talk about retirement. You know, retirement is so far in the future that that doesn't really pertain to me right now. We'll go back to what I just said. You were preparing for a retirement from day one. When you first get hired, if you can take advantage of all of that time, maximize that time, optimize that time, you're going to be better prepared. So the earlier you can learn about this stuff, the better that you can do that by getting a personal review. We'll talk about that in a second. But you can also do that by going to a group benefits or retirement training, whether that is in person or virtual. I highly recommend doing so. Avoiding mistake number one. Number two is paying way too much for your family.

Speaker1:
Option B life insurance. So Fegli federal employee Group life insurance. You've heard about us talking about this topic in the past, but fegli option B this allows you to get up to five times your salary and additional life insurance. But the cost for this, although very cheap when you first get hired in your younger, will increase drastically as you go through your career and get closer to retirement at some point. Getting way too expensive where you're most likely going to cancel it. That's just what we see. Federal employees say this is too expensive, I can't afford this anymore, and they end up canceling the coverage. Well, why pay for something that's going to increase over time and something that you're going to end up canceling and canceling, maybe when you need it the most? Why not look at the options that are out there? And we said this earlier, what you don't know can cost you if you did not know about this, did not know that your option B cost increases drastically as you go through your working career. It can cost you more money than it should. It can cost you out of your paycheck. It can cost you your bottom line over time. So look into your options when it comes to option B and your life insurance in general. As a normal firm, whether you're a federal employee or not. Most people that we talk to are underinsured, not properly covered when it comes to the liabilities and the things they want to provide for their family.

Speaker1:
Option B is one of the areas where you can get a significant amount of life insurance, but if you're not aware of how the costs work, you can end up paying way too much over time. And there are better, more cost saving options for you so you can better set up your situation. Make sure you're maximizing what's available out there outside the government. So look into your cost savings with option B number three not putting enough into TSP to get the maximum matching. Now, this should be a no brainer if some of the free money that the government wants to give you, you got to take advantage of it. I say the best kind of money out there is free money. The government wants to match you up to 5%, so you can take advantage of that. If you're in a situation where you can at least get up to the maximum matching, that's what we'd look at and recommend. It's free money, money that the government does want to give you. And so take advantage of that. A lot of companies out there in the private sector do not match as well as the TSP does. So I would tell you that's a very good deal. Look at maximizing your TSP matching if you are not doing so already.

Speaker1:
Number four not understanding all of the TSP distribution options. So this is something that yeah, maybe you're saying I'm not in a position where I'm going to retire tomorrow or in the near future. So I don't need to know about this. But I think you should be prepared. Why? Because you don't want to scramble at the end and have to cram for this. You know what are my options? What do I need to do? It's the best move for me. Learn and educate yourself on all the TSP distribution options. So when you get to that point, when you're nearing right during retirement, you can have a plan and learn or decide which distribution option is going to be best for you, whether it is some sort of, you know, withdrawal option, some sort of income option, some sort of growth option, whatever it might be, there are things that you can set up your TSP to do for you. As long as you know all of the distribution options, you can decide which one of those is going to be right for you, your family, and your situation. Some of them, um, I am in agreement with some of them I do not like as a distribution option. So make sure you learn about all that is available within TSB. All of your options so you can make the best decision when it comes to distributing or utilizing your TSP funds.

Speaker1:
Number five. Now this should be a no brainer. As I mentioned, you were planning for retirement from day one. But number five, what do we see? Neglecting to save and plan well enough for retirement. Now, why does this come into play? Because there is a false sense of security out there. We've talked to so many federal employees over the years that think that, hey, I just work my 30 years, I retire. The government's going to take care of me because I've put in my time. That's a false statement. I would say, as long as you're making sure that you're taking advantage of everything the government gives you, taking advantage of the TSP matching, taking advantage of of the opportunity to be a first employee and to accrue service time to qualify to be eligible for retirement, maybe even setting up a supplemental retirement account for yourself outside of TSP. Prepare, prepare prepare for retirement. Why? Because when that day comes and you decide you want to walk out the door and you want to do so knowing that you've prepared as well as possible, and if anything else, would you rather there's a question for you? If you had to choose on one side or the other, would you rather be under prepared or over prepared when it comes to retirement? I know preparing right on the line just perfectly is nice, right? But this isn't the Three Little Bears story where it's just right.

Speaker1:
You might be a little over a little under which one would you rather be? A little under prepared or a little over prepared? Most of you would probably say over prepared. Why? Because your future self is going to love you for having too much money in retirement. So make sure you take advantage of everything the government gives you. Learn about how your future retirement is going to look, because we can do projections for you today to make sure that you're on the right track. And if you are a little underprepared based on our projections, you can then properly get yourself back on track and get to the over prepared side of things. So learn about your pension system. Learn about all the ins and outs about what your service time actually counts for. Learn about how they calculate your pension. Learn about your Social security for the first supplement. If you're eligible for that, learn about what your TSP is going to do for you in the future, and also see if you need or require an additional retirement savings account outside of what the government prepares you with or provides for you. So neglecting to save or plan well enough is a mistake that we see people make because of that false sense of security, because of thinking that, hey, I can plan for this at the last minute. This is not cramming for a test.

Speaker1:
This is preparing over time. And the earlier you can start this, the more prepared you're going to be in the future. Okay. Number six, foregoing the opportunity to purchase back military time. Just had this conversation with a federal employee. We're going to continue to have that conversation this week. Is concerned about buying back his military time and wants to know that process. Now, the longer that you wait after you've left service and you've got hired now as a civilian Fers or CSRS employee, mostly going to be Fers employees now. But the longer you wait, the more that deposit is going to be. So the sooner that you can get that in, the better the less money you're going to have to pay in order to buy that time back. And in most cases, I'd say 99.99% of the time I'd say buying back your military time is a great idea for you. I can't just make a blanket statement and say 100%, but in most, if not very, very close to all of the scenarios, I'm looking at, buying back military time, if you're eligible to do so, is beneficial. It's going to be helpful for you. It is something I'd normally recommend, right? We don't know for sure until we look at your situation. But why? Why would I say that? Because you served. You did not serve enough time in order to get credit for, or have enough time to qualify for a military retirement.

Speaker1:
So you can utilize that time, buy it back, have it count towards your civilian service, which will increase your pension calculation number one and two will shorten the amount of time you have to work in order to qualify for retirement as a civilian Fers employee. So in most cases, if you're eligible to do so, if you have military time that you can buy back, that is a mistake that we see is not doing it as soon as you're eligible to do so, either not paying it back or buying it back at all, or waiting so long to do so that now the deposit plus interest that you owe to buy that back becomes a little higher, a little less cost effective. The process to do so is listed on this page, this slide. I'm not going to keep it up there incredibly long, but if you do want a copy of this, you do want a copy of that process. Reach out to us and we can provide that to you. If you're in a position to buy back your military time. Number seven making the wrong survivor benefit selection. Now, why is this important? Because your survivor benefit plan is a part of your pension. When you fill out your retirement paperwork, you want to make sure that you're choosing the appropriate option. When it comes to survivor benefits. Survivor benefits.

Speaker1:
That is something that. You choose to leave money to your spouse in the event that you die first in retirement. So you're the retiree and you want to leave a portion of your pension to your spouse. If you die first in retirement, you have options. Now, as far as employees, there's only two options. If you want to leave something 50% or 25%, but there's a cost involved with that. So understand that this is not a free thing. If you want to leave something to your spouse, it's going to cost you something while you're alive in retirement, and you want to make sure that you choose the appropriate selection. Why? Because this is essentially a set in stone selection. So once you retire, unless there's some kind of life changing event, I'll mention that here in a second. But that that selection that you've made is pretty much set in stone. Okay. Let's say that you decided to take the survivor benefit and a couple years down the road, let's say five years down the road, you say, you know, we don't really need that anymore. Let's get rid of it. You can't set it set in stone. Now, if you didn't choose one, you're like, oh, we really want that now. You can't put that on either. There's only two ways you can make changes to your survivor benefit election once you're retired. And these are both life changing events. What happens if your spouse dies first? So if you had a survivor benefit selected and your spouse dies first, you can cancel it and regain your full pension.

Speaker1:
And the other one is, if you were not married when he first got retired and you did not have a survivor benefit and you got married in retirement, you can add it. That's another life changing event, but you want to make sure you're choosing the right selection. When it comes to survivor benefits, you want to also understand the benefits, the pros and the cons when it comes to that selection choice. And maybe there are better options out there for you outside of what the government offers. I'm not saying that's true for everybody, but it could be. You just need to look at and analyze your situation. So number seven, making the wrong survivor benefit election. Number eight failure to have a proper and up to date estate plan. Now that can mean hey do you have a will? Do you have directives for what's going to happen when you die? Do you have a trust set up? What is it that you have when it comes to making sure your wishes at the time of your death are taken care of or carried out, that your family's provided for, that what you want to have happen will happen. That comes with your estate plan. That's something we can discuss and talk about and make sure you have set up properly.

Speaker1:
This this hasn't really been one of those current event type of things that I've been talking to our reps about, but it does come up from time to time where people are asking about it. Should I have a will? Should I have a trust set up? How can I get those things set up? If I don't? We can have those discussions. We can point you in the right direction, make sure that you're taking care of. So making sure that when all it is all said and done, that your estate plan, your final wishes, your directives are taken care of through a will or again, a estate plan. That is a mistake that we see federal employees make. Number nine neglecting to properly cover or ensure their spouse or children. We're talking about life insurance here. So when it comes to your fegli federal employee group life insurance, we discussed your option B in the rising costs and paying too much for it. But if you're unaware, the most that you can get for your spouse is up to $25,000. The most that you can get for any kid or child is 12,500. Through the fig leaf program. That's with option C, you can get a significant amount of coverage for yourself up to five times your salary and additional on top of basic and option A and all these things, but you're very limited on what you can offer your spouse and kids.

Speaker1:
And a lot of federal employees that we talked to only have the only insurance that they have on their spouse or kids is through option C. So understand if you want to properly cover your spouse and kids and fix that imbalance, right. You have a lot of coverage on yourself and not a whole lot of coverage on your spouse. If you want to, you know, balance that out. Make sure you've got something relatively close for you and your spouse. You can do that. Unfortunately, you can't do that within the government. You have to use private life insurance to balance that out. And there's a lot of different plans that you can put in place what's right for you. We have to have a talk. We have to go over your situation, but making sure that your spouse and kids are properly covered. Is a part of your a well designed and well rounded plan. Now you may not be thinking you may not have ever thought hey, life insurance for my kids. I don't want to think about what would happen to my kids. And I agree, I don't think that's something that that that we should ever experience. And I'm sorry for those and feel terrible for those that have. But you want to prepare properly right now. What if your kids, uh, you know, go on. There's nothing ever happens.

Speaker1:
Well, great. You can set up a plan that grows with them, right? That goes with them. Something that they can own and control and can build cash value and some other things. There's a lot of different options out there for us that the government does not offer when it comes to your spouse and kids. Why? Because the kids age out at age 22. Once they hit age 22, they're out of that program. That 12,500, if you went with the max coverage for your kids, goes away. So you can create a plan outside the government that travels with them, that goes with them, that builds equity, that's something that they can appreciate once you give them control of it. I can share with you on a personal basis the things that my wife and I have done for our kids and making sure that they're set up properly. So when you're looking at option C and the imbalance there, you can't get as much coverage on your spouse. You can't get as much coverage on your kids as you can as you you have to look outside and make sure that they are properly covered. Lastly, number ten and this goes along with also not getting or not attending a retirement briefing or training, but failure to receive a personal benefits and retirement review. Going back to number one, yes, attending a benefits training or seminar is necessary. I highly recommend it.

Speaker1:
Go as often as you can because you might learn something new at each one. But for the most part, those seminars, those sessions, those trainings are going to be general in nature. They're not going to be specific to you and your personal situation. So getting a personalized benefits review on the back end of one of those trainings, or in lieu of one of those trainings, I think is the most important thing. I put this as number ten, but I think this is the most important one when it comes to the mistakes, because we can avoid the comments down the road of I wasn't aware of that. I had no idea this is what happened. Uh, I should have known or that was never described to me or told to me. So just understand that by getting a personalized benefits and retirement review done and performed, you can get all of your questions answered. You can see how your specific situation plays out over time. You can see how it looks today and how it trends. As you get closer to retirement, we can project. We can make sure you're on track, we can make sure you're the most cost effective situation as you possibly can, making sure again that you are maximized or optimized when it comes to your benefits and retirement situation, give you that peace of mind. So you know 100% that you're on the right track. Now, once we know you're on the right track today, is that it? Set it and forget it.

Speaker1:
No, we can review this on an annual basis or every couple of years to confirm that you're on track in the same way you go to the doctor, you don't go get a physical one time and you're done. You're going to go year after year after year. Make sure, get checkups, make sure your health is still on the on the right track. Everything's trending upwards, right. It's trending out. On the positive side, you want to make sure the same with your benefit situation, that your retirement health is still in check, that everything still looks good and there's going to be new situations, new things that pop in. Now that leads me to an 11th one. If I can put an 11th one on here because we don't go to 11, we've got top ten. But something that has come up and I was, uh, wanting to discuss this because we've talked about it before. And a big thing is not getting rid of or not having a plan to rid yourself of all of your debt as you get closer and closer to retirement debt management, improper debt management, or neglecting debt in general is mistake number 11. If we could fit 11 into the top ten, I would but understand that getting rid of debt and managing your debt well, having a plan to tackle and eliminate your debt is huge when it comes to retiring.

Speaker1:
When you want, how you want. We can do all of this, and I've done this with a lot of federal employees. And for those of you that I have helped, you know, you can nod your head. You can comment positively on all this and understand that, yeah, you might have everything looking great on the front end. You make a great salary. You're working a long time with the government. You've done all the things that we've done. You've you've eliminated cost with your family. Option B, you've chosen the right survivor benefit or you plan to, uh, you're taking advantage of the TSP matching. You're providing another account for yourself in retirement. You're doing all the things we just talked about in these top ten mistakes. And then when it comes to your debt, you've let that get out of control. So everything looks great on the front end. But on the back end it's chaos. It's chaos. All that money that's coming in and you're saving for retirement is going right out the door to service and pay off all this debt that you have. It's not impossible to dig yourself out. We just need to sit down and develop a plan. And that's a big thing in here as well. So we plan for retirement plan to maximize optimize all of your benefits, things like that. But all of that means nothing if we can't also tackle the debt.

Speaker1:
You've heard me talk about this a lot of times. We've had episodes completely and just only on eliminating debt. But if I can fit an 11th one in there or substitute what it would be, making sure we can eliminate get rid of your debt prior to retirement, if not sooner, but definitely prior to retirement. Why? Because all that money is going to be freed up, and in retirement, you're going to be not having this burden of owing money because you've planned properly not only to have the income you want in retirement, but to have all of your debt paid off by then as well. So, look, I really appreciate you taking the time out of your schedule to learn and give refreshed on, uh, our version of this, our top ten mistakes made by federal employees. If you'd want more information, if you want to go over your personal situation, please reach out to us at Federal Retirement Show.com fill out a form. We'll do a complimentary benefits and retirement analysis. Going over everything, answering your questions, making sure you're set up properly. I really do again, appreciate you taking the time out of your schedule. Go back and view our previous content. See all of the different sessions that we've had, all the different material that we've put out there. Again, that is for you, the federal employee. Thank you. And we look forward to seeing you on a future episode.

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