3.3.23: Audio automatically transcribed by Sonix

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

Val Majewski:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And today, like we've done in a few previous episodes, you have questions and we've got answers. Where do these questions come from? That's a common thing that we get asked. And as you may or may not know or recall from our previous episodes, we specialize in federal employee benefits and retirement education. We also perform benefits analysis. We do that on a one on one basis, a full benefits and retirement review and estimate and analysis, a report, whatever you want to call it. The idea is that we sit down with federal employees just like you, and we go over their personal situation, answer those tough questions that people have on a personal basis, depending upon their specific situation. And through that process, we get asked a lot of questions and not every one of those questions is, am I putting on here? Because some of the questions we've already answered on previous episodes, but these are some questions that we have been getting lately. And I don't just mean me myself. I said we our reps across the country who work with federal employees on a daily basis, we talk. And these are some common questions that we've been getting asked. So if you have concerns about them, hopefully that this episode is pertinent to you and maybe some questions that you have been asking or wondering about will be answered over our time together today.

Val Majewski:
So let's dive into the frequently asked questions. This is our third episode of FAQs, so let's dive into the information and see if your question is among the ones that we're going to be answering today first thing. Now, this is a common question and something very much that we answer on a daily basis. Put it that way. We answer this often, but it's still something that is asked consistently, constantly. Every single time that we sit with a federal employee, they ask us, How much do I need in retirement? How much do I need? Now not everybody will know exactly what they need. And it's not necessarily a question that I can answer just off the top of my head. It takes some time. It takes some diligence and getting to know you, your personal situation, your family dynamic, what it is that you need to do in retirement or that you want to do in retirement. How much money do you need to live on based upon the state in which you're going to be retiring in? Understand that your pension and Social Security check are pretty much going to be the same regardless of where you live. There's no locality in retirement, right? The locality while you're working is counted towards your high three, but in retirement there's no adjustment. So if you live in New York State compared to the state of Texas, it's going to be a big difference of how much comes out of your paycheck in retirement.

Val Majewski:
So how much you need will depend upon a number of different factors. So let's look at some of those factors now. What are we taking into consideration when it comes to your total retirement income outlook? How much income will you need in retirement? Well, what are all the pieces of the puzzle? Which retirement system are you in if you're a CSRs employee? Well, maybe all of these other things below this bullet point don't even exist for you because you didn't put into Social Security. Maybe you didn't work outside the government. So you're just relying on that CSRs pension check. And will that be enough for you to retire on, to live on once you're done working? If you're a FERS employee, typically you have a three part plan. You have your first pension, your Social Security benefit, or for supplement, depending upon when you retire and your TSP. Now let's look at a couple of these things. Your pension. Right? Your pension is. Easy to calculate, and there's previous episodes that we can go over with you for that. But with our software that we have and the benefits analysis and the reviews that we do for federal employees, we can change these things pretty dynamically. If you want to retire at age 60 versus 65, we can show you what the difference is and we can run those those scenarios so you can see which one's going to be more beneficial.

Val Majewski:
But a lot is going to depend upon when you retire, because when you retire will determine how many years you have at the time of retirement. And that goes into the calculation of your pension. So the longer you wait until you retire, the more that's going to be. Social Security is very similar. The more you work or the longer you work, the greater chance you're going to have earned more income over time that goes toward Social Security and will increase your Social Security benefit that way, number one. And number two, the longer you wait before taking Social Security, the higher that amount will be until it finally caps out at age 70. So pension and Social Security will have a big determining factor on how much how much you're going to get in retirement as far as those two pieces of your income. Are concerned when it comes to TSP. Well, this is a wild card because if you've seen our previous episodes on TSP. You determine how much you're putting in. You determine the investment strategies. You determine basically everything with your TSP other than what the government matches. They tell you they'll match up to 5%. So if you're at least putting in up to 5%, they're going to match you along the way. But traditionally as a first employee and I'm saying and focusing mostly on first, because most of you that are watching listening are first employees.

Val Majewski:
You have a three part plan. Pension, Social Security, TSP. Now, you may have a supplemental account or multiple accounts. What are some examples of these? This could be maybe your prior military and you're getting a military pension, Maybe you're getting a VA disability because you were a prior military. Maybe you worked at a different job and you have a previous 401. K. Perhaps you just saved along the way. You have an outside IRA or Roth IRA or just a savings or checking account that you've been putting money into, whatever it might be. You might have some supplemental accounts that can also factor in to your retirement income outlook. So what does that look like? What are we trying to compare? Well, a lot of times people say, I'm going back to the original question. What is it that I need? Or how much income do I need in retirement? And here's a common answer. It may not be exactly like your situation, but the most common answer that I get is I want to live the same lifestyle. I want to take home the same amount of pay that I'm currently taking while working. I want to take that same amount home in retirement. Now, there's a couple things to look at here, too, but. Let's just look on the surface. So if your goal is to get to 100% of your take home pay prior to retirement, that's what you want.

Val Majewski:
You want to live the same lifestyle. You want to take home the same amount of money, then that's the number that we're looking at. We're looking at what am I making before I retire or what am I taking home before I retire? And then let's compare that to the estimates or the calculations that we're seeing in retirement, and we can run you through all of those. What do I most commonly see happen, though? Most federal employees that I talk to end up being between 50 and 80% of their pre-retirement income in retirement. That doesn't mean that's specifically you. Your situation is different. You might be it might be different. But this is from our experience, what we normally see. Now, hopefully you're not at the 50% range. Hopefully you're closer to at least 80. If you're not really near to 100%. But this is why it's important to have a benefits and retirement review done. It doesn't matter what point of your career you're in. You could be first day on the job from the first day on the job all the way till the end. You are already planning for retirement. You don't plan for retirement at the end. And if you're nearing the end, you want to know what you're going to take home so you can prepare and not be surprised when those checks start coming in the mail or just hitting your bank account.

Val Majewski:
You don't want to be surprised when you see what that amount is. So it's imperative that you prepare. You get a retirement estimate done. You see what the numbers look like so you can determine if you're taking home enough. Now, back to the question, how much do you need? That's completely up to you in the situation. But typically, most veteran employees want to get to as close to 100% of their pre retirement net take home pay to live the same lifestyle they're living prior to retirement. They want to live that in retirement. So hopefully that answers your question. Hopefully you see the value in getting a review and estimate done because it just gives you that peace of mind knowing that you're heading in the right direction and you are going to take home as or as close to the amount that you desire. Now, that being said, we get a follow up question to this. So I want to ask this today as part of our FAQs. But our follow up question to that, if somebody sees that they are not going to take home as much as they thought or not be hitting their pre-retirement income in retirement, how can you save more money for retirement? There's a number of ways to do this. Number of ways to do it. Now, the first thing to think about, and we've talked in a recent episode about debt and debt elimination.

Val Majewski:
What if you got debt free or as close to debt free as possible in retirement? Well, that saves money going out the door, which in theory will have more money in your pocket. So you will have more income in retirement because you'll have less going out the door if you've paid off all of your debts or obligations before you retire. That's number one. You can just save by not spending as much or not owing as much. Number two, what if you want to save for retirement? Well, there's a number of questions that we need to ask and maybe not all of these are pertinent to your situation, but these are questions that will typically ask a federal employee once they ask that question to us. How can I save more for retirement? Well, first of all. Have you realized you need to save? Obviously, if you're asking that question, yes, you've realized you need to save more for your future. We can also look at, well, how much can you save per pay period if it were up to you and based upon your current financial situation, disposable income, whatever it might be, how much can you put aside each pay period each month towards your future? What is your time horizon? How much time do you have until you retire? And how much do you want to have in that account? So if there's a goal in mind, I want this account to provide X amount of dollars for me each month in retirement, we can reverse engineer it to determine how much you need to be putting aside.

Val Majewski:
So we can either look at I've got an extra $200 a pay period and I've got ten years for retirement. Let's just put that aside, save that and whatever it can generate for me is going to be additional to what I get from my traditional retirement income sources. But we can back engineer and say, well, looking at the numbers, I need an extra $500 a month and I've got ten years to go. How much do I need to put aside each pay period in order to get to a position where I can confidently say that this new account is going to put an extra $500 a month into my bank account in retirement. We can look at it both ways on the front end or the back end. What are your ultimate goals for these funds? Because I've seen a couple extra circumstances that people have where they may not need it for income. They just want to create a rainy day fund. They want to create a buffer. They want an emergency savings because they realized that they're running pretty thin. And if something were to happen, some extenuating circumstance, some emergency, some something unforeseen, they want to make sure they've got that buffer zone.

Val Majewski:
Maybe that's what your extra savings or supplemental account is there for. What's your overall risk tolerance for these additional funds? Do you want to take a whole lot of risk? Do you want to keep it relatively safe? That's up to you to determine. I can't answer that for you. But if you're going to put aside additional money for your future, what is your or what are your ultimate goals? And then how much risk do you want to take with this account? Some people might say, Well, I'm already taking a risk with TSB. I don't want this new account, this supplemental account that's not getting matched by anything. I want to make sure that it is safe and sound or provides a pretty decent guarantee or have a pretty good idea within a certain level of certainty that it's going to help me hit my goals. I'm not leaving it up to chance. This extra account is going to be pretty set in stone or close to it. There are possibilities. There are options for you that you can utilize. I'll talk about that on the next slide. Are you concerned about your tax liabilities in retirement? Now? This is big. I've talked about this before, taxes and retirement in one of our previous episodes. But which way do you think taxes are going in the future? If you thought or said up, that is the consensus. The majority of federal employees that I ask, it's not unanimous, but the majority will say taxes are going to be going up in the future.

Val Majewski:
And if you look at historical tax brackets or tax rates, we are at a pretty low tax rate when it comes to historical averages. So if we can think that taxes might be higher in the future and we're going to try and make as much money as we're making now in retirement, well then we will be paying more in taxes in the future, just in theory, using a simple logic, right? Everybody's situation is a little different. So it's a little more complicated than that. But just general logic would tell me that more is going to come out. If I'm making the same money, more is going to come out because I might be in a higher tax bracket down the road. What if you can make your future supplemental account tax free Now you're taking away your tax liability or tax burden in the future with this supplemental account. And trust me, we can't eliminate taxes entirely, but we can at least eliminate them from this supplemental account. Now, along with that, we're talking about life insurance, and I'll explain on the next slide. But have you had a review of your life insurances recently because they can play in and factor into your supplemental retirement savings. And I'm going to go over that here in the next slide.

Val Majewski:
But if you answer these questions and we come up with, you know, a criteria of what you're looking to do now, you're probably thinking, well, what kind of vehicles can I use? In what ways Now can I save this additional money? If you've decided, yes, I need to save more money. I've answered these questions. I understand how much how long risks taxes, all of this. I put that all out. Now, what kind of accounts can I use? Well, you can do something pretty simple that doesn't require any other accounts. You can put more money towards your TSP. A lot of federal employees that I see and talk to, they want to keep their TSP at 5%. Why? Because that's the maximum matching that you get. You put in five, you get five, and then that additional money, if they're risky, they want to take some extra risk. They'll put that money in TSP. But a lot of folks with this supplemental account do not want to take risk, so they're looking for things outside of TSP. We'll go over a few of those, but TSP is certainly one of your options. And you saw from our our previous episode, one of our most recent episodes with the increasing of contributions, you can put now up to 22,500 per year. If you're 50 and older, you can put an additional 7500. So your total for the year, if you're 50 or older, is actually 30,000 now that you can put into TSP.

Val Majewski:
You can start an outside securities account. So let's go along the lines of TSB where you've got basically just the G Fund, which is the only safe account, and then everything else is subject to risk. Well, what if you wanted to take some risk and you've got a money manager or somebody out there that wants to start a supplemental account for you. You can divert money, put it into a securities account, and let somebody else manage your money for you. Obviously, you're going to pay some fees in there and be taking as much risk as you want. This is considered a non-qualified account, so there's no tax deduction or tax break on it. But that's a way you can put additional money aside. You can simply divert money towards checking and savings. Now, this is the ultimate safe option because, you know, your money's not going anywhere. There's no risk, but there's not really a reward either. You can just look at your statements as you're getting tax documents from 2022 to see how much interest you actually earned in your savings account over the past year. I'm going to say it's very, very small. So you can definitely divert more money to checking and savings. The good news is there you can't lose any money in those accounts. That's 100% liquid, but you're not going to earn much interest. There's not going to be much growth.

Val Majewski:
It's basically like hiding it under your mattress or burying it in your backyard. Now you can set up another type of retirement savings account like an IRA or a Roth IRA. Now, these can be in a lot of different functions or types of accounts. They can be subject to risk. They can be subject to no risk. But an IRA individual retirement account, you get a tax deduction today and your earnings grow tax deferred. And then in the end, just like the traditional side of your TSP, you're going to pay tax on 100% of the money once you withdraw it down the road. This is an option. But if we're talking about that tax burden and potential tax bomb down the road because taxes might go up, it may not be the most desirable thing. So how do we limit our tax liability in the future? Well, that's where a Roth IRA comes in. This is a traditional way in which people would set aside additional money into their supplemental retirement account, pay the taxes. Today, the money grows, tax deferred, and then money comes out tax free. In the end. The difference is you don't get a tax deduction today. You pay the taxes today and then all the money you've put in plus earnings attached to that over time will come out tax free. In the end, this could be an option for you if you're worried about taxes.

Val Majewski:
Now, the problem with Roth IRA is some of the restrictions. It's restricted on how much you can put in per calendar year. It's restricted on how much you can earn during that calendar year in order to be eligible to put into a Roth IRA. So if you're a higher earner, a Roth IRA, you may not even be eligible to utilize because you make too much money whether you file single or jointly. There's different regulations on that or different earnings limits. Reach out to us. We can share with you what those limits are. If you think you're in danger of hitting one of those. Now the last thing is a tax free option. And I mentioned life insurance on the previous slide. There are numerous types of life insurance plans that are permanent forms of permanent plans that can build cash value and cash value within a life insurance policy. As long as it is a life insurance policy, cash value, either taken by withdrawals or loans, comes out tax free. Couple of things that are awesome about this. Number one, we just mentioned Roth IRA. There are no limits as to how much you can put in to the life insurance plan. There are no limits on how much you can earn in order to put into the life insurance plan. There is a death benefit, which is great. It's going to be more than what you put in to the plan.

Val Majewski:
So if something happened to you, your beneficiary or beneficiaries gets a lump sum, tax free death benefit. Now, let's say all that aside. What are the benefits? Why would I utilize this? Well, like a Roth IRA. The money that comes out of the cash value of the life insurance is going to be tax free. You have the ability to earn interest with guarantees provided, but you have the ability to earn interest over time. And that interest earning in a traditional sense is not subject to the ups and downs of the market, which is great. So there's good earning potential and I say potential. Nothing is guaranteed on the earnings. As far as the top end, right? I can't promise you ten, 12, 15%, whatever, but you have great potential in a plan like this as long as it is designed properly. So if somebody ever talked to you about, hey, why don't you use life insurance as a retirement savings vehicle, some call it a a life insurance retirement plan. These are real things. I know because I own several of them. Just because I own them doesn't mean it's right for you. But it could be an option. If you're looking to diversify not only where your money is coming from, you want to eliminate some sort of risk from the market. You want to maximize potential earnings, you want to eliminate future tax liabilities. This could be a way to do it.

Val Majewski:
Now there are different types of life insurance. If you ever hear the word variable in front of it, that type of life insurance is subject to the ups and downs of the market. And generally there's a lot of fees in a variable plan. Typically it's called variable universal life. That's not something that I'm talking about. I'm talking about more of fixed or fixed indexed options when utilizing this type of plan or the whole life, which has some guarantees to it. Again, not trying to get into the weeds of the life insurance, but just understand there are different vehicles out there that you can utilize. Now, why haven't you probably heard about these things? Some people would call it the best retirement plan. You've never heard of a Super Roth, a Roth IRA on steroids just because this is not the common way that people do it, but it doesn't mean it's not done. Celebrities, famous people I've mentioned before in previous podcasts, college football coaches have all utilized this type of plan for alternative retirement savings. So just because the rich or the higher earners or super high earners have used this doesn't mean it's not available for you at 100%. Is the plan does, though, have to be designed properly. So make sure you're talking to a professional that knows what the heck they're doing when it comes to designing one of these plans. But it can be really beneficial for you.

Val Majewski:
Your family cover you on a lot of different bases. I can share with you on that. On a personal note, more If you want to talk, please reach out to us via phone, email or by going to federal retirement show.com and filling out our form that's on that web page. So that's supplemental retirement. We talked about the first two questions how much do I need? How much income do I need in retirement? And if you feel like you're going to be falling short or you want to save more, how can I save more for retirement? So I went a little bit deeper with those two questions. But those are very important because it comes to your retirement, your lifestyle. That's what you're working for. Most people I talk to, you're working towards retirement from the first day you're on the job, so why not plan as effectively as you can so that when you hit that goal, you hit that age 60, 65, whatever it is, you are ready, you're prepared, you know, and you have the confidence to know that you're going to retire the way you want, how you want. Okay, next question. Who is eligible to receive the FERS retirement supplement? This is a common question because people want to know how they're going to get it and if they're going to get it just because they retired from the firs. Retirement system.

Val Majewski:
That's not the case. Now, first of all, yes, you have to be a FERS employee. This is only available for FERS employees. Quick, quick little definition. What is the first supplement? Well, the supplement is available for a first employee. Who retires with full benefits prior to the age of 62. So if you're a FERS employee, you're going to retire with full benefits prior to the age of 62. You will automatically be entitled to an automatically receive the FERS retirement supplement. What are full retirement requirements? The age 60 with at least 20 years of service. And hit your minimum retirement age and have at least 30 years of service. Those are the two general requirements for FERS employees who can retire with full benefits prior to the age of 62. If you hit either one of those 60 with at least 20 years of service and hit your minimum retirement age, which is between 55 and 57 and have at least 30 years of service, you can retire with full benefits and you'd be entitled to the first supplement. Now, special groups. Federal law enforcement officers. Air Traffic controllers. Federal firefighters. You are subject to some different criteria and you can retire with full benefits prior to the age of 62. You also will be entitled to the first supplement. Now, this is an entitlement. It's a free benefit. It's not something you pay for. It's automatic. And it will start from whenever you retire prior to the age of 62.

Val Majewski:
Again, full benefits and it will continue until age 62. When you are first eligible for Social Security, it will automatically cut off. It does not mean you have to elect Social Security. It just means that it will stop at age 62. Now, who is not eligible? I'm going to reverse it. Who is not eligible? If you retire voluntarily early as a first employee, there's a provision called plus ten minimum retirement age and at least ten years of service. So if you have not satisfied the full requirements for retirement, but you want to leave early due to the plus ten provision, you will not be eligible for the first supplement. Even if you decide to postpone, you're not going to be due anything from the first supplement. Those that are deferring their retirement or postponing their annuity payment. Will not be eligible for the first supplement. Those that retire as a result of disability. So if you file for disability retirement, chances are, well, you will also be receiving Social Security disability. You will not be eligible for the first retirement supplement. Now, it may be eligible. I will say this. It may be eligible for those or available for those that are involuntarily retired before hitting full requirements. There are times when there's a reduction in force or an organizational shift. And. They will make a special provision where some of those employees could still be eligible for the first supplement.

Val Majewski:
Those are unique circumstances, but just the typical and general ones are the ones that we've already mentioned. So first supplement, though, available for those first employees who retire with full benefits prior to the age of 62. Here's a question, a unique question that we got asked, but I'm sure there are other folks out there that would have a similar situation because this is fairly common. Let's say you're a first employee or federal employee, but I'm gonna say first and you left service early, meaning you didn't satisfy any requirements for retirement whatsoever. There was there was no immediate annuity that you were due. Let's say you were 50 years old and you had ten years of service. You go back to our previous episodes, none of those allowed for any kind of retirement payment. You haven't hit your mirror. And even though you have ten years, you haven't hit your mirror yet. You haven't hit any of those full retirement requirements. And you did not take out your deposit. Now, what is your deposit? Deposit is the amount of money that you're putting each pay period towards the retirement system. In this case, let's say the FERS retirement system, let's say you're a traditional FERS employee and you're putting in 8/10 of 1%, 0.8% towards your pension system. Every pay period, that money's just going in. And when you retire, you have the option to take out that deposit or all of your deposits in a lump sum.

Val Majewski:
Let's say you did not do that. So let's say you left early in.

Val Majewski:
This example, age 50, with ten years of service, you left your deposit in there. Can I receive a pension? Well, you cannot receive an immediate pension in this case, but you can receive a deferred pension. Now, when can you defer until. Well, let's look at this. You have the the amount of years for one of the criteria. Right. So if I look at all of the criteria that you need to satisfy to as a first employee age 62 with five years of service, so you have the years, you just don't have the age yet. So at age 50, if you leave service with ten years, you can defer your retirement until you'd first be eligible, which would be age 62. At that point, you can receive a pension based on whatever the calculation would be at that point, your high three, your years of service, etcetera, etcetera. So you can file for a deferred retirement and get a pension. The problem is you don't get it at age 50. You've got to wait until age 60 to. The big important thing is if you leave early in this situation and you did take out your deposit, now you're done. You basically closed out your account as a federal employee and you don't have any credit now for any of that service time because you took out your payment that you're making for that credit. So as long as you leave your deposit in there, when you leave service, even if it's early, you can file for deferred retirement. You just have to wait until age 62 to collect it.

Val Majewski:
Lastly, I.

Val Majewski:
Last question of the day. We've been getting asked about phased retirement. You may not even know what phased retirement is. They may not have publicly or they may not have passed out the information to everybody or you may not be aware that this is an option. However it may be.

Val Majewski:
We get asked what is phased retirement?

Val Majewski:
Now, if you can imagine there's working and there's retirement. And while you're working, you're working. And when you're retired, you're not working anymore. Phased retirement is in the middle. Phased retirement allows you to, as it sounds, phase into retirement.

Val Majewski:
If you enter a phased retirement.

Val Majewski:
You will work part time as a federal government employee and you will start collecting part of your pension or your retirement annuity. The idea of phased retirement is to allow you, the federal employee, the opportunity to train up the person or persons that are going to be taking your position or doing the things that you used to do while you're working part time so you're not working full time hours. You're kind of going from full time work to part time work. Part retirement and then into full retirement. It's a way at which you can kind of ease your way into retirement now while you're working as a phased retirement employee. You are still accumulating service time. So when you do fully retire, they will recalculate your annuity and give you your full annuity payment. Taking into consideration now this phased or part time time that you have added to your calculation. Phased retirement does require an approval to be made. So you can't just say, hey, I want to do phased retirement. You have to fill out the paperwork. You have to go through an approval process and it's not guaranteed that you're going to get approved. However, it is a way, again, that you can ease into retirement. The idea being you're working part time and training the folks that are going to be taking over. Your position, your job, your duties, you're kind of a mentorship as you're on your way out instead of just cutting it off. As a full retiree.

Val Majewski:
So. I hope you found this episode informational.

Val Majewski:
I hope that some of the questions in here were ones that you had and you've got them answered. If you have additional questions and you have not seen in any of the.

Val Majewski:
Faqs or any of the episodes.

Val Majewski:
That we have previously recorded, your questions answered, please reach out to us, go to federal retirement. Show.com fill out the form. We'll be in touch and we'll be sure to go over your personal situation, answer your specific questions. Again, I appreciate your time and viewing this episode. Faqs Part three.

Val Majewski:
Thank you for joining us and we will.

Val Majewski:
See you on a future episode.

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