What You Don't Know Can Cost You: Ten Mistakes Made by Federal Employees: Audio automatically transcribed by Sonix

What You Don't Know Can Cost You: Ten Mistakes Made by Federal Employees: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Well, welcome everybody once again to the federal retirement show. My name is Val Majeski with American Benefits Exchange and just so excited to share with you some of the information that I've gathered over the years of working with federal employees for the past decade. And today's topic is going to be the top 10 mistakes made by federal employees, and we're going to talk about how to avoid them as well. But why is this important? Why are we talking about mistakes before we really get into a lot of the the issues, the benefits, the information that I'm sure you want because there's a lot of information out there, right? And there's a lot of choices that you make when you first get hired. There's a lot of paperwork. You fill out a lot of benefits that you elect, choices that you make when it comes to deferring money for retirement, things like that. And over the course of time, if you made the wrong choices initially that can affect your bottom line, can affect your paycheck, can affect your future retirement. So what we've come up with and this is just in our opinion and our experience working with federal employees, is what we call the top 10 mistakes federal employees make. Now, the first thing again is the lack of information. So we like to say what you don't know can cost you. And what does that mean? Again, this information that you didn't get when you first got hired, this information that wasn't properly given to you can cost you either in your retirement, not putting enough money aside.

Speaker1:
Or maybe you've selected benefits where the cost goes up over time and the money is coming out of your paycheck and you didn't realize it. It can cost you in a number of different ways. So the earlier that you can have this information, the earlier you can prepare yourself properly, then now you can make the best decisions for you, your family, your working career. So that's the whole point of today. And again, it's just the top 10. It doesn't mean these are all of the mistakes that federal employees can make over the course of their working career or in retirement. And hopefully, if you're keeping score while you're watching this, that you're not making all 10 of these mistakes, but we can help eliminate them or correct them that way. You're set up properly, and that's the whole goal again of this show and the information that we're going to share. So, number one, not attending a federal benefits training? What is this? Well, perhaps your agency, your office, maybe you've never had somebody come in and talk about benefits and retirement. Maybe you've never been online at a webinar or been to a training. You thought, you know, I just got hired or I'm in the middle of my career. Retirement is so far away. I don't need to go to these things yet. And in my opinion, nothing can be further than from the truth.

Speaker1:
When it comes to learning this information. The earlier you can do it, the better. So whether you just got hired yesterday, you're in the middle of your career or you're leaving tomorrow, it's important to know how your decisions when it comes to your benefits and retirement, how they're going to affect you going forward and what the end result is going to be. So the more information you can gather, the better. Now I will say this that the government doesn't do a good enough job of providing you this information, so you kind of have to go out and seek it. You have to go out and look for it. You have to go out and find it. And finding a professional like myself or somebody that is an expert in federal benefits and retirement is going to be key because you can't just talk to anybody. Not everybody knows this information. Not everybody speaks this language. So do yourself a favor. If you have not already attend a retirement seminar, webinar a training so you can be up to speed on all the things regarding your benefits and retirement and continue to do so. Just because you did it 10 years ago doesn't mean that you don't have to do it ongoing throughout the course of your career because things change. Benefits change. The government makes changes, and we want to make sure that you're up to speed on all of those changes and updates.

Speaker1:
So that's number one. Number two, paying way too much for your Feghouli option be way too much. Now, if you're not aware, vaguely, Option B is that option with your federal employee group life insurance, where you can choose up to five times your salary in additional life insurance coverage. Sounds awesome, and it's extremely cheap when you first get hired and when you're younger. But what is not properly explained is that this cost increases every five years, starting at age thirty five, and can get extremely expensive as you get older and as you get closer to retirement. And I'm just going to let you know that you're not going to get letters in the mail or birthday cards from OPM or the office of Factly saying, Hey, congratulations, happy birthday. Just want to let you know. You bumped up into another age bracket and your cost for Feghouli option be just increased. Now why does it do this? Because you're part of a group plan, everybody is lumped together. Whether you're healthy, sick smoker or non smoker, male, female, you all have the same rates because you do not have to take a physical. When you first got hired, you're automatically in. So again, very cheap as you're your younger earlier in your career, but gets very expensive as you get older. So how can we combat this? How can we avoid this mistake? Well, if you really want the coverage and a lot of federal employees I talked to do want the coverage because they have needs, they have family, they have things they want to cover, then you might want to look at private insurance.

Speaker1:
Now the only difference is you need to qualify health wise. But in order to avoid paying more than you should or more, then you have to. You can lock in your rate using private insurance and save yourself possibly tens of thousands of dollars over the course of your working career. Now what can you do with those monies? You can either put them in your pocket, put it in your bank account, or put it more towards your retirement using TSP. Or a supplemental retirement account. So paying too much for physically Option B is number two. Number three when it comes to retirement, not putting enough money towards TSP to receive the maximum amount of matching now little quiz What is the maximum amount of matching that you can get from TSP? If you thought or said five percent, you'd be correct. So if you defer five percent out of every paycheck, the government will match five percent and put it into tsp on your behalf. Now, why is this important? Because this is free money. The best kind of money that you can possibly get ever. Don't let anybody tell you any different is free money. The government does not give you much for free. They want to give you some free money to go towards your TSP. Take advantage of it. So if you are not yet putting up to five percent in your TSP? How do we correct this? Go into your pay system and correct it.

Speaker1:
Put in at least five percent. That gives you the maximum amount of free money that the government wants to give you. So this is pretty simple. If you're not putting in five percent, I normally recommend get up to at least five percent. It's free, no, for not understanding all of the TSP distribution options. So saving money for TSP is great, right? Tsp is a great account for accumulation. Not so awesome when it comes to distribution options in retirement. So when you separate from service and you're no longer at TSP or working for the government, you will have options with what to do with your TSP money. There are actually different distribution options you can utilize while you're working. We can get into that in later episodes, but while you're retired, there are several different distribution options. And really, they're not all great. I hate to tell you that now we'll get into TSP in further detail. You know, look forward to future episodes talking about TSP specifically, because that is my favorite topic to talk about. But you need to really understand all the options and how each one is different, how each one, how you make those elections, what the consequences are if those elections are permanent, if they're locked in, if it's irrevocable, and I wouldn't want you to make an irrevocable mistake when it comes to your TSP.

Speaker1:
Again, you've done a good enough job saving money for retirement. Putting this money aside, you want it to work for you the best way possible in retirement, and you want to make sure that you're set up properly going forward in retirement so you don't want to choose something that is going to drastically affect you in a negative way. When you've built up this whole thing your entire career and it's supposed to be doing something good for you, so make sure you understand all those distribution options. There their effects, both positive and negative. And what's best for your situation? Number five, I mean, this goes now to the younger folks or people that are still working and maybe have some time left until they retire, but neglecting to save or plan well enough for retirement. This goes along with educating yourself, but really the big word in there is saving for retirement. Now, how do you know if you're not saving enough for retirement or if you are saving enough? We need to get a retirement estimate. You need to take a look into the future. If we don't have a crystal ball to know exact numbers, but we can take a look into the future to see how you're doing. And you can see if you're trending in the right direction. Now, if you're not saving enough for retirement, if you have years left, you have any amount of time if it's two years left or 20 years left.

Speaker1:
It's never too late to start saving more for retirement because your future self is not going to hate you for putting too much money away. So make sure you're properly saving enough for retirement, putting it in the appropriate place, whether that's TSP or a supplemental retirement account. And that way, when you retire, you're going to have the money that you anticipate. You don't want to get to retirement and be like, Oh, I don't have enough, I can't retire on this. You either have to or you have two choices at that point. You can keep working or you have to drastically change your lifestyle. So make sure no one you understand where you currently are when it comes to retirement savings. And if you're not where you want to be, then you can do something about it. You can put additional money away for retirement to make sure that you have enough. I've never once had a single federal employee. Tell me, Val, we messed up. I don't know what happened, but we have way too much money in retirement. This is horrible. No one's ever said that, so it's better to over prepare than under prepare. Number six, now this is for those that have served in the military and did not retire from the military, but those that have military time and forgo the opportunity to purchase that time back. Most of the time, ninety nine point nine percent of the time it is is beneficial for a federal employee to purchase back their military time and use that towards their civilian service.

Speaker1:
So if you have not done so, I recommend doing so as soon as possible or looking into starting the process as soon as possible. Why is that? Because not only will you get credit for your service time, which is going to add to your retirement calculation. Add to the amount of service time you currently have, which you can probably get to retirement quicker with those years, however many you have served in the armed forces. But to the sooner you do it, the less interest you're going to pay on the deposit that you need to put in in order to purchase back that time because it needs to be bought back. So we have a detailed explanation of that process, it is a little bit of a process to purchase back military time. But talk to us. Let us walk you through that process so you understand what steps you need to take in order to no one. Get to the part where you know what that deposit amount is and to, you can decide how you want to pay for it, whether it's in a lump sum or you want to pay by payroll deduction over time. But again, if you served in the armed forces, no one thank you for your service. Highly appreciated. I didn't sign up. I didn't serve. So really, thank you for your sacrifice. Thank you for your service, but no to purchase back that time.

Speaker1:
It's going to add to your retirement years. It's going to add to your retirement calculation. You can probably retire sooner. It's only going to benefit you more. And the sooner you do that, the less interest you're going to pay on that deposit. Number seven big mistake here, because this is one of those irrevocable mistakes making the wrong survivor benefit election in retirement. Now, if you're not familiar, what is the survivor benefit? This is where you choose how much of your pension you would want your spouse to continue should you pass away first as the retiree? Now, if you're a FIRs employee, there's really only two options you can leave twenty five percent to your spouse or 50 percent to your spouse. This does not come without a cost. So the twenty five percent option comes with a five percent cost, and the 50 percent option will cost you 10 percent of your retirement check. Now, it's important to choose the right one because. This is a permanent choice. Essentially, it's irrevocable, right? You can't go down the road five years later and be like, You know what? We can really get back that five percent or 10 percent. We don't really need this anymore. Let's get rid of this. You can't do it. It's locked in, and the opposite is true if you didn't elect it. You can't say, Well, I really want it now. Let's add it. So you have to choose this at retirement.

Speaker1:
This is done through your retirement paperwork. And essentially, I say essentially because there are some caveats here where you can make a change within a certain period of time. But for the most part, this is an irrevocable choice. It is set in stone. Now, in my opinion, the survivor benefit is a bad piece of life insurance. When you pass away as the retiree, your spouse will receive a death benefit, right? You die. They get a benefit, except with real life insurance. That death benefit is a lump sum and is tax free. But with this, it is not a lump sum. It's a monthly payment and it is taxable. Now, the reason why this looks attractive to federal employees in retirement and why people will still take it is because they attach your federal employee health benefits to it. So this is very important to note and not something that everybody understands, is that if your spouse, if you're the federal employee and your spouse is one hundred percent dependent on your health insurance, then you need to elect at least a minimal survivor benefit. Otherwise, if you're the federal employee and you retire and you do not select the survivor benefit and you die first, then your health insurance dies with you. So I think it's a bad piece of life insurance, but they attach the health benefits to it, which is why a lot of people will at least elect the minimal benefit so their spouse can keep the health benefits in retirement.

Speaker1:
So figure out which one is right for you and which one you select moving forward because it does cost you and is a permanent reduction of your pension. Now, along with planning for retirement, we lead to number eight, which is failure to have a proper estate plan set up. Now, this is not something that comes with your federal benefits and retirement information. This is extra, but if you have assets, if you have something to protect, if you have a will or you have a desire to leave your family something, having a proper estate plan is essential for retirement. Now, this can be done in a number of different ways. In everybody's situation is different, but perhaps you have life insurances, investments, assets, a home where multiple homes, a car, multiple cars, other valuables, other assets, other things that you want to pass on and you want to make sure everything is secure. Everything is set up properly. Ok, do not just leave it to your, your heirs, your loved ones, that your beneficiaries. To figure all this out, having a proper estate plan and kind of succession plan is is huge and it can be buttoned up very easily. Everything can be protected and set up exactly how you want it. Now I know, look, we're talking about retirement and I want you to live extremely long in retirement. So if you retire and you live 20, 30, 40 years in retirement, awesome.

Speaker1:
But this is ultimately what happens when you pass. How does everything get handled after that? I'd rather not have it be a burden to my family members, my loved ones that I leave behind to figure all this out or just have it written on a piece of paper and chicken scratch telling them what to do. I'd rather have it all laid out, all properly organized in an essential and proper estate plan. And that way, there's no questions. They're already grieving with you passing, with you going, this is setting everything up, so it's easy for them to take care of when that time arises. So having a proper estate plan is number eight leads us to number nine. Now we talked about survivor benefits, and we also talked about your Option B, right? If you have Option B, you can get up to five times your salary and additional life insurance for yourself. Do you know how much insurance you can get on your spouse and kids? Well, that comes with Option C and Option C only allows a maximum of twenty five thousand on a spouse and twelve thousand five hundred for each child. So there's a little bit of an imbalance there, right? Five times your salary for you. Twenty five thousand for a spouse, twelve thousand five hundred for each child, it's a little bit skewed. So number nine is neglecting to properly cover or insure your spouse or kids. Now your spouse may have additional insurance through their work.

Speaker1:
Perhaps you've already gotten coverage on your kids, but there there is still room to make sure that they're properly covered, and I want to make sure everybody in the family is set up properly. We can talk about what what do you do for your kids? I can share with you what I've done. For mine, what do you do for your spouse, do they have to have the same amount of coverage you have? Not necessarily, but perhaps they you want the same or maybe even more for your spouse. You know, I know if something happened in my family, I don't want to think of anything happening to my spouse or kids, but I know twenty five thousand or twelve thousand five hundred are not going to put a dent into what might be needed after that. I know grief and other things. There's there's a lot that we want to we don't want to think about and certainly don't want to have any any burdens left financially. If something happened to us, we want to know that we're covered. But obviously, if something happened to our spouse or children, we want to make sure that they're covered as well. And with the kids. So I don't want to think ever about anything happening to my kids, but I have coverage on them and it kind of serves a dual purpose, right? It not only covers them from life insurance or with life insurance coverage, but it's also like a savings vehicle.

Speaker1:
So down the road, you know, they graduate college or they're leaving the house. I can say, Hey, this is something that mom and dad set up for you. It does cover you with life insurance, but there's there's some cash built up in here. There are some savings set up. There are plans that are specifically designed to do that. So number nine, making sure that you properly cover your spouse and kids in the same way you're covered through your life, insurances and your retirement and all that stuff. Make sure you do the same for your spouse and kids. Which brings us to number 10, which is the crux of all of this and why we're talking about this and why this show exists, its failure to receive a personalized benefits and retirement review. Now this could be number one if it was a countdown, but number 10, meaning this is probably the biggest one that I see. It's failure to get a real analysis done of your situation and see exactly where you stand. Because everybody is different. You are different than the person that sits next to you at work or that you see on the Zoom calls. Everybody's situation and family is different and their needs are different. So to understand exactly what your situation looks like, where you currently are and how again, you're projecting as you go towards retirement, it is essential whether you just got hired or again, if you're retiring tomorrow to get a review and analysis done.

Speaker1:
Now, how do we do this? We have proprietary software that we've designed over the years and tweaked and made changes to, and we're extremely proud of what we're able to share with you. But we can look at your situation currently. Take a look at your your pay stub, your Social Security statements, your TSP statements, any other retirement savings accounts that you have, any other life insurances. Put it all together. Share with you exactly where you currently stand and then we do some projections and look into the future as to what your retirement is going to look like based upon your anticipated retirement date. And that date can be a sliding scale. We can change the date we can have. You retire longer. Have you retire sooner? Find out what your earliest retirement date is and really run the different numbers so you have options and see how waiting maybe a couple more years or waiting until you're sixty five versus retiring at 60 what those numbers would look like, so you can be educated to see if no one you're on the right track and to if you can retire when you want to retire. And if you are not where you want to be, you can make changes to your current situation so that you can be where you desire at that time of retirement. So this doesn't cost you anything. It's complimentary. It's something you can sign up for it. Our website, you can reach out to us directly.

Speaker1:
I think ABC.com go to the Free Benefits Review tab on our website and fill out the information that will make sure to reach out to you and perform the review and you get a couple of different reports. It's something that's really just going to be a comprehensive analysis and make suggestions along the way. You can ask questions just I want to make sure that you understand everything when it comes to benefits and retirement. So yes, on our website, you can go to the I need help or get a free quote tab on on our website. You can see this at the top and fill out the information and talk to one of our experts, if not myself personally, and we'll make sure to review your situation, create a couple of different, like I said, reports go over those so you know exactly where you stand. So that's it. That was those were the top 10 mistakes, certainly not all the mistakes that we see federal employees make, but definitely the top 10 when it comes to benefits and retirement and making sure you properly understand everything. Well, I appreciate you tuning in. If you need any additional assistance, you can reach out to us. You can go to our website, you can ask for help. But again, my name is Val Majeski with American Benefits Exchange. This is the federal retirement show and look forward to. And a future episode. You.

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