#101 Secure Your Retirement with the Thrift Savings Plan

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Listen to the Full Episode:

Are you ready to embark on a journey towards a secure
retirement?

Join our experts, Micah and Tammy, as they analyze advanced retirement strategies to help you achieve financial security in your golden years. From understanding the critical importance of tax planning to maximizing your TSP benefits and optimizing retirement income, they provide you with the knowledge and insights you need to navigate the complexities of retirement planning confidently.

Whether it’s an OPM update or a rule that you should be careful about, we’ve got it all covered. 

Don’t let misinformation or misunderstanding derail your retirement plans. Tune in now to ensure you’re fully equipped for success and take the first step toward securing your financial future.

What We Cover:

  • OPM updates 
  • The strong and weak side of the Thrift Savings Plan
  • How much can you safely withdraw from the TSP?  
  • What time horizon should you be looking at for investing in TSP?
  • What are the distribution options, and how do they work
  • Investment Strategies
  • How to avoid irreversible mistakes
  • The importance of understanding and setting your own retirement goals and having a plan to achieve them.

Action Items:

  1. Know YOUR goals! 
  2. Education
  3. Make a tax plan

Resources for this Episode:

Ideas Worth Sharing:

So if I'm 62 on November 15, my effective date is going to be November 1, not December 1, because I've I've put December 1 Is my effective date, that is no longer a postponed retirement – that's now a deferred retirement. And as most people know,… Click To Tweet

Well, let's think about the second effect that saving money has. You're not spending it. And that's a huge one. So I'm not increasing my standard of living. I'm not blowing that money on a weekly basis. So that second part of the savings by not… Click To Tweet

It's almost like putting a puzzle together and figure out which piece fits where, and everybody's puzzle has little different sides of piece. For some of us, the TSP is the biggest piece of that puzzle, for others it's the FERS basic benefit. -… Click To Tweet

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Micah Shilanski  00:46

Welcome to the Plan Your Federal Retirement podcast. I’m your co host, Micah Shilanski and with me as usual, or back I should say is the amazing Tammy Flanagan. Tammy, how’s it going?

 

Tammy Flanagan  00:57

I’m doing very Micah. I’m so glad to be back and I’m so glad I got signed in this technology, is giving me a hard time but I’m here and clear and I think we’re good to go. I’m excited. I’m anxious to hear what people are wanting to know about and anxious to share some information that we’ve been talking about coz we’ve had some pretty interesting situations, right?

 

Micah Shilanski  01:19

We really have, I’m excited to jump into it too. If you happen to not be listening to this while it’s live, this is a live podcast, which we’re excited about, we’ve got a lot of great feedback. We had a couple 100 people signed up for this, which is wonderful. And one of the reasons Tammy and I wanted to do more of the live podcasts and and work with us – give us some good comments and feedback. We really would appreciate it. What do you like what things can we improve? Our goal, again, is to help transform the Federal Employees Retirement. We’re going to talk about some misinformation that is so costly and so painful to federal employees. And we don’t want you in that camp. We want you to know your benefits, to understand your benefits and to make a transition to the next chapter of your life and not to have to worry it says oh crap, OPM canceled my health insurance. I know you know, we’re about to talk about how that story is going down right now. Right? We want you to sail into retirement with joy and excitement, not fear of the unknown. So give us some feedback. What you like about the pod, share this message, let’s get it out there. Again, a big goal helping another million federal employees with their retirement. So pretty excited about that! Tammy, anything else you want to add in on there? 

 

Tammy Flanagan  02:26

No, I think there’s that old saying goes “you expect the best and prepare for the worst”, it really applies to retirement planning, especially during this period of transition when we’re putting in our application, filling out the paperwork and keeping our fingers crossed that everything goes smoothly. But there are things we can do. There are things we can do to make sure that we have as smooth of a transition as possible.

 

Micah Shilanski  02:49

Amen! Alright, so Tammy, let’s kind of jump into this just a little bit and let’s kind of go through some of the issues we see. I know that the big thing we wanted to talk about was securing your retirement with TSP, right? What does that even mean? That’s a big topic and we’re not going to be able to get to it all. But what did give me some good highlights of things to think about. But today we’re talking kind of pregame about some other things we’re seeing coming down the pike with OPM, with HR, that I think, you know, wanted us taking a little bit of time and chatting about that. And there’s two kind of big issues we’re running into right now. The first one, Tammy if I had a capsulated I would really say it’s a missinformation, completely wrong information, retirees are getting from HR that’s causing irreparable damage to their retirement benefits. Is that a fair statement?

 

Tammy Flanagan  03:38

Yeah. And I would even say inadequate information, because the rules for what we’re about to talk about are not clear. Yes, it proves to me they’re not clear because we’ve seen this time and time again, I’ve gone through at least four clients. I know you’ve dealt with this with several of your clients that have happened this frequently is not the clients fault. It’s the fact that the instructions aren’t clear. It’s and so what are we talking about? What is this bated breath they’re wanting to know what what can I do what’s happening?

 

Micah Shilanski  04:10

All right, so a couple of things we’re going to talk about real quickly some things on the retirement application. Now, a lot of things on the retirement application. It’s okay on right that there’s some things we can fix on there. There’s not irreversible decisions that you’re making when you’re filling it out. Except there are some and they’re not called out any differently and that’s what’s causing an issue. And so one thing that we’re seeing with clients that choose to do a postpone retirement, we’ve seen a is a phenomenal benefit of federal employees. They get to have at least 10 years of federal service, they’ve met the MRA, they want to transition to something else but they want to come back to that golden benefit you all have which is that health insurance. They want to come back and tap into that health insurance and keep having the government pay for the vast majority of it for the rest of their life. And so there’s a way you can file for postpone retirement, and so you’re delaying your benefits then you’re getting your pension, you’re getting your health insurance turned back on which is great. But if you make this one mistake, which is again, confusing on the form, you’re gonna forego that benefit, and it has to do with putting the right date for when your benefits start. And the reason we’re bringing this up is we’re hearing, again, multiple cases and we got one with a client one of our advisors working with it’s a quarter million dollar mistake plus they’re losing health insurance potentially, because the wrong information was put in there. So, Tammy, shed some light on what’s going on there. 

 

Tammy Flanagan  05:27

I never realized this problem until just recently where it’s been happening because when I teach about postponed retirements in class, here’s what I say. I’ll say okay, for those of you who are at your MRA, which for many of our listeners is 57 years old, they don’t have 30 years of service, but they got more than 10, you have an opportunity to retire with an immediate retirement, which means you can have your health insurance for the rest of your life. The problem is when you have less than 30 years and more than 10 and you take that at age 57, you’re facing a 25% age penalty. So this is where the postpone comes in. So if you have 20 years or more, you can postpone that application meaning you’re basically going to resign from your agency and you’re on your own. Here’s where the mistake problem comes because now nobody’s looking over your shoulder, nobody’s double checking what you’re doing. You have this deferred postponed application to fill out and if you have 20 years of service, but less than 30, you can file that application at age 60 and collect not only your retirement with no reduction, but you can reinstate your health insurance. So what date you put on the application, and for those who have more than 10 but less than 20, now you’re gonna wait till you’re 62 to have no age reduction. But again, what date you got on the application? Well, if you’re going to do this at age 62, it’s critical and it’s absolutely critical that you make that effective date, the month of your 62nd birthday but before you turn 62. So if I’m 62 on November 15, my effective date is going to be November 1, not December 1, because I’ve I’ve put December 1 Is my effective date, that is no longer a postponed retirement – that’s now a deferred retirement. And as most people know, a deferred retirement does not convey health benefits. 

 

Micah Shilanski  07:27

Yes.

 

Tammy Flanagan  07:27

Nevertheless, the whole idea of this retirement was the head of health insurance. And now just by putting a date that was two weeks to the wrong side of my birthday, I forfeited the benefit that I’ve worked so hard to get. And we’re seeing this time and time again.

 

Micah Shilanski  07:42

And Tammy. I’m going to say I understand the federal employee because the entire time you’re thinking about retirement you are told your retirement begins the first the following month after you retire. It’s really right. So in your mind, it’s the first of the following month, but that’s an immediate retirement. That’s not a postponed retirement. And so you’re in this mindset, which I get right and then you read the forms and the forms aren’t clear on how to put a date you’re like, hey, the first of the following. It’s really no big of a deal. I’ll put it for the next month, you sign off on it. And you just gave away a massive, massive benefit. 

 

Tammy Flanagan  08:15

Yeah. And it seems so far that there’s very little recourse. That says that things this is where you were saying that sometimes by putting one little thing wrong on that application, you’re doing irreparable damage. So the only thing we can do at this point is to warn employees who are planning to do this very thing to read that instruction portion of that application 10 times before you put the date down, make sure you understand what it’s saying. Because to me, there should be a warning, there should be a big red flag saying if you do this one wrong. You’re not going to have the ability to reinstate your health insurance. There is no such warning. They don’t need to link the entitlement to health insurance to the date. They just say here is the date you want to put down, they don’t say why it’s so important. And so therefore you figure Okay, I’ll pick a day you know, I even see people that wait till they’re 64, then they want to go back to 62 and claim the benefit. We can’t do that, you have to pull it right then and there if you want to reinstate that health insurance, you cannot delay.

 

Micah Shilanski  09:15

Tammy, I gotta I gotta noodle baker for you here and I’m sorry, I’m gonna throw you on the spot on a live podcast here. Figuring this out a little bit dealing with OPM in the correction of this because this is a relatively new issue and having to fix these things with OPM. But if someone’s birthdate is the first and they turn 62 on December 1 and their birthday, it’s the first, what did you put down on the application?

 

Tammy Flanagan  09:38

So my Birthday, my birthday is the first of the month I better know this one, righ? So my birthday was on the first and I want to avoid the age reduction and I want to reinstate my health insurance. I can’t make it effective the first of the next month. I’ve got to make an effective by the day I turned 62.

 

Micah Shilanski  09:59

The day you turn 62. That’s what I would think as well. I would say don’t take this advice on the pod. I want to look into it a little bit more. You know, or you would do it the month before, this would be a hard part now. It’s something that add to this that makes it challenging is we can’t get clarification from OPM right now. I know we’ve been asking for it and some official capacity to find out exactly what the rules are because we’re also getting different answers from different people that process this retirement application. And HRs are giving different information. So again, not trying to dump this whole thing on you guys on retirement, but this is how important understanding the rules are. And there’s so many rules you need to be aware of. And when we get into TSP, by the way, we can see several of the same things with TSP that there’s irreversible mistakes that are happening. So we really got to be careful with this.

 

Tammy Flanagan  10:46

Yeah, you do and I think if you learn nothing else from this, it’s take your time. Keep a copy of everything that you do, and read those instructions. If you don’t understand them call somebody who does because it’s critical. I mean, like I said, we’ve seen some heartbreaking situations, you know, with this MRA plus 10 has been one example and then we were talking about some other ones with survivor benefits that are even almost more heartbreaking. 

 

Micah Shilanski  11:12

Okay. So on that note, there’s our OPM update. Sorry about that. There’s a lot of stuff that’s happening. Be really confident in what you have there. Get a second set of eyes that are looking at this than this, that makes sure that you’re there. Alright, Tammy, on that note, I know we spent a little bit of time on that. You want to transition. Let’s talk about some TSP stuff. 

 

Tammy Flanagan  11:29

Sure. Yeah, that’s a little happier business, right? Like I just had a client who had 1.375 million in a Serif and was him and his wife have spent their whole career – he’s been in the government. 33 years, he’s only 55 and he’s law enforcement. Wow. So he can retire at age 55 with more, $1,000 a month more than he brings home in his paycheck. Why is that? Because he’s maxing out his thrift. He is taking time in his thrift, in the investment. And him and his wife lived within their means. In fact, not only do they have all that money in the Thrift, but every month, they set aside an extra $2,000, just in a savings account in the bank. So the key to all of this retirement planning is to live within your means. That used to be an easy thing to do, right? But it seems to be a big challenge for many people.

 

Micah Shilanski  12:23

Tammy, one of the things that I know you know this, right, but what I love about saving is saving has a two prong effect. People always focus on the first thing, they say hey, if I put money in my TSP, it’s going to grow it’s going to do this other stuff, etc. But sometimes you get close to retirement like well, why put money in my TSP because you know, it doesn’t have that much time to grow? Well, let’s think about the second effect that saving money has. You’re not spending it. And that’s a huge one. So I’m not increasing my standard of living. I’m not blowing that money on a weekly basis. So that second part of the savings by not increasing your spending. That’s why people get to retire comfortably in their 50s. Right, they live within their means they’ve saved a lot. Now they’ve designed income to replace their current standard of living, none of this, BS that I need 80% of what I was living on 60%, no, no, no. 100% of what you’re spending now is what you need to be focused on replacing into retirement.

 

Tammy Flanagan  13:18

Yeah. Can I save a little extra so you can have some fun too? Yeah. Remember, your 60 hours a week, you want to spend it.

 

Micah Shilanski  13:27

So Tammy, let’s talk about that, right. Now, again, we’re gonna speak in a very broad brush about things right. This is just a live podcast on YouTube and Apple, and it’s great to give you guys ideas. And how you implement this really matters. So this of course, isn’t recommendations, but have you thought about how much can you safely withdrawal from your TSP and never outlive your money? And it’s kind of a good question Tammy. I’ve heard a ranges and percentage and dollar amounts. What are what are the things you’ve heard?

 

Tammy Flanagan  13:56

Yeah, well, the one I always think about is the one that came about, I guess it was maybe in the 70s, the 4% rule, but sometimes it’s converted to a 3% rule. And you know, that’s easy to follow, right? If nothing else, it’s an easy rule. Because way I understand it if you don’t use 3%. If I take out 3% of my balance this year, then next year, all I got to do is add a cost of living adjustment to that amount, and every year thereafter, do the same thing. And as long as I’m staying invested, not 100% G fund, but I’m invested across the broad market of investments, I should be okay. Is that true? Micah, you’ve seen this play out? 

 

Micah Shilanski  14:36

Yeah, we’ve seen this play out for a very long time, right, with retirees. Now, the key is that latter part of what you said, What’s your investment strategy? So if you’re gonna take a 3% or 4%, even a 5% distribution, which you can do, as long as, this is the caveat, as long as you have an investment plan, that’s gonna make up for that, right? And then I need a plan that says when, not if, when the market goes down in value, what are we going to do? What’s our plan? How are we going to take money out? When, like right now, the market has been really good, right, you’ve been making a lot of money. What’s your plan to not be greedy? And how do we put money on the side. So, this, and making sure it’s not emotional decision making. This is what blows up retirees is they say, Hey, I’m getting to retirement age, and you know what, I’m going to retire this next year, so I’m going to move all of my money to the G fund. We’ll rewind the clock 12 months, and people have done this, you give up a tremendous gains because we moved all of our money to the G-fund. Now, suddenly a bad move, but it wasn’t even an intentional move. And again, if we move all of our money to the G fund, and it’s paying, like 4% and change and it look today, but 4% change, it’s a good rate. But is that really enough to outpace inflation and to be able to take withdrawals for the rest of your life? Probably not.

 

Tammy Flanagan  15:55

No. And we see so many people who are moving everything to the G fund because they’re retiring at age 60. Right? Because I don’t know about you Micah, but I know I’m already past age 60 and I got a time horizon. I think this still goes out a couple of decades I’m hoping.

 

Micah Shilanski  16:10

Amen, or longer, right? Yes. We want this to be a good aspect of your life. And so this is a question that we always get, it’s not when am I going to retire? The investment question in my world is when to use the money. Any money you anticipate using in the next five years doesn’t belong invest in the stock market, and we all know why – 2008, 9, 10, 11, 12 – took about five years to get back to even when the market fell. And so if we use this as a lens that says okay, if I’m going to spend money, right, if I take this as at 1.3 million in the TSP, which is all is fantastic look, great work. Hopefully the plan is that we’re going to blow all 1.3 million in the next five years, right? Hopefully not.

 

Tammy Flanagan  16:54

Not this couple. They’re very conservative. 

 

Micah Shilanski  16:56

Yeah, exactly. Okay, how much of that 1.3 are we going to spend the next five years and maybe that should be on the sidelines when I can make an argument for the G fund some other options, as well, but that means the opposite of that maybe I should be looking at a longer term horizon with the rest of the money to allow that money to grow. Again, what got you here, your savings plan, your accumulation, which got you to the point of retirement is not the same plan we need in retirement when we’re taking money out. We got to look at it differently.

 

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Tammy Flanagan  18:32

Yeah, and this couple, good questions he asked me and of course, I advise them to find a financial adviser., but the question was, if he has, I think it’s 20% and G and 80% in the CSI funds, how can you just take money out of the G fund from the thrift? Yeah, so I told him I said the only way that I know of would be to move some money completely out at the thrift plan that he’s going to use for his spending and then leave his investment in the thrift and kind of replenish that, kind of like that bucket strategy you talked about sometimes?

 

Micah Shilanski  19:05

Yes, ma’am.

 

Tammy Flanagan  19:06

But I know enough about it to be dangerous. I told him get some professional help. To me, that’s not really a do it yourself unless you know what you’re doing.

 

Micah Shilanski  19:14

You want to be really careful right back to the irreversible decisions. You know, there’s some things when you’re filling out your TSP form. You gotta be really careful with boxes your check. You may get something you asked for but you didn’t want and it might be irreversible.

 

Tammy Flanagan  19:26

Hey, what TSP form?

 

Micah Shilanski  19:29

Well, free to your online NCSP form and fill out it’s still a form.

 

Tammy Flanagan  19:37

We missed this. I hit the TSP 70 and we can walk you through it but there is no form to look at anymore, which is unfortunate, because there’s no way to preview that with a client or even for the client themselves to figure out am I doing this right? Am I making the right choices because they only feed you the information they want you to see. 

 

Micah Shilanski  19:56

And so Tammy, one of the things we do with all of our clients is we really encourage our clients to says Look, I know you’re smart. I know you’re really good. Please don’t take this as an insult. But I’d really appreciate if you didn’t help us too much. Allow us to help you, right? We do a screen share with our clients before they take money out of the TSP and say let’s do it together. Let’s explain what these options are. Let’s go through this thing because you can get click happy you can think you’re going down a path and end up giving all of your money to Snoopy in that life. And now all of a sudden there’s no undo button on that. And you think that says oh my gosh, Micah, it can’t be that easy. But Tammy It is that easy.

 

Tammy Flanagan  20:29

It is. Yeah. And what you’re talking about Mike is the difference between electing installment payments over my life expectancy versus electing a TSP life annuity. And if you didn’t know the difference you think oh, isn’t that the same thing? No, it’s totally different. You’re right, it’s very easy to make that type of a quick error that can be irreversible.

 

Micah Shilanski  20:50

So let’s get back to your kind of previous comment about you know, if you have an 80-20 allocation, so that example that you gave and says hey, I only want to take money out of my G fund, which is a solid plan, I love that thought, right? The only problem with it is how do you do it? And the TSP this way, come and say the TSP is excellent, I think in one and two things. It has low fees, which are fantastic and it has limited investment options, and they’re all good, right? There’s different times to use them, but they’re all good. Those five funds do an excellent job over time. So that’s what the TSP does really well. And then there’s two things TSP does not do well. In my world that’s distribution planning, and tax planning. Those are things we can’t control inside of the TSP that when it comes to retirement, we need to ask some tough questions and be like, Okay, let’s take you know, let’s call this guy Bob and Sue, right. And so you know, Bob’s getting ready to retire says, Hey, I got 20%in the G, how do I take it out? The answer is you cannot, right? You can’t unless we do a transfer of some or all of that money to an IRA. And now I have two different pots. Maybe I leave some and that’s what I like for people under 59 and a half especially, let’s leave the G fund money, the money you need to take out and spend. Let’s leave that in the TSP. Let’s transfer out the balance of the money to an IRA and that’s your growth fund. Now your IRA becomes your growth money. The CSI hours invested. The TSP is that G fund, we get a income out of there. I don’t worry about a 10% premature distribution penalty because it’s inside for the TSP which is beautiful. The G fund is guaranteed, well, it’s a guarantee never to lose money. Currently, it’s paying 4% plus, which is a great rate for in a money market. That works really well. And Tammy, as you know, I think something a lot of people forget is that even in retirement, I can take my IRA money and transfer it back into my TSP and refill that distribution pot every year or every couple of years as needed.

 

Tammy Flanagan  22:45

That’s right. And I guess the key to that is knowing when do I move the money back into refunded stock market? Yes. This go back to the old sell high buy low theory?

 

Micah Shilanski  22:54

You know what, I go back to the dopey greedy theory, right? And that’s what we’re telling our clients right now that the markets have been phenomenal. They’ve made a lot of money. I don’t think it’s impending doom I don’t think the world’s collapsing tomorrow. Like none of those things, but it’s common sense. It’s saying, Hey, we’ve made so much money in the last 12 months. Let’s refill, Tammy, you talked about it before, our buckets, right, our cash bucket, our income bucket, we’re taking money out of growth, we’re selling out and said hey, what money do we need in the next five years and let’s make sure it’s in a safe place that we can take it out. That’s just just good planning. And if the market goes down, you’re covered. If the market goes up, you’re also covered.

 

Tammy Flanagan  23:33

Yeah. So.. So you want to always have enough in there and you’re saying five years, so if the market did take a downturn, we’re not scrambling to try to get money right away because we still have five years to recover from that downturn.

 

Micah Shilanski  23:44

You bet! In downturns, the extreme right we could go back you know, 30% corrections or what I’m saying is normal, right, seeing your the C fund move 30%. Look at COVID. Look at 2018, we get multiple times, right? The TSP moves. Now that doesn’t make it bad. That’s just how the investment works. And so we got to make sure we’re separating out my longer term investments five plus years from my shorter term needs less than five years and I got to make sure that that money is not moving up and down by 30% and that when I want my monthly cash flow, 1000 bucks a month. I don’t want that to be 700 one month or 1300 the next. I want a 1000 a month.

 

Tammy Flanagan  24:22

That’s right. That’s right. Yeah. And then you got to figure out to get to pay tax on it. Why have you said put the money I’m spending in cash and the Thrift especially if I’m under 59 and a half because if I start pulling money out of my IRA to spend to pay normally tax, but a penalty if I am under 59 and a half. So, that was like the key piece of advice there. We kind of went over quickly. But you got to remember that IRAs don’t have the same tax rules as the TSP when it comes to distributions. 

 

Micah Shilanski  24:49

You bet! And so one of the things that I love to do, one of the planning tools we use Tammy, and I know you’ve seen this, this is what we call our retirement income timeline. And that’s where we kind of draw out the next 10 years, where’s your income going to come from? And we want to put key ages on there, right? Now, how does this pertain to the TSP? Pretty directly! If I’m retiring at my MRA, right, well, law enforcement may be sooner and a non special provisions that let’s call MRA 57. I need to know how am I going to access money before 59 and a half? What happens after 59 and a half, but oh, by the way at 62 my pension drops for some reason, right? There’s, you know, that special annuity supplement turns into a pumpkin and now all sudden my pension drops every month. Where’s that extra money gonna come from? 

 

Tammy Flanagan  25:34

That’s right. Yeah, there’s a lot of moving parts. It’s almost like putting a puzzle together and figure out which piece fits where, and everybody’s puzzle has little different sides of piece. For some of us, the TSP is the biggest piece of that puzzle, for others it’s the FERS basic benefit. You know, for some of them it’s equal. You got an equal piece coming from Social Security and equal piece coming from thrift. So you know, try to keep it simple, but use some basic foundational rules because that can really make a difference in to your longevity risk, and also making sure you have the income that you need.

 

Micah Shilanski  26:09

Yeah, and that’s that looking at 10 years down, right. It’s it’s fun to say, hey, let’s build a 30-40 year plan, etc. That gets a little too big. It’s a little too many numbers out there. With all my clients, I can say let’s look at our next 10 years and let’s make sure we have a solid plan for that. Yes, we should talk about 20, 30, 40 I’m all about that. But it starts with 10. And let’s look and see what that looks like.

 

Tammy Flanagan  26:30

Yes, you get through the first 10 And then you got the transition period over with and then you have a system, right, got a system in place.

 

Micah Shilanski  26:37

Yes! Tammy, before we get kind of too far down this I want to talk a little bit more about distribution rules, right, in the TSP. So again, one of the things I said it doesn’t do well is tax planning. Now, you could be saying, Hey, Micah, I got the Roth TSP and you like Roth. So isn’t that a good thing? And I think it’s great. I love the Roth TSP, right, for the right people it’s a good fit, but Tammy, we’re still a little I’m gonna say restricted in our distributions. So if I wanted to pull money out of the TSP, you know, good news is I have a little more flexibility between choosing where it comes from from pre tax versus Roth, but not so much from the investment so that you can walk us through how that works. 

 

Tammy Flanagan  27:13

Whenever you’re taking distributions, you can choose if I want them to come from the Roth versus traditional, that’s a good thing, right? That’s a fairly recent change. But what some people I’ve seen are doing is they’re separating that Roth money with doing that out to a Roth IRA already, so that all I have left in my thrift plan is the pre tax money that traditional money as they call it. And then when it comes time to take those distributions, the only problem is I’m still having to take them pro rata. So if I’m 80% C fund and 20% G fund and I take out $4,000 a month, I’m gonna take only 20% of that, or whatever $800 out of the G and the rest of its coming out of C. So this is where you have to maybe consider moving some of that money to an IRA to help you manage the tax planning, manage the volatility of the investment, and still keep it invested. Because you know, like everybody should know by now you can’t stop investing just because you’ve stopped working.

 

Micah Shilanski  28:13

A 100% right. And again, we got to look at the what’s the power of the Roth IRA. The power of the Roth is tax free growth, but we got to meet some qualifications to get there, right? We got to have it for five years and be 50 and a half or older, right, in order to start taking that money out. And so that means when I’m looking at clients with Roth, I’m looking at their their traditional, the pre tax money Tammy, but I’m looking at the Roth money, I have a different investment plan for each of those because it still goes back to my five year rule. am I planning on spending my Roth money in the next five years? Yes or No? If no, that money should be focused on the long term investments, probably that’s what I should be thinking about on the investment side. Okay, well, I can’t do that inside the TSP because of their proportionate investment options. So, it’s something to consider again, I’m not trying to rag on the TSP, know what your options are. And what’s the best plan for you. I love that analogy that each person is a unique puzzle piece, right? Right. And you’re trying to put the puzzle together. So that means just because Frank is doing something doesn’t mean Sue should do it, doesn’t mean Bob should do it. You have the same tools, but everyone’s shape is a little different, and how it comes together.

 

Tammy Flanagan  29:24

Yeah, even like I remember distinctly one time a person who I was talking to and she was high level younger person. She was like a great 14 and Washington DC, a game master and moving up the career ladder and she had a ton of money in her thrift and she was doing really well. And her favorite aunt, who also worked for the government out in Iowa, was almost heartbroken after she heard of her nieces good news, because she said, I’m so happy for you, I’m so glad you had that money, she says but I’m older than you and I don’t even have a fraction of what you have in my tsp and I had a really calmed her down to say that’s okay. Because you make less money. You live on less money. You’re in Iowa, not in Washington, DC, right? And you’ve been living on this amount of money. And if you don’t understand this, another important part of the puzzle is that Social Security replaces more of your income at a $40,000 salary than it’s going to replace for your niece’s $140,000 salary, so she has to save more than enough money to support her lifestyle in retirement. You don’t necessarily have to put 30,000 a year in your thrift. So I think it’s some piece of comfort to know that not everybody has to save a million dollars, you know, because I know some of our listeners are saying Who the heck has 1.3 million? I sure don’t. So you know, that’s okay. Because if you put your puzzle together and you have enough to pay your bills between FERS and social security, then your TSP is icing on the cake. Is not necessarily going to be your bread and butter that’s going to pay your bills. 

 

Micah Shilanski  31:02

And Tammy, I love that I got clients and I know you do on both sides of the spectrum, clients that really need their tsp money, and I got clients that have plenty of pension and Social Security, they don’t need their tsp. And not one is good. Not one is bad. I love what you said – know your goals! Right? This is about you and your retirement. Your TSP is about your TSP. Not mine, not Tammy’s, not somebody else’s. It’s about your TSP. Is it designed to meet your retirement goals? That’s the only victory to be going after. I tell my clients I don’t care what the s&p did or the Dow, or the NASDAQ, or Bitcoin or gold, right? Are they on track for their retirement? That’s what you need to be shooting for. It is hard to step back and look at that. But that’s so critical to make sure you’re set up for success.

 

Tammy Flanagan  31:45

Yeah, and it’s also comes down to whenever you’re looking at your neighbor who gets to retire at 57 and you’re thinking I I’m 62 and I still can’t retire. Well, that’s okay. Because you know, we can do other things to help you get prepared for whenever that comes. But there’s nothing worse than somebody retiring and realizing they shouldn’t have. You know that way if I could have just worked another three years I could have changed this whole situation. So you know, be prepared, do some planning, understand the rules. And if you don’t, you know, get someone who does to help you because your neighbor is probably not the expert, your co workers probably not going to be able to help you it is it’s a it’s a puzzle put together for each person. 

 

Micah Shilanski  32:26

Yeah,perfect. Well, Tammy you know, as usual, we never run out of content to think about we still didn’t get over half the stuff on the list because there’s so much information here. It’s almost like we do this every single day and get excited talking about it. So let’s end with some good action items. For our listeners. This podcast is about you being able to take this information this next week and make improvements in your life. So I’ll kick it off and Tammy, I’m gonna forgive me, I am going to steal one of yours that you said, but number one, what are your retirement goals and if you don’t have them written down, you don’t have goals. I didn’t say share them with the world. But you need to have it written down – what date do you want to retire? How much money do you want to spend a month in retirement, right? If you don’t have any, those are two really good ones to start with.

 

Tammy Flanagan  33:11

Yeah, I’d say get some education. I mean this these podcasts are great. We get a lot of useful tips and help, but this isn’t from the end of it. You’ve got to do some homework. You’ve got to understand how these things work. The TSP has free training on their website, you can sign up for online classes. There’s one for pre retirement it’s two and a half hours long. You might learn three or four things that will make a difference in your future. Your agency might be offering some type of an online training class, or you might be able to go to that hotel down the street where someone is going to provide some training. So get that education is critical. 

 

Micah Shilanski  33:47

I love it. The last action I want to say is get a tax plan in place. This is so critical. In two years, then who’s knows what’s going to happen with Congress but at least in two years, under current law, your taxes will more than likely be higher in two years than they are today. So what’s the plan in the future.  A myth that so many of us fall into when I retire my taxes will be less. That is not true. Unless you do something about it today, right? So make sure you know that this could be your largest expense you’re gonna have. It’s not healthcare because you have great health care, you have great health care, insurance, etc. The largest expense you’re going to have in retirement is more than likely taxes. What’s your plan to eliminate that?

 

Tammy Flanagan  34:28

Yeah, not even just income taxex. People who’s paid off, but their property taxes have gone up and they can’t afford them live in their same house. So taxes are really a big issue even for retirees. I think in years past that maybe wasn’t the case. You know, if we talked to our grandparents, they didn’t worry about taxes. But boy, you got to think about.

 

Micah Shilanski  34:46

Amen to that. Will see me as always it is great doing this with you. I really appreciate it. I saw there’s a little bit of fun this with YouTube and live stream so thank you guys for your patience as we went through this. We liked the live pods. We want to get more of your feedback as this goes through. So shout us aanemail at [email protected] Leave us a comment in the YouTube channel would be great so we can hear from you. And what topics are you concerned about in retirement. Tammy, I love this stuff. We love to dive into detail and until next time, happy planning.

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