#110 5 Things You Need To Know As A Federal Employee BEFORE You Retire

Micah Shilanski  00:05

Welcome back to the Plan Your Federal Retirement podcast. I’m your co host, Micah Shilanski, and with me today for this really important episode about some irreversible decisions that you have to make for retirement, is another great financial advisor Christian Sakamoto. Christian, thanks for joining us today. 

Christian Sakamoto  00:22

Micah, super excited to be joining you today. It’s been a few months since our podcast that we did last so I’m really excited to be chatting about this super important right if we’re planning your retirement, there’s a few things here that are just irreversible. They’re just can’t have an undo button, and so excited to be chatting about those today. 

Micah Shilanski  00:43

Now, Christian as you and I are working with clients on a daily basis, right? Work with thousands of federal employees, kind of across the country, helping them get ready for retirement in different ways, which is great. My ideal world, right? And we don’t always get that, is someone that comes to us in advance of retirement so that we can get things in order, we can check things, we can fix things that if they’re needed. Now, by the way, if you’re listening to this and you want to contact us in advance, doesn’t mean two weeks before retirement, we do sometimes get those calls. We’ll help out the best we can. But if we get a couple years before retirement, man, that is just really nice, and it’s because for the exceptions, right Christian? Like, if everything is smooth, it doesn’t really take two years to get everything in place, but if there’s some things we don’t know about and we have to fix, and we talked about, when you’re in, you’re a guest, when you’re out, you’re a pest. So it’s so much easier to fix any potential issues with retirement before you’ve actually separated from service. 

Christian Sakamoto  01:35

Absolutely, absolutely. If we’re going to be thinking about what those irreversible, you know, we can’t undo deck type decisions, what would be the first one that we should be thinking about for our listeners today? 

Micah Shilanski  01:49

Yeah, so now again, we’re going to be talking about a lot of different things, we’re doing our full financial planning and diving in depth, right? So let’s narrow this down. And Christian, I spent some good time, you know, like, all right, how do we narrow this down to only the five things there’s so much that goes into retirement planning. How do we focus only on those five things? And Christian, I’m going to do a broad category on this, and then we’re going to dive into details on those as well. The broad category is really understanding the rules for your retirement. Now, if I had to push that a little bit more down. I’m going to say number one is going to be credible service for retirement. That is the number one issue that we find out with federal employees that has the biggest determining factor on whether they can retire or not, and it’s just not about credible service retirement, there’s age and other things, but, but Christian, I would say it’s the number one thing that we focus on. What about you? 

Christian Sakamoto  02:43

Yeah, I would absolutely agree, and just taking that a step further, that’s irreversible, because there’s sometimes, unfortunately, two different numbers with your credible service. One is the right number between years, months and days, and then number two would be the wrong number that maybe OPM or HR thinks that your time should be, so we really, really, really want to make sure we know what that retirement service computation date is, so that we can calculate what is required for you to be able to retire and meeting either the MRA with 30 rules, age 60 with 20, 62 with 5 years of service, or maybe we’re doing either a postponed or a deferred retirement regardless, we need to know what your retirement service computation date is, right?

Micah Shilanski  03:31

100% now we’re going to talk about finding out in a second, but you know, you could have your sick leave date, your SCD date, service computation date is for your sick leave purposes. So, I know you guys listen to the pod, are really savvy, we talk about this a lot, but we keep seeing it as an issue, so when we keep seeing it, we’re going to keep sharing it with you guys and people coming in and saying, Micah look, I got 30 years, and we look at that’s for leave purposes, but they don’t actually have 30 years for retirement, whether that’s they haven’t made a deposit for a time, whether they haven’t, you know, paid back their military time, whether they took too much leave without pay, we don’t really see that one too often, but that is a possibility. You know, part time work is going to figure into their pension, maybe not eligibility, but the calculation side of it, right? So understanding these things, and again, we’re evidence based people, right? We love evidence to support our claim that when or if OPM has an issue with your retirement, we can come to them with evidence. So there’s two things whenever you’re talking about your credible service retirement, you need to have to verify that. Christian what are those two things we want to get before you separate, not only before you separate, but enough time to review them and make sure they’re accurate. 

Christian Sakamoto  04:37

Yeah, number one, SF-50s, right? The notifications of personal action, make sure you’re downloading all of those SF-50s, and then number two, if we can get it would be that certified summary of federal service. Requesting that from from your HR, would be able to verify what your time in the FERS system is going to be, that counts for your retirement, right? So if we can’t get that certified summary, then having those SF-50s all downloaded really is going to be the proof to verify what that time is.

Micah Shilanski  05:09

I love it, so credible service is number one, you heard us talking in the pod a bunch, that’s because it’s such a big issue knowing your creditable service, knowing your rules for retirement, not Bob’s rules, not Sue’s rules, not someone else that works the same agent that supposedly has the same time, right? Your rules for retirement are so critical working with a client now a one is going to do a deferred retirement, we have a client with a postponed retirement, we have a client with an immediate retirement, right? And quite frankly, all three of those I’m thinking about, they don’t work together, but they’re all the same agency, they all have roughly the same service, and the only difference is their age and what they’re doing and how they’re pulling the trigger on this. So there’s three different sets of rules when someone’s been at the same agency for 20 years as the other person, but they’re retiring with a totally different set of rules, so you need to be very, very careful of those. All right, number two, I would say, boy, this was a hard one for me Christian, because cash flow is king, right? Cash flow, cash flow, cash flow, and I really wanted to have at our top five irreversible things, was putting cash flow listed. But really, we can work on cash flow after you separate it from service. I would love to say that that is the thing, but it’s not just cash flow, it’s survivor’s cash flow, and how does that come and think, I think that number two thing Christian is survivor benefits election is an irreversible mistake, potentially, what do you think? 

Christian Sakamoto  06:30

Oh, absolutely, and it really is, because on the retirement application, it’s going to ask, really three questions, do we want to leave a full survivor benefit, which is half, do we want to leave a partial survivor benefit, which is 25% or no survivor benefit. So you have the choice there, and we have to choose one, especially if we’re married, and we want to leave our spouse health insurance. That’s part of the rules,  in order for the spouse, the surviving spouse, to keep health insurances, they have to be left a survivor pension, they have to be left a survivor benefit. And so if we’re kind of on the fence, we at least know we’re going to leave some benefit, whether it’s a partial or a full. This is one where it’s irreversible, we have to make that decision at the time of retirement, and unless there’s a really good case to be made for why it should be a partial most of the time, if not all the time, the default really just should be the leaving the full Survivor Benefit for for the spouse. 

Micah Shilanski  07:27

I love what you said there Christian the default, right? That is absolutely going to be our default. Every client is a little bit unique and different, there’s these cases we’ve made, it’s showing when there’s a dual fed or a tandem fed, two federal employees that are retiring under their own independent credit that sometimes we don’t need a survivor benefit because they both independently qualify for their health insurance with their own retirement through the feds. Okay, we can now have a discussion short of that, now it really leads us to the Survivor Benefit question. And I love what you said is, number one, is that health insurance concern, but number two, hot on it’s heels, is cash flow, and what is your survivor’s cash flow going to be, and really looking at that, right? So I’m not proposing that you go buy life insurance in order to solve this problem, that’s not where this is going, but this is 100% a cash flow conversation. How much money are you spending, and where is it coming from and when you die, right? Not if it’s when you die, where is that replacement income coming for for your spouse, and what is that going to look like now, if you’re a single individual, boy, this is really isn’t an issue, I’ll skip over to number two, we’re not super concerned about survivor benefits, probably right? But for our married folk out there, this is a pretty big concern, and we got to get this right, because there’s not really fixing it after you retire, we got to get this right out of the gate. 

Christian Sakamoto  08:41

That’s right. All right, so we’ve talked about credible service, we’ve talked about survivor benefits, number three we put on here having to do back to the pension would be your high-three, right? So if we know what the formula is for your retirement, which is your years of service multiplied by your high-three, multiplied by your multiplier, we should know what your high-three is relative to your career. The high-three says the highest 36 months of consecutive service, the average of the highest 36 months of consecutive service would equate to your high-three. Now most of the time that’s going to be the last three years of service, but it doesn’t have to be, and there could be examples of someone taking a lower position leading up to their retirement, right? We got to know what that is, so that it helps plan what our retirement numbers, what our pension will actually be. What are your thoughts there Micah?

Micah Shilanski  08:41

I agree right, we could easily lump this under the cash flow category, we could easily lump this under the rules and retirement categories a lot of different places fit. But that high-three is really important, because if you go to retire with a high-three, that really isn’t the high-three, you think you’re going to get I see this more often with temporary assignments, right, where someone’s high-three is going to be bumped up and not understanding how it’s going to work. Other Place I see this is not understanding how leave is cashed out, and does that or does that not count for your high-three, right? Quick answer, it doesn’t, but, you know, not understanding how that rule is going to work. So this is an area that’s a huge part in your pension. Your pension is simple, it’s only based on three things. How long do they work, times a percent, times your high-three. But we got to know those components, and you got to be solid in them. 

Christian Sakamoto  10:26

Absolutely, absolutely. Okay, well number four, we were still thinking about cash flow for number four as we were thinking about the TSP. Now, the TSP is part of the three legged stool that we talk about. We’re placing cash flow in retirement, between the pension, eventually Social Security, that gets turned on, and then the TSP, or retirement accounts, investment accounts that we take distributions from. So what’s irreversible about the TSP, what’s one thing, Micah, that with regards to the TSP, that we cannot press the undo button on? 

Micah Shilanski  11:00

Yes, so the TSP, I love it in so many ways. It’s absolutely fabulous. One of the touches with the TSP, this is where people get confused. This is one of the reasons we call your pension a pension, not that other word annuity, because we do not want to confuse with the TSP annuity. This is a much different animal, and I got to say, all of your federal benefits, this is the one that red flags should be going up, this is the caution flags going up, this is the woah, be really careful before you do this, because Christian, as you know, we’re making irreversible decisions, and I see this happen too often, doesn’t happen all the time, but I do see this happen too often where someone elects a monthly annuity benefit when they retire from the TSP. And what does that mean? They’re like, hey, look, I’m retiring. I need 1000 bucks at a month of the TSP. I fill up this withdrawal form. I’m using my hand like I’m writing it out, it’s actually online, sorry about that, you fill it out online your TSP withdrawal form, you select the box monthly annuity payments and be like, oh, I want a monthly check for the rest of my life, that sounds great. And you didn’t realize when you check that, minute you click submit, there’s no changing this option. It is now a permanent annuity, and let’s understand what an annuity is. This is a SPIA, it’s called a Single Premium Immediate Annuities, a partnership with your MetLife, that’s Snoopy, right? The TSP has, and what Snoopy does is they say, thank you very much, they grab your TSP account, they take 100% of it, or whatever you elected for it I should say you could do a partial one, but let’s say you elected that full annuity, they take all of that TSP account, and they then put it in the insurance company’s pocket, in their black box, where they get a pet it, make money on it, they don’t really tell you how it works, and then they send you out that monthly check for the rest of your life, and there’s no other options you have, this is now irreversible. Is this bad? Not necessarily. I don’t want to say it’s bad, however any time we’re making an irreversible decision, because I’m up on my soapbox, right? So forgive me, but the extreme caution, anytime we’re locking our money up for a period in time that you can’t get access to it, extreme caution. Christian, I’m going to say the other part of this that I think comes in is people look at this, this annuity, through TSP, then they hear about annuities in the private sector, and in the private sector there’s a lot more flexibility, potentially, with annuities. And now all of a sudden we’re like, oh, well, that’s an annuity, and this is annuity, so they can fleet the two and they think they’re the same, and they’re not. 

Christian Sakamoto  13:25

Right, right, and so much so that I even went to the TSPs website, and they have an article, or it’s, it’s the annuities fact sheet, and quoting the annuities fact sheet, it says your annuity will be purchased from the TSP annuity vendor, after we receive all the information and documentation necessary to purchase your annuity, we will generally process your annuity request and disperse the funds to the annuity provider within five business days. Once the funds for your annuity have been dispersed, you cannot cancel the annuity, change the annuity option, or change the joint annuity, right? So right there it’s, right there that we cannot undo that decision. So it’s one of those things we really just wanted to make sure we’re aware of before we go to press that button into retirement. 

Micah Shilanski  14:12

And by the way, when Christian I are working with clients one on one, anytime there’s something even similar to an irreversible decision, we’re throwing up the same caution flags, right? We’re like, whoop pump the brakes. Let’s have a chat. Let’s talk about your future self in 5 years and 10 years and 20 and 30 years, are you going to be happy with this decision? So we’re not ragging on the TSP, I’m ragging on any irreversible decision that you’re going to make, let’s really hit the brakes like survivor benefits, we’re going to preach on that one just as much as well. That’s easily confused as my opinion, as the TSP annuity is, but we’re going to hit balance super hard if a client comes in and says, now we don’t need a survivor benefit, we’ll pump the brakes, we need to have a whole big conversation and really understand what this means, and Christian, you can do it the same as I, but that’s not a one and done conversation, right? That’s a hey, let’s chat about it, let’s go with the rules, and I want you guys to go home and think about this, and we’re gonna come back in, we’re gonna chat about it again, right, before we sign on this dotted line I want multiple conversations about this so we can think about it. You say, Okay, Christian, you guys are overdoing it, possibly, right, that’s a decent possibility we’re doing but that’s how important this is to get it right and not to set yourself up for failure. 

Christian Sakamoto  15:24

Amen, Amen. Okay, well, the last irreversible decision to make before you retire. 

Micah Shilanski  15:31

The last one we’re going to talk about right? There, there could be others, but this is the last one we’re talking about. 

Christian Sakamoto  15:35

That’s good point, good clarification would be related to your insurance, the health insurance election on the retirement application, right? So we preach all the time about how good your health insurance is with FERS, the FEHB, the Federal Employee Health Benefits, it’s the fact that it is paid 72% roughly by the government, and 28% of the burden is on you, the federal employee, and that gets to continue through retirement. It’s fantastic health insurance, and so we’re always really trying to make sure, if it works out for our clients and for our listeners, that they can keep their health insurance in retirement. Well, that last step is making sure that that box is checked on the application, right? And if it’s not, unfortunately, there’s no undo button, right? If we selected no or we left that box unchecked on the retirement application, we don’t get to go back and say, whoops, forgot to, forgot to check that box, right? So we gotta have that box checked for keeping health insurance.

Micah Shilanski  16:40

And Christian even goes more than that as you know, it’s, it’s, we got to check the box, and we got to make sure we were in it for the five consecutive years prior to retirement, where I see this bite people right, now, if you’ve been a FED for kind of 30 years, most of the time you’re going to be enrolled in the FEHB, rarely or not, but where we see this bite somebody, and I’m going to pick on Alaska example, because I’m in Alaska, and that’s a great state, right? We have a client who’s a federal employee and their spouse, right? They’ll say he’s a federal employee and she works for the oil company. Well, the oil company up here has quote, better health insurance, it’s cheaper than what you’re paying as a federal employee, right? Because the oil companies subsidized more than the 72%. So what happens is, the federal employee goes, oh, well, I’m gonna put myself only on this this plan, so I got my kind of foot in the door, and we’re covered, and then you take the family on your plan, because it’s only 100 bucks a month, it’s not 400 bucks a month, and that way it’s gonna be a better deal. And from a cash flow standpoint, you’re like, sweet, two thumbs up, right? We just don’t have to spend that extra $400, but what happens in reality is going to be now your spouse isn’t in your health insurance plan, and there’s two things you have to do to get health insurance in retirement, as Christian talked about, gotta retire with immediate pension, got to be an FEHP for five years prior to retirement, and there’s two things your spouse has to do to get health insurance in retirement, they must be on your health insurance before you die, and they must be receiving a survivor benefit, which is that second thing that we talked about, right? But they got to be on your health insurance before you die. Now, if you know when you’re going to die, this makes planning very convenient, right? With many different aspects, but if we don’t know when we’re going to die, now, all of a sudden, this creates a bit of a question, and I have worked with people, unfortunately that in this situation, in this almost exact situation we’re describing, federal employee passed away, spouse wasn’t on the coverage, spouse does not get health insurance for life. Wow, that’s a big benefit you just lost that’s the reason we’re talking about this is an irreversible decision. 

Christian Sakamoto  16:41

That’s right, that’s right, and I like that you pointed it out and clarified, it’s not just checking the box, but understanding the rules and how to keep it, how to, how for your spouse to keep it as well. 

Micah Shilanski  18:48

Boy, Chris, I like that I’m just gonna summarize this. The one thing that you need to do in the irreversible mistake is not understanding the rules right? If you get the rules wrong, and there’s so many different ways we could play this, we could jump into taxes, we could jump into estate planning, we jump to all these other things that we need to get done. If you get the rules wrong and how it applies to you, this can have some catastrophic effects. So I’m not trying to, well, I guess I am trying to scare you 100% into taking action, though, right? Not into not retiring, into taking action to empower you guys to really know your federal benefits and how they apply to you, not your coworker, that’s Christian’s and I’s job, right? Our job is to know how it applies to a lot of different people, a lot of different ways. Your job is to know how it applies to you for your retirement. 

Christian Sakamoto  19:33

That’s right, that’s right.

Micah Shilanski  19:34

I love it! Well, this podcast is all about taking action, right? We want you guys to be empowered to go out there and to take action with your retirement plan. So I’m going to say the first action item off then Christian, I love to hear one from you, the first action item we talk about this all the time, but let’s make sure this is going to go back to that first thing, irreversible mistake, not knowing your service history, so go get all of your SF-50s, go review them and let’s make sure they’re accurate. 

Christian Sakamoto  20:01

Okay, number two, as we’re talking about retirement, pick your retirement date, right? Write that number sorry, that date down, not just the year that you plan to retire, but the month, the day, really know and pick that date down so you have that at least in the back of your your mind as we’re getting closer and closer to that date every single day. I always say, pick the soonest date that you would want to leave, not yesterday, right? But the soonest date that makes the most sense for your financial plan, of course. And again, just having that date written down, I see and meet with a lot of clients that they’ll kind of say off sometime next year. Then sometime next year comes around, and then they kind of kick that, that number down, and then it just continues whereas, if we’re a little bit more strategic with that date, I think that’s going to be a better, better choice. 

Micah Shilanski  20:50

I love it. All right, third action item, this one’s totally gonna be selfish, so, so please be sparing in the comments to me, that’s smash that like button, forward this to another federal employer. Our goal is to help another 1 million federal employees with their retirement. YouTube is growing, the podcast is growing, our website is taken off, and I love it. I want you to be empowered to make great decisions about your retirement. Get this information and share it, if you come across a situation that, man, you think this is what it is, but there’s that something going on in the back of your mind that says, man, I just don’t feel good about that, trust that instinct and get it double check. Work with someone that understands federal benefits, there’s us up as well, you know, up in Alaska, Christians down in Washington, we have people we work with, people all across the states, or find somebody else that knows these benefits, but make sure your retirement is taken care of. This is the next exciting chapter of your life, and Christian and I want this to be an amazing chapter where you’re not really worried about finances, you’re not worried about these rules, you’re not being caught by surprise for anything. So smash that like button, hit that forward, send this information out, we would absolutely love that. Christian, thanks again so much for being on the podcast. I really appreciate it. 

Christian Sakamoto  21:58

Yeah Micah, it’s been great! 

Micah Shilanski  21:59

Awesome! To all of our listeners, until next time, Happy Planning!