Ep #35: Social Security, COLA, TSP

 You can spend. You can save. What is the right thing to do? Federal benefits, great savings plans too. You can save your own way, with help from Micah and Tammy. You can save your own way. Save your own way.

Micah Shilanski:  Welcome back to the Plan Your Federal Retirement Podcast. I’m your host, Micah Shilanski, and with me as usual is the amazing Tammy Flanagan. Hey Tammy.

Tammy Flanagan:        Hey Micah, how are you doing today?

Micah Shilanski:  We are doing great. Just preparing for winter up in Alaska, so we got a lot of fun things happening on that side of things, but besides that we’re doing really good and excited to talk about some fun stuff taking place, but how are you?

Tammy Flanagan:        We’re doing good. We did dodge the hurricane which-

Micah Shilanski:  Yeah.

Tammy Flanagan:        Too bad for the folks who got hit yesterday because it was something, but luckily it didn’t hit the Gulf Coast of Florida. They hit maybe a little bit in the panhandle, but that’s not where we are.

Micah Shilanski:  Yeah, yeah. Well, today we had some interesting things we want to make sure we’re jumping on. So we did a little bit of a series… So last time we were talking about COLA’s changes in pay in retirement. And we want to pick that up on another series, on another topic today, which is about social security COLA and your TSP COLA and how do those things work together. Now, you’re pretty savvy. You’re thinking, “Wait, the TSP doesn’t have a COLA.” And you’re right. So we’re going to talk about that, and some things you need to plan on.

Tammy Flanagan:        Yeah. I guess just basically planning for prices to go up because this year is a good year to talk about that because prices have been going up in 2021, haven’t they?

Micah Shilanski:  They have. And think about the hurricane, the example that you just brought up, right? The hurricane came in, now that’s majorly changing gas prices. So how is that going to… And of course we’re recording this in advance, right? So we haven’t seen those effects that are going to be there. So, whether it’s a natural disaster that comes in… We had wildfires, right? A couple of years ago. Those wildfires dramatically drove up the cost of construction because not only were a lot of supplies and manufacturing limited and impacted, then everyone needed to build new homes. Now we had a supply and demand things. Then that was inflation. Then you have government and monetary spending. No, we’re not getting political. So don’t take it that way, right? But there is spending taking place and that has an effect. It has an inflationary effect. So whether it’s government induced, whether it’s a natural disaster or whatever, you’re going to have to deal with the realities of inflation in retirement, and it’s different when you’re living on what we call a fixed income and how those things come together.

Tammy Flanagan:        Right. And the COLA, for almost everything we talk about when it’s a true cost of living adjustment, is always based on the third quarter index. So the date you want to keep in mind to hear and listen and watch the news is right around October 15th. That’s usually when the Bureau of Labor Statistics announces that third quarter index based on whatever happened by the end of September. So, I don’t know about you Micah, but I’m watching the newspaper. I’m checking the news early in the morning around that middle of the month of September just to find out… Or October, I should say. It comes out in the middle of October for the September index. But yeah, it’s an exciting time. It’s almost as good as opening season.

Micah Shilanski:  I know right. So if you’re wondering what gets Tammy and I excited, it’s the inflation changes. Open season changes. This tax law changes. Those things are fascinating.

Tammy Flanagan:        It keeps us busy and learning something new because it is a constantly changing world. I know people always ask me that. They’re like, “Don’t you get tired of saying the same thing over and over again?” I’m like, “No, because it’s different.” Every time I say it, you have to keep in mind something may have changed or something needs updated. So yeah, our world does not stay the same.

Micah Shilanski:  I like to say it’s great because the questions don’t change, but the answers keep changing, right? It’s the same basic concepts we’re going through, but the rules change, the answers change and how we need to apply this in your situation could be slightly different. So inflation’s going to be part of there… And we talked about the last episode, if you didn’t stay tuned for that it was 34, jump on our website planyourfederalretirement.com/34 and you can see episode number 34, and we talked a lot about the first pension and how that’s going to increase with your diet COLA.

                  And one of the things… Just quick summary on that Tammy. As we know, FERS retirees will get some type of cost of living adjustment, but it’s not going to be inflation. It’s not going to be how much gas prices have gone up or how much things have gone up at the grocery store. You get a diet COLA, you get less than the way inflation is, the CPI. You get less than the consumer price index. So we know a little bit how that’s worked for FERS, but how does it work for social security. With social security we have a little bit more of a window, right? We got that eight years in which we can turn it on. So we have some credits. And how do those work? Then, how does inflation work? How does that COLA aspect affect social security?

Tammy Flanagan:        Yeah. And keep in mind that when we talk about social security… And a lot of people think that the first supplement, or some people call it the social security supplement, that bridge payment that we talked about last time, that’s payable from your retirement until age 62, that does not get a COLA. So, unlike social security that does get annual cost of living adjustments, the supplement for most people doesn’t. The only exception to that would be if you’re a surviving spouse who’s getting a FERS supplement, but that’s rare. So, most FERS retirees… Even those who get COLA’s as early as age 50, like our law enforcement folk. Their supplement still does not get a COLA. So keep that in mind. When you see your first benefit going up in January, that’s just the basic pension benefit. It’s not the supplement.

Micah Shilanski:  That’s right. And we talked about too, we’re not going to give you the answer. Just give you a little teaser to go back and listen to that other episode, we talked about how your pension could decrease in retirement time. So you want to make sure you’re paying attention to those things.

Tammy Flanagan:        Yeah. Inflation is something that I think we fail to plan for because we don’t know how. How do you plan for prices to go up or prices to stay the same? Especially when we’ve had a period of really pretty low inflationary time. So we’re not used to prices going up dramatically in recent years. We need to take a look back in history to find out when prices did go up. I was sharing with you, I was looking at social security’s website and initially there were no COLA’s under social security. The first one was in 1950 and it went up 77%.

Micah Shilanski:  Wow.

Tammy Flanagan:        But that was the first COLA in 10 years. So, back then they didn’t have regular COLAs. We didn’t have a regular annual cost of living until the seventies.

Micah Shilanski:  Now, if you just did quick math and you said, “Wow, 77% in 10 years. That’s 7% a year.” I would not plan on that for social security’s COLA. I would go dramatically less. Tammy, let’s dive into this. So how does the COLA work for social security? Then we can kind of get into delaying social security or not.

Tammy Flanagan:        Yeah. So the COLA is based on, kind of the same thing we talked about last episode, the consumer price index for urban and clerical wage-earners, which is the CPI-W. And so, that’s based on the price of goods and services that are measured monthly throughout the country. So, there are different sectors of the country where prices are measured for groceries, for some housing costs, some medical costs and prescription drug costs. All different things. Gasoline is a big factor because we’re such big consumers of fuel oil. So that’s a big factor in the COLA. So, at the end of each month they announce how much prices have gone up for that month. And the CPI-W, at the end of September or the third quarter of the year, is always the basis for the COLA for civil service, FERS, social security, military pensions. They all are based on that CPI-W. It’s for the retirees, not the employees. So employees do not get a COLA, and I think we mentioned that last time.

Micah Shilanski:  Right.

Tammy Flanagan:        So, yeah. We’ll find out, like I said, the end of September, middle of October, it’ll be announced. And then we’ll know what it’s going to be in the January social security check. So it’ll be reflected based on that third quarter index increase.

Micah Shilanski:  Now, Tammy, let’s say somebody turns their social security on in June. Right? So how does COLA get… This is getting a little bit into the weeds, right. But how does COLA get applied? So, if you retired… Correction, you turn social security in June, is your wages up a little bit? Do you not get any increase? Does it get backdated? How does that work?

Tammy Flanagan:        Yeah. So, unlike civil service and FERS, where we talked about a proration of the COLA in the first year of retirement… So if you’re only retired a month, you get one 12th of the increase. For social security, as long as you’re eligible before, I think it’s before December 1st, I have to double check that to be sure, but I think it’s before December 1st, you’ll get the full COLA in your January check. So you don’t have to worry about that proration, like we talked about before. And also, every year that you delay social security… Social security is not delaying your COLA. They’re providing you that cost of living adjustment even though you’ve decided to wait until your full retirement age, or you’ve decided to wait until age 70. So you are still getting the COLA. It’ll be added into your benefit when you start receiving it. So, that’s kind of nice too. So even though you might want to wait until you reach your full retirement age, you’re not losing the increases to that benefit calculation based on the fact that you waited.

Micah Shilanski:  That’s such a great point. I was just working with a client and actually we do like a ten-year cashflow, right? Especially the first 10 years of retirement, really important to know where that money’s coming from on FERS because your pension is going to be there, but the supplement starts and stops when you take social security on. And Tammy, that was her response to me as it came back and she said, “Hey, Micah, your numbers on my social security are way off compared to what they are.” So, at first I’m like, “Oh crap, what did I miss?” And I go back and look and says, “No.” She’s looking at the social security statement you’re getting today, but that’s not potentially what your social security is going to be in the future because you are going to get that COLA.

                  Now, Tammy, to your point, that’s a bit of an unknown. It could be zero, right? Don’t know what that cost of living increase is going to be. But the great news is you’re not penalized by delaying. Not only do you get that increased social security, you’re not penalized for taking it early. So you’re getting an increase there, but you’re getting the full COLA when it’s calculated later. So it’s another benefit of potentially delaying your social security.

Tammy Flanagan:        Yeah. Let me say something about those statements because I know we’re all used to getting those social security statements in the mail, or if you have a My Social Security account, you can download your most recent statement. And it does tell you… Like the woman you were counseling noticed that it says, “Here’s how much you’ll get if you work until you’re 62. Here’s how much your benefit will be if you wait until your full retirement age.” And they even show you how much it’s going to be with the delayed credits. But how that’s computed is as if you were 62 this year. So if you got the statement in 2021, it wouldn’t assume you’re 62, but it would compute the benefit based on current calculation factors. That’s all we know. Like social security doesn’t know what those factors are going to be next year or the year after, or 10 or 20 years from now.

                  So everything is if you were eligible this year. As if you were already 62. So like you said, Micah, they’re not projecting, not only not COLAs, but they’re not even projecting the actual calculation factors for the time you’ll actually turn 62 or 67 or whatever age. So it’s a nice calculation because you can relate to those numbers based on what you’re earning today. And you can say, “Oh yeah, I’m going to get 2200 a month.”

Micah Shilanski:  Right.

Tammy Flanagan:        But it’s not what you’re going to get in reality 20 years. Let’s hope it’s not in reality what you’re going to get because it would be a very small check compared to what prices are likely to be at the time you actually-

Micah Shilanski:  It’s a great place-

                  Oh, sorry. Yeah.

                  It’s a great place to start. Right? That’s what I tell people. It’s not the final number and who knows what it’s going to be 10… And that’s a hard part when you do any type projections. It’s all a guess. It can be an educated guess, but at the end of the day we’re still guessing what these are going to be because you have no idea what’s going to happen in the stock market, what inflation is going to be, what is CPI going to be. So, that social security statement is a great place to start.

Tammy Flanagan:        Oh, and there’s that bold print warning on the statement as well. These estimates are based on current law. The law can change at any time. So be prepared for that as well. And I think you and I both know the law will be changing. I don’t think there’s any doubt in my mind that the laws for social security are going to have to change probably within the next 10 years. And that’s because of the trust fund being depleted. The fact that social security is not going to have that cash reserve to pay future benefits as promised. So, something is going to have to change. So, like we were saying, anything we’re saying today is based on what we know as of today. We don’t know what the laws will be next year or the year after or let alone 10 years from now.

Micah Shilanski:  Yeah, Tammy, we’re getting a little sidetracked on this, but I’d love to stick on this for just a little bit longer, then we’ll jump back to COLA. We promise. But if we think about that, it can be really… It can be real easy to jump into a what if scenario, right? It is, “Oh my gosh, what if they take my social security away? What if I don’t eligible for it?” Right? What if all of these things can happen because, Tammy and I are both saying and agreeing, the laws are going to change. But you have to plan with the laws we know today because if you take this and say, “Great, well, I’m going to turn my social security on the early because as soon as I turn it on, they’re never going to take it away from me.”

                  Okay. Has the government ever said something and then changed their mind? So, all right. So we know that’s not a reality, right? So you have to plan for the laws and information we have today. Then you got to get checkpoints set up. That says, “Great. This is when I’m going to review it.” When this law changes or every year I’m going to re-look at this. I’m going to get more information to make sure you’re staying on top of your benefits. So don’t get too scared about the law changing. I have my own opinion on how it will… This administration nor the previous one took any of my phone calls. I had tons of suggestions for them. So, I don’t think those are going through. Something though will change. And again, plan for today. As it changes update your plan.

Tammy Flanagan:        Right. Let me just say one more thing before we leave that subject. I always stress this at seminars because I say to my classes, “If you know nothing else about social security, if you didn’t know a thing about social security, the most important thing in my opinion about social security is to understand that it’s a tilted benefit.” And that means that it’s going to provide a better replacement of income if you’re a low wage earner and a lesser replacement of income if you’re a high wage earner. And I think that tilt, this is opinion, is going to become more pronounced under the next set of rule changes for social security. Where we’re going to still protect people from becoming impoverished in retirement, which means you’re going to continue to see people with lower wages or working wages get a decent replacement. We’re talking 30 to 50% of their pre-retirement income if they collect at their full retirement age. So that’s a fairly decent replacement of just social security benefit. But if you’re a high wage earner or if you’re a GS-12, 13, 14, 15 SES, don’t count on that. Count on 10 to 15% replacement.

                  I think for a lot of our high salaried federal retirees, it’s going to be a nice added benefit, but you’re really going to be counting on your TSP to support you as well as your first pension, because that’s not tilted. That’s based on actual length of service.

Micah Shilanski:  Tammy, you hit the nail on the head. These are building blocks for your retirement and the higher your income is the more building blocks it’s important to have, right? The lower the income is, you have the tilted system, therefore social security and FERS may be enough to replace your income and your spending retirement. The higher you are on that scale, it is not enough to replace that. And, Tammy, this is a current thing that I hear from my higher end GS employees that are coming up to retire. We calculate out their pension, they’re like, “That’s it? I’m supposed to retire on that.” And it’s like, “No, no. Calm down. This is one piece of the pie.” Right? Now let’s add in the social security. Now let’s add in the TSP. Now let’s add in the retirement accounts. Right? And all of those pieces added together, that’s what’s going to equal your retirement. But if you just look at one page at, one piece at a time, you’re like, “That’s not what I’m spending.”

Tammy Flanagan:        That’s right. That’s right. I fully agree.

Micah Shilanski:  Yeah. All right. So a couple of quick questions on COLA. That’s going to be there. So, we already talked about you’re going to get COLA, it is going to get calculated every year, you know what it is in October, you’re going to get the full COLA for the next year. You get, I’m going to call it delayed COLA… So if you delay your social security, you continue to get that COLA as it’s going to increase. What about survivor benefits, widow or widower, social security? Do they get COLA on their social security check as well?

Tammy Flanagan:        Yeah, they’re all going to get the same COLA. It’s still based on that full increase in the CPI. So whether… I know, not just that I know, there is a benefit for widows at any age if they have young children. So we could have a young mother, young father who was widowed at an early age and they’re getting COLAs on their benefit every year that they receive that check. So that will help maintain the value of that benefit to offset the increases in prices for inflation. So, yeah. It doesn’t matter if it’s a widow’s benefit, a spousal benefit or a workers benefit. They’re all going to get cost of living adjustments, which is important. It’s good that that happens.

Micah Shilanski:  It is. Now, just because there’s a cost of living doesn’t actually mean your retirement checks or, actually your social security check, is going to go up because you may have to pay for Medicare. And Medicare has a tendency to go up as well. Now, they passed a Safe Harbor Act. It was a year, a couple of years ago, there was a small inflation. It was like, I’m going to get my numbers wrong… It was like 0.3 around 2017 or something like that. And Medicare went up exceeding that. And so people were actually going to get a reduction in their social security. And so they had a Safe Harbor that says, “Okay, you’re not going to actually lose money because of this,” But we need to keep that in mind and say, “Great. Even though social security gets a COLA, I’m still going to consider it a diet COLA.”

                  No, it’s not reduced the same way the FERS is, but you’re really not getting inflation. That social security check, it’s great that it’s going to go up, but if you look at the historical rates of what the COLA has been with social security, it does not keep up with inflation. So it’s great that it goes up, but we are still missing a little bit of a piece.

Tammy Flanagan:        Yeah. And it kind of is the same thing with FERS. Like we talked about last time, is that your health insurance premiums can go up. Tax rates can change. So just because there’s a COLA doesn’t mean that check’s going to be bigger than the one you got in December because other things are influencing it.

Micah Shilanski:  Exactly. All right. So let’s make a little pivot off of social security, Tammy. Let’s talk about other COLAs. Because there’s a lot of other ways that you could actually get COLAs coming in, whether it’s a military pension, whether you work for another employer, whether it’s a university or railroad, something of that nature. And so we can’t address all the different COLA potentials that are out there, but here’s how Tammy and I would look at it. Number one, if a client’s going to come in and they have a pension, they have an income that’s going to come in in the future, we want to figure out how that works. And we want to figure out how is it going to go up. So, do they get a COLA or not, would be one of the first questions? Okay. If yes, great. When does it… When is it effective? When is it going to kick in? And how is it calculated?

                  One of the things that I like to look at, but not pay too much attention to, is what has it gone up historically? I’m more focused on what is it tied to and what are the rules? Is it a diet COLA we’re going to get automatically 1% less than CPI? Okay, great. Well, now we know. Now we can plan for these things. And then the last thing I want to look at, Tammy, is a survivor benefit. Do the survivors get COLA as well? Those are kind of the top things I want to look at. What did I missed in there?

Tammy Flanagan:        Yeah, no, I agree. And I think that a lot of people just take for granted, I think, that there’s going to be COLAs on their other pension benefits. That they’re going to work the same as social security and maybe FERS. And that’s not always the case. My father got a pension from 1980 when he retired until he passed away in 1998. And his benefit from his pension never changed, never went up a dime. There was no COLA. And that’s very true for most private sector pension plans. You’re lucky to get a pension, let alone a COLA.

Micah Shilanski:  Amen.

Tammy Flanagan:        So don’t count on getting COLAs on those corporate pensions or private sector pensions. Whether it’s from Lockheed Martin or another defense contractor, many of those are just, if you get one, they’re set payments for life. And then there is some companies that will give a COLA when prices go up a lot. Like the company kind of takes mercy on their retirees and they’ll give them a sporadic increase, but it’s not by any means a regular cost of living by law, such as it is for social security or FERS or any other government pension that does change.

Micah Shilanski:  And we’ve seen other pensions go in effect… I’m going to pick on the airlines for a little bit, right? Airline employees will be able to get a pension. Then they go bankrupt and great. Now what happens to the pension plan? And there’s a little bit of “pension insurance” that’s out there, but it’s not the same thing on how it actually affects. So these are things, again, government pension… Great news is the government has the ability to legally produce more money. When I do that, I would get in trouble. Right? But they can do it, no problems. So they can always make those retirement checks. I don’t think the FERS pension is going away for our FERS employees. I don’t really have a concern in that. Maybe I’m delusional, but I think that’s pretty solid. When we start looking at private sector pensions, Tammy, that’s one of the conversations I have with my clients is, “Great. How reliable is this? What’s the bank account? What’s the balance?” And I’m not just taking for granted because they’ve done it for the last 30 years, doesn’t mean that we’ll keep going. Let’s be very confident in these numbers.

Tammy Flanagan:        Yeah, no I’ve seen it happen. You’ve probably seen it with some of your clients as well. Where they were set for retirement until the company went belly up and there went the pension along with the company. So yeah. A big example of that, that made the news was news, was Enron. Enron was the largest company in, what was it? 2001? And the same year they went bankrupt. So if all your money was in Enron stock, there went your security. So yeah, it’s not dependable. We have to have a backup plan. We have to say, “What if something happens?” Make sure we’re prepared for that. Not that we hope that happens.

Micah Shilanski:  No. No, but that’s all part of diversification and planning. Right? Of course you’re hoping the investments you make are going to be rock solid going forward, but there are those unknowns. So let’s chat about… Let’s change gears a little bit, Tammy, because we talked about in the last episode as well as this one, that your pensions… I’m just going to say pension, social security, I’m going to lump all those in one category right now. All of that fixed income you have coming in is not going to keep up with inflation. Right? When we look at the formulas, you look at how social security is calculated, you look at how your FERS pension is calculated, et cetera. It just doesn’t keep up with inflation. And so, okay, great. Now we know that. Now, what do we do? Well, we joking, well not jokingly…

                  We say in our seminars, we have three stools in our retirement, right? We have our FERS pension, we have social security and TSP and outside investments. Well, we’ve went through FERS. We went through social security. And those aren’t going to keep up with inflation. So what’s the one we have left? And that’s going to be our TSP, IRAs, outside investments. And that’s what’s so important we focus on in retirement because that’s the stool that needs to work a little harder because that has to outpace inflation for FERS and social security combined because we know that’s not going to do it.

Tammy Flanagan:        I also see a fourth leg of the stool for many of my clients, and that’s a part-time job or consulting or teaching or some other source of income that can allow you to delay some of these benefits. for example, social security. So if I have another source of income, maybe I can afford not to take social security. And not only do I get that built in COLA later, but I can have a larger benefit just for delaying it. And that can go a long way towards filling that gap against future price increases. To really beef it up, make it a more generous benefits. I always talk to my clients about the advantages of possibly doing that. If they’re kind of on the border of feeling comfortable financially. So it is something to think about.

Micah Shilanski:  Yeah, I’m a huge fan of delaying that social security. The math just makes a lot of sense. And if you can bridge it a little part-time work or consulting that you want to do, then it works out really well. The other part to be thinking about on your TSP and other funds… One of the questions that I get a lot or comments that I get, whether it’s I’m teaching classes or working one-on-one and… Tammy, let me know if you get the same one. People are getting closer to retirement. This is great. I’m getting closer to retirement or retiring this year, so I need to take everything out of the market. I need to pull everything out of the stock market, out of my TSP. And I put everything in the G fund, or I need to put everything in the income fund because, hey, it says income. And guess what? I’m retired. I need income. Income, income, boom. This is perfect. This is what I need.

                  And sometimes we have a misconception on kind of how things would work. And if we pull money out of the market, you are a hundred percent correct, you’re now not going to take that stock market risk. It’s going to go into that G fund. But now you’re making that whopping less than 1% interest right now. Even in the last 10 years, if we just quickly looked at the numbers, the average return off the TSPs website was about 1.9% per year over the last 10 years in the G fund. Yeah.

                  And so, great. What’s been inflation? What has been your cost? I’m going to argue they’ve gone up more than that. So if you move all of that money to the G fund, now again, you don’t have that leg of that retirement stool keeping up with inflation. At best, it’s equal. At best, and I don’t think it is, but you’re not going to make up the gap between your FERS and your social security. So you really need to be thinking about what’s that long-term investment strategy when you’re retired and you may need to look at… Well, not may. You probably need to look at making sure you’re keeping your toes in the water. That you’re keeping money invested more long-term maybe in the CSI funds.

Tammy Flanagan:        Right. Yeah. I think it does make sense for some people to become a little more on the conservative side, but that doesn’t mean… Like you said, I see people move everything to G fund five years before retirement. And they just missed out on the best five-year average return in history almost. So yeah. There has to be some knowledge, some education involved in understanding that volatility. Because I think once you understand something, once you’re educated, you’re less afraid of the fact that the market goes up and down. You become aware that’s a normal course of action. It’s happened since there has been a stock market.

                  But I find people just are so wary of that. And they look at it more as gambling than as investing. They’re like, “Oh yeah.” I’m going to move everything here or there to try to take advantage of whatever’s happening or whatever soothsayers have said is going to happen in the future. And you just can’t do that because then you have to be right twice. You have to know when to take it out and when to put it back in and you just can’t figure that out. Nobody can. I mean, if we could predict that we’d all be very wealthy people.

Micah Shilanski:  There’s a lot of systems out there that want to take your money from you, that say they have figured it out. But good news is just look at track records and you can kind of see that that doesn’t happen. And there’s also a study that I want to bring up. And it’s a study I believe Fidelity did. Fidelity went out and they looked at… And this is not a ploy for hiring an investment advisor, so please don’t take it that way. But they went and looked and said, great, what’s the average return that an investment advisor does. And what’s the average turn an individual person on Fidelity, that’s not working with advisor. What’s the difference? And the difference was over 3% a year. So, what that meant is, the average investor was making around 5% and then they were making 3% more of a total return of like 8% a year if you work with an investment advisor. That’s just an illustration. I don’t remember exactly what the study was. But that 3% was different.

                  And then they dove into it, Tammy. And they said, great. Why is that so different between the investment advisors and the individual investors? Because investment advisors, myself, I don’t have this secret channel of information. I mean, Google still has all the information ever out there. So we all have access to it. What’s the difference. And the difference, what Fidelity found, was discipline. Is that when markets went down, investment advisors did not come out of the markets. They rebalanced, they did other things. They did strategic changes, but the individual investors would all of a sudden come out. And to your point, once you come out, when do you go back in? And that purchase becomes a really challenging decision. And all of a sudden in retirement, when you have all of your money sitting on the sidelines, now the market has doubled in value in the last few years. Your concept is, “Well, it’s high. I’m going to wait until it goes down.” It’s high. I’m going to wait until it goes down. Okay. Well, when is that? It becomes really challenging.

Tammy Flanagan:        I think your word discipline was good, but I also use the word emotions because people get scared. People get greedy. Any emotion you can think of can be related to how you feel about your money, your hard earned money that you’re investing. So when you’re working with an advisor, there’s an unemotional attachment to it. That advisor is just looking at what needs to happen based on your goals and objectives. They’re not looking at what they think is going to happen in the market tomorrow. They don’t know either, right? Just like you said.

Micah Shilanski:  Nope, we don’t.

Tammy Flanagan:        We don’t know the future.

Micah Shilanski:  That is passionate investing. I like that.

Tammy Flanagan:        Yeah.

Micah Shilanski:  Well, not to be too much of a plug inside this, but Tammy, you and I are going to be doing a workshop just about this called ‘The three critical concepts that you need to know and understand as you get ready to retire’. So if you are not on our mailing list, please jump on our mailing list at planyourfederalretirement.com because we are going to be sending out email invites for that so that you can get more information. It’s been pretty popular in the past. And Tammy, we’re going to dive into this in detail in that workshop. When we get into great… Now, okay. This is a great concept, but actually how do you apply this in your personal situation?

Tammy Flanagan:        Right, right. I think that’s great. I’m looking forward to doing that again.

Micah Shilanski:  I love it. Perfect. All right. Well, this podcast is all about action items. So I’ll just give away our first one, right? Make sure you’re on our mailing list. So you sign up for those three critical concepts. I would say your second action item that you really need to do is, how are you planning for inflation in retirement, right? And this could start off small with knowing what’s going to be infected by COLAs and not COLAs, right? Knowing how your FERS pension works versus social security versus your TSP. These are really important things. But you got to understand that because this won’t affect the first five years of retirement. It is absolutely going to affect the next 20, 30, 40 years of your retirement.

Tammy Flanagan:        Absolutely. Yeah. I guess my action item is a little homework assignment to say. Google the history of cost of living adjustments. You can find that on social security’s website. It will really open your eyes. I mean, when you start looking at what has happened over the last 20, 30 years and keep in mind that your retirement may last 20, 30, or even 40 years. It’s not saying that history is going to repeat itself, its just opening your eyes to the fact that prices have not always been low like they are today. So if that happens again, make sure, like you said, make sure you’re prepared for that.

Micah Shilanski:  Perfect. Tammy, I love it.

Tammy Flanagan:        A cushion. I have a cushion of cash.

Micah Shilanski:  Have a cushion, have a plan. It’s a great thing. Well, Tammy, as always, this has been a blast. And until next time, happy planning.