Ep #42: New Year Planning (Finance and Fitness: The Two Things You Won’t Do :) )

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 to the Plan Your Federal Retirement Podcast. I’m your co-host, Micah Shilanski. And with me as usual, is the amazing Tammy Flanagan. Tammy, how are you doing, ma’am?

Tammy Flanagan:        Hey Micah, it’s a new year and we’re ready for some new things with retirement planning. I’m just excited to talk about some of the things that have changed, some of the things that might change in the coming year, and some of the things we can do to maximize our retirement.

Micah Shilanski:  Yeah, there’s so many things to talk about and to really go through, and to make sure that you are on track for your retirement. Now, we got to be caution you. We don’t exactly want this to fit into the fitness and finance category of New Year’s resolutions. Those are the top two things for New Year’s resolutions, at least as of last year, that comes out. But the problem that it happens, is we don’t do our New Year’s resolutions. Keep telling my wife that next year for New Year’s, I’m going to get that six pack. It’s going to come in eventually. Still not there just yet.

                           So we want these things to be actionable. So Tammy and I are going to go through a laundry list of different things, a little bit of calendar stuff, et cetera. As you’re listening to this, what I’d encourage you to do, write down one or two things, maybe write down more. But at the end of this podcast, have one or two things that you really want to focus on and make sure you get done. And of course, we’re going to have our action items at the end to kind of encourage you just a little bit. But let’s make this doable, let’s make this 2022 year an amazing year. What do you say, Tammy?

Tammy Flanagan:        I think so, Micah. And I think you’re right, that we’re going to give you 10 or 12 things to do. If you do two or three of them, consider that a win.

Micah Shilanski:  Perfect. I love it. All right. So Tammy, let’s go ahead and think about this. I would say the first thing that I like to talk to clients about on the new year, is actually looking at a calendar, looking at a timeline of things. Because we’re going to talk about some things that are effective now, we’re going to talk about some things that are effective in the future. And I like working off of a calendar, because if I say, “Hey, I’m going to remember that in fall. I’m going to remember this in June. I’m going to remember this when I do my taxes.” Reality comes in, and I don’t remember those things. But if I say, “Hey, at the end of March, I need to review my earnings for Irma.” Aha. Now, I have something on my calendar that I can be actionable with. So I would say definitely as we start creating these things out, mark them on your calendar for things to do. Then you can just reference this podcast back if you need to listen to it again.

Tammy Flanagan:        Yeah. So I think sometimes, we used to… I still remember getting those calendars right at the end of the year for the next year, they either come from the realtor, from your bank or somewhere. And you can mark things down for next year. But I think today, most of us, at least I’m doing it. I know you are, Micah. You probably don’t even have a paper calendar. But I think most people now, can do this online and you can kind of set yourself a notice every year for that same event to happen, because some of these things are things you’re going to want to do every single year.

Micah Shilanski:  That’s a great point. All right, Tammy. Well, let’s start off with some really good stuff like pay raises. That’s always a great thing to start off in January talking about.

Tammy Flanagan:        That’s right. Yeah. There’s a pay raise that came through, average employee got 2.2% plus some locality as they call it, locality pay. So depending on where you live, it’s a little bit more than that, perhaps. So, that’s a good thing. And I think along with the pay raise, starts to rethink about next year, whether it’s the maximum FICA tax for next year, which also got a pay raise. So now, you’ll pay that FICA tax up to $147,000 next year… Or this year I should say. And last year, it was $142,800. So that’s about a $4,200 increase in the amount of income subject to that 6.2% payroll tax. So that’s something to be ready for as you move through this year. But I think another thing with a pay raise, isn’t it that we want to save more and maybe that’ll cut down on how much taxes we have to pay?

Micah Shilanski:  Yes. With pay raises, I always want to talk about… Now, if you’ve listened to this podcast before, you’ve heard Tammy and I chat about this. I love a 50/50 rule, Tammy. Anytime we get unexpected income. Now, this could be an inheritance, this could be a gift, this could be a bonus at work, this could just be a pay raise. And I call that unexpected income, I love a 50/50 approach. Take half of that unexpected income and let’s save it for the future. Let’s increase your TSP contribution. Go help max fund a Roth IRA account. Whatever that’s going to be, save that money for the future but allow that other 50% to come to the bottom line. Because, guess what? You did earn it, you did get a pay raise. It should help on the bottom of line in day to day expenses, but we got to have a plan.

                           And especially for our younger workers listening to this podcast, this is huge. Because over time, you’re creating this wedge between your income and expenses. Your income’s going to keep going up. But now, because you’re saving 50% of any new income, your expenses don’t go up at the same rate. That means you get to save more, and that means you’re going to have more money for retirement to live the lifestyle you want. So I don’t care if you’re a year away from retirement or 30 years away from this, I have a solid 50/50 rule that I love.

Tammy Flanagan:        That’s right. Yeah. And I think, too that when we’re saving for retirement, we’re learning to live on a little bit less. Which makes retirement believe it or not, come a little sooner. Because the more we get to live within our means, the easier it is to retire in our fifties rather than our sixties or seventies.

Micah Shilanski:  Yeah. And especially the younger clients I’m talking with, there’s a lot of them that I’m chatting with that say, “Micah, look. I want the option to work to 60, but I want to be out by 50. What do I need to do?” And then, “You need to save 25%, maybe 30% of your income now to get there.” But Tammy, to your point, there’s a lot of people that are actually doing that.

Tammy Flanagan:        Yep. What do they call that, the FIRE?

Micah Shilanski:  Yeah. Financial independence, retire early. Yeah.

Tammy Flanagan:        Yep.

Micah Shilanski:  I don’t quite go that far because their concept is, “You know what? Live as low as you possibly can expense wise.” And I still like a nice bottle of wine from time to time. So I’m in the both camp. I want to save and I want that nice bottle of wine today.

Tammy Flanagan:        Yeah. And I don’t want to live in an RV or a van either all year long. I like to have a yard sometimes.

Micah Shilanski:  That’s right. I was going to pick on you. Wait, we live at one in the summer. But no, all year long? Yeah, exactly.

Tammy Flanagan:        You still have a home base.

Micah Shilanski:  Yeah. Yeah. Well, Tammy, this kind of leads us into the next one to think about a little bit that I had on my list. I love our clients reviewing their leave and earning statement or retirement annuity adjustment statement. Whichever side you’re on, whether you’re retired. In January, you’re going to be getting a letter from OPM, which is your annuity adjustment statement. Which is going to talk about all the changes that has been in your pay. And if you’re retired, that’s generally pretty consistent. You get that one, and then everything else is going to be consistent for the next 12 months. For my working clients, I really like them to look at that LES because Tammy, things can change after January 1.

Tammy Flanagan:        Yeah. So you want to start with the retirees first and then we’ll move up to the employees?

Micah Shilanski:  Yes, ma’am.

Tammy Flanagan:        So for the retirees, the January 1st retirement check is actually the payment for the month of December. So that’s the one where retirees will see the COLA that came due from 2021, which was pretty generous. It was probably the most generous I’ve seen in over 20 years, and it was 5.9% for CSRS retirees and 4.9% for first retirees. But those who just retired December 31st might be a little disappointed, because they weren’t retired in 2021 so they won’t get any of that COLA. I did get a lot of questions about that last year with people thinking, “Oh good, I’m going out in 2021 so I’ll get that 5.9%.” Unfortunately, no.

                           Your first COLA is not going to come until January of 2023, so you got about 12 months to wait for that. But you’ll see in February, is when you’ll see the raise in the health insurance premiums and you’ll see any Medicare increases in your Social Security benefit. So that’s going to be in your February 1st retirement check from OPM or your Social Security payment from the social security administration where many people pay their Medicare tax… Or Medicare premiums, I should say.

Micah Shilanski:  Tammy, that’s such a great point. Because we think… At least I think it’s such in calendar year increments, right? January to December. And so if you get into January and you were like, “Hey, how come my paycheck’s the same? How come all this stuff has an increase? We thought all this stuff was going to change as 5.9% increase.” That’s because it doesn’t come in until February. Right?

Tammy Flanagan:        Right.

Micah Shilanski:  So it’s a great thing to keep in mind.

Tammy Flanagan:        That’s right. And if you’re planning to retire in 2022, then keep that in mind, too that any cost of living adjustment that happens for this year for retirees will only be effective for the months you are actually retired. So if you’re planning to go out, let’s say the end of March, your first COLA is still going to come due next January but it’s only going to be for a portion of the year. Because you weren’t retired the first four months of the rating period, so you would get eight twelves of the COLA next year. So there’s always questions about how that cost of living adjustment is prorated.

Micah Shilanski:  Now, Tammy, I have never seen… And maybe you have, so please correct me. I have never seen OPM make a mistake with the COLA. Where someone was entitled to get it and did not get it once they were a retiree. Have you seen anything like that?

Tammy Flanagan:        Well, don’t say, “Never say never.” But no I haven’t seen it either.

Micah Shilanski:  Not yet.

Tammy Flanagan:        Not yet.

Micah Shilanski:  Now, I’m going to get one of them.

Tammy Flanagan:        It’s early yet. We haven’t heard from too many of our recent retirees just yet.

Micah Shilanski:  Fair enough. Fair enough. All right. Well, let’s make it a little pivot from our retirees to our employees that I know are actively listening. Which is great. One thing, is this is a podcast we’re continually growing and we’re growing up by you, our listeners. So if you get any type of valuable nugget, even if it’s from Tammy and I’s commentary, send this to a couple friends, help us grow. Tammy and I have some pretty big goals for 2022, and really getting out more information to federal employees to actively plan their retirement, and you’re a big help in that. All right. Commercial’s over, now back to benefits. Okay. What I really like to look at, Tammy is on the leave and earning statement, is let’s keep in mind just because we went from January… I’m sorry, December to January doesn’t necessarily mean everything stayed the same.

                           I’ve seen TSP contributions change when the client says they didn’t adjust it. And all of a sudden, they’re not funding TSP. The funny part is they never mentioned that really until June, when I’m looking at and saying, “Hey, how come we haven’t put so much money into TSP?” Well, they’ve been getting a $500 a month pay raise that they forgot to mention. Right?

Tammy Flanagan:        Right.

Micah Shilanski:  So, that stopped. I’ve seen tax withholdings go inaccurate from one year to the next. Why? I don’t know. I’m just telling you things that I’ve seen in the past. So I love to look at those LESs and I love to say, “Hey, is everything doing what we think it should?” If all of the sudden, your net pay dramatically change, you need to hit the pause button and say, “You know what? Did I really make… Did I make a great increase? Or more than likely, is something inaccurate on my LES that I need to adjust?”

Tammy Flanagan:        Yeah. Most definitely. I’ll restate that just what you said, Micah. That check those withholdings from your paycheck, because you may have just changed your health plan, you may have increased your flexible spending account, you may have made a change in your tax withholding. So look at that LES, it’s line by line. It tells you what those withholdings are. Make sure they’re correct, make sure they reflect the right health plan. I’ve seen people go months, if not years, thinking they made a change and it never took effect. And to go back and make a correction sometimes, is next to impossible. And sometimes, the payroll office won’t make certain changes, so it’s up to you to be responsible for that. I think it’s an important thing, to really take ownership of that LES statement, that leave and earning statement. Surprising how many clients I talk to who don’t know what a leave and earning statement is, and you have to explain to them where to find it and what’s on it and so forth.

Micah Shilanski:  “The money just shows up in my bank account. I don’t know what else there is. Then I get a W2 in January, and we’re done.”

Tammy Flanagan:        Yep. They’re very trusting.

Micah Shilanski:  Some other things that I’ve seen gone awry with this… And I got to say, one of my issues is I live in a beautiful state with no state income tax. And so sometimes, I forget there’s a fair amount of those 45 other states… Or excuse me, 43 other states that have this state of income tax. We had one client for some reason, down south that they quit withholding state income tax on his and we didn’t figure it out until June or August. Because he made some other changes and whatnot, he thought everything was fine.

                           We didn’t really get his LESs, wasn’t something I was actively looking for until kind of mid-year. And then all of a sudden in August, we found out that he’s been making no state income tax withholdings. Well, he was pretty well compensated. So now, he owes a ton of back taxes that he’s going to have to pay. And yes, you could argue and say, “He owed those taxes the entire time.” But it’s like getting an unexpected bill, no one likes an unexpected bill from the IRS. Sure, you should have paid that money. But now, this is Tammy, as you said, this is your problem. It’s not your HRs problem.

Tammy Flanagan:        Yeah. And the same goes for retirees. Keep in mind that the office of personnel management does not automatically withhold state income tax. They’ll withhold federal tax. They ask you about that when you filed your retirement application, but it’s up to you to indicate that you want state income tax withheld. And some of you are probably moving in retirement, so you may have gone from a tax free state to one that you pay tax or vice versa. So again, really pay attention to that because that can change.

Micah Shilanski:  And Tammy, in order to elect that, you have to do that after your retirement is adjudicated, right after it’s finalized. So there’s nothing on the application talking about state income tax at all. You have to wait six months… I’m being dramatic. You have to wait six months after your retirement’s adjudicated. Now, you can go and elect to have state taxes withheld. But guess what hasn’t been withheld for the last six months?

Tammy Flanagan:        That’s right.

Micah Shilanski:  State income tax. So you’re going to potentially owe that first year. Yeah. Great point.

Tammy Flanagan:        Yep. And that’s something else with the TSP, they don’t withhold state income tax from any payments you get there. So for some of our retirees, they may have to set up estimated tax payments with their state to make it so that they can pay those taxes on a regular basis.

Micah Shilanski:  And Tammy, I’m actually going to put a note down right now. If you want to jump on our website planyourfederalretirement.com/podcast. We’ll go ahead and put up. We have a two-pager, one page front and back that gives the tax rates as well as the states in how they tax. Do they tax Social Security? Do they tax IRAs? Do they tax pensions, et cetera? We’re going to go ahead and throw that up on our podcast page for our listeners. So if you’re going to move into retirement or you don’t know how your state stands, you can go ahead and grab this piece.

Tammy Flanagan:        Great. Yeah, there are what? 13 states that tax Social Security. But the majority of states, if they tax other things, they don’t tax Social Security. So even in the DC area, Maryland, Virginia, and DC, they don’t tax Social Security. So, that’s one good thing. But on the federal level, you can have federal tax withheld from your Social Security check, you just can’t tell them how much. They only give you a couple of basic options.

Micah Shilanski:  I’m laughing because it’s also weird percentages, too.

Tammy Flanagan:        Yeah.

Micah Shilanski:  I don’t have them off the top of my head, but it’s not like a normal percentage that you would normally think to withhold.

Tammy Flanagan:        It’s like 12 and half percent, 22 and three quarter percent or something. Something silly like that.

Micah Shilanski:  Yeah, it’s all weird. I always get clients that ask about this. Yeah, so those are things. In default, what I would highly recommend if you’re unsure, have a little too much withheld. Because here’s what we know. If you have a little too much withheld, you get a refund at the end of the year. Yes, the government had your money tax-free for a period in time compared to the whopping 0.0% interest you’re making in your bank account. I understand. But the penalties can add up. So especially first year retirement, if you have a lot of moving parts, man, just have them withhold a little bit more. Let’s make sure that you’re taken care of.

Tammy Flanagan:        Speaking of interest rates, Micah. The interest rate for civilians service deposits. Now, many people probably don’t even know what that means. But those of you who owe money for military service, for refunded civil service contributions, or time you worked for the government but weren’t covered by FERS, you have what’s called a deposit or a payment to make. And the interest rate on those deposits for 2022 luckily, didn’t change for 2022.

Micah Shilanski:  Really?

Tammy Flanagan:        So it’s 1.375%, which is… You were talking about low bank interest rates. It’s not quite as low as the banks are paying, but when you owe interest, it’s also nice to owe a low interest rate. So those deposits are only being charged… Whoops, 1.375% for 2022. So, that’s not too bad. So if you don’t have the money to fully pay off your deposit, it’s not going to grow that much over the course of this year.

Micah Shilanski:  Boy. And if you want to put that as a quick comparison to see how good of a rate that is, compare it to a home loan. If you have a home loan, what are you going to get between three and 4% interest rate? And this is 1.3%. Yeah, I know it’s not exactly the same. But from a comparison concept, that’s a phenomenally low rate.

Tammy Flanagan:        Yeah. Yeah. Or compare that to your credit card interest rate.

Micah Shilanski:  Oh yeah, 20 some odd percent. Right.

Tammy Flanagan:        Yeah. Yeah. Don’t use your credit card to pay off your deposit.

Micah Shilanski:  Good point.

Tammy Flanagan:        Unless you’re going to pay off the credit card next month.

Micah Shilanski:  All right. Tammy, let’s make a little transition from the LES leave and earning statement and let’s talk a little bit about in investments. Especially 2021 was a great year, investment wise, stock market wise. Things have really increased in value, which is always a blessing. And so do you want to do it the same way? You want to talk a little bit about our retirees and then maybe we could pivot a little bit to employee things you should think about?

Tammy Flanagan:        Sure, yep. Because again, we had an awful lot of… I haven’t seen the numbers yet, but I have a feeling there was a ton of retirees. We call it the great resignation in the private sector, I’m calling it the great retirement. Because if it’s any indication based on how many emails and how many clients I had last year who were planning to go out the end of 2021, if even a fraction of those actually retired, it’s going to be a banner year for OPM. So it’ll be interesting to see those numbers. But that means that you now have access to that money that’s in your TSP account. So you have to think about, “What do I use this money for? What am I do with it?” So as far as investing for retirement, that might be done for you if you’re fully retired. You’ve done it. You’ve saved that money.

                           You’re in retirement now. So now, it’s a matter of deciding how to manage that money, how to make sure that that investment continues to grow. Because I’ve heard from so many people who got ready to retire and they just moved everything to the G fund, and they’re only 55 or 65 years old. Which in my mind, means you’ve got another 40 or 50 years left of life ahead of you to invest. So I don’t know. I do know that you don’t tell your clients to move everything to the G fund. That’s just common sense. That’s not even financial planning advice. So that’s something just to be aware of. Don’t become too conservative too soon and also, think about what are you going to do with this money in your thrift? Don’t save that up until you’re 72 and then find out you have $144,000 required minimum distribution that you have to make.

Micah Shilanski:  And that’s not hyperbole.

Tammy Flanagan:        No.

Micah Shilanski:  That’s something Tammy and I were talking about right before the podcast for somebody. Yeah.

Tammy Flanagan:        Had a person who was in that situation. So yeah, do some tax planning if you’re retired and start thinking about the tax consequences of those TSP withdrawals.

Micah Shilanski:  Yes. And Tammy, one of the things… We’ve talked about this on previous podcasts and I know we’re talking about doing some webinars this next, this coming year. And we’ll probably talk more at this, but one of the biggest things, and I was talking recently with a client about this, is she came back… She’s a new client and she came back and pushed back a little bit on how we recommended putting things together. And she says, “Look, based on my age at 68 years old, I shouldn’t be doing this.” And I was like, “Well, hold on a second.” I was like, “What does your age have to do with anything?” And she’s like, “Well, all these articles I read, all this information talks about at these ages, you should do certain things.” And I was like, “Okay. Well, fair enough. At certain ages, we have to do things. Maybe it’s apply for Medicare. Maybe it’s we have required minimum distributions. Sure. Those are age-based, but investments…”

                           This is my own pet peeve so my little soapbox I’m going to step up on real fast. Investments are not age-based. They’re time-based. And this is different. So if you have somebody who is 68, that’s retired. Okay, great. They need a retirement portfolio. But if I have someone who’s 50 and retired, what’s the difference? They’re both retired. If they both need income coming out of their investments, well they need to have income coming out of their investments. So there’s not a great difference between it. So this is a bigger question of less on age and more on when do you need the money? So Tammy, to your point, if you’re already retired, you probably already have things set up this way.

                           And that also means for our employees that are listening, they’re actively working. Great. When do you want to retire? If you want to retire within the next five years, I’m a big proponent of saying, “Let’s get buckets set up, let’s get your income plan set up. Let’s make sure you know when that’s going to happen” because this last year was great, things went up. I love it when things go up. It makes my client conversation so much easier. But when the market goes down… Not if. When the market goes down, what’s your game plan? What are you going to do? And if you’re betting on the C fund, and this isn’t an investment advice, everybody knows that, right? This is just a podcast. But if you’re embedding on the C fund to always go up and you’re going to sell at the peak, and then you’re going to buy back in at the bottom when it crashes, just one question for you. How did you do in 2008?

Tammy Flanagan:        Yep.

Micah Shilanski:  All right. There’s my little soapbox, sorry about that.

Tammy Flanagan:        I totally agree.

Micah Shilanski:  All right. The other thing Tammy, that I was really thinking about, was spending for this coming year. And saying, “You know what? For 2022, January, February or so when we’re in the year…” It’s kind of a good thing to look at and say, “Great, what’s our spending plan?” This goes right into what we were talking about with investments of saying, “What’s our investment plan? But what’s our spending plan?” Now, I’m careful not to use the B word. Not budgets.

Tammy Flanagan:        Budget.

Micah Shilanski:  Exactly. So not trying to talk about a budget, but saying, “What are you expecting to spend this year?” Where I find clients make mistakes with this, is we talk in January and February. They’re like, “Oh, well this is what I spent for December.” So then they project out for all year. Well, Tammy, I don’t know about you, but December’s a little expensive for me.

Tammy Flanagan:        Yeah. Yep. It usually is. It’s a time not only for the holidays, but also just for certain things like taxes and you’re doing different types of charitable contributions perhaps at the end of the year. So it’s not a good month to really, I think, gauge for the whole year. I think looking at an average is what I try to do sometimes, is to think about, “On average, what did I spend on a given month?” Or what I typically spend on groceries or gasoline, or just the day to day things. Not those things that come up just once a year.

Micah Shilanski:  Yep. Perfect. I agree. Well, Tammy, the other thing… I’m going to pivot here just a little bit, but the other thing that comes up in Christmas time is? Changes in your estate planning documents. Now, you might laugh at this. But when I talk to my estate planning attorneys, the most freak… Their busiest time, phone calls coming in is either right before Christmas or right after New Year’s, they get the most people contacting for change of estate planning. So I was asking them, “Why?” And it was very simple. “Well, I spent time with that family member and now I want to make a change.”

Tammy Flanagan:        Like, “I don’t want them to be the guardian of my child.”

Micah Shilanski:  Right, right. Or it’s you reconnect, we could say this on the positive side as well.

Tammy Flanagan:        Yeah.

Micah Shilanski:  But January is also a great time to pull those documents off the shelf and say, “You know what? It’s been 10 years since I looked at the will, 10 years since I’ve looked at my trust.” And often, we get into this habit… And I’m raising my hand. I’m guilty of this. Tammy, I don’t know if you are as well. Of saying, “Oh, well. It’s fine.”

Tammy Flanagan:        I have the card for my attorney, my estate planning attorney sitting here. And it’s been here for three months so I’m going to put that on my January calendar, too.

Micah Shilanski:  Perfect. Yep. Put it on the January calendar, it’s time to get done. Pull this stuff out and review it. Let’s make sure it’s correct. Is your money really going where you want it to go? Is it making the impact you want it to make? If it is, wonderful. Then don’t change anything. If it’s not, yep. Let’s go meet with that estate planning attorney. Let’s go talk with that financial advisor. Let’s go through this again and let’s make sure your money makes the impact you want it to make.

Tammy Flanagan:        I had two things I wanted to add to our little discussion on investing for the beginning of year. So one, is… And these are kind of questions for you Micah, because I’m not sure. One, is I think I know the answer to this one. The TSP amount you can contribute did go up for 2022 by $1,000. Right?

Micah Shilanski:  It did.

Tammy Flanagan:        So instead of $19,500, it’s $20,500. The catch-up contributions if you’re 50 or older, stayed at $6,500. So grand total, what? $27,000 for next year.

Micah Shilanski:  That’s a lot, right?

Tammy Flanagan:        A lot.

Micah Shilanski:  That’s an outstanding increase that you can put 27… If you’re over 50 or older, you can put $27,000 away into that thrift savings plan, which is a spectacular thing to be able to do. So back to that 50/50 conversation. Everybody can put a little bit more money in this year, which is a beautiful thing.

Tammy Flanagan:        Yeah. And then my second, this is a question I don’t know the answer to but I think you do. So let’s say I just retired and I’m getting my lump sum annual leave payment for my payroll office. I know I can’t put that in the TSP, but could I contribute that to an IRA?

Micah Shilanski:  That’s a great question. 100%, you can. An IRA or a Roth IRA. So what are the limits? What are the IRS limits? You must have earned income. Well, guess what? Getting cashed out for leave is considered earned income. It’s still subject to FICA tax, which is the general definition of earned income. If it’s subject to FICA tax, you can normally do these things. So if you retired on 12/31, I’m making up dates, then on January 10th, you got your leave cash out. Absolutely, we can fully fund a retirement account. Maybe it’s a Roth IRA you can put money into or potentially, a traditional IRA. For you and your spouse, even if your spouse is retired, as long as you have earned income, you can contribute 100% of your earned income to the cap for you and your spouse. So you can each put seven grand in an IRA account.

Tammy Flanagan:        And that would go towards 2022, right? Since I received the income this year.

Micah Shilanski:  Yes.

Tammy Flanagan:        Okay.

Micah Shilanski:  Yes, ma’am. Mm-hmm (affirmative).

Tammy Flanagan:        That’s what I thought, but I wasn’t sure. I knew you would know the answer to that one.

Micah Shilanski:  All right, got that one.

Tammy Flanagan:        Okay. I knew you’d know.

Micah Shilanski:  Well, Tammy, the last thing I wanted to throw on here just a little bit, is what we call value adds. Some things that if you were working with us individually as clients, these are things that we would be helping and doing for you this next year. And then guess what? If you’re not working with us, that’s totally fine. But it’s still things you need to be doing this next year and making sure things are put together. So is it okay if we run through that real fast, then we’ll get to some action items?

Tammy Flanagan:        Yeah. Absolutely.

Micah Shilanski:  Okay, perfect. So the first one, is what tax information are you expecting? So one of the things that we like to do with our clients, is go through and say, “Great, what are all of their retirement accounts they should be getting a tax information from?” And put a list together. And this is really good whether you do your own taxes or you have a CPA do it, we call it our 1099 letter and it’s says, “Great. Where is it coming from?” So maybe it’s Schwab, maybe it’s Fidelity, maybe it’s Vanguard, maybe it’s TSB, what custodian? And what should you be expecting to come out of there?

                           Now, if you’re over 70 and a half and you listen to some of our other podcasts and you do this amazing thing called a QCD, a qualified charitable distribution, this is really especially to highlight for your CPA or whoever’s doing your taxes. Because when they get the tax form, when they get the 1099-R from the custodian, there’s no information in here that this was a charitable contribution. If you’re not familiar with this, this is a magical way that you can take money out of your IRA account and give it directly to a charity 100% tax-free.

                           There’s some catches in that, so make sure you go back and listen to one of our previous pods on that. But that’s a really powerful tool. So we like to list things out. Why do I like to do it in January? Because, it’s top of mind. If I wait till March, everybody’s busy in taxes, right? And I’m two months later down the road forgetting what happened in 2021. So we love to do this in January to make sure that we have a top of mind everything, and before people get busy. Tammy, what are your thoughts on that?

Tammy Flanagan:        Yeah. Well, first of all, yeah, I love the idea of the qualified charitable contributions. The only thing I don’t like, is that you can’t do it directly from the thrift.

Micah Shilanski:  Yep.

Tammy Flanagan:        So that would be money that you’re taking from an IRA and moving it to the charity. And that also can help keep your Medicare premium lower.

Micah Shilanski:  Great point.

Tammy Flanagan:        So I think that’s another reason why some people like to do that. I had another thought on my mind with what you were saying. Now, I can’t think of what it was. Oh, I know what it was. If you’re self-employed, as I am, getting those 1099s, you start to remember how much income you made last year from different sources. Because it’s like, “Oh no, I forgot I did a job for them or for this other person.”

Micah Shilanski:  Right. Right.

Tammy Flanagan:        And you start getting these 1099s. So making a list of what you’re expecting to get, I think is a good idea. I think you should keep that throughout the year saying, “Okay. Oh yeah, I just did that and I’m going to have a source of income I have to pay taxes on.” So—

Micah Shilanski:  That’s what we do for our clients, actually in the inside of our content record system. We actually put in there, a list whenever we think a client’s going to get one because then, we have it for the next year. So, yep. I love that idea. All right. Second thing we like to do, and we like to do this in Q2. So maybe say this April, May time period is, are you on track for retirement?

                           Now, we could do this at any time of the year but we like to be consistent. And generally, April, May is really good, because we have all the information already from last year and we have time to make decisions differently for this year. So it’s kind of a good sweet spot that’s there. So we use a bucket approach. How are we doing with distributions? How are we doing with income? What’s our spending plan? Are things lining up the way they need to be? Are the markets growing the way we like, did they take a big drop? All of those things, that’s a great thing to do in the second quarter. Again, that April, May time period.

Tammy Flanagan:        Yep. It’s also a good time to start to estimate your Social Security benefit, your federal retirement benefit. And there’s the nice calculators for Social Security that you can find at ssa.gov, or you can set up a My Social Security account and let them do it for you. So there’s easy ways to get those estimates. And a lot of agencies now have transferred over to kind of a do it yourself retirement calculator, I think it’s called the GRB Platform. I think it stands for government retirement and benefits, it’s the vendor that supplies that calculator. But a lot of employees can now go on and use that themselves. It’s not hard to do a retirement calculation. So start to think about how much service you have and how old you want to be at retirement. You could pretty simply, if you’ve passed second grade math level, you can calculate your retirement benefit. And I think we’ve had podcasts where we’ve talked about that in the past.

Micah Shilanski:  Very much so. Yeah, and you can search those right on our website. So any questions on that or how to do the calculations, we have articles on there and Tammy does as well. Which is great. So planyourfederalretirement.com and then Tammy and I have done a lot of content right on that to make it easier. I’m scrolling with my hand, as if you can see that listening… Sorry, but there’s a bunch of content on there that’ll help you out. Well, Tammy, the third one that we like to do in Q3, so probably August time period, July, August is a long-term care review. Now, this one rotates every year in what we’re going to do. But this is the year that we’re going to go through and look at all the clients long-term care. Whether you have it or not, it doesn’t matter.

                           But great. What is long-term care cost in your area? What plan do you currently have, if none? What’s the balance and what are some alternatives? Do you plan on using home equity to pay for your care? Do you need some type of alternate insurance? Can you get traditional long-term care insurance? These are things that even though you’ve made a decision about this, maybe you bought this 15 years ago, this is still worth reevaluating. Because 15 years ago, maybe you bought a policy that was phenomenal but today, it’s only going to pay for 30% of your care. That’s realistic. So you need to know what these numbers are.

Tammy Flanagan:        Yeah. Long-term care planning is so important. And I think this is one of those things that’s so far into the future, it’s hard to visualize and it’s hard to put a feeling around that. Because when the day comes and somebody needs long-term care, the reality of it is so much different than what we might have planned 20 or 30 years ago. And the other thing I think is important to start thinking about in terms of long-term care planning, is aging in place. Nobody wants to move to a nursing home, nobody wants to move to assisted living if they don’t have to.

                           So maybe at the same time you’re doing your, “What if?” Situation, also think about if you’re in that forever home, is that a home that you can age in place if you should need assistance? If you need help with dressing, bathing, and feeding and those kinds of things, is there a place for someone to live with you as a caregiver? Are the doorways wide enough? Is your floor… Is your house full of steps and stairs? Is that going to impede your ability? So some things to start thinking about,

Micah Shilanski:  Tammy, one that I didn’t even think about out there is trip hazards. If you have hardwood floors and then a rug. And really, as we get older, we start shuffling our feet, that becomes a trip hazard. And actually, I think I got that from the AARP article that they put out. I’ll put a link to it again, if you go to planyourfederalretirement.com/42, that’s this episode, we’ll put out a link on there to that article as well. It was great. It was like the seven… I forget the number. It was a bunch of things you can do to age in place in your home, but it was very insightful.

Tammy Flanagan:        And one other thing I’ll mention there, is that people can check with their local area agency on aging. And everywhere in the country, you’ll find a local area agency on aging. And sometimes, they will provide someone to come out to your home. Especially if you have a situation now where you’re thinking about, “I need some help.” And they’ll do an evaluation to say, “You need to take those rugs up. You need to put grab bars.” And in some states, they even have resources to help you with that so they can come send someone out to install those grab bars. So something to look into, especially if you have relatives who live in another state. I did this for an aunt and uncle who lived in California and they were so happy to have that. And they got tickets to go get rides to the doctors and the hairdresser, and they got someone to come out and install those grab bars. So you never know unless you ask.

Micah Shilanski:  And this is something between 70 and 75 that’s just on our calendar when we have clients… When we really push to have clients do this. Do it before you need it. I love having a third-party come in… For the budget for this Tammy, what we generally tell clients, is take one month of a long-term care nursing home expense in your area. So if it’s 15 grand a month, great. There’s your budget, 15 grand. Because if we can prevent you going into a long-term care home, do it. Forget the financial cost that you just saved. Think about the lifestyle aspect of it. So yeah, these are huge things to make sure you’re doing.

Tammy Flanagan:        Absolutely.

Micah Shilanski:  Okay. I love it. Then the last area, this is kind of Q4 so September, October that we love to do with clients, is tax planning. Is saying, “Great…” Now, we already did a little bit generally at the beginning of the year, “Where are we going out with this year? Let’s make sure there’s no big red flags that are there.” But September, October, we have time to do stuff left in the year. You have time to do Roth conversions, you have time to do Medicare planning, you have time to do some other things. And we have a better idea of knowing what tax laws are going to be.

                           Up until the end of 2021. We thought there was going to be a tax law change. Is it going to happen? Is it not? Well that got punted. So we didn’t have to worry about it for 2021. But if you make a bunch of tax changes, do Roth conversions, other big things in January, then the federal government… Well, Congress changes tax law on you in December. You might have shot yourself in the foot. So we generally like to queue things up and have it ready to go, but not really execute on our tax planning until the end of the year because Congress is notorious for that. I don’t mean this in negative sense, that’s just when they make the change, when they have the deadline. Yep.

Tammy Flanagan:        Yep. Yeah, that’s true. And there’s so many things that start coming out in that timeframe, whether it’s health benefit premiums, Medicare rates, cost of living adjustments. So you start hearing all this news about what’s going to change in the coming year, and so you can prepare for that during that timeframe.

Micah Shilanski:  I love it. All right. Tammy, let’s transition a little bit to action items. Sorry, our podcast listeners, we’ve gone a little bit long. We try to keep this on 30 minutes and I know we’re pushing it. And we actually didn’t even cover half the stuff that Tammy and I had on our agenda to cover. Which is always funny. Because when we start this, we’re like, “Is this enough for a podcast?” “I think so.” And then we barely cover half of it.

Tammy Flanagan:        Right.

Micah Shilanski:  So Tammy, let’s transition to action items. I’m going to go first. I’m going to say, the number one thing our listeners can do, is pick por two things max that we talked about today and get them on the calendar to get them done.

Tammy Flanagan:        Right. And since it is January, look at that paycheck, look at that retirement statement and see what’s on there. Make sure you understand what those withholdings are.

Micah Shilanski:  I love it. Last thing, third action item I’m going to put on there. What’s your savings plan for retirement? And if you’re borderline you think you can save more, just do it. Throw a little more to Roth IRA, put a little bit more money in the TSB, $50, $100, whatever that’s going to be. Guess what? If it’s too much, next month you can change it. But what if it works? What if you were able to put that extra $50, $100, $200 a month away and you didn’t notice it? Do you know what? That’s going to have a dramatic impact on your retirement in a positive way.

Tammy Flanagan:        Yep. Yeah. Because I think we don’t realize that we pay less taxes if we put more money in a pre-tax account. So it doesn’t hurt as much as you might think.

Micah Shilanski:  Amen. Well, perfect guys. That’s the episode for this week. Thank you so much for listening. We’re excited for an amazing 2022. Go ahead and take actions with these things and until next time, happy planning.