#96 What is The MOST Important Part of Your Pension?

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There are a lot of complexities in federal retirement benefits and retirement planning. Let’s unravel the key aspects and pitfalls associated with them!

In today’s episode, Micah and Christian discuss the importance of understanding federal retirement benefits and avoiding common mistakes. They highlight the significance of understanding cash flow as the heartbeat of retirement planning and explain the FERS annuity benefit formula, breaking down how factors like creditable service, high-three salary, and pension multiplier converge to determine your gross unreduced benefit.

Tune in to find out the common mistakes and get actionable insights on how to navigate your federal retirement planning with confidence.

What We Cover:

  • Cashflow, the heartbeat of retirement
  • How to calculate your FERS Pension (Annuity) Benefit
    • Creditable Service (Years, Months + Days) x High 3 x Multiplier
  • Minimum Retirement Age
  • The difference between Social Security and FERS Supplement
  • COLAs
  • Most common Mistakes

Action Items:

  1. Create a Retirement Income Timeline 
  2. CSoFS
  3. Strategy to reduce your taxes

Resources for this Episode:

Ideas Worth Sharing:

But this is what's really important that if you go to retire and OPM incorrectly calculates your creditable service retirement, what's the document we can rely on to prove creditable service? It's not your LES, it's not your W-2. It is your… Click To Tweet

But then there's going to be things around the FERS supplement and those benefits, how long those last and when it starts and when it stops and some of those limitations there with our earning potential and having that be reduced. – Christian… Click To Tweet

A rule is something I could find in the FERS CSRS handbook or a BAL, benefit announcement letter. If it's not in there. It probably does not count towards your retirement. – Micah Shilanski Click To Tweet

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Micah Shilanski 00:45
Welcome back to the plan your federal retirement podcast. I’m your co-host, Micah Shilanski.
And I’m excited to talk to you today and talking about a lot of great stuff is beginning of the
year, but really kind of diving in more depth into how your benefits work. And, now, as boring
as that sound, we’re trying to make it as exciting as we possibly can. Because these are key
benefits that you need to know and more importantly, it’s mistakes that we find and how to
avoid them and to help me out with this. I invited back a reoccurring guest, Christian
Sakamoto, Christian How you doing, bud?

Christian Sakamoto 01:16
Micah, I’m doing well enjoying the wintertime here in Washington State. How’s it up there in

Micah Shilanski 01:22
Oh, come on. It’s our winter wonderland of paradise. We’re actually getting light now. I want to
say how much light we have. Well, that was the that is a mystery but we’re dealing right now
versus losing light so we always like that. So definitely winter for us but we enjoy the winter so
not too shabby.

Christian Sakamoto 01:38
Very good.

Micah Shilanski 01:38
And Christian, Boy I think you might have been here for but one of the times that not one of

And Christian, Boy I think you might have been here for but one of the times that not one of
these we always look forward to in February is the start of the I did a rod which is famous and
they have the full fur day which is right before that. So it’s a giant Winter Carnival. And for
Ronnie’s like rendezvous so it used to be when the fur traders got together and exchanged all
there fur, we don’t really do that one part today, but it’s a big winter carnival so all the things
you think at a carnival are outdoors, and the temperature can vary. It can be like 40 degrees
positive and we’ve been at when it’s 20 and 30 below right so you got a big temperature swing
depending on the year when it could be but it’s very and Alaska thing everyone gets decked
out in their furs and you go out and you just enjoy the cold and the carnival, having a great
time. So there’s always things to do in the winter which is amazing.

Christian Sakamoto 02:23
That’s right I have been to it my kids enjoyed it last time so if you haven’t been to Alaska to try
to come in February and that would be a fun thing to do at the bucket list.

Micah Shilanski 02:33
All right, the February’s Christian’s advice by the way I tell people the last two weeks of May
the first two weeks of June that’s the most but yes, is still pretty fun. Well, Christian, I don’t
know of a good transition from that back to our topic today. So hard left hand turn for us. But
yes, let’s jump on to not just Alaska benefits, but federal benefits. And this is something that’s
so so important, because again, these are mistakes that we see. So we’re going to talk a little
bit about 2023. We’re working with hundreds of federal employees, wait, I guess that’s an
incorrect number, 1000s would be a more correct number 1000s of federal employees directly
and indirectly 10s of 1000s right through the podcast or the YouTube through the articles that
we write etc and really wanted to make sure we’re honing in our benefit skills but also pointing
out common mistakes that we see that keeps you entertained we’re gonna make sure we hold
those mistakes that back into this podcast for your there. But Christian, let’s kind of dive
through this kind of one bullet point at a time as kind of what are some key things and if it’s
good for you, I think what we do is we start off with kinda the number one thing that often gets
best when people are thinking about benefits is they’re not taking a step back and thinking
about the heartbeat of their retirement, are they?

Christian Sakamoto 03:47
That’s right, and what is that heartbeat? Well, if you’ve listened to the podcast before it is
cashflow, and for our clients when we’re working with them, we’re always checking in on what
cash flow is. And we do say this is the heartbeat of your retirement planning. And it’s so so
important understanding what money that you’re bringing home right now whether you’re
working or not and how much you’re spending as a household. And if we don’t have a good
handle on it, then all these other planning opportunities that we want to do or understanding
what our pension values are going to be, they’re going to make a lot less sense if we don’t even
know how much we’re spending right now.

Micah Shilanski 04:27
Amen. Right what we’re solving for at the end of the in between your pension, between your

Amen. Right what we’re solving for at the end of the in between your pension, between your
TSP distributions, when to turn on Social Security, how to do tax planning, at the end of day
we’re solving for cash flow. We’re solving for how do you have the retirement that you want to
have. As we already know, when we have enough cash flow life is great. I get into a lot of
amazing things. When I don’t have the cash flow I want coming in it’s like Oh, alright, this is
painful. So how do we kind of get past those things? So number one, always be intentional
about what we’re solving for. That’s kind of a really big thing. Christian, I know you run into this
too, but I have clients or new clients who will come in and be like, Micah, where am I compared
to somebody else my age? Where am I compared to someone else five years from retirement?
I’m like, Well, do you want someone else’s retirement? They’re like, No, I what mine was a
great, well, let’s not compare you to somebody else because it doesn’t matter. What’s right for
you to you. And are you on track for your retirement? Let’s stay focused in that lane.

Christian Sakamoto 05:22
Agreed. Very much. So. Well, let’s transition now and after we know what cash flow is assuming
we know that, we need to now look and see what will that FERS pension, the annuity benefit,
be? What is that and how is that calculated? So the benefit is a very simple formula. We take
your creditable service, your years, months and days of credible service. We multiply that by
your high three – the highest 36 consecutive months in federal service and then we multiply
that by whatever your pension multiplier is. For a lot of you it’s going to be 1%. For some of
you, it’s 1.1%. Could be 1.7% for special provisions, maybe even foreign service. So again,
credible service times high three times your multiplier. That number will determine the gross
unreduced benefit. unreduced pension benefit, right again, key word there gross. So we’ll in a
little later bit, talk about what we need to do to get to net but that’s very helpful as we have to
first understand how is that benefit calculated.

Micah Shilanski 06:40
That’s right, right, that understanding what that Creditable Service time is, this is gotta be
something we talk about a lot, but we keep seeing mistakes about it, right? So we’re gonna
keep talking about these things. But in short, creditable service is time that you’ve paid in to
the Federal Retirement System. Right, that is the short answer of it. And if you have time you
did not pay into the Federal Retirement System. Well, then we might have a little dispute or a
little question about is that creditable service or not? So that’s the number one thing is figuring
that out, is it straight FERS time, have you bought back the military time? It’d be a FERS
haven’t made a deposit or redeposit for any FERS time, your sick leave Of course, as we know
you’re sick leave doesn’t count to make you eligible to retire but sick leave now counts.
Towards your pension in retirement, which is absolutely fantastic. So we love the aspect of
looking at that creditable service and in order to help with that we always recommend two
things. Number one, make sure you go get every single SF 50 You are ever issued. Now, and no
in this case, people are like oh my gosh, that’s 30 years of service. 25 years of service. That’s a
ton of SF 50s. Yes, you are correct. But this is what’s really important that if you go to retire
and OPM incorrectly calculates your creditable service retirement, what’s the document we can
rely on to prove creditable service? It’s not your LES, it’s not your W-2. It is your certified
summary of federal service. It’s your second assignment, or your SF 50 – your notification of
personnel action. You got to make sure you have those SF50s. Now the other one I snuck out
real quick was that certified summary of Federal Service for the form numbers drawn? A blank

for me, but it’s in the retirement paperwork. And that’s a really important one that you request.
And you make sure you get now it’ll be your HR documenting, hey, how much credible service
do have or not have for retirement.

Christian Sakamoto 08:35
That’s right. That’s right. And then once we have your credible service, assuming we have your
retirement service computation date, then we can go through and see what are those
retirement dates that we need to meet for an unreduced immediate pension. Another piece to
this is knowing what your MRA is, right? And your minimum retirement age is very important to
in order to meet those dates, because if we want to retire without having a pension that is
going to be reduced. The name is drawing a blank for me Micah, do we know that the name for
the pension if we retire before MRA?

Micah Shilanski 09:16
Yeah, if you retire before MRA, then it’s a deferred retirement, right? Separate before your one
of your gates, right. So you got your three different gates, you got your MRA in 30 years of
federal services. Let’s say your MRI is 57. So it’s 57 and 30 years of federal service. It’s age 60
with 20 years of federal service or age 62 With five years of federal service. So those are our
gates. And if you don’t meet those you want to leave early. The great news is you can but then
you go into this deferred retirement and then Christian there’s there’s some pros and cons of
the deferred retirement right. The Pro is you still get a pension but there’s a cost to it isn’t

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Christian Sakamoto 11:01
Yeah, yeah, there is for every year younger than 62, there would be no health insurance, which
is another big key indicator there that we don’t get to keep your FEHB under a deferred

Micah Shilanski 11:14
Amen. That’s the big one we really got to watch right is that is that lack of health insurance to
qualify to keep health insurance or retirement and health insurance here is talked about is one
of the best benefits that you have. So understanding these rules, right. What is the deferred
retirement? What is a full retirement? What is a postponed retirement and are you eligible for
those things is really, really important.

Christian Sakamoto 11:39
That’s right.

Micah Shilanski 11:40
So Christian, let’s talk a little bit about you know, we talked about the MRA. Right, and that’s
just a simple chart, what year were you born and the MRA kind of kicks in? It’s set up for that,
but then we’ll talk a little bit about Social Security and the supplements. There’s a lot of
confusion that kind of come right around here is of course as you know, your benefits are based
on three things right? Your benefits are based on number one, a pension number two, social
security number three, your TSP – your Thrift Savings Plan. Now you can retire at 30 years of
service and 57, your minimum retirement age and you can leave which is great, but your Social
Security doesn’t start to your 62 so you can get a supplement, which is calculated based on
how long were you a civilian federal employee, divided by 40 times your age 62 Social Security
benefit, and you get this additional income that comes in from retirement to age 62. Pro and a
con I’ve done a lot of FERS federal fact checks about this as well is that it comes with an
earnings limitation. So if you make more than what’s roughly $22,000 a year in 2024 to make
roughly more than that for every $2 above that they’re going to take $1 away from your
supplement not your pension, but your supplements you got to be careful. And then the
question really becomes too with a supplement is when do you turn on Social Security? So
question to ask yourself is Do you have a idea of a strategy to take your Social Security? If you
don’t have a strategy for it? It may be worth a discussion about saying okay, you have an age
range between 62 and 70 to turn on your social security income. That doesn’t mean when
you’re 62 you should necessarily just turn it on. There’s pros and cons to think about. So what’s
the strategy for maximizing that Social Security benefit not just for you, but if you’re married
for your survivor as well because the decision you make affects your survivors, your spouse’s
Social Security income potentially. So we really got to think about what that is. So you got your
FERS, you got the supplement, you got social security, these things are really important. And
the Christian we also have if you retired at 57, you’re really not going to get set up for a cost of
living increase or a COLA adjustment till several years later, right?

Christian Sakamoto 13:40
That’s right. So if you did retire with an MRA plus 30, or 60, we 20 those COLAs don’t actually
start until the December after you turn 62. And that’s when they start getting calculated and
it’s applied then in January. So there could be several years there where your pension does not

go up with inflation. And if we’re looking at kind of where inflation has been more recently that
could have a big impact in your overall cash flow plan. If you retired and you didn’t get any
COLAs, and oh, by the way, inflation was 9% Back in 2022 and 3.2% back in 2023. Right so,
gotta have a plan for that. That COLA as well. And understanding that it doesn’t actually kick in
until 62.

Micah Shilanski 14:27
Yeah, so we get this gap in time. Right. Then there’s we talked about before the COLA isn’t the
full COLA, it’s that diet COLA, right? Yeah, if it’s between zero and 2%, you’re gonna get it but
assuming two and 3% You only get two if it’s above 3%. You get 1% less than COLA. And so
your pension is designed not to keep up with it. So not only is it a delay, it’s going to take a
while for it to kick in, but essentially, it’s not going to be the full amount. Now Christian, let’s
say you retire at 57 Your pension come in, there’s no COLA till 62. Trick question: Does that
means your pension stays level for that five years period of time? Your net pension?

Christian Sakamoto 15:05
Yeah, that’s the that’s the trick question right is the net pension. So unfortunately, it would
even decrease because what we’re seeing is with inflation on your health insurance benefits,
the FEHB, those go up every single year right? We could definitely see not only a level pension
but also a probably a decrease again as the health insurance companies ask for more money
every single year. Right? So we got to be having a plan for those years between whenever you
retire in 62.

Micah Shilanski 15:38
Amen. Right. So your cash flow is going to go down. So what’s the plan to to change especially
when we have inflation like we’ve had in the last several years? So Christian said good kind of
transition for us to move into mistakes that we see and there’s a decent amount of mistakes
that can give me, now odds are right, so don’t want to be an old naysayer. Odds are you’re
going to retire with no mistakes. The odds are in your favor that you’re going to retire,
everything is going to go over fine. OPM is going to correctly process your pension and you’re
going to get what you what you expect out of it. However, there’s a substantial chance north of
20% that you could retire with an error in your pension and where we get these stats from? We
get these stats from OPM. OPM every couple of years releases where they’re at with retirement,
how many mistakes that they know of that were made. Why do I say that? They know because,
well, they can’t report the ones they don’t know about. And there’s a lot of mistakes to get
made in retirement. So odds are pretty high that you won’t have one. But there’s also a
significant chance about one in five, you’re gonna have a mistake in your retirement. So
Christian, let’s run through some of these ones that we see. And again, it’s very similar that we
talked about number one, I’m going to say is creditable service just we’re talking about the top
of the podcast, so important to know what that is. Right along those same lines. I’m going to
say it’s the divorce decree. Right. And this isn’t so much an OPM issue. Sometimes it is.
Sometimes OPM does not, in my opinion, read the divorce decree correctly, and we have to
work with them for months if not years to get it fixed. Yes, right. You heard yours, but a lot of
times it’s clients not understanding what that divorce decree says. You read it the way you

want to read it, not the way it is written. And unfortunately, we have to be the bearer of bad
news. When we get that divorce decree from you and you’re like, Yeah, my pension. My ex wife
doesn’t get anything. And I’m looking at this and it says no, but she doesn’t get anything she
gets half 50% is what No, no, it doesn’t say that. And we got to go through the agreement line
by line. And sure enough, that’s kind of what it looks like. So really understanding that what you
think your divorce decree says. But what is someone else who understands this think your
divorce decree says.

Christian Sakamoto 17:39
Absolutely! Well, another possible mistake could be just having the wrong high three or
knowing what the high three expectation could be. Right? So it’s going to be your base pay,
which is including your salary plus locality, but it’s not going to include things like bonuses or
any of those overtime hours rise. We got to know how your high three is calculated and making
sure we have that accurate number going into retirement as well. And I would say though,
when I’ve seen those retirement estimates get put together from various HR departments, they
usually do a very good job knowing what your high three is that that’s very easy for them to put
together. So I’ve seen them do a good job. I’ll give them kudos for that. The HR departments
when they put those estimates together on the high three.

Micah Shilanski 18:27
Other one oh, sorry, Christian looks at you. We’re gonna go right for it. Go for it. buddy.

Christian Sakamoto 18:30
Yeah, part time this is a possible mistake that we could be thinking about if we had a history
where we’ve worked part time in the federal government. There’s a particular multiplier that we
have to apply to our multiplier that I mentioned earlier, that 1% 1.1% or whatever that
multiplier is for you. So it’s a prorated number if we’ve worked part time, we take your total
hours worked in FERS, and then we divide that by the total possible hours that could have been
worked in FERS during the time that you worked. And if it’s 100%, you didn’t have any part
time, then we get a 1% multiplier, for example, but if there was, you know, 10% of the time
we’re working part time, then it’s going to be up, you know, 10% reduction in that 1% It’d be
point nine, which our multiplier would be so that’s another one I’ve seen that clients will
sometimes forget about, as well as that part time multiplier.

Micah Shilanski 19:26
Yeah, really important. Right. The next one I’m going to say we had talked about it as gross
versus net. Yes, I know you hear us talk about this as just as much as taxes as well as inflation,
etc. And cashflow but gross versus net is so so important because we still see this mistake. It’s
not what we think our pension is going to be the gross is how much are we getting at the end of
the day, and putting together that retirement income timeline. What’s that goal? Desire? How

much a month do we want an income? where’s that going to come from on a net basis? So, so
important, and then Christian, another part of this is kind of not understanding how your
retirement works, right?

Christian Sakamoto 20:03
Yeah, that’s right. Either it be the thresholds you need to meet MRA and 30, 60 with 20, 62 with
five or maybe it’s MRA and 10. We’re doing a postpone retire, maybe we’re doing a deferred
retirement, which I was blanking on the name earlier. Right. But we need to understand what
those those dates are in order to know what our pension will be. But then there’s going to be
things around the FERS supplement and those benefits, how long those last and when it starts
and when it stops and some of those limitations there with our earning potential and having
that be reduced. We talked about the COLA as well a bit ago and having the cola possibly go
reduce our pension quite a bit for not having COLA up until 62. If we were retired earlier than
that, so yeah, we got to really understand those rules for retirement.

Micah Shilanski 20:51
Yeah, right. In other words on on those momentary brain lapses is so funny, you know, all this
stuff. Then you go live and you hit the record button and those little things just tend to kill out
of your mind. It happens to all of us, amen. Um, the last thing I’m gonna say all the mistakes
and this is gonna sound crazy, but please bear with me. And our listeners for a long time will
know we brought up this multiple times, following the union of HR and OPM versus the rules
that govern HR and OPM. There’s a huge difference between this and we’ve encountered
several examples working with people that they followed what they felt was a rule but really
was an opinion from someone that worked in HR and OPM. Not a rule. What’s the difference? A
rule is something I could find in the FERS CSRS handbook or a BAL, benefit announcement
letter. If it’s not in there. It probably does not count towards your retirement. I don’t care if your
HR sent you an email that says it’s good or OPM sent you a letter that they signed that said,
this is how it works. There’s multiple times that we could bring up mistakes have been made
and opions responses Hey, even though that’s what we said we were wrong, you’re responsible
for knowing the right thing, you don’t get this benefit. So it’s pretty brutal. This responsibility is
on you and understanding what that is even going to stuff Christian and I say right, we do our
best to screen our content and make sure it’s great giving you guys the best opinions and
advice that we can but before you go to retire, hey, where are these facts? If there’s anything
that’s outside the ordinary that you’re hearing, man back this up with facts? Where’s it in the
handbook? How can I count on this if something goes south. Really, really important to know?
Well, Christian, this podcast is all about action items, not just you and I getting the gym to have
fun, but some important things. So I’ll kick it off the first one. And I’ll say the first action item. We talked about it in concept but not too much in depth but the retirement income timeline. I
gotta say this is such a valuable tool. For our clients to really understand where their income is
going to come from in retirement, when can they count on it? And more boldly, when does
certain incomes go away? So if you’re not familiar with that, make sure you find out more on
our website, plan-your-federal-retirement.com Get information how this works, and make sure
you create it for yourself or have someone help you with it.

Christian Sakamoto 23:05
Very good. Second action item certified summary of federal service Go Go request that from
your HR. The form number is SF 3107-1, it is part of your retirement paperwork. And so it is
something that when you go to retire they will be putting together for you. But as it is the
official form to determine what your retirement service computation date is. And it’s very, very
important and if we can do that now while you’re still working, instead of waiting until you’re
retiring to find out what your official RSCD is your retirement service computation date is that is
a win. So I again, highly, highly recommend getting that certified summary of federal service.

Micah Shilanski 23:51
Number three, I would throw on there. I know you’re getting ready to do your taxes for this
year. What’s your strategy for reducing taxes in the future? I know one of the things I was
running into and you’re in we’re working with a client who was making a lot of income, and the
CPA is very much against any proactive tax planning. All they want to do is reduce as much
taxes as they possibly can today. I’m like, that’s great. But in the three years when all these
other things happen and our clients taxable income goes up, they’re going to be paying more
taxes and they’re paying now why don’t we do some tax planning around that and you really
can’t get your mind wrapped around it. So we’re kind of struggling with this. But you got to
have an advocate in your corner you or somebody else, but you got to advocate for how over
the long term, not one year at a time, the long term are you going to reduce that Bill you’re
sending to the IRS? Super super important to be figuring those things out. Alright, Christian,
this is always a blast. I really enjoy getting on and be able to jam on the podcast but these
great federal benefits. Our listeners, you know our goal we want to help another 1 million
federal employees with retirement click that share, smash that like button, help us out as best
you can get this message out there to other federal employees because we want them to have
great information. Christian was great having you on the pod bud and this next time happy

Christian Sakamoto 25:05
Happy planning

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