#119 FERS Retirement Benefits, What Federal Employees Should Know in 2025

Micah Shilanski  00:00

Mike, welcome back to the Plan Your Federal Retirement podcast. I’m your host, Micah Shilanski, and with me today is a special guest my father, Floyd Shilanski. Pops, how’s it going?

Floyd Shilanski  00:17

Doing great son, doing great winter time in Alaska, snows on the ground, Northern Lights are blasting, it’s a great place to be.

Micah Shilanski  00:26

It really is, right? A lot of those misconceptions that we get all the time, for people, is that Alaska so dark, well, you know what, it’s kind of true, because our sun does go down pretty early in the day, and it takes a little while for it to come up in the morning, but as you said, we have that wonderful snow, and snow is that reflective, so if we get a little bit of moon, if we get some stars, out it’s actually fairly bright outside, which is nice.

Floyd Shilanski  00:47

I’m happy to be here son.

Micah Shilanski  00:49

Well, I guess today is not just about Alaska, although I think that would be a great thing to talk about for 25 we want to talk about some other things affecting federal employees, especially as we had an election this past year, now we’re seeing an administration change, what effects is that going to have? Now this is not a political podcast, so we’re not going to be jumping on that hot item, but I do want to talk about some concerns that we hear from clients, like, how do politics affect the market, what decisions should we make, what are we seeing coming down the pipe? Then pops, I think, from there really into some Social Security questions, because there’s a lot of talk right now on Social Security, will it really be there or not? And while we don’t write the law, we don’t know exactly what Congress is going to do, we got some thoughts and some opinions of at least, how to plan for this, and then wrap up with a nice cherry on top, which I mean come on, who doesn’t want to talk about taxes, right? Yes, we got to talk about taxes, especially with a lot of changes that could be happening this year.

Floyd Shilanski  01:42

You know Micah it’s interesting tax law, right? You know, thing about taxes is, it’s all written, so it’s a matter of interpretation, and then what we like to do is interpret it, you know, for the benefit of our clients, but the crazy thing is, the IRS has an electric rubber racer, right? So every time we figure things out, they go through and make changes, so changes in amongst us, for sure, but let’s talk about political side, January 13th, we’re having a change administration, good, bad or indifferent, and things that happen so many times that I’ve seen in my lifetime is kind of stirs the pot. Waters go up, waters go down as I talk to clients, it’s all radical this way, radical that way, but in my 50 years of doing this, the big thing is there’s really no change, there’s change, but there’s not change, and I try to get all my clients not to anticipate what’s going to happen or not happen, but let’s plan on only what we know today to make any decision that we’re going to affect our retirement.

Micah Shilanski  02:46

Amen, right? We got a plan for the things we know, and it’s super easy to get concerned emotionally on all the things that are going to happen. Boy, I can be on that same path, I get that, but we need to step back when you kind of take that long term approach, and administrations come and go, tax laws come and go, and when you say, great, how are things progressing in the long term? One of the expressions that I really like, and I think I took this from Nick Murray, I hope that’s the correct place to give this credit to, when people are concerned about politics, you know, kind of his answer is saying, hey, do you think Apple, do you think Google, do you think Amazon? In their board meetings are saying, hey, because of ex President, we’re now shutting down business? No, they’re not right, they’re still focused on the long term, they’re still focused on adding value to the members, they’re still focused on growing their businesses over time, and when you’re investing, that’s who you’re investing in, so yes, it could be in the US economy, in the markets, but all of those companies that do a really good job over time, that’s who we’re choosing to kind of run with those investments, and now, by the way, those weren’t endorsements for those companies, was merely for an example purpose, right? But we really got to think about that as administrations come and go, as Congress come and go, etc. How is this affecting our day to day life? And sometimes we get a little too caught up on that, and we step back and say, hey, what great decisions can I make that would set me up for retirement? Number one, cash flow. You’re talking about all the time, right pops, cash flow is king, it is the heartbeat of retirement, so if you’re getting a little concerned out there, awesome to get your cash flow control. Do you know what you’re spending and where that money’s going, do you’re savings in control, do you know where you’re headed from your retirement purpose? Sure, we can’t control the markets, but what are the things we can control, and are we really looking at those?

Floyd Shilanski  04:24

You know, as you’re talking to my mind is flip flopping all the way around political events now, in 2001 when the towers went down, I was working with a set of clients, you know, and the TSP shrunk that year because of the market term law. It postponed their plan retirement three years, waiting for the TSP to get back to that value. When I see them today, they say Floyd one of the worst mistakes I ever made was delaying my retirement cost right? So you and I know that as we talk with clients, we want to get them to marry their income where it’s at, and do the projections, but here’s the reality, most people don’t want to take a step back when they retire, so if you’re getting X amount of money a month, they want the same X amount of money in retirement, do balancing those things, so as all our feds know, especially the FERS, you’ve got three levels, right? You’ve got the TSP, you’ve got your pension, and what’s that other one Micah?

Micah Shilanski  05:21

Social Security, Social Security.

Floyd Shilanski  05:25

So we’ll talk about Social Security as we go along. You know, leading into Social Security, one of the things that I hear an awful lot about last year and this year already is man in 2030 Social Security is going to go bankrupt, time out, wait a minute. Define what’s your definition of bankruptcy? They got no money. Well, that’s not the case with Social Security. They still have money, but under the current projections, if something doesn’t change, they can only pay out approximately 80%, so if that’s your fear and you’re worried about it, you’re calculating Social Security in your retirement, reduce the calculation for 20% plan for the worst, if it happens, we’re ready, if it doesn’t happen, okay? I mean, those are things that we have to take a look at. Now, personally, for the last 10 years, I’ve been trying to fix Social Security. I think that’s only Floyd’s opinion, they will find a way to do that, all right? And then, right now, well, as of the close of the year, there were three bills introduced right, one was under the current administration, they wanted to start taxing again, anyone that made over $400,000 had to pay more money into Social Security. That’s an option out there. Regrettably, numbers just isn’t going to work to fix it, but I think will probably happen is they’re going to include 100% of your earning wages into Social Security, get rid of the gap, they did that with Medicare probably 20 years ago, that helps sure that system up. I think that’s a higher probability. Well, they,

Micah Shilanski  06:55

All righ, I got to pick on some of these words not get political, they didn’t sure the system up, they kicked the can down the road, right? And so that is the concern that’s out there as well with Social Security, is you’re right, right? The reduction of benefits, but it’s not fixing it, it is definitely kicking the can down the road, so again, that could be like a higher level there, I said, I’m not getting political, and I jump right into that, that’s going to set me up for that one, so I fell for it, but I would say it is the aspect of, what do we do today about these benefits? And pops, I love your point of view, right you had, I sort of pulled out for our listeners, that was, hey, if you’re really concerned about this, reduce your projections on how much you’re going to get in Social Security today. That’s a great idea, right? So if you think you’re going to get 2,500 gross from Social Security, and you think it’s going to be a 20% reduction, well, roughly, that’s going to be, you know, $500 so instead of $2,500 you’re going to be getting $2,000 so reduce that by 500 bucks a month, and see how those numbers work, because that is a possibility outside the same camp with you, I don’t think it’ll be that dramatic, I do think they will make changes in order to delay it, but again, one of the things to point out is there’s not a trust fund, there’s not a bank account with all this money in there for Social Security, it’s a liability on the general ledger, so that means we gotta have more money coming in in order to satisfy the claims, or massive spending has to be reduced in other areas in order satisfy the claims, right? So those are things that just mathematically, and I get political will mathematically have to happen in order to continue with our current set of liabilities. Do you know the difference between a postponed or deferred retirement and the massive impacts this can have on your federal benefits and your future in fact one of the best benefits you have as a federal employee might be in Jeopardy because of this. Many federal employees are unsure what path to take, unsure what things to do, that’s why we created a free course to help guide you through this process, and avoid kind of the top seven mistakes that we see from federal employees, so you’re going to avoid these seven mistakes, you’re going to learn these seven lessons in our online course designed to help you. Now why did we do this for free? Because I hate it when a federal employe has to contact me, and I’m reviewing what they did it’s like we could have avoided this mistake had we had been involved earlier, had you had  known this information you could have made a much better decision with your retirement, that’s why we’re giving it away we want to help transform your life as a federal employee, and give you that right information, so to sign up for this all you need to do is jump on our website planyourfederalretirement.com/applyingforretirement again that’s planyourfederalretirement.com/applyingforretirement, long name but hopefully it’ll be amazing results for you getting you that information that you need to help transform your life in retirement, till next time Happy Planning!

Floyd Shilanski  08:32

Micah here’s a reality, what can you and I and what can your listeners do to affect that change? Nothing, we can vote. Write letters to congressmen expressing our concerns, but it unfortunately, the minority is not going to be heard on this one, so if you’re worried about it, by all means, reduce it today, don’t take those great projections, and along with that, we’re as we’re getting ready to, you know, start putting stuff together to do your taxes, one of the things I always encourage my clients to do is that go to ssa.gov and pull down your earning statements from last year. Now it may be March, April, before they get 2024 posts, right? But that becomes part of the file, you don’t file it with the IRS, but I have all my clients run it off, drop it in that file, because let’s look every year and make sure they have exactly the same calculations. What was on the W-2 and I forget the line number six or seven, and make sure it matches that early last year, because you don’t want to get 5,6,7, years down the road and say, oh, I changed agencies and they forgot to do something important to keep track of that, like you do everything else as you’re ready and plan for that retirement.

Micah Shilanski  09:41

I like it make sure the money that you paid, if it Social Security, gets counted in your account, I think that’s a great one, know what your Social Security benefits are, I think it’s a great one, and then also, that’s kind of one of the benefits of delaying Social Security, if they have a reduction, then if you delayed Social Security, you’re going to feel that reduction a little bit less, because you’re going to get more dollars in your Social Security benefit. So again, there’s a trade off here, right? And I know we’re talking about theoretical, but we got to dial this back and pops I love what you said, it starts with where we’re at today and the decisions, so what things can we control? We can know our cash flow, right? How much are we saving for retirement, where’s our money going, how much expenses do we have? And if we’re worried that it’s not going to be enough because Social Security is going to be reduced, okay, well, what other levers do we have to delay retirement? Do we save more? Do we spend less? I know those aren’t all great things to talk about, but let’s talk about some problems. Talk about some solutions to these potential issues that are there, because I know they’re the things that keep some people up at night. 

Floyd Shilanski  10:36

You know, Micah, one of the things that I know you do as well as I do is that three to five years out for retirement time, what I try to do is get my clients and anticipating, let’s, let’s take a start trying to live off that retirement check. All right, if you’re having problems, it creates a gap. How do we solve that gap? Is it from IRAs, Roth IRAs, we’re pulling money out of to solve that gap, and if we get, in my case, the more clients I get living off of that projected income for that period of time they sell off into retirement. The ones I worry about are the ones that wait until six months ahead of time, oh, I gotta do that. I gotta do that. 

Micah Shilanski  11:14

It’ll be different when I retire, I’ll do it later. I won’t have a commute, I won’t have a travel budget, I won’t have a clothing budget, guys, those aren’t the things that’s probably killing it, yeah.

Floyd Shilanski  11:24

Right, you know, and I tell all my clients, and for the first year, I know you’re going to overspend, we’re going to overspend, overspend, overspend in about 18 months, about eight months into it, I want to say, let’s come back down to that baseline, because there’s travel, there’s this, there’s that, all those things you want to go do, and I don’t want you to not do them. That’s not a way of life, once we go unfixed income, very important to do that. 

Micah Shilanski  11:47

Yeah, now pop, so one of the things we’ve been talking about for years on the podcast, I know a lot of our listeners are really good at, is tax planning, right? Always thinking about taxes, because some of the largest bills you’re going to have in retirement is your favorite, and Iris, the IRS. So one of the things we talked about in the past is Roth conversions, right? How do you move more money into tax free? Well, this year is the end of our current tax laws 26 they expire next year they expire, they go up, they get repealed, the higher tax rates. There’s a very high probability Congress is going to be updating the tax laws this year. Now, what are they going to do with that great question? Who knows, but it’s something we need to watch out for, right? If we get closer to the end of the year and it looks like the tax laws are going to expire and they’re going to get repealed to go to higher rates, we got to be thinking about, what can we do to accelerate and pay more taxes today? Roth conversions as an example, to get more money growing tax free. So these are things that we can’t assume based on headlines. We know how the tax laws are going to go because headlines talk about just one or two pieces of tax code, but so often, after a tax law gets changed, I read the headlines actually grab the tax code, actually grab the law of when it gets updated, I’m going to go and read that and see what the changes are actually going to be before the IRS, you know, has to interpret it, has to apply them. I’m reading the actual law that gets placed, and a lot of times the headlines miss a lot of details, which makes sense, because they’re just headlines, right? So you really got to know when tax laws come into effect, how does it change my taxes today and the next couple years where people get bit is when we assume, we make an assumption on how this is going to work for us, and it comes out not to be true,

Floyd Shilanski  13:24

You know, like, I can remember when, back when we were doing seminars and we talked about defer taxes, you know, deduct, deduct, defer defer, because as inflation all, it shrinks those dollars out. You know, the toughest part was, I used to, I’m guilty of lying, because I would say, you know, when you retire, your taxes will be lower, that’s not the case, inflation.

Micah Shilanski  13:46

You didn’t lie, you not knowing something is not a lie, i don’t like how you said that.

Floyd Shilanski  13:51

I promoted that when you retire you have lower taxes, okay, without a doubt, but the reality, the reality is inflation has pushed the standard of looking up, and as it’s pushed it up, it requires more revenue coming, which pushes us, or compels us to be in a higher tax bracket, and you know what our job, I think my job, is to keep you in the highest tax bracket possible, because that means that our earnings and our tax planning is doing what it’s supposed to do allow those dollars to grow and compound, so when you do need them because you’re in a higher tax bracket and lease was rather, there was some place to pull it from to help offset those taxes.

Micah Shilanski  14:29

Yeah, that’s a good point. This tax diversification, right? Is is a really important piece of this pie. So what things do you need to do now, and why are we bringing up in January? Because you might ready to do your taxes. So if you’re getting ready to do your taxes, and your taxes and your taxes get done, let’s say you have a CPA that’s working on them, I would schedule an appointment for May or June with a CPA outside of tax season, and I’d say, hey, would you go back and look at my taxes, and based on if tax laws change right to what we know they’re going through those days expire, what type of tax increase would I have that could be a really good way for them to look at now, it might be hard for a lot of CPAs or taxpayers do this, because the tax software isn’t updated for that yet, so they got to be a little bit more forward thinking, but a good CPA or EA should be able to help you out with this.

Floyd Shilanski  15:11

You know, Micah, I love that point, go to a third party. Yes, when I look at my taxes, when you look at your taxes, maybe we look at them differently. Where you have a third party that doesn’t know us necessarily, they’re gonna go A, B, C, and not interjectable, this will be different, so I always like getting that third party opinion for sure, and then scrubbing it through what you think you know to make sure you can do the comparison. 

Micah Shilanski  15:44

I love it. For all of our listeners out there that got a pay raise or income change or anything that happens this year, remember our 50-50 rule, and I got this from my dad, is, whenever you get a pay raise, put 50% towards the future while the other 50% hit the bottom line, increase those TSPs, increase those Roth IRA contributions, anything you can do in that nature to help save as our spending goes up, what gets people in trouble is they can become really good savers, they put in a max dollar amount. hey, I’m going to hit this goal today, cap it at that dollar amount, but then over time, their income continues to go up, that means their expenses tend to go up, and they haven’t increased their savings at the same rate, they’re not on track for retirement, in order to be on track for retirement, as your spending goes up, your savings has to go up as well to be able to offset that in the future, so that 50-50, rule is a great one that we can take and implement.

Floyd Shilanski  16:29

You know, Micah, I don’t know about you, but I’m always amazed when I bring on a new client and I go, I’m maxing out the TSP, great, and then I get their tax return, and I get the W-2 and I’m going, you’re not maxing it out, oh, yeah, the only man, what’s, what’s the percent with the TSP? 

Micah Shilanski  16:45

5% 

Floyd Shilanski  16:46

Yeah, I get my 5% that’s not maxing it out, all right? And then there’s a whole different conversation where you get the one that says, yeah, they’re putting all they can in the TSP, and then they forget that they can fund, oh, I can’t fund the Roth IRA because I earn too much. 

Micah Shilanski  17:01

I make too mutch money. 

Floyd Shilanski  17:02

Yeah, but now I have to do it’s called the back door Roth, and there’s a way to do that. Oh, I didn’t know that. So there’s lots of opportunities if they get good advice, not just Google, but good advice, and say, how does it affect you? And one of the things that I used to call it a water fountain or coffee talk, you know, someone over here is doing this, I’m going to do that, I’m going to go do that, make sure that just what you want, not what your neighbor wants, not what your coworker wants, is it the best for you and your situation, that’s very important to understand.

Micah Shilanski  17:37

I love it. Well, Pops, as you’re talking about this, this is all about action items, right? So I love that first one. Next one I’m going to say is you’re getting all of your tax data together, which can echo what I said. Make sure you make an appointment with somebody in six months, in May and June time period, etc, review your taxes for the potential tax increase, know what those are going to be, so at least you’re not surprised as we get closer to the end of the year, don’t wait till 2026 hopefully the laws will be passed, and we’ll know at 25 what the tax law is going to be, maybe we have to wait till 26 right? We don’t know, but stay in tune of this, and don’t be surprised when your paycheck changes or you get a big bill at the end of the year, because you didn’t know the effect that that law had.

Floyd Shilanski  18:16

You know, Micah number three, and we didn’t talk about this. Turn the internet off. I can’t tell you how many clients get this world’s going to go to hell, you got to have a gold IRA, or you need to have crypto you know, they get all this stuff and you get ramped up about it. Understand, those type ads, regrettably, are to scare you, to try to do something that may not be in your best interest. Always good to have third party, always good just not to listen to this fam or the joke that goes over the internet and just pay attention to what you need to do for you and your family, not what’s around you.

Micah Shilanski  18:49

Amen. Pops, thank you so much for being on the podcast to all of our listeners, make sure you like and share send this information out, our goals of another 1 million federal employees for their retirement. We can only do that with your help. So start sharing this message more and more and until next time, Happy Planning! 

Floyd Shilanski  19:04

Happy planning, take care, bye.