Ep #11: Should I Stay or Should I Go?

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When is the right time to retire? And what are the different options as a federal employee? While everyone wants to retire early, the fact is the “perfect time” is different for everyone. So in this episode, Micah and Tammy share how to prepare yourself, as well as your spouse, for your retirement and the steps you need to take to ensure a smooth transition.

Listen in as they explain the two elements to retirement: the emotional and the financial. You will learn the biggest mistake to avoid when calculating your numbers for retirement, the benefits of working with a CFP who has previously worked with federal employees, and what you need to be aware of if you decide to pick up a new job during your retirement.

What We Cover:

  • Whether you have to retire on the day you stated on your application.
  • When the right time to retire is.
  • The two elements to retirement.
  • If you are mentally ready for retirement.
  • The biggest mistake you can avoid when planning for your retirement.
  • Why you should live off of your retirement dollars sooner.

Resources for this Episode:

Ideas Worth Sharing:

Pick the soonest time you would think about retiring and start planning for that.– Micah Shilanski Click To Tweet 

The emotional component? This is huge. Are you mentally ready to retire?– Micah Shilanski Click To Tweet 

I like to compare net paycheck numbers to net retirement numbers. So let’s look at our paycheck of what we bring home, not what we gross, and then look at our retirement numbers.– Tammy Flanagan Click To Tweet

Listen to the Full Episode:

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Full Episode Transcript
With Your Hosts
Micah Shilanski and Tammy Flanagan

You can spend. You can save. What is the right thing to do? Federal benefits, thrifts, 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 am your cohost, Micah Shilanski and joined with me, as usual, our co-host and co-founder, the amazing Tammy Flanagan. Tammy, how are you doing today, ma’am?

Tammy Flanagan:        I’m doing great, Micah. Good to be here with you again today. I know for you it’s morning, for me it’s afternoon when we get together. So you’ve had your second cup of coffee, and I’m just finishing up lunch and off we go to another exciting session.

Micah Shilanski:  I know, it’s always that fun thing with the time zone change, right? I finished a cup of coffee, you’re getting closer to the glass of wine.

Tammy Flanagan:        Right.

Micah Shilanski:  It’s a good mix. Well, we have some exciting things to talk about today. Tammy and I our always batting around different ideas, what would our listeners really enjoy? So actually a shout out to our listeners, as you think about different topics, different things you want Tammy and I to cover, shoot us an email, jump on our website, PlanYourFederalRetirement.com. You can leave a comment, you can post a topic to suggest for Tammy and I had a chat about, but this came out of one of our client conversations that we were having. I was chatting with a client, and then I got talking with Tammy a little bit, and there’s a big part when you’re thinking about being ready to go, should I stay or should I go? When should I retire? What are the different options? It’s an interesting conversation because, Tammy as you know, there’s so many options federal employees have. They can keep working, they can go to full retirement, and there’s a lot of options in between.

Tammy Flanagan:        Yep. Yeah, for most federal employees, there’s not a day when the boss comes in and says, “Your time is up. You have to go.” The only exception is our law enforcement, and some of the other special groups. But for most employees, they have to figure it out. When am I financially in good shape to retire? Or do I want to do something else after my government career? Also there’s a mental piece to it as well. Am I emotionally and mentally ready to go? Is my spouse ready for me to retire?

Micah Shilanski:  Yeah. Are you both ready to be together 24-7, 365? What does that look like? That’s really important conversations to be having in advance, but Tammy, before we jump on that, and I really liked the way you said it, there’s the financial aspect to retire and there’s the mental aspect. So I want to touch on that in just a second, but let’s talk about the actual retirement process a minute. If someone is going out on a voluntary retirement, it’s of course voluntary. So let’s say they submitted their application to their HR. Are they subject to that date they put on there? Do they have to retire on that date of the application? Or can they just change their mind pretty much right up to the retirement date?

Tammy Flanagan:        Well, because it is a voluntary action, in most cases, I’ll say, I won’t say a hundred percent of the time, but most cases up until the day of your separation, up until the last day on the job, you can pull the application and say, “Hey, I’ve changed my mind for whatever reason.” And continue on working. One of the exceptions to that is if an agency’ is downsizing and they’re offering you a buyout, and you’ve accepted the buyout, that’s usually an obligation that you have to go, because they’re counting on those funds. But normally, yeah, normally you can change your mind, but the wheels start turning once you turn in the application, but they don’t separate you from the payroll until that annual leave check is cut and your last paycheck is paid out.

Micah Shilanski:  So with that in mind, Tammy, one of the things I really encourage my clients to think about as well, is that means plan for the soonest date possible, because so often when we’re thinking about retirement, we’re thinking about a window of time, somewhere between like 57 and 65. I know that’s a big window, but generally somewhere in there is when federal employees are thinking about separating. Pick the soonest time you would think about retiring and start planning for that. The biggest reason, and no, you don’t have to submit a retirement application on that. You don’t even got to tell the boss, but mentally start planning on that date, because it is very easy to extend retirement. It’s very easy to kick that data out to a future date. It can be really challenging to accelerate everything. So as we talk about this, should I stay or should I go, try to keep that in mind. Think about when is the soonest you would want to retire and start working in that area.

Tammy Flanagan:        Yep. And I tell people that too, when they request a retirement estimate from their agency, they’ll say, what date should I request it for? I say, do it for your, we call it your first eligibility date, once you’re old enough, have enough service that you can walk out the door, let’s see what it looks like on that date. And if it’s not enough or you’re not ready to go at that point, we can always extend it. But sometimes you surprise yourself and realize you’re better off than you thought you were. And you don’t have to work that extra five or 10 years. And then on the other hand, sometimes we find that life happens. Whether it’s a divorce situation or spouse lost a job, and we can stay a little longer. So sometimes staying just a few years can make all the difference in financial security.

Micah Shilanski:  But knowing what those options are, that is such the big part, and Tammy, now I want to jump into what you’re just talking about, is that there’s two elements to retirement. There’s the financially, and there’s the emotionally, mentally that’s going to be there. Now, I like the financially. Why? Because it’s just math. I get a look at it, I can add, I can subtract. We can figure these things out. We can determine if you’re financially ready to retire. And we want to chat about that in just a minute, but also this emotional component, this is huge. Are you mentally ready to retire? And some of the things that I see, especially with federal employees that have been a federal employee a long time, potentially a very higher up on the GSI, their identity is wrapped around their position. So when we think about this as stopping working, it almost becomes a, who am I? Can I even retire? Will I know who I am? Who is this person if I don’t have my title, if I don’t have my job? So this is really something that affects a lot of people that we need to be thinking about as you’re moving closer to retirement.

Tammy Flanagan:        Yep. And if you’re married, it’s a joint decision as well. Sometimes I’ve met couples where the spouse who has been at home or already retired is hardly waiting for the other spouse to retire. But the spouse who is still working has a little fear in saying, I don’t think my spouse has ever been around me 24 hours a day since we met.

Micah Shilanski:  Sure, right.

Tammy Flanagan:        Maybe they know they won’t like me anymore. So there is that fear too, about what do we do together and how do we keep our separate space? I even had one couple, I always remember this story, and this probably dates back 35 years, where when he retired, he had a garage that was separate from the house. So he had it air conditioned, he had it carpeted, he didn’t put his car in there. And so in the morning, he’d get up, have breakfast with his wife, take his little briefcase out and go sit in the garage all day long until it was time for supper, and come back in the house. That’s how they handled it until he transitioned into retirement since she wasn’t used to having him around. And he was used to having someplace to go every morning.

                  I don’t think most people need to go to those extremes. In fact, I think there’s a lot of folks who really do look forward to it, and it won’t have any trouble whatsoever, but there are some who do have trouble with change or trouble with trying to figure out what do I do next, or that identity thing. How do I stay in my social circle? My social circle was work. How do I make new friends or find new groups to hang out with? So yeah, there’s a lot to that. And there’s a lot of resources for that. There’s different stations on YouTube that go into living life after retirement. There’s books on transitioning. So I would encourage someone if they have trouble with that, to talk to your friends who have retired, read a couple of books on transitions and plug into some things that you might think you’re interested in, maybe even try them out before you leave the government, so that you can see that you can enjoy things that might be a little fun, not just a mission or a challenge.

Micah Shilanski:  I like it. As much as you can simulate retirement in advance, the better off you are going to be, hands down. Whether this is living on financially simulating retirement. We’ll talk about that in just a second, or just your day-to-day life. Yes, I know it’s a little different and how that’s going to work. Maybe we’re a little closer to it now with COVID, with all the working remote. But one of the things I encourage my clients to do is create a calendar, especially if you’re married. That’s two separate calendars if you’re married. What are you going to do in retirement? What’s your vision that’s going to be there? I remember, Tammy, we were teaching a class at one time and we talk about this visualize your retirement.

                  So visualize your retirement. Where are you going to be? What are you going to do, et cetera, et cetera. And this one very tall gentleman, and he was in the oil industry up here in Alaska. He raised his hand, he said, “Micah, I know exactly what I’m going to be doing the day I retire.” I said, “Great. What is it?” He said, “It’ll be a little bit off on the time zone, but pretty much when my coworkers are back at work in Alaska, I’m going to be teeing off on the oil course, and I’m going to be playing my rounds of golf. That is what I’m going to be doing when I retire.” And his wife, short little lady, crossed her arms, just a firecracker, crossed her arms, leaned back in her chair and said that, “You are? You are not going to be doing that in retirement. We are going to be on a cruise ship. We are going to be where the water is blue and it’s warm.”

                  So it was a very interesting conversation that came out as we were teaching this class. And it’s a really great example of needing to communicate this with your spouse, is what’s your plan? And that’s the purpose of the calendar. Do you have a completely different vision than your spouse does? Let’s make sure we get on the same page. Now, we did get a postcard from him, Tammy, after he did retire, and he was teeing off, but it looked like it was off of the fantail of a cruise ship.

Tammy Flanagan:        Oh. She won. I was going to say, my uncle retired in 19… What year was it? 1980, he retired from federal service and he did take up golf as his full-time career. He really was good at it as a senior. He won, I forget how many tournaments. He had holes in one. So, yeah, my aunt didn’t mind it either, because again, he was away all afternoon. And sometimes he’d bring the golf buddies home and she’d cook them lunch or dinner. But most of the times, they had their own space. So it was nice.

Micah Shilanski:  Very good. So yeah, create that calendar, create that environment that’s going to be there. Now, this is the same we want to say, be ready for retirement. This is also on the financial side. Now, again, I like the financial side because it’s just dollars and cents and I can add and subtract pretty well. So I like to know that financially that you can retire, but Tammy, we were talking about this off air. One of the biggest things that we tell our clients to do when they’re getting ready to retire is living on those retirement dollars sooner. As soon as you can.

Tammy Flanagan:        But the problem is knowing what are my retirement dollars, because you have to pull from different resources, your agency, and sometimes the agencies don’t want to do this early on, which I think is a mistake, but the agencies will only give you an estimate of your first basic benefit. Well, that’s just one third of your retirement income, maybe only one fourth of your retirement income, depending on what else you’ve gotten, how long you’ve worked. So once you get that, and that’s not even complete because it doesn’t show the withholdings properly, it doesn’t necessarily account for exactly what you plan to do with that retirement. Then you have to go factor in social security if you’re old enough for it, GSP withdrawals, or other savings or other pensions you might have. So I think the beginning step is this gathering of documents and doing some calculations. They don’t have to be rocket science calculations, but some good solid round numbers. They don’t have to be down to the penny numbers, but at least get in the ballpark.

Micah Shilanski:  Yeah. And sometimes it’s not even the ballpark, or even playing the same game. It’s the first place to start, let’s start narrowing those things down. Slightly selfish plug for us is we do have some calculators on our website, PlanYourFederalRetirement.com/eleven is this episode. You can jump right on there and there will be a link to the calculators if you want to start seeing how those work, whether it’s ours or someone else’s, Tammy, I fully agree. Start getting those numbers, because again, let’s make sure you’re on the right path, because the further you are away from retirement, the easier it is to fix it if you’re off course.

Tammy Flanagan:        That’s right. And there’s always those rules of thumb people throw out, saying, Oh, I heard you have to have 80% or 65% of my income. And I don’t really pay much attention to those. I don’t know about you, Micah, but I’m thinking more about, what do I need to live on? And how long is that going to have to last me? Because for some folks, I think we talked about this one other time, that retirement can last longer than our career, especially for folks who retire in their 50s, that might be the halfway point of your life. So are you ready to spend the rest of your life in this phase called retirement? Or maybe there is another career before retirement, who knows.

Micah Shilanski:  Yeah. I agree with that a hundred percent. I do not like those rule of thumbs of the 80% or 60%. My rule of thumb is a hundred percent. Everything you’re spending now, you will want to spend in retirement or more. So that is my generic rule of thumb until I get into more information.

Tammy Flanagan:        Yeah. I like to compare net paycheck numbers to net retirement numbers. So let’s look at our paycheck of what we bring home, not what we gross. And then look at our retirement numbers. That’s I think hard for some people, because we don’t necessarily know what comes out of a retirement check. So maybe today we can help people understand those withholdings and deductions and reductions from a retirement check so you can get to those net numbers. They’re not that hard once you realize what’s going to come out and how those deductions work.

Micah Shilanski:  I will say, Tammy, this is one of the things that as I’m reviewing other financial planners’ plans that they put together, other professionals’ plans that they put together, this is one of the top three things that I see they make mistakes on, is not comparing the correct numbers. Not comparing, as you said, net paycheck to net retirement check. Comparing gross to net, they’re mixing these terminologies up. And these are other CFPs, these are other financial planners that should know better. So this is something that you really have to watch to make sure that, again, it’s your retirement. You got to take control of it to make sure you’re getting those right numbers.

Tammy Flanagan:        Yeah, it’s always a plus if you can work with someone, whether it’s a CFP or an attorney for estate planning, or going through a divorce, someone who is familiar with the federal client, because there are some rules that are different. There are some deductions that are different, and there’s some benefits that lasts a lifetime that don’t apply to the private sector. So it’s a plus If you can work with someone who is more familiar or works with other clients that are federal employees or retirees.

Micah Shilanski:  Well Tammy, you brought up an interesting thing I’d love to dive a little bit into, let’s talk about those people that are going to potentially stop working from the feds, maybe even retire as a federal employee, but they’re not ready to be done yet. We want to separate, the federal service has been nice, we’re ready for something a little different, but we’re not ready to stop working. What are some options that are out there? What’s a way that people can either stair-step into retirement a little bit, or if they’re looking at changing careers, what are some things we should be thinking about?

Tammy Flanagan:        Yeah, there’s a lot of choices. Let’s start with one that’s more, to me it’s more on the emotional or the mental side of transitioning, and that’s that concept that was just brought up less than 10 years ago. Congress passed a law allowing for a phased retirement. And I have to tell you, when that passed into law, I was excited because I thought, this is going to be great, we’re going to have federal employees who can step into the shallow end rather than getting their feet wet all at once and when they jump into the deep end, because for that reason, I think phased retirement was ideal for someone who wants to work full time, then go part-time and then retire. So it was like a step into it.

                  But I guess I wasn’t right, because phased retirement didn’t take off like I expected that it would, in fact, many agencies never even adopted it because it was optional. The agency didn’t have to take it up. And for some agencies, it just didn’t fit with their mission or the way that they do their work. But if you have that option where you worked, and many agencies do, I know DOD has offered it and some other big federal agencies allow their employees to apply for it. But it’s when you go from full-time work to part-time retirement, meaning you’re going to collect half of your retirement, but then you’re still going to work half time, you’re going to work 20 hours a week. And then you decide six months down the road, two years down the road that you want to fully retire, and you’ll get credit for that time you were in phased retirement. So the ultimate end game is going to be a little bit better than if you had left right off the bat.

                  Now, I don’t think that’s necessarily meant for someone who wants a second career or wants a financial benefit for that. But I think it’s more for someone who is financially ready to retire, they’re just not mentally. So the phased retirement for that person could be an ideal way to ease into it rather than jump into it cold turkey.

Micah Shilanski:  And it’s a nice way, I think, to bring a successor into place, right?

Tammy Flanagan:        Yeah, someone from the agency side, definitely.

Micah Shilanski:  Exactly. Right. But even some of our federal employees, they don’t want to just stop working because who knows what they’ve known, they’ve been doing this for 30 years. They want to be able to bring someone else into this, and that’s what phased retirement really allows. So that’s the benefit on the agency, sometimes on the federal employee side as well, but it gets a little complex and not everyone has opted into it. So this is the challenge that it comes with when I’ve had a couple of clients want to do it. And sometimes the agencies are open to it, they just have no idea how it works and believe it or not, federal employees have a few things to do besides going and figuring out phased retirement right now. So sometimes it definitely gets put on the back burner as an option, but it could be something out there.

Tammy Flanagan:        Yep. It’s something to look into if that sounds interesting to you. Another thing I get a lot of questions about, some agencies are really picked up on this, some don’t use it, but it’s the idea of becoming a reemployed annuitant with a dual compensation waiver. So you may not have ever heard of that, but what that means, not you, Micah, I know you have, but some of the people listening might say, “What in the world is that?” But it’s a cool deal where the agency says, hey, we’ve got this mission, we’ve got this project. We’ve got terrorism, whatever it is, they have to justify doing this, but they want to keep you longer. You want to retire the end of December. You want to retire next March, but they want to keep you on another year, maybe another two years. So they’ll offer you a dual compensation waiver, meaning that you’ll retire on the day that you had planned. So you’ll get your full retirement benefit.

                  But then on Monday you come back to work, sit in the same desk, do the same job. And they’re going to pay you a salary for doing that in addition to collecting your retirement. So if all goes well, maybe you can bank that paycheck while you’re doing that reemployed annuitant status and have some money at the end of the day to go have some fun with, or pay off the mortgage or whatever it is you want to do with it. But it’s a temporary thing. It’s not going to last for 10 years. Usually it’s limited to no more than two or three years, but it’s a way that federal employees can extend their career, start collecting their retirement and still do the same work for a little bit longer and get some financial compensation for doing it.

Micah Shilanski:  Great. Yeah, I like that. Another one that I use a lot with clients when it’s open is the contractor route as well. This can be a really good one to bring in, where you’re able to collect your pension that’s going to come in, which is nice. Then you’re going to turn around and do contract services back to the agency, and generally do that at a much higher dollar amount than just your hourly wage, because of course you don’t need any of the benefits the government is offering because you already have them with your retirement package. But that’s another way that you could blend in some work and have a little bit more control over your schedule.

                  So Tammy, I’d love to know your feedback on it, but a lot of the times the clients that want to go the contractor route are the ones that do want to keep working, are passionate about the mission, but they want more flexibility in their schedule. They want to be able to travel, they want to be able to take larger time out of the office and do those other things. So sometimes that contractor route can give us the ability to do that a little bit easier than the part-time side.

Tammy Flanagan:        Yeah, I’ve seen that, but I’ve also seen people who come back as a contractor working for a private sector company. And it’s almost like they’ve gotten a promotion, because that private company wants their security clearance. They want their knowledge and skills and everything they’ve gotten so far from their federal career. So this becomes a true second career for a lot of people. It’s the time when they really make the big bucks at that point, because they might be working on some type of commission project. So some of those cases can be very lucrative. And then at the end of the day, once they’re finished, they can do that for 10 years in some cases. They’ll retire their first opportunity from federal service. And then they put in another 10 or 15 years with that company. And it’s all of that federal career and experience pays off at that end. So yeah, I think there’s a route where some people can go into that and have more flexibility, not quite work as hard, but then I’ve seen the other side of it where they work doubly hard and yet it pays off in the end financially.

Micah Shilanski:  And that’s a really important thing to keep in mind, is we started this with being ready to financially be able to retire. So one of the things that we said was, start living on retirement dollars sooner. This is really important. Well, if you go into retirement, and I pick on my military retirees a lot, because they’re guilty of this is, is they put in a full career in the military, they exit out, they’re getting their retirement pension come in. Then they go and get another job. Now they’re earning a ton of money that’s coming in, and now they get all the stuff that they’ve been denied over the years. Now, look at all this extra money. Now their standard of living doubles, if not triples in that period in time.

                  Now what’s really hard is now that their standard of living has tripled, how are they going to save enough to actually be able to retire? Being retired in that same standard of living they have now is really challenging. And I see the exact same thing happen in this case when we start working again in retirement. So there’s some pros to it, there’s also some cautionary things we need to be careful of. So if you do a contract route or even part-time or anything of that nature, go back to, how much did you need to live comfortably in retirement, and make sure you’re not accidentally increasing your standard of living higher and higher and higher where you cannot support that in retirement. Do not fall in the trap that says, oh, once I don’t have this income, it’ll be fine. I’ll go back to where it was. Yeah. That’s painful. Tammy and I were both shaking our heads, no. It does not work that way. That’s theory. That is not reality.

Tammy Flanagan:        That’s right. I know my husband had somewhat of a second career for eight years after he retired from his full-time government career. And the way he did it was he took his retirement checks and pretended like they didn’t exist. He set up a separate bank account, deposited those checks for eight years, which was kind of nice because then at the end of the day, we could pay cash for our car, was ready to move to Florida and have our house down there. So we really were preparing for that next phase of life where he didn’t have to work, I was continuing to work, which I’m not doing much different than I was then, but for his side of it, he really did phase into it where he’s not feeling the pinch financially because he was able to do that. And it’s really something to think about if you’re going to work a second career, is just put that money aside, don’t look at it. And after 5 or 10 years, you really have something to show for it.

Micah Shilanski:  Yeah. And using it for those capital events, I think, are really great items versus the day-to-day side. So yeah. Wonderful, Tammy.

Tammy Flanagan:        Yeah. And we already paid tax on it.

Micah Shilanski:  That’s right. It’s all after tax money.

                  So another thing to be thinking about too, that I think people get caught up on is the social security question, which also ties into that special retirement supplement, the first supplement as well, because if you retire ad you’re either eligible, so 62 or older, eligible to turn on your social security, or you retire before 62 under with a full immediate pension, you’re going to be getting a supplement income, a portion of your social security, but Tammy, there’s a limitation on our earnings. So if we go get a second job, there could be a little bit of a snafu here for us, right?

Tammy Flanagan:        Yeah. So whether it’s the supplement, unless you’re law enforcement and you’re retiring real early, but there’s an earnings limit on the supplement. Once you retire at your minimum retirement age, which for most of our listeners is between 56 and 57 years old, and then even once you’re 62 and you collect social security that early, there’s the same earnings limit. It’s a little bit under 19,000 a year that you can earn. And once you go above that, you’re going to lose a dollar of your benefit for every $2 you go above the limit, which means if you’re making a decent wage, you may as well not have applied for your social security yet because you’ll just have to give it back.

Micah Shilanski:  Yeah, have to give it back. And one of the things that, and also, you’re giving a back and it’s not growing for you. If you turn into a security on early versus delaying it, if you delay it, it continues to grow. So this could be a really good benefit. I know I talk with several people that says, “Oh my God, well,” I get this from my nurses a lot, actually, that go to retire because then they want to go PRN or they want to do a little bit, keep credentialed. And they’re like, “Well, I’m just going to work a little bit. There’s no way I’m going to go over that $19-20,000 a year.” And they do it in half the year, because all of a sudden when you’re working direct and you’re getting so much more income and pay, whether it’s part-time, contractor, direct any of these other terminologies, you really got to watch that gross income.

                  Again, we’re getting back to gross versus net, because the earnings limitation is on your gross income that you’re getting paid, not your take-home paycheck. So you really got to be careful on that. I’ve seen lots of people have to give that supplement back, have to give back that social security money, et cetera, because they, without knowing it, quickly went over that $20,000 a year, $19,000 and change a year.

Tammy Flanagan:        Right. It doesn’t take much, that’s for sure. I always relate that to people who work, they say, I’m going to go work at the grocery store, at the fast food store just to make some extra spending money. But towards the end of the year, they’re telling the supervisor, cut back on my hours, because otherwise I’m working for half the pay.

Micah Shilanski:  That’s exactly right.

Tammy Flanagan:        So they have to lose some of that social security. It allows you to keep doing something for for fun, maybe, or for a little extra spending cash, but not a second career.

Micah Shilanski:  And this wouldn’t be a podcast unless we brought up taxes again. This is just another thing that we see with a tax consideration that’s there, because now all of a sudden you retire, which is great. And more than likely if you retire and you pick up a second job, OPM will not be withholding enough in taxes from your pension, because OPM doesn’t know you have any other source of income besides what they are paying you. So if you’re getting a $20-30,000, all your pension, rock on, you’re getting that from OPM and they think that’s your only income. They don’t know if you go turn on social security, if you go work another job, if your spouse has income, that doesn’t go into that mix, but that will affect you at the end of the year. So anytime we make a big transition in our life, we got to step back and look at our taxes so we don’t have a unwelcome tax bill from Aunt Iris next year. And this happens a lot to retirees.

Tammy Flanagan:        I’ve got a question for you, Micah. How does somebody, you have to fill out a new W-4P when you’re telling OPM how much you want them to withhold for taxes. And they’ll do, I think it’s the married with three exemptions as a standard withholding. So how do you instruct people as to how to fill that out so that they are withholding enough in taxes? Is there an easy way to do it or do you have to actually run your 1040?

Micah Shilanski:  There’s a fairly quick way that we can do it. Number one, if you’re going to have pretty much any other outside income that comes in, I always tell people to file out those W-4Ps as married, but filing as single. That does a lot to make sure that there’s enough taxes being withheld. So by default, that’s generally something that I go for, but the IRS actually has a pretty good wage and tax withholding calculator on their website. We’ll make sure we put a link to that. So go to our page, PlanYourFederalRetirement.com/eleven, this is our 11th episode. You can jump right on there, and we’re going to have a link to it. It’ll take you two or three minutes, and then it will actually tell you how much you have to have withheld.

                  So Tammy, back to your question, I don’t try to play the game of married or single or this. I leave it at whatever you checked, and then I add a flat extra. So if short in taxes $2,000, great, add an extra $160 a month being withheld in taxes. That way it makes it really easy dollar wise to get enough taxes withheld.

Tammy Flanagan:        So you can specify a dollar amount to have withheld as well. Okay. That’s good.

Micah Shilanski:  Yes ma’am. Yeah.

Tammy Flanagan:        That’s an easy way, because I get that question a lot and I’m not a tax person, but I know it’s an important question.

Micah Shilanski:  Mm-hmm (affirmative). Yeah, we always run that calculator whenever we’re helping someone else with it, because I don’t like being wrong. So those mental estimate on taxes you can be wrong quickly. So we always jump on and run those and then add that flat extra amount.

Tammy Flanagan:        Yep. Good idea. Good tip.

Micah Shilanski:  Well, perfect. Let’s talk about some action items, because we spent some good time talking about this. I’ll say the first action item, a little bit selfish plug for us, Tammy. We have a webinar coming up in a week or so. So if you have not signed up for that, please jump on and join us. It’s going to be great. We’re going to go over the seven classic mistakes people make when preparing for retirement. Tammy and I and I were reviewing it, going back and forth, and man, we could spend hours and hours going over this. So not only are we going to spend an hour going over, we’re going to have great content, but it’s also Q and A. So come ready with the questions about your retirement so we can make sure we have an opportunity to answer those.

Tammy Flanagan:        That’d be fun. Looking forward to that one.

Micah Shilanski:  That’s right.

Tammy Flanagan:        Help people avoid those mistakes.

Micah Shilanski:  Yes, yes. That’s the key, not just knowing what they are, but actually avoiding them in your retirement is huge.

Tammy Flanagan:        It’s one of those cases of, you don’t know what you don’t know.

Micah Shilanski:  Mm-hmm (affirmative). Very much so.

                  I’ll say, our second action item, Tammy, unless you got another one for us is, I’m going to say create that cashflow estimate on retirement. What we were talking about earlier, living on retirement dollars sooner. So how much do you think you’re going to get in retirement income? Jump on and get those calculators. How much are you spending today? Don’t do a budget. Don’t get down to the penny. I don’t want 72 million different categories of how you spend money. Just how much a month do you spend? And then when you retire, how much a month is coming in, what’s that net, how close is that? Start getting an idea today so you can be ready for retirement.

Tammy Flanagan:        Right, yeah. I don’t know about your clients, Micah, but when I talk to folks, I’ll say, your net paycheck is whatever dollar amount it is, I said, how much of that are you spending every month? Usually the answer is a hundred percent, because I’m saving all my money in the thrift for my retirement. So my paycheck goes towards paying off the credit card every month, the groceries and gas. That’s going to stay the same after you retire. So what I tell people to do is take their biweekly net paycheck, multiply it by 26 pay periods, and divide it by 12 months. And then you’ll get an idea of the monthly net income that you’re used to having coming in. And then you can compare that to the estimates of all the sources of retirement income you’re going to need to replace that.

Micah Shilanski:  That’s perfect. I think that’s exactly the place to start with that net spending income. What you don’t want to do is start writing down, and this can be good for other reasons, but when you say how much a month do you spend? Don’t write down all your bills, because I promise you’re not going to remember them all, right?

Tammy Flanagan:        No. It will look like, oh I only spend $3,000.

Micah Shilanski:  I don’t need that much at all in retirement. I don’t know where the rest of this money goes every month. No, take that net paycheck. It’s such a brilliant way to do it. Well, perfect. Well, Tammy, as always, it has been a pleasure going through this. Thank you so much for taking the time, and to our listeners, thank you guys. Share the podcast with your coworkers, share it out. Help us grow. We have over 3,800 people a month right now downloading our pod. So it’s really growing thanks to you. Please help share that information so we can help more federal employees.

Tammy Flanagan:        Been fun. I’ve enjoyed every minute of it.

Micah Shilanski:  Perfect. Well until next time, happy planning.

Hey, before you go, a few notes from our attorneys. Opinions expressed
herein are solely those of Shilanski & Associates, Incorporated, unless
otherwise specifically cited. Material presented is believed to be from
reliable sources, and no representations are made by our firm as to other
parties, informational accuracy, or completeness. All information or ideas
provided should be discussed in detail with an advisor, accountant, or legal
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