Ep #37: Non Voluntary vs Voluntary Separation

 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 always is the amazing Tammy Flanagan. Hey, Tammy.

Tammy Flanagan:        Hey, Micah. How are you doing today? I just learned a few things about you. So I have to call you the amazing Micah Shilanski as well because you are pretty well-known in your field as well as me kind of having a name out in the benefits area. So I think that’s why we have such a good synergy together, that we both kind of have our own strengths in these different areas.

Micah Shilanski:  I do. And that’s the beautiful part about this, right? There’s so many different areas that really, your benefits tackle, you as a federal employee, that so many different areas and by bringing in some resources to come together… And Tammy, as you and I know, we both have some overlapping expertise, which I think what makes us beautiful, but we also know enough that says, “You know what? You are the benefits expert,” and it’s so great to have you on here to make sure our listeners are getting the right information because I can’t tell you, and we were even talking about this pregame, I can’t say how many times I come across information that is inaccurate for federal employees and sometimes they’re counting on this in retirement time and that can be devastating.

Tammy Flanagan:        Yeah, absolutely. I’ve always said like when I’m teaching a class and I’m there by myself doing benefits, I think, boy, wouldn’t it be nice to have a financial planner sitting in the back of the room that I could say, “Hey, Micah. What do you think about this?” because there’s always a finance or a tax angle to many of the decisions that people make when they’re planning to retire. There’s certainly that benefits piece. That can be complicated in and of itself, but then there’s always some way that money gets involved, whether it’s taxes or just making sure you have enough of it. So it’s always interesting. So that’s why I’m so happy to do this because I think it really helps people see those two different sides of every decision that they have to make.

Micah Shilanski:  Perfect. Well, Tammy kind of jumping into this, and we’ve been kind of avoiding the subject a little bit because really we’re focused on benefits, but right now the entire world revolves around COVID and even more so now with the, and I might use the incorrect terminology here, but the executive orders and rules that have come down requiring federal employees to get the vaccine by the end of November. And if you don’t, then it could have some adverse termination notices for you. So we’ve gotten several questions in from listeners and some from people. Couple of disclosures right off the bat, Tammy nor I went to medical. So at no point in time are we giving you medical advice to or not to get the vaccine, but what we are going to be talking about, what financial and benefit effects it has with your employment. So we’re not going to be explaining why these rules are in place because that’s also above our head. That’s for someone else to describe, but we will be describing how this is going to affect your benefits in retirement time and now. Tammy, does that sound about fair?

Tammy Flanagan:        Yeah, it does. And I know this is becoming not only a political topic, but just a hot topic amongst federal employees. I think from what I’m hearing, just little old me has been getting a lot of emails on this topic saying, “Well, when November 22nd comes around and we have to have the vaccine, what happens if we don’t? Will I get fired that day? Is it a process? Am I going to get fired? Can I collect early retirement?” So there’s so many questions around this whole thing of if I stood my ground and I’m going one way or the other, how is that going to impact my benefits? And that’s why they’re coming to me and I’m sure they’re coming to you as well saying, “Can I afford to do this if I were to get let go, if that ultimately is what happens?”

                  I think the other thing that we’re going to find as time goes on and we get closer to November 22nd, is that different agencies may have different rules. So in other words, the steps of what they’re going to do if they have to enforce this mandate might be just simply saying, “Okay, here’s your warning,” or, “Here’s some information to help you understand this whole thing better,” and then it goes gradually to perhaps a suspension or perhaps ultimately getting fired, but it’s not going to happen on November 22nd. So no one’s going to walk into work and have their boxes packed on their desk ready to go.

                  That brings up another point of why we’re talking about this because I’ve had, and you probably have heard this as well, so many people saying, “Well, if I have to go back to the office, I’ve been teleworking now for 18 months, I don’t want to go back to the office. So I will just leave or retire.” It’s great if you’re eligible to retire and you can afford it, but there are people I’ve talked to who are going to leave early. They weren’t planning to retire, but this whole thing has changed their whole way of thinking in priorities have changed. I think mentally, this is one decision, but financially, it can be a whole different ball game. So I’m looking at it today as kind of a reality check of what if this happens? What do I really need to consider?

Micah Shilanski:  I think so. Now, we could replace COVID with generally what other apocalypse. And I don’t mean that too lightly, but God forbid if something happened in your personal life, a loved one became terminally ill, you became terminally ill, and all of a sudden you needed to accelerate your retirement plans, what impact does that have? Or some adverse condition happens at work and you no longer want to be in that agency and now you need to make a job change within the next month or so? Well, that could almost be the same condition that we’re seeing right now. So this isn’t just about those people who have chosen not to get the vaccine. This is really about saying, “All right. What’s your financial awareness and what’s your benefit awareness that you have, that if you’re not able to make your current plans, your retirement plans with the federal government, what happens?”

Tammy Flanagan:        Yeah. This reminds me, we talked about this before the show, of when the air traffic controllers got fired back in—I was surprised that you even remember that Micah.

Micah Shilanski:  More read about it.

Tammy Flanagan:        And then also the other thing I thought about more recently was Andrew McCabe getting fired from the FBI one day before his 50th birthday, or it was two days before his birthday. So he could still collect a deferred retirement, but he was under the law enforcement provisions, which was really a sad thing to happen to him I feel that he got let go right before he turned 50 where he could have received that immediate benefit. He had worked more than 20 years to earn that benefit. I just felt bad for that, but I think a lot of people are going to be going through this same type of thing where they might just be a year from retirement eligibility. What happens if you leave a year early? What happens if you leave 20 years early? What do we have to think about?

Micah Shilanski:  Well, Tammy, let’s kick this off with a quick benefits review. Now, we’ve gone through this in multiple podcasts before. So you can email us if you have a question on that [email protected] and we can send you those previous episodes so you can go check them out. But let’s run over the rules real fast on being eligible to retire because we’ve got to meet an age requirement, plus we got to meet a years in service requirement. So if someone wanted to go out what I’m going to call it a full, immediate retirement, so no reduction, what are the rules they have to meet first?

Tammy Flanagan:        Yeah, you have to be a certain age. And with FERS, I think most of our listeners are under FERS, you have to be what’s called the minimum retirement age. So if you were born in 1970 or later, your MRA is 57. If you were born a lot earlier like I was, your MRA might be 56 or 56 and four months. So we call it MRA because it’s the sliding scale between 55 and 57. So if you’re younger than that age, typically that’s not an immediate retirement. That’s going to be a resignation with a deferred retirement.

                  Now, once you reach that MRA, let’s say you’re are there. Let’s say I’ve reached my MRA, but I’ve only got 15 years of service. Well, to collect an unreduced benefit, you’d need 30 years. You only got 15. So your choices would be to work longer maybe until you’re 62 so you could receive an immediate unreduced benefit or to leave now with 15 years, but you’re going to have a pretty substantial age reduction for not having that 30 years. The reduction is 5% for every year that you’re under 62. So if you’re five years under 62, that’s a 25% cut off the top of your retirement benefit. So that’s a pretty hefty price to pay for leaving just maybe five years early. I say maybe five years early like it’s nothing, but when you get older, time tends to fly.

Micah Shilanski:  But it still, it’s a big penalty. You really have to understand what those rules are and that’s the voluntary side. I think, Tammy, this could be the confusing part at least from some people I’m talking with you now. They’re kind of viewing this as, “Okay. Well, if I don’t get the vaccine, then it’s an involuntary retirement, right? I’m going to be separated from service.” So they’re kind of confusing involuntary retirement rules versus just separation rules in their minds. So let’s go over real fast, if you don’t mind, what are the involuntary retirements like if there was a reduction in force, and then let’s see how that’s different than what’s actually happening now.

Tammy Flanagan:        Right. That’s a good example. You said reduction in force because we had that happen in not too distant past back in the 1990s when all the bases were going under the BRAC, the base realignment and closure. Let’s say you were working at a military base and they were going to close shop because they’re moving to another state. So all those employees who work there, they got notice of that happening and they could choose to take an early out, many times with a buyout, and that was a voluntary decision. So they could retire early voluntarily, even get paid to go. So it was helping them kind of downsize that operation so it wasn’t so hard to make that move. But let’s say the employees who hung on until the bitter end until they were ready to shut the front gate and lock it up, said, “I’m not leaving and I’m not moving to that other state,” well, they’re going to get the pink slip. They’re going to be separated in voluntarily.

                  It wasn’t anything they did as an adverse action. They just didn’t want to move. Nothing in their contract to be a federal employee said they had to move. They didn’t have this type of relocation agreement. So they were able to collect retirement as early as age 50 if they had 20 years of service or any age if they had 25 years. So today, people are thinking that, “If I don’t get vaccinated, that’s an involuntary separation. So therefore, I can retire early. This might turn out to be a silver lining to this cloud,” but don’t get too excited because this is going to be considered an adverse action. You’re violating this mandate from the White House that says you have to have the vaccine.

                  So your agency is going to take steps to terminate you eventually is what the end result of this could end up with. So don’t look at this as an opportunity to retire early. It’s an opportunity where you might be forced out against your will as an adverse action, which can also, we were talking about this earlier, having an impact on wanting to get rehired in the future. So if you leave early and now you change your mind and say, “I want to go back to federal service,” how’s that going to look on that application when you go to get rehired?

Micah Shilanski:  Now, this doesn’t mean that any time you’re losing your federal benefits, by the way, from what you already have vested. So let’s go down that path and let’s say, you don’t get vaccinated and then you move to the, however long that’s going to take. You still have your time in. So one of the questions that we had was you had someone who, let’s just call her 40 years young. She had 20 years of service. She didn’t want to get vaccinated. What happens to my federal benefits? Tammy correct me if I’m wrong, everything we’re seeing now, she keeps her federal benefits. But if we apply those rules you just talked about, she’s under her MRA, right? She’s under 57 because she’s 40 years young and she only has 20 years of federal service. So what that means is those 20 years are vested and it would become a deferred retirement.

                  So when she’s 60 years young, she could go back to the federal government, she could apply for her pension and she could get her pension at that time, but only her pension would come on. She doesn’t get health insurance. She doesn’t get that life insurance. She doesn’t get those other benefits. Now, her TSP is also vested. Your TSP is vested after three years. So presuming 20 years, we’ve met that requirement. So she keeps her TSP money and she could do something different with that. At that time, she could leave it at the TSP. She can transfer it to an IRA. She has options. So she’s not losing those benefits, but what you’re losing is gaining new benefits. So is that a fair way of saying that?

Tammy Flanagan:        Yeah. A couple of things I’ll add to that is number one, you were saying at age 60, she doesn’t have to come back to work for the government. She just has to apply for the benefit. She just has to file the application for a deferred retirement. If she were to get rehired, she could reinstate all those wonderful things like health benefits, life insurance, and immediate retirement. But once you leave, it’s always easy to leave kind of, but it’s really hard to come back and especially if you were fired when you left. Even though we know that this is going to be a massive undertaking because I think there’s a good portion of federal employees who are concerned about this who are in that camp where they’re willing to put their job on the line for their principals.

                  So it’d be an interesting couple of months ahead as we see how this all plays out and how much of a role OPM will take in giving guidance to the agencies of how to make this happen, or what’s going to be the end result, how long of a process is going to be and so forth. But yeah. So like you said, she could leave now with her 20 years. She’s not going to lose anything she’s already gained other than, like you mentioned with the insurance benefits, because you have to be eligible for an immediate retirement. She would have to be 57 today to be able to keep her insurance benefits. Since she’s only 40, she’s 17 years… She’s only halfway through her career realistically. So she’s going to have to start over somewhere else, probably find a position in the private sector, become self-employed or find some other use of her skills and her abilities out in the private sector.

Micah Shilanski:  Now, a couple of things that come up with this, Tammy, I got a call in August from a client. Let’s call her Sue and Sue called and she was freaking out because all of this. She didn’t want to get the vaccine and she was scheduled to retire October. At first, the thought process, all this was going to be effective in September. So her mindset was, “I’m going to be fired in September. I’m going to lose all of my benefits.” All of this emotional stuff starts coming to bear and whenever that happens, we really got to step back, and that’s the importance of having a financial counselor, whether it’s a benefits counselor like Tammy or a financial advisor, not trying to make a plug for us, but you need a sounding board that understands these benefits when we get emotionally involved because when you get emotions around money, generally, we don’t make very good financial decisions.

                  So at that time, was able to stay set backs to, let’s think about this just a little bit. For one, they’re probably not going to fire you right away. There’s going to be warnings and your retirement’s right around the corner. So it’s going to be really hard for them to make an argument. We could burn sick leave. We could burn annually. We could try leave without pay. There’s a lot of things we could do because you were so close to retirement. Now, of course, more information’s coming out. She’s going to retire before this is a mandate, but she was even able to apply for a religious exemption. So there’s also the exemption route that people can go. So these are things that you really need to explore your options before we get too emotionally invested.

Tammy Flanagan:        Yeah, and that is an option, both religious and I think there’s also a medical exemption some people may be able to get. For instance, I know somebody who got the COVID vaccine and had such an adverse reaction, she was in the hospital for a month. So she refused to get the second one. Her employer said… She worked for a hospital. Her employer said, “Sorry, you can’t work here unless you get it.” So she went ahead and got it. Luckily, did not have an adverse reaction to the second one, but that’s how serious some of these employers are getting over this mandate, especially in some of the fields like teachers and nurses and that sort of thing. But now, federal employees are facing the same thing. So it’s a reality that’s not too far down the road.

Micah Shilanski:  Regardless of this one or the next one, whether you want to get it or not, this really should bring awareness to your financial situation. This is the part that I want everybody to take home. We talk about not getting a paycheck, yet keep in mind it wasn’t too long ago that federal employees weren’t getting a paycheck, whether they were working or not when we have government shutdowns. That could happen again this December regardless of your vaccination status. We could get to a shutdown where you’re not getting paid. So regardless of what happens, you need to be financially aware of your own situation. So in my world, that means if you are pre-retirement, more than five years away from retirement, you need to have at least three to six months of living expenses in your bank account, not your TSP. That doesn’t count. Not as a home equity line of credit. That you could take a loan for that doesn’t count.

                  You need three to six months of savings set aside because what if something happens and you need that money? Tammy, the second part I would put about there, people need to know what they’re spending money on. I like to call it cashflow planning, not budgeting. I don’t need the spreadsheet with 73 line items and where every penny went, but generally where does your money go? And if you had to cut, what’s your required spending? What we often find in these situations when people lose their paycheck, there’s a lot of fluff in that monthly cashflow that you could actually reduce and make that three to six months last longer to go find another job because you know what? Maybe that’s just the better solution. COVID or no COVID, maybe it’s a better solution for you to move on to the federal government and go somewhere else.

Tammy Flanagan:        Right. That does happen. Yeah. Having that cash on hand is also important if you’re retiring because I think we’ve talked about this before. The whole process of transitioning into retirement can leave you a month, two months. I have somebody right now who’s been three months, hasn’t even heard from OPM. She called them up and found out her payroll office hasn’t sent her retirement to OPM yet. She left in July. So she’s still waiting for anything. She hasn’t heard nothing from OPM because OPM doesn’t know she exists.

Micah Shilanski:  Tammy, in that case, even though your payroll department made a mistake, that doesn’t elevate you to the top of the list when it goes to OPM, right?

Tammy Flanagan:        No.

Micah Shilanski:  You’re just in the queue whenever they get it. So it’s not just three months. Oh, great. They’re going to make an exception for me. They’re going to process this right away. No. This is three months plus their normal delay time.

Tammy Flanagan:        Right. You’re there for the other 9,000 applicants. By the way, I was just looking at OPM statistics of how many retirement claims are coming in. Last two months in July and August, because we’re not quite at the end of September yet, but July and August, the number of claims OPM received were up 30%. in one month, it was almost 35% over the last year. So they are getting deluged. This whole idea of a retirement tsunami I think is happening due to COVID, and I think it’s going to increase by the end of the year with all these other things kind of playing into that with returning to work, with the vaccine mandate. There’s just a lot of things that are playing on people’s minds making them think about, “What should I do?”

Micah Shilanski:  Yeah. So if this is something that affects you again, think about the finances, think about the benefits. Make an educated and informed decision. That’s the biggest thing, Tammy and I, I think we want to convey to everyone. Don’t make this emotional. Make it educated and informed. You’re making the best decision for you and your family, and understand what those effects are on both sides, whether staying or going. Then also kind of think about that of saying, “Great, what’s your work environment been for the last year?” So as things changed with COVID, do you want to stay working remote? What’s that look like with your agency? Is that a reason that you can do what are other accommodations your agency can make with you? This isn’t something, and Tammy I agree with you, I don’t think this is something on November 22nd you’re going to show up and all your stuff’s in a box. Well, depending on how mad you made your supervisor lately. I don’t know about that one. Right? Short of that, I think there’s a lot of leeway and time that’s going to be granted working through this.

Tammy Flanagan:        Right. A couple of things too, is that if you get fired, I hate to say it like that, but that’s what they’re—

Micah Shilanski:  That’s what it is.

Tammy Flanagan:        … termination, that doesn’t mean you’ve lost your benefits because a lot of people are afraid of, “Well, if I get fired, then they’re not going to pay my retirement.” About the only way… It’s very hard for the government not to pay somebody’s retirement and pretty much boils down to treason. So as long as you’re not talking to Russia about your vaccine, I guess, then I think you’d be okay. You won’t be crossing that line and you will still be able to collect your retirement benefit. A lot of people have gotten fired and still collect their lifetime annuity, have lifetime health benefits and everything else. The other thing I would say that I would be doing if I’m thinking along these lines that I’m willing to sacrifice my federal career is I would start calculating, what is this worth?

                  How much is my net income? How much income do I need to replace to be able to live in this house or to live wherever I’m staying to do that? And also if I am eligible for immediate benefits, what’s the net value of those? How much is my retirement if I leave in 2022, rather than in 2026 when I had been planning to retire? There’s going to be a big difference between your retirement today and just a year or two or three years down the road. There are some breakpoints, some special dates. For instance, like this woman who was 20 years at age 40. So at age 57, she could collect that reduced MRA plus 10 retirement with that significant age penalty. At age 60, as you were mentioning, she could collect an unreduced immediate benefit, which is considered a regular retirement and immediate retirement if she were aged 60.

                  But then at age 62, everything kind of opens up under FERS. It seems like Congress intended people to work until they were 62 because then you get the 1.1% factor used a computer benefit. You get cost of living adjustments starting at age 62. Your social security becomes available at age 62. So there’s a lot of different dates that kind of lead up to this ultimate best retirement date. If you’re going to throw a monkey wrench into that by leaving a few years early, it might just be wise to look at that vision down the road, do a calculation of, “What if I stayed till then versus what if I leave now? What’s the difference? How much am I really giving up in order to make this choice?”

Micah Shilanski:  Educated and informed decision.

Tammy Flanagan:        Yeah.

Micah Shilanski:  This is what’s the key part about this, right? Know your benefits and how they apply because it’s you. It’s about you, the listener right now and how this applies to your situation. That’s the most important. Tammy, the other thing that I would tell a client that’s looking at us, and I have one that’s kind of an in-between. They’re going to retire in March of next year and great. Where does this sit them in this list? If they’re going to retire in December 31st, we’re really not worried about it. You can probably make it through to that, but now you start getting into 2022, what’s going to happen? So we said, “Great. Let’s weigh out the cost of this. Let’s say we get terminated. What effect is that going to have?”

                  But also the aspect of- How employable are you on the outside world? And does it make sense to go and look? What I’ll tell you as a small employer right now, with unemployment going up, that is a good sign. That means it should be easier to find candidates, but right now, it is not. It is still harder to hire people and we’re seeing this across the board. So if you’re the younger person and you’re thinking about a career change, okay. Weigh out those benefits. If I made a career change, what career would that be versus staying with the federal government? And again, educated and informed decision between those two.

Tammy Flanagan:        Right. Then consider the value of your other benefits as well. So it’s not just the salary. It’s the matching on your TSP account. It’s the pension benefit that you won’t be accruing anymore. So really think of this realistically. Like we were saying, not that we’re promoting ourselves, but talk with somebody who understands this who can really give you a regular clear eyed view of what you’re facing. You have to think of the emotional part of it, the part that affects your wellbeing, but we can help you with the financial and the benefits piece of it so that you’re really looking at things clear because I wouldn’t want someone to leave under the impression that, “Oh, I could just collect my benefit,” but no, you can’t. You got to be older. There’s no immediate benefit at age 40. There will be when you’re 57 or 60, but that’s a long way down the road.

Micah Shilanski:  A few years down the road, right? All right, Tammy. Well, this podcast is all about action items for our listeners and making those educated and informed decisions. So let’s talk about a few of those. I would kick it off and say number one, know what your spending is. Know how much it costs you a month to live. Regardless of COVID or not, I always have this conversation with every single client. I had a meeting this morning with a client and it’s one of the first things I ask is, how is cashflow? We chat about that because cashflow is the heartbeat of your retirement. It’s also the heartbeat of getting ready to retire. So you need to know what your cashflow is and if the world went to heck in a hand basket, COVID not, COVID doesn’t matter, your paycheck stopped for whatever reason, how are you going to live?

Tammy Flanagan:        Exactly. If you are looking for the most current up-to-date information on what the mandate is, what the sanctions are, all of that information, you can go to saferfederalworkforce.gov. I think it’s interesting that this website was designed with OPM and GSA together. If you look at the bottom of that website, you’ll see both of their emblems, but it’s saferfederalworkforce.gov. Can we put that on the podcast so that people can go there and learn the facts rather than hear it from secondhand information or third or fourth hand information?

Micah Shilanski:  Absolutely. We’ll put that on our website. So planyourfederal retirement.com/37. This is the 37th episode. So you can jump right in there and get that. And then Tammy, the other thing that I would say is, we kind of chatted about this a little bit, but know what your decisions are. Know what your finances are. Get the right information to make this decision so you can weigh out what’s best for you and your family.

Tammy Flanagan:        Right? Yeah, and don’t jump to conclusions. Don’t panic. Nothing gets solved by making this panic knee jerk reaction. So really step back for a minute. You’ve got time to think about this. You’ve got time to calculate what your benefits would be if you’re entitled to retire now, rather than later. So try not to get into that panic mode because we don’t make good decisions when we’re in that mode.

Micah Shilanski:  Amen. All right. So this is all about those educated and informed decisions. Know these action items. I know it’s a hot topic, so hopefully, we didn’t offend too many people, but this is important stuff to understand your finances and how they apply to you. And until next time, happy planning.