Ep #60: Pros and Cons of Federal Employment

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Misdirected advice can often be the most costly advice. So when we get advice, it’s important to hit pause to make sure it makes sense for you. If you’re in a place where you’re weighing the pros and cons of leaving federal service, don’t miss this episode. Tammy and Micah unpack many of the most important things you need to know in order to make a secure decision on when to leave service.

When you’re looking at years of service, minimum retirement, eligibility, and more, it can be hard to figure out the most beneficial time to retire. Listen in as Tammy and Micah shed light on different scenarios that people run into when making their retirement date decision and how to ensure you make the best decision for you.


What We Cover:

  • The cost of advice that isn’t for you.
  • Why people don’t feel secure enough to make this decision.
  • The problem with what you think you know.
  • Examples of scenarios people go through when making retirement decisions.
  • The difference between 60 and 62.
  • Why you need to question the information and advice you get—even if it’s HR or OPM.
  • How to look at the numbers a little differently.
  • Accelerating vs. extending retirement.
  • Where your investment plan comes into the retirement equation.

Resources for this Episode:

Ideas Worth Sharing:

I think we’re better served if someone just tells us what the pros and cons of this decision are. – Tammy Flannigan Click To Tweet

There are so many little nuances and this is why people are so insecure—because they don’t know what they don’t know. They know there’s things they don’t know, but they don’t know what they are. – Tammy Flannigan Click To Tweet

It’s not the things you don’t know that are the problem—it’s the things that you THINK you know that just aren’t so that really bite you in the butt. – Micah Shilanski Click To Tweet

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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, 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 back to another amazing episode of the Plan Your Federal Retirement Podcast. I’m your co-host, Micah Shilanski. And with me as usual, I should say back from a little absence is Tammy Flanagan. Tammy, how’s it going, ma’am?

Tammy Flanagan:        I’m doing great, Micah. I was not on vacation necessarily. I was doing a bunch of conferences and kind of had a busier summer than I had expected, but thanks for your patience. And I’m happy to be back, and I think we have a really good topic for today.

Micah Shilanski: Oh, I’m super jazzed about our topic today. Getting a little passionate about it. Tammy and I were kind of pre-gaming the other day, saying, “Oh, what should our podcast be about?” And I was getting all up on step talking about this. So, I definitely think it’ll be really exciting for our listeners.

And this is one of those things that, boy, this can be so challenging. Because so often, we want to take the advice we get, especially from someone who should be an authority in that area. We want to take it as gospel and we want to take that and we want to be able to go to the bank and we want to be able to count on that information we got with them.

But unfortunately, a lot of times, you got to hit that pause button and you got to stop, and you say, “Hey, does this really pass this straight-face test? Does this really make sense for us to do?” Because otherwise, it can cost you a lot of money.

Tammy Flanagan:        And I think part of the problem is that, first of all, employee benefits folks in the government, we’re really not supposed to be giving advice. And I think that’s the first problem, because we want to help people, we want to tell them, “Oh, if it was me, this is what I would do.”

But I think we were better served if somebody just tells us, “Here’s the pro of this, here’s the con of this decision that you’re about to make” because you don’t know the whole story. You don’t know what else this person has. You don’t know what they’ve got at home or in the bank or are they’re married or are they single.

There’s so many different variables that you really can’t give that kind of off-the-cuff advice. And we are talking about this big decision about leaving federal service. And in this case, maybe before you’re ready — not before you’re eligible because you can be eligible with five years of service.

So, are you really ready? And we’re talking about financially ready. Some other day we’ll talk about mentally ready. That’s a whole other story. But today it’s like, are you really financially ready?

Do you understand what those benefits are really going to be, the net amount of them? After taxes, after insurance? Are you going to start all of your benefits at the same time? Do you have entitlement to social security yet? Are there going to be cost of living adjustments?

There’s so many little nuances, and this is why people don’t really feel secure because they don’t know what they don’t know. They know there’s things they don’t know, but they don’t know what they are.

Micah Shilanski: And it’s not the things that you don’t know that’s a problem, it’s the things you think you know that just aren’t so that really bite you in the butt.

Tammy Flanagan:        That’s such a good thing to put this in because that’s really what happens here because we think, okay, we’re eligible, we’ve got a lot of service. Everything seems like it’s lining up.

We want to go out at a young age so we can enjoy that life after retirement, do all the things we want to do. But we got to have enough money to do it. So, maybe sticking around just a little bit longer could make a difference.

Micah Shilanski: So, Tammy we’re being a little bit of aloof right now. So, our listeners are like, “Okay, what are you talking about? Just get to it. No more sizzle. Give me the steak.”

So, what we’re talking about today is a conversation and comments that I’ve gotten a couple times throughout my years of working with federal employees. And one just recently that has come up.

Now, one thing I’m going to say, and Tammy, you can probably say the same thing; just because we share one example and you’re thinking, “Oh my gosh, they’re talking exactly about me.”

Well, guess what? We’re talking about you and a whole lot of other people because this is not unique. This is a common question that we get. And the more of these questions that Tammy and I get, the more it comes to the higher of our podcast topics of saying, “Hey, these are things we need to make sure we’re sharing with our listeners and going through.”

Tammy Flanagan:        And this was something that you and I equally were like, “Oh my gosh, yes. We hear this all the time.” Because I hear it from the benefits point of view, you hear it as a financial advisor.

So, it’s really a universal question that comes up at that mid-career point usually, or pre-retirement in some cases, but for many, it’s mid-career.

Micah Shilanski: So, here’s the scenario that’s coming down. So, working with an individual, I’m going to paint a general scenario. By the way, Tammy did a great job. We got a sample client to put together. So, that’s what I’m going to run you guys through.

So, sample client, been chatting with them for a little bit, planning on retiring when they’re 60 years young or 62, somewhere in that nature. And the reason is because their years of service line up. At 60, they’re going to have 20 years of service. At 62, they’ll have 22. So, they’re eligible for an immediate full pension, no penalties whatsoever.

So, this hypothetical client goes and talks to HR and then HR comes out and says, the benefits person says, “You know what, if you retire now, your pension’s only going to be a couple hundred dollars a month less than it would be if you waited to 60 or 62. So, why are you hanging around?”

And then we get phone calls and emails coming to us. It says, “Holy crap, I’m only working for $200 a year?” And I’m like, “Well, what do you mean you’re only working for $200 a year?”

They’re like, “No, I’m only working for $200 a month. That’s all I’m working for. Because if I retired now versus a couple of years from now, the only difference in my pension is $200 a month.”

And we often get this question. I don’t know about you, Tammy, but that’s exactly the context in which I start getting this question. And then we start kind of peeling back that onion and be like, “Alright, there’s got to be something more to this.”

And basically, someone looked at the information pretty abruptly, pretty quickly, and made an over-simplification of retirement benefits and what that pension’s going to be.

But in this case, in this scenario, let’s go back and look at it. Someone’s going to retire at 60 or 62 with 20 years. Let’s just call it 60 with 20 years of federal service. If they retired before that, they don’t have enough years of service in order to make them minimum retirement in order to get the full non-reduced pension. Do they, Tammy?

Tammy Flanagan:        No, because it’s true, you’re eligible for an immediate retirement. This is what everybody wants because you want to keep your health insurance, you want to keep your life insurance. You want to start collecting payments soon as you walk out the door, and you’re eligible for that. Under FERS we have a category called MRA+10.

So, this whole example starts out, this person’s 57 with 17 years. So, they are technically they’ve reached their MRA, they’ve got well over 10 years, they got 17 years of service. So, life is looking pretty good. So, at that point, they’re eligible for $17,000 a year if it were unreduced.

Well, if you leave at 57 with 17 years, to get the full $17,000, you would have to postpone receiving that benefit until you’re 62. So, if they decided, “No, I can’t do that because I need my health insurance, I need the money” — if you took it right then and there, it’s reduced by 25% because you’re five years under 62. So, what was once $17,000 is really only about $12,800.

So, it’s a little over a thousand bucks a month, which is nothing compared to the $100,000 you were earning before you walked out the door, and that’s really it because you’re not going to get social security at 57. You’re not going to get a FERS supplement if you only have 17 years of service. So, that’s all you got.

So, if you’re not planning a second career who cares about lifetime health insurance, you don’t have enough money to live.

Micah Shilanski: That’s a hundred percent the case. If you’re not planning on that second career … it’s a cash flow question. Cash flow is king; where’s your money going to come from in order to pay your bills?

Now, Tammy, you went over something really quickly I want to make sure I’m pulling out for our listeners. And one of the misconceptions that comes in here, as Tammy, you said a hundred percent correctly; if this person goes out and retires at 57 with 17 years of service and they postpone their pension, when is the soonest they can turn around without a penalty?

Tammy Flanagan:        62.

Micah Shilanski: 62. That’s right. It’s not 60. That was another misconception that had come up. I get it multiple times from HR people that says, “Oh, well you could just turn your pension on at 60 without a penalty.” Maybe they had 20 years of service.

It doesn’t matter, if you postpone your retirement, you have to make that delay. That’s going to be there. So, in our example here, that delay doesn’t mean 60. It means 62 before they could turn on that pension because they only have 17 years of service.

Tammy Flanagan:        Let me just make one other statement that if they had 20 years, they’re in better shape. Because if you left, if let’s say you were 57, but you had 20 or 22 years, then you could postpone until 60. You wouldn’t have to wait till 62 because you had enough service to claim that benefit at 60.

And I know one guy, this is a horrible outcome, but he was told … let me back up. What he did was he left at 57, he had 22 years, and he thought he had to send the application in as soon as he left to collect it at 60.

So, he did, he sent it into OPM thinking I’m being proactive, and OPM sent him a lovely letter back saying, “You can’t collect this until you’re 62.” The letter said 62. Didn’t mention anything about the fact that he had 20 years and could collect it at 60.

Micah Shilanski: He collected at 60.

Tammy Flanagan:        So, he listened to OPM’s letter. He waited until he was 62, filed the application again, asking it to be paid retroactively to age 60, when he could have collected it.

Micah Shilanski: Was eligible.

Tammy Flanagan:        And because he didn’t file for it before he turned 60, they said “No dice.” He even appealed it. And he lost because he should have filed that application three months before he turned 60. Sad story.

Micah Shilanski: Now, we could be sitting here and say, “Well, that shouldn’t be the case because of A, B, and C or they should have done this or blah, blah, blah,” which I’m sure. I probably agree with a hundred percent of that statement.

But let’s look at the reality; they didn’t. OPM sent out a letter that was incorrect. The federal retiree acted on that letter, followed those instructions and they lost two years of benefits because of OPM’s, of what they said to do.

Tammy Flanagan:        Over $50,000 lost.

Micah Shilanski: Wow. Yes, right. And boy, we could even make that number larger if we start checking the box. He probably had to take retirement distributions and had to do other things and what implications those have.

I mean, it’s a big number that was lost. And in his point of view, which is a hundred percent right; he did exactly what he was told to do by the people in charge. And he came up with the wrong answer.

Well, guess what? That’s the same example what we’re talking about here; is just because your HR says you can do something, it only costs 200 bucks a month, it only costs $200 a year, whatever that is — you really need to hit the pause button and be like, “Wait, you mean I’m only going to make $200 difference if I work another five years?” I mean that just doesn’t pass the straight-face test.

Tammy Flanagan:        No, doesn’t make sense. It makes no sense.

Micah Shilanski: It doesn’t make sense. So, you got to keep pulling on that thread a little bit more to get these numbers.

So, Tammy, walk me through this one a little bit; what’s the difference between age … let’s go keep with our scenario; 17 years of service and 57 years young versus retiring at 62.

What’s the dollar difference really at the end of the day? We won’t even get into TSP contributions yet. Let’s only look at the pension because there’s a special thing that you won’t get if you retire early. So, how does all that come together?

Tammy Flanagan:        Well, let me look at two different ages because whenever I’m talking to employees, I always tell them, I say, “Before you decide, this is the time you want to go …” especially if they’re younger than age 60 and they don’t have 30 years, I say, “Let’s take a look at 60 because 60 is a critical age when the service requirement goes down to 20 years. And then 62 is kind of the magic age where a lot of things come into play.”

So, if this person worked another three years from 57 to 60, and let’s say that they didn’t get any pay increase, they just were still earning a hundred thousand a year, which obviously, they’re going to get some pay adjustments. So, this is a very conservative estimate.

So, at age 60, now they’ve got 20 years. They’ve met the minimum age and the minimum service requirement to get an unreduced immediate benefit. So, 20 years times 1% is 20% of a hundred thousand.

Now, we’ve gone from $17,000 reduced to 12,800 to $20,000 with no age reduction. So, that’s a difference of $8,000, almost well, a good $7,000 a year.

And on top of that, because they’ve met the requirements for an immediate unreduced benefit at 60, they’re also going to receive the first special retirement supplement for two years until they’re old enough for the real thing.

And that supplement based on 20 years of service is going to be worth about half of their social security estimated benefit at 62. So, if social security said, “Hey, we’re going to pay you $24,000 when you’re 62,” that supplement’s going to be worth about another thousand dollars a month.

So, now, they’ve increased their income from almost $13,000 to $32,000. It’s a huge difference just for the three more years. And then if we push it out two more years, hey, you’re already 60, what’s another two years?

So, now, we’re 62 with 22 years. Well, there’s a change in the formula for FERS once you’re 62, if you have 20 or more years, which of course, they do. So, now, it’s 1.1% times 22 years multiplied by the same High-3. And granted, it’s going to go up, so this is very conservative. Now, we’re at $24,000 a year instead of $20,000 at 60.

So, it’s a $4,000 jump just for those two years, plus no supplement — no, who needs it. Because now I’m eligible for the real thing. Now, I get my social security based on my whole lifetime of social security covered work which could have been private industry, it could have been military service. It could have been self-employment, whatever I was doing before I came into the government at age 37.

So, unless I was in school for all those years, I was probably working somewhere.

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Micah Shilanski: So, Tammy, let’s look at these numbers a slight different way because we’re talking about numbers, and the great news if you’re watching this online, we can put up a little slide, we’ll show you what we’re walking through.

But if you look at these numbers and at 57, I’m going to round, you are getting just over a thousand dollars a month right after the reduction and what that’s going to look like. So, you’re getting a thousand dollars a month. That would be there. Then, if you worked until 62, your pension would be over $2,000 a month.

Tammy Flanagan:        Well, it’s even more than that because the supplement is a thousand, the first benefit is $1,600.

Micah Shilanski: Oh, I’m not even there yet. Just looking at your pension, right.

Tammy Flanagan:        At 1,667 a month at 60.

Micah Shilanski: Oh no, that’s at 60 — at 62.

Tammy Flanagan:        At 62. I’m sorry. Over 2,000, yeah, doubled.

Micah Shilanski: No, over 2,000 right. So, in that five-year period in time, your went from a pension of a 1,000 in change to a pension of 2,000 in change. So, in that five-year period alone, your pension doubled. That’s huge when we start thinking about this. Now, depending on your length of service, depending on all these other things, that could be more.

We’re only talking between $1,000 and $2,000 sure. But as your income goes up, as your years of service goes up, these numbers can make some pretty substantial changes. So, this is not a difference of $200 a year, $200 a month. This is doubling. This is a big effect.

Tammy Flanagan:        This is huge. And if we get to the second tier of that, social security comes into play. And you do have some options there. Just because you turn 62 doesn’t necessarily mean that you’re going to turn on social security. But even if you don’t turn it on at 62, you’re still going to pick up annual cost of living adjustments starting at 62.

Where if you had stopped working, stopped contributing at 57, you’ve not only lost those COLAs because there are no COLAs at 57, but you don’t have wages to help increase the benefit up until 62. So, there’s a big difference in your social security benefit if you leave early versus wait until you’re at least eligible for the reduced benefit.

Micah Shilanski: Okay, so that was just your pension and social security a little bit we talked about. But you have another tier, a huge one part of your FERS retirement, which is the TSP, your Thrift Savings Plan. So, you’re giving up several things with this, right, Tammy?

We won’t even talk about withdrawals, we’re going to get to that one in a little bit. Let’s just focus on what you’re putting in. Again, assuming our a hundred thousand dollars High-3s, that means that’s your wage is a hundred grand, you get a 5% match.

So, if you were putting 5% in, that’s $5,000. Let’s say you stuck it in a G fund at a whopping 1%. Sure, it’s not going to grow that much, but it’s not going to go down. So, at the end of that five-year period in time, well, five years times $5,000, that’s $25,000 that we would have saved up in this period in time. That’s fantastic. $5,000.

Tammy Flanagan:        It didn’t come out of your paycheck, it was the government automatic contribution matching.

Micah Shilanski: So, we have a $25,000.

Tammy Flanagan:        So, it’s just waiting for you.

Micah Shilanski: Yeah, just part of your benefits. So, we had a $25,000 gain right there. And then, okay, let’s add your contributions to this. Well, if you’re putting in 20 grand a year, just easy math here, times five, don’t won’t worry about interest in there.

Well, 20,000 times five is a hundred thousand dollars. So, now, we have a hundred thousand dollars of your contributions plus the $25,000 of the match. It’s $125,000 that we have there. So, none of this, “Hey, when I retire now, it’s only a $200 a month difference.”

No, no, no, no, no. This is $125,000 just in your TSP, not accounting any growth. Stick it in the G fund, it’d still be a little higher than that. That’s a lot of money that you’re leaving on the table.

Now, this doesn’t mean you need to stay working until 62. That’s not what we’re talking about, but make an educated and informed decision. This has much greater impacts on you than just retiring early because my pension might be slightly different.

Tammy Flanagan:        Yeah, and I was thinking, too, on this idea of the TSP waiting another five years; this person already worked 17 years. So, they’ve already accumulated a nice sum of money, hopefully, a nice sum of money in their Thrift. So, just think about that large check that’s in the Thrift, still earning interest.

Rather than when you started out in the Thrift and you were earning interest on your $5,000, now you might be earning interest on $500,000. So, even a little bit of interest is going to add volumes, probably more than you’re contributing to that balance if it’s growing.

Now of course, we’ve had some bad days and months this year, so in a down market.

Micah Shilanski: What? The secret to that is, don’t look. That’s the secret.

Tammy Flanagan:        That’s right. You’re not going to spend it all the day you walk out the door anyway. The key is to let it grow until it’s large enough to supplement the social security and the FERS, so you don’t have to worry so that you can weather any storm that might come down the road and the decades that you’ll be retired.

Because many people are retired longer than they worked. Sometimes 20 years, 30 years, some even longer. It’s a long time to plan for financially.

Micah Shilanski: And let’s talk about those withdrawals. So, let’s say you leave at 57. And then you say, “Great. Well, okay, you’re going to have your … well, let’s see, if you start your pension, that’s going to come with a hefty penalty because we just talked about a 25% penalty, right, Tammy? If you started that pension right away. So, you’re going to have that penalty in place.

So, let’s say you start it because you need the money. Well, you’re not going to get your supplement. You’re not eligible for social security because you’re not 62 years young. You’re only 57. So, you don’t go get another job, so you decide to take money out of your TSP.

Okay, now, we got some compounding negative effects happening because instead of putting in $25,000 a year, $20,000 of your contribution, $5,000 of a match, $25,000 in — you’re pulling maybe $20,000 out or more. That’s like a $40,000 Delta. That’s the difference between those numbers. That is a huge impact in your TSP when we start pulling these monies out.

Now, that’s what your TSP is made for at some point. But we got to have a plan for this. And where I get really concerned with clients and with prospects or people that I meet online and submit questions and all these great things, is when they arbitrarily accelerate their retirement date. 9 times out of 10, they are not prepared for it.

One of the things that we preach time and time and time again, pick the soonest date you’d possibly want to retire and plan for that because it is really easy to extend your retirement. We can make that happen pretty easily. It could be very challenging to accelerate your retirement and make everything work.

Tammy Flanagan:        Yep. That’s so true. And you meet people all the time that sometimes, it’s an emotional event. They’ve got a new boss or they change the rules or I have to move to a different office or teleworking or not teleworking.

When you’re making a big decision like deciding to retire from your federal career based on a knee-jerk emotional reaction, that’s a good sign that you better step back, take a little bit of time, do some planning, do these projections to say, “Well, what if I didn’t leave? What if I hung in there for another three years or five years, whatever it takes?”

It can make all the difference in the world between living comfortably in retirement versus maybe having to return to work into your sixties. I live here in Florida, we see a lot of people working in their sixties and I think the plan was they wanted to be retired, but realized they jumped the gun.

Micah Shilanski: And this is where, and it’s easy to say on the outside. It’s easy for me to look into someone else’s situation not going through their life experience and say, “You should just work another three years. You should just work another four years.” And I get that.

But that’s also, my job is I look at the numbers and I get a look at it slightly dispassionately and I get to say, “Great, how does the math work? And do you have enough to make sure yourself and your loved ones are taken care of?” And we can skew those numbers when we look at them ourselves.

Working through with one client right now and they really want to skew those numbers and say, “Oh, I can live unless I can do all these other things, I can make this work” because they really want to retire.

I said, “Well, fantastic. Live on less now.” “Well, I can’t.” “Well, then you won’t be able to then. That’s how this works, is show me you can actually do it, then we can plan for it. But you’re spending everything you make today. You got to plan on that in retirement.”

And that’s what we’re talking about with these numbers, is we can be misled a little bit. And it’s not malicious at all, but we can be given information that is not a hundred percent accurate. We latch on that, which says, “Oh my gosh, I could accelerate my retirement by three years, by five years, by whatever this time period. And I could go now and it has no financial impact on me.” It does.

It has a large financial impact on you. Now, if you’ve already saved enough where you can absorb that, rock on and we’re going to get to that one in just a minute. But the first question you really have to answer is, “What impact does this have when I look at all of my components together?”

Tammy Flanagan:        Yeah, and we’re not saying that no one can retire at 57.

Micah Shilanski:           Lots of people do.

Tammy Flanagan:        Everybody has to have 35 years of service to retire. It depends on what you need to have going out, how much you’re living on now. There’s so many different variables which is why this isn’t such an easy decision. But I think the point we’re trying to make today is to really think it through, run a couple of scenarios, run a couple of estimates.

What’s going to be withheld from your retirement is taxes and insurance. So, make sure you allow for tax withholding. If you live in a state that taxes your retirement, don’t forget about the state tax.

Your insurance is going to cost you about the same in retirement. So, what’s coming out of your paycheck is going to come out of your retirement check, but on a monthly basis. So, that’s really not going to change too much.

The only thing you’re no longer going to have to pay for is retirement because you’ve already retired. So, those contributions to the Thrift will stop. Your FERS contributions will stop. Even the payroll taxes, FICA, and Medicare tax, those stop once you retire.

So, that does help, but it doesn’t make you able to live on 25% of your income. You still have to have a little better replacement than that.

Micah Shilanski: And Tammy, that’s a misconception. I know we talked about it before on the podcast. The easiest way that we like to work with clients to set their retirement income is, “What’s your net pay? How much is hitting your bank account?” And that’s what we need a plan for to replace in retirement.

And sometimes, I’ll have clients be like, “Oh Micah, well, I’m getting $7,000 a month, but I won’t have my TSP contribution anymore. And that’s $2,000 a month. So, all I need is five.” Whoa, yes, that math is quasi-accurate, but it’s not correct.

Because while your TSP contribution goes away, that happened before it hits your bank account. So, that’s already not counted in it. So, Tammy, to your point, what’s the real money that you’re spending on a monthly basis? And where’s that going to come from? How are we going to replace that so it’s sustainable in the future?

Tammy Flanagan:        Well, I think increasing your TSP contributions if you’re not already maxing it out. But by increasing the TSP, it does two things. Number one, it does set aside more money for the future. But number two, it does get you used to living on less.

So, one of the ways I tell people to prepare for retirement, especially if they’re not ready quite yet, financially, is to increase that TSP max it out if you can. Even if you’re only going to do that for three years, see how that feels, because in retirement, you might have even less than that, depending on how the numbers work out.

So, max out everything you can do while you’re working, while you still have some flexibility to pull it back if it’s too tight. But once you’re retired, you can’t just create more income in retirement other than overspending your savings. And then you’re going to run out of money.

Micah Shilanski: Yeah, then you’re looking for a job at 75. Nobody wants to be in that case.

Tammy Flanagan:        Yeah, or moving in with the kids, “Hey kids, guess what?”

Micah Shilanski: Yeah. I’m telling mine, “I gave you 18 years, I expect eight years in the back end. I think that’s fair.” But we’ll find out how that works. So, yes, you really need to be saving, you need to put these things in place.

Now, one of the things we talk about all the time on the investment plan side of it is you got to be looking out of your investments for at least five years.

Any money you need to spend in the next five years should not belong in the stock market. What if the market’s down? Like right now as we’re recording this, the trailing 12 months is about 15% down. We’re down 15% in the last 12 months. Well, if all your money was invested, you lost 15%. Now, you want to retire and you got to pull that money out when it’s down, that’s painful.

That’s why we got to have a plan. So, this is another downside of accelerating your retirement sooner. You may not have the right investment plan put together. And now, the market’s down 15, 20, 30%. And now, you have to take money out to pay your bills because you’re postponing your pension because you didn’t retire with immediate pension.

All of a sudden, this can be a pretty big snowball effect, which is pretty negative. So, again, pick what’s the soonest date you’d want to retire, plan towards that, and make sure you’re putting all the pieces together.

You’re looking at the pension, you’re looking at the supplement, you’re looking at social security, you’re looking at your TSP investment plan, and making sure all of those things are lined up to get you there.

Tammy Flanagan:        Right, yeah. That’s why we call it planning for retirement. And to me, it’s an ongoing career-long project. And my uncle Steve retired in 1980 under civil service. The plan was come into government early, stay until you’re 55, and you got it made. You don’t have to do anything.

But today, it’s a little different because the day you walk in the door, you have the option. You have the responsibility to start trying to say for the future. Start figuring out that projection of where that’s headed, what’s going to happen with that account? When are you eligible?

Every new employee should know their first eligibility for retirement. How many times do you meet people who never had any retirement training within the first five years of being hired?

So, agencies, I applaud those that provide training at 5 years, training at 15 years, training at pre-retirement because it’s an ongoing project. You really have to reevaluate, evaluate, make plans. And sometimes it takes hiring a professional, sometimes you can do it on your own.

But the important thing is that you understand how these things work and how they come together.

Micah Shilanski: Yeah, fantastic. Tammy, this podcast is all about action items for our listeners. So, one of the things Tammy and I love is we love talking federal benefits. We love going through this stuff, but it doesn’t count for anything if you don’t take action. So, you got to make sure you’re getting this message out to other federal employees. This is growing like crazy because of you and we really appreciate that.

But let’s go through some action items and things that you need to do this week. And I’m going to kick it off, Tammy.

I say the number one, pick the date; what is the soonest date you would want to retire, write it down, and then let’s start making a plan to achieve that.

Tammy Flanagan:        Yeah. My action item would be to either request an estimate of your retirement if possible two or three different dates. Pick those key dates when you meet certain milestones like 57, 60, 62, and then look at that estimate and see what you don’t understand and make a list of questions.

What is it about that estimate that’s not clear to you? What on there doesn’t look right? And then either ask those questions of your retirement specialist. Hopefully, you work at an agency that has someone who can counsel you. And if not, send it to us.

We answer questions all the time on these podcasts, maybe we’ll build a whole podcast around those questions.

Micah Shilanski: Yeah, that’d be fantastic. I’d love that. Then last action item, as unfun as this is, but it is probably one of the most impactful exercises I have all of my clients do; cash flow planning. Not budgeting, cash flow planning. Know where your money goes.

Three or four categories, no more than five. What’s the general area and where you spend money every single month? This is critical to make sure you can retire successfully, is by knowing where your money’s going. So, understand cash flow, understand how all of that comes together.

Tammy Flanagan:        And if all your money goes every month, like mine does, all you got to do is take that biweekly net paycheck, multiply it by 26 pay periods, and divide it by 12, and that’s your cash flow.

Micah Shilanski: That’s right. That’s how much is flowing.

I love it. Well, Tammy, as always, it was a pleasure. And until next time, happy planning.

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herein are solely those of Shilanski & Associates, Incorporated, unless
otherwise specifically cited. Material presented is believed to be from
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