Ep #74: Choosing the best Retirement Plan

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One of the most essential and fundamental questions is choosing the right federal retirement plan!

Do you know how much you should save for your retirement? Are you being realistic with your intentions and expectations? Do you have a retirement income? And what if there is a gap… is there a way to solve it?

Listen in as Micah and Tammy dive into the details of making the right decisions and the most important things you should pay attention to!


What We Cover:

  • Defined contribution plans vs. Pension Plans
  • Retirement Income Timeline
  • IRA plans
  • IRA vs. TSP
  • The Federal Thrift Savings Plan
  • How much do you need to save for retirement
  • The importance of being intentional about savings and cashflow
  • This leads to the question of how do you take money OUT of your retirement


Action Items:

  1. Look at max funding 2022 IRA/Roth
  2. Increase your TSP contribution
  3. What is your GAP in retirement income?


Resources for this Episode:


Ideas Worth Sharing:

What money should we put where if we know we're saving for the future? How much should we put into IRAs vs. the TSP into Roth vs. traditional vs. what we're going to non-retirement accounts as well, right? – Micah Shilanski Click To Tweet

You can't really influence what's going to happen with your first benefit or what Congress is going to do to Social Security, but you can certainly influence how much you set aside, how you manage that, and how you tolerate risk. – Tammy Flanagan Click To Tweet

When we get in our mind that this is the date we want to retire, and then somebody says we need to work a little longer… It's a bit painful, isn't it? – 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: Welcome back to another amazing episode of the Plan your Federal Retirement podcast. I’m your host Micah Shilanski. And with me as usual, is the amazing Tammy Flanagan. Tammy, how’s it going?


Tammy: It’s going great. Micah, I’m ready to talk about some money issues today. This will be an interesting one.


Micah: I know something about Patrick’s Day. It is right. He has the green thing right where he was talking about money. It’s almost like it’s a retirement podcast or money is kind of a key part of that.


Tammy: That’s right. That’s right. This is a good time of year plus it’s getting closer and closer to tax time. So another thing when people’s minds start turning to money issues, how do we pay less taxes?


Micah: You know, that’s such a great question, right? Because there are two ways to look at it. There’s that traditional way that we look at it, which I’m gonna lump a lot of CPAs and tax preparers in and not so much in a negative thing, but this is what they hear from their clients a lot is how do I pay less taxes, but with the CPA is looking at is their current tax return? Right? They’re looking at what taxes they paid last year, and they’re saying how do I lower my taxes for last year, which is a fair question. And then if they go a little further, how do I lower my taxes for this year? That’s another fair question. But Tammy, I think the better question is, how do I lower my taxes over the next 30 years? Because now all of a sudden, we’re playing a different game.


Tammy: Yep. And it’s kind of hard to predict all of that not knowing what the tax laws are gonna say in the next 30 years. So you have to kind of, you know, play with what you know today and then prepare for changes in the future because, obviously things do change in the area of taxes. Probably even more frequently than in the area of benefits.


Micah: Oh, yes, taxes change a lot more frequently than benefits, depending on what Congress wants to do or not do. Or even maybe it’s not tax law changes this IRS interpretation of the law changes, right? And so then that can create a whole other subset of fun planning dilemmas. That we have to work through. So what we wanted to really chat about today is Tammy, we’ve gone through previous podcasts a whole lot about the federal benefits, right, which are great. There are so many great ways that you have federal benefits, but there’s kind of two segments to your retirement income. There’s what we call our fixed income rate, which is going to be some type of pension income that’s going to come in your first benefits may be Social Security will chime lightly about that one, and that will come up with some portion of your retirement income. Then we have what is called the variable retirement income, right, which that’s the other monies that we have IRAs, Roth IRAs, TSPs, etc. So this will be a fun question to say what money should we put where if we know we’re saving for the future? How much should we put into IRAs versus the TSP into Roth versus traditional versus what we’re going to non-retirement accounts as well, right? There’s all these different options that are out there. So I guess we should start first kicking off a little bit about pension plans. And briefly, how do they fit in this mix, then maybe talking about the other piece of it?


Tammy: That sounds good, Micah because I know with FERS, you know, the Federal Employees Retirement System, you’ve got three pieces to it, and like you said, two of the pieces we can figure out, believe it or not pretty simply and pretty accurately. It’s that third piece that really is like you said, flexible, it fluctuates. You know, we’re not always as well educated as we need to be to understand how to manage it. So I think this is going to help a lot of people today to get some basics of how to manage that thrift while you’re working, how to build the wealth that you’re going to need. For those of you who want to retire at a younger age is the solution to every problem when it comes to retirement planning. Because if you can’t afford to retire today, all you got to do is work a little longer, but nobody seems to like that solution.


Micah: Know when we get in our mind that this is the date we want to retire, and then somebody says we need to work a little longer. It’s a bit painful, isn’t it?


Tammy: It is it is because you want to do what you want to do, that’s for sure. 


Micah:  So whenever we do, yes, let’s make it happen right. Now Tammy, whenever you and I and we look at it from slightly different angles, we’re always going in the same direction. Right? You’re looking at it more from the federal benefits piece. How is that going to be put together and then I’m looking at it from the federal benefits piece and the other pieces that are out there? How does everything drive? That’s one of the reasons I love doing the podcast with you, right? We’re always pointing in that same direction and having two different views on it. So what we, regardless of whether we start in two different ways, we’re always starting with the same thing, which is how much a month does somebody want in retirement income, because that’s kind of the nut that we’re solving for at the end of the day, right?


Tammy: Then sometimes is the need the same as the want. Because if you’re not happy in retirement, if you don’t have enough money to do what you want to do, that hurts so I think the need no one should line up pretty constantly. 


Micah: You just nailed I was just about to go there. So you got to make sure these get lined up. And if you got to look at a TNC you’re not happy with your current spending where people make mistakes and I have seen people do this where we get older retirement plan and they come in and they say: Well, Micah, we want to retire on, you know, $6,000 a month in retirement income, which is great. They have 6000 a month now they’re gonna have 6000 a month retirement income is passive. My straight face test. We work towards that for several years, then the day of retirement. This is a true story. That day of retirement as we wrap their meeting up as they’re walking out, the wife turns around and looks at me and says you know what, Micah? I think we want $9,000 a month going forward, not at six. And it’s just like she smacked me in the face with a sledgehammer, right? I’m like, floored by this conversation. And I’m like, it doesn’t work that way. And again, as she’s walking out the door, she makes this comment, and I gotta like realer back in. And I’m like, it doesn’t work that way. This isn’t a magical spigot that we get turned everything on. We’ve been working on this dollar amount for years. We’ve been adjusting your cash flow, we have paying things off. We’ve been doing all of these things based on this $6,000 a month. You can’t just magically ask for 50% more, and you don’t have the money to do that. So to your point, and maybe I need to look at this and say where did I fail and not asking the right questions. That’s a fair comment. But this is a real conversation got to be honest that if you’re planning for a number and you’re working with the planner, you’re working with your spouse or anybody else. You got to be open and transparent from the get go if you think that’s a good number or the wrong number because whatever number you think about is what your advisor what your financial planner will your coach is going to help you do. And if you give them the wrong number, you’re just setting yourself up for failure.


Tammy: Yeah, I think it’s sometimes you have to ask yourself so many questions, such as you know, do we want to travel in retirement? Is our house paid off? Are we gonna pay it off? So there’s so many different variables that can change that dollar figure from one thing to the other, so maybe she just decided she wants to take a couple of trips around the world or something and didn’t plan for that financially.


Micah: Yeah, and as you see my stress level just rising right by this yes. Because I’m I’m like gripping my desk tighter, like that’s going to do something. But these are things that come up and we got to think about these in advance. So when we’re thinking about that desired income, it’s awesome. How much money do we want to have in day to day living just to pay the bills? Then how much do we want to have Tammy nail that how much you want to have it a travel budget, and again, in my cash flow thing I like travel as a separate expense. How much travel do we want to do? Let’s set up a travel account. Let’s put money in there every single month and it’s good news, whatever you have money in there, go travel go do the things you want. But learn to know what that dollar amount is. It’s not about being a penny pincher on this. But you need to know where your money’s going in retirement. That’s such a key and a critical concept in retirement. Before we can ever get to the fun planning stage. You need to know where your money’s going.


Tammy: That’s right. And also, you know, even though you’re retiring from your full time career, if you did want something extra like that maybe for the first five or 10 years of your retirement where you’re still in those years. There’s nothing wrong with having a part time job or like I have a cousin of mine who works for the state legislature just during the session from January to April. So they go out of session and that makes enough money for her to take a nice trip in the summertime. So she solves that problem by adding some income to what she knows her basic retirement income and it works for her, that eventually she’s not going to be doing the traveling and she won’t have to do the work then either.


Micah: It works out really great, right? being intentional. So it’s always number one, start with what you want in retirement income. And then once we have that when that dollar amount is when we start looking at kind of the pension incomes that come in. And Tammy you where to put interesting question in our outline, so I’ll ask it to you. We know we have a pension income which is your federal benefit right, which you can control that a little bit. It’s based on your length of service and your high three, she can work a little bit longer, it will be higher. But then what about Social Security? Do you consider social security a pension?


Tammy: Not considered a pension by virtue of the definition of a pension where it’s an employer sponsored benefit, but it is a defined benefit just like your FERS retirement because it’s based on two defined factors, your salary and there’s of course the formula which just like there is under FERS, it’s just a different formula. So these are things both FERS and Social Security, that we can get every pretty good handle on how much it’s going to be worth. What’s going to cause it to be reduced what’s going to be withheld from it. Is it taxable as part of it tax free, so we can really get that down to a pretty solid number when we’ve chosen our retirement date when we say okay, for sure. We’re leaving at the end of June of 2024. Now we can start figuring out what that defined benefit or both of those are, if I’m over 62, then if you’re not over 62, under FERS, you might be getting a FERS supplement, and then you have to factor that into it. But you know, Micah, I wonder when we have this new retirement system, FERS new retirement system, but this doesn’t provide a cost of living adjustment until you’re 62. When somebody tells me they’re going to retire at 57 under FERS, I start to get a little bit worried because I’m not sure that they understand the lack or loss of a COLA for five years what that can really do, especially right now, because we’re in this sustained period of high inflation and I think people are hurting whenever they look at you know, everything else going up by 10%. And their paycheck for retirement is staying the same. And that’s something you really have to give consideration to as well and maybe somehow you can plan for that and I’m sure you can, but it’s something that a lot of people weren’t aware of until we started having higher inflation.


Micah: And Tammy, I would say goes a little bit further if I mean you’ll correct me if I’m wrong on this one, but it I don’t think it’s just that you get a 0% cost of living adjustment from 57 to 62. Most of the time, you get a negative cost of living adjustment because your expenses go up your health care goes up right your net pension goes down between 57 and 62. Almost every year because your health insurance goes up. Well if my net pay goes down, I’m kind of looking at as a negative cost of living adjustment. So with my retirees you’re 100% right from whatever retirement age to 62. We count on their pension decreasing every single year because they’re gonna have other things that will go up maybe their life insurance is gonna go up, you know, when they hit 60 years old, okay, that’s an additional expense, it’s going to go up their health insurance is going to go up right? All of those other things make your net pay goes down, which is one of the critical things in planning. You always have to be looking at what your net pay is, how much net income do you want? And what’s your net pension, your net Social Security.


Tammy: Right? Yeah, those are things that are kind of hard to put your mind around until you actually start to experience it. But then it’s too late. It’s like oh my goodness, I didn’t realize how much it was gonna hurt that the health benefit plan went up in price and now my retirements staying the same but like you said, he actually gets less every month in the bank, because that other expense just went up. So those are things that’s where benefit really lays the foundation for financial planning, because you really got to understand those five year changes. In FEGLI coverage, you know, if you’re carrying option B and you want to maintain it, it’s gonna go up there for five years. That’s right about the time you want to retire, it starts to double in price. So you know, then you have to figure out now what do I do so, so there’s a lot to it, and that’s why we spend so much time talking about it. And I love this too that we kind of laid this foundation with benefits. And you and I both understand the benefits really well. And then I love it because the financial planning piece is so critical. And that’s where a lot of people think, Oh, why do I need to do financial planning? Why do I need to do tax planning, when I’ve gotten away for 30 years without doing it? But it’s critical? It’s really an important step.


Micah: So Tammy, in our three-part stool that we have, right, we talked about two of them already. We talked about your pension, and we talked about your Social Security, right? Which is way another way of looking at pension insurance on the technical definition, but it kind of is a pension income. Neither one of those are going to keep up with inflation, right both after 62, have a cost of living adjustment. But number one first is on a diet cola; you’re gonna get 1% less than CPI. It’s a little formula right? But in essence, it’s 1% loss is what we bank on. And then Social Security in my opinion doesn’t keep up with social with inflation either. So neither one of those pensions neither one of those sources of income you have will keep up with inflation. So really what that’s going to rely on is our third bucket which you got to be really cognizant of, which is what we call your variable retirement income, or your savings right, your TSP your IRAs, your Roth and these other monies that you have. This is why it’s such a critical piece in your retirement plan. We’ve talked about how critical it is to get your SF50s In order to know your certified summary of federal service to know these things to get your pension and it’s super, super critical. But if you’re not putting equally if not more attention on your investments to help grow, you could run into quite an issue in retirement.


Tammy: And that’s the one part of your retirement you can influence you can’t really influence what’s going to happen with your first benefit or what Congress is going to do to Social Security but you can certainly influence how much you set aside how you manage that. How you tolerate risk. By investing in things that may have an element of risk but have the possibility of doing better than inflation. And that’s what we’re looking for to maintain, if not outpace what’s happening with higher prices.


Micah: Now, this is going to be a bit of a three-part series we’re talking about. So here we’re going to talk about, you know, choosing retirement plans and which ones you should contribute to the next episode; we’re going to talk about the foundations of a floatplane. Then we’re going to be moving into retirement distributions as a little bit of a tease of how you use this in retirement. We’re going to talk about how the money is actually going to get into the accounts now. This episode is airing on April 10. Before Tax Day, why is that so important? Because you still have time to go backward and look at last year that’s 2022 in Max fund, an IRA or a Roth IRA. Now, there are income limits on how much people can put into a Roth IRA. For incomes over a certain threshold of 204,000 and change, you cannot contribute to a Roth IRA. However, everyone is eligible to contribute to an IRA. There are no income limitations on that. And so that’s something you really want to take a peek at. Does that mean it’s right for everybody? No, I’m not saying that whatsoever. But I do think everyone should look at this look at your cash flow. And if you didn’t, Max wonder Roth IRA or traditional IRA for last year, maybe you should look at that and maybe we should be thinking about making a max contribution. And last year, that was $6,000 plus an extra $1,000 catch-up for total of seven grand for 2022 that you can still put in until Tax Day.


Tammy: Now, here’s the catch-up contribution that you can make for an IRA, the same as the TSP, where you can do it the year you turn 55.


Micah: You got the 50? Yes, the year you turn 50 you can turn it on. So if you were again 50 at the end of last year doesn’t matter when you turn 50. It could have been on 12/31 you were still 50 at the end of the year, and you’re still eligible for a 2020 catch-up contribution. Same with this year at the end of this year, anytime and this year, you’re turning 50 years old, you’re eligible for the full catch-up contribution for not only the TSP but in addition to the IRAs, which is great. Now, why am I talking about IRAs right now we’ll talk about TSP in a second. But IRAs are the only ones we can go backwards and put money into. Our tsp accounts we can’t it’s only money going forward, which is fantastic. But right now, if you haven’t topped off those IRAs for last year, you might want to take a look at that and say, Hey, should I be putting money into their last year? I think Tammy, one of the misconceptions I get from my clients that are close to retirement is they’re gonna say, hey, Micah, you know what I’m retiring next year. I normally fund my Roth IRAs, but since I’m retiring in a year, should I stop putting money in my Roth IRA? It’s a good question. And I think we’re looking at it wrong, though. It’s not just when am I retiring. Sure, you’re retiring in a year. But it also comes to the question of when are we going to use this money. And the other thing that investments had a really good job of doing is when you put money in investments you have less money to spend, so it helps on the cash flow side right? If I put seven grand and Rob, I don’t have seven grand in my bank account. It’s going to help with my cash flow and my spending. So sometimes it’s a forced savings plan helps us spend less so I like it from that nature. And then I also like it from the nature just because in Tammy, forgive me I’m up on my soapbox here. I know you know this, but just because we’re retiring next year, doesn’t mean we need to pull everything out of the stock market next year. We still belong in life, right? 30 plus years probably in retirement. How are we going to have that money grow force, and as we were just talking about the only tool we have at our disposal to outpace inflation? Is our investments, that’s our TSPs or IRAs or Roth IRAs or other investments, savings invested for the long term. That’s our only hope of outpacing inflation because we know by facts that FERS and Social Security will not keep up with inflation.


Commercial: How many times have you sat down with a financial professional who claimed to know your federal employee benefits but in the end, really couldn’t answer your questions? That won’t happen at plan your federal retirement.com. We cross the United States on understanding how their unique benefits tie into their greater financial plan. We collaborate with the industry’s top experts, like Tammy Flanagan, in order to come up with a financial plan that makes the most sense for federal employees who want to maximize their benefits. And because we’ve been in business for over 40 years, we also have the confidence to tell you when we don’t know the answer to something, and when and if that happens, we don’t throw up our hands and say we just don’t know. Instead, we start researching and looking through our network and talking to other Federal Employee Benefits experts to find an answer that is helpful for you as a federal employee. If you want to meet with one of our Federal Employee Benefits experts jump online to plan your federal retirement.com and see if a one-on-one consultation is correct for you. Isn’t it time to take the guesswork out of planning for your federal retirement? 


Tammy: And I’m really looking forward to only talking about IRA outside of our TSP account and we’re also saving money set aside for those vacations or that new car or whatever else we’re saving money for in cash. Now when we’re retired, we got to figure out which area do we take that from. We take it from the Roth IRA first and we save that for last and let that tax-free savings continue to grow. So I think that’s another place where people are gonna find this very interesting to figure out what order do we start using this money that we’ve saved? And another thing I’ve seen with clients is they don’t want to use it at all like they’re trying to live on just the defined benefit. They got their first benefit their social security, and they’re like, Okay, we’re just gonna live on this amount. It’s less than what we were bringing home, and we’re gonna have to scrimp and save but boy, if I start spending that savings, it’s kind of run out. So I think if we save enough and we have a plan, we’re not afraid to start spending it because that’s what we saved it for. We’re retiring. That’s our retirement savings account by name.


Micah: 100%. Right. So I think clients are worried about it because they don’t know how to take money out. What if the market goes down or it’s a rainy day fund right? What if that what if when the market goes down in percent, and I’m sure somebody will correct me right. That’s pretty close to the finish number right. But it’s around 19% decline for in 2022. Okay, the market was down. What was your plan if you were retired now, if you’re not retired, great. We need to come up with a plan that when the market is down, how are we going to take distributions, there’s a still a good way you can do it in down market. So yes, we’ll have to just tease people with that because we’re going to talk about it in a couple of episodes, which will be fantastic. So we’ve talked about contributing, so I would definitely say Roth contributions, IRA contributions if you haven’t talked about for last year make a ton of sense to me. What are your thoughts on TSP contributions for this year because the limits changed for those as well, right?


Tammy: It has and I still meet people almost on a daily basis that still think it’s 10,000 a year or you know, they have some number in your mind, or some percentage of pay that they’re supposed to be saving and they’ve lost track of these annual increases that we seek as this year. We’re up to $30,000. If you’re 50 or older, you know, between…


Micah:  $30,000 That’s huge. 


Tammy: Yeah. So if you’re able to do that, you know, why wouldn’t you put that money aside and lower your taxes now if you’re doing the traditional Thrift? Now, not everybody can do 30,000 Because you have to be in that catch-up contribution age bracket of turning 50 or older, but even if you’re not, it’s still 22,500. Now, it’s not 10,000 anymore, it’s gone. Way up from there. And so you want to check your payroll deduction makes sure you’re maximizing what it is you can save. And if you haven’t changed that for a couple of years, maybe it’s time to up it, maybe it’s time to increase it. We just got a pretty decent pay raise in January if you’re a federal employee. So take even 1% of that and put it towards your thrift because we were looking at some numbers before we started in even though we have close to 100% of FERS employees participating in the Thrift because every FERS employee gets an agency automatic 1% In every FERS employee starts off putting 3% in their TSP account, but we only have 85% of the first population doing enough to get the full government match. And that’s, that’s a little bit disappointing, because without doing 5%, how are you going to retire? You know, that’s to me, that would be the minimum I would want to do, and then from there, I would increase it as much as possible, especially if my goal is to be a GS 13, 14 15. You know, that’s the category where social security is going to level off because Social Security is geared more to benefit the lower wage earner. So if you’re in those higher income brackets, you’re not going to get as much income replacement from your Social Security benefit, which means you’re going to rely even more heavily on those savings, the Thrift plan, IRAs 401K’s, whatever it is that you’re doing to save for retirement.


Micah: 100% agree. I think the minimum putting in is that 5% of everybody should do that. Tammy, I would push a little bit harder and I know we got this big pay increase last year. I like a 50:50 rule. 50% of any unexpected money you have you should be saving for the future. So if you’ve got a 7% cost of living adjustment, I want to three half of that three and a half percent pushed in there. If you get a step increase, I want to have that step increase if you go up and pay for years and a half of that pay increase, stick it to the future, now why do I say half? Well, you’re not used to the money today anyways, right? So let’s get it going towards the future. And that also leaves the other half to come to the bottom line. It’s okay to get a pay raise to have a little bit more money today to help pay the bills now do fun things to go spend money. That’s okay. As long as we’re also saving for the future at the same time. So I love that 50:50 rule was new monies we have coming in.


Tammy: That’s true. Yep. It has to be a balance. I guess in everything in life. I was thinking about you know this whole idea of you know, when you want to retire and how much money you need, and you can’t have it all right. It’s almost like you know, I was thinking of somebody buying a house. It’s like, oh, yeah, I love that house in that perfect neighborhood and it’s got four bedrooms and five bathrooms and everything. And then you find out the price and you’re like, Oh, we better start paring down our wish list. And I think it’s the same thing with retirement. You have this dream of what retirement is going to look like and it’s going to happen when I’m 55 years old, and you start to crunch the numbers and you realize, well, maybe that’s not realistic. So we have to adjust our expectations. So I think a lot of retirement planning is given day in planning for the unexpected and understanding what are the what ifs you know, what if I stay a little longer, what if I became disabled? What if I save more in my thrift? So it’s a balancing act?


Micah: It is it is really a balancing act. And we’re going to talk about distribution plans in the financial plan, kind of a future episode, kind of putting these pieces together. But especially for our listeners, I’m going to say save more right; now there could become a time where you’ve saved enough Well, fantastic. Let’s cross that bridge when we come to it. But right now it’s a question about making sure we get that money. And make sure it’s working for the long term, especially with our younger savers last year. If the markets on 20% off go by right this is what I love about the TSP is you should be putting money in every two weeks, right? There’s no reason to try to max fund the TSP in the first six months of the year because one of the things you lose is your match. Because your match you have to fund the TSP equally throughout the year in order to get your match. So you want to find that all throughout the year anyways, and that money should be focused on long term investments and if that’s what you’re doing, when the markets going down, you’re buying, buying on a down bar. This is what’s going to up your TSP flow in the end, just like we saw on O eight just like we saw on O one. No, it wasn’t fun when the market was down. But when it recovers, because it always has. That’s once you see that growth is especially our younger investors; make sure you’re putting that money to work.


Tammy: Yeah. And if you have the fear of that, that’s actually there’s a fear in you that oh, the markets gonna go down. I don’t want that to happen to losing money. You know, I give my son with anxiety, panic mode. To me that means you just need more education. Because if you understand that there is risk in every investment in the Jima, there is risk you have to manage in life. It’s about managing risk, and I was teaching some law enforcement employees to talk to them about risk as they spend every day of their career managing risk in their workplace. Now they have to learn how to manage risk in their retirement planning is going to be that I want you to harness and understand, you don’t get afraid of as much you just deal with it as part of your plan.


Micah: You know, it’s kind of scared as a kid thinks there’s a boogeyman and then once you look and realize there’s no boogeyman under the bed, you know, all of a sudden it’s better but it’s, yeah, turn the light on. Right and it’s the same thing when we invest, we got to turn the light on. We can’t be worried and say well, what if a down market happens? Let me help me out. It’s not if, it’s when it’s going to happen. The question is, when is it going to happen? What’s our plan for taking money out? And so you know, generally Tammy, I was speaking this before but we have a five-year rule. Any money you want to spend any money you want to take out of the stock market in the five years doesn’t belong in invested. Why do we say that? 2008, 9, 11, 13 when the market fell, it took about five years for the market to recover. Well, if you’re taking money out every single year, but you would really be hurt. So again, for our younger audience, if you’re not going to use this money in the next five years, we have time to write out the storms now we’re turning the light on to these down markets, right. We’re saying okay, yes, they’re scary, but they’re not as scary because we have a little bit of history that we can look at to say you know what they’ve always have recovered.


Tammy: Right. When you think about what’s in those investments, you know, if you’re in C fund you’ll be practical about that. You’re investing in Microsoft; you’re investing in what’s it called now Meta, Facebook. You’re investing in Walmart General Motors. You know, all things that we buy every day, those companies are going to be there. You know, these some of these are the most solid companies that have been there since the beginning of our market. Now remember, I was in college, which was a long time ago, and I had this contest, and one of my classes it was if it’s economics or what but we were all supposed to pick a stock that we thought was going to do well. And I picked Exxon. And today, here we are, all these years later, and Exxon is still there, and Exxon is still doing well. Yeah. So it’s like things are there for the long haul. So you know, I think I’m addressing that fear people have if we remember that one company that was really doing well in 2001 and then in 2002, it went bankrupt I think it had another for the first..


Micah: That’s what I was worried you were gonna say you picked.


Tammy: But that’s what I think the fear comes from the we think that when we’re in the C fund, everything’s in one company, and it’s in 500 companies and all 500 companies if they all went bankrupt tomorrow, we got a whole lot more to worry about.


Micah: Excuse me, at that point. We have a lot bigger issues. Your pension, everything’s gone. Yes. So alright, so hopefully that’s not going to happen, right. That would be that’d be a catastrophic thing. So we’re looking at this. Tammy, another question that’s going to come up when people were thinking about saving is where do I put money? Right? We talked about Roth IRAs. We talked about IRAs, and TSPs. I’m a huge fan of funding money into Roth accounts. I could be wrong, I think today our taxes are relatively low, historically speaking, and more than likely, our taxes are going to increase over time. If that’s going to be the case. I like to pay my taxes today and get as much growth as I can tax-free and that’s where a Roth comes in—pros and cons on this side. So if you’re kind of those you don’t want to hear, you’re kind of 50:50 you don’t know what to do, do both. There’s no rule that says you have to put all your money in the TSP and traditional or Roth; you can split it up a little bit. Now especially if you’ve been putting, like this year, $30,000 away pre tax, you’re getting a pretty healthy tax deduction, which is fantastic. If you move all of that into a Roth I am going to be off your Christmas list. Because your tax bill is going to be higher, your net income is going to be less right, because you’re paying another 910 plus $1,000 a year in taxes potentially. And so one of the things you got to think about is whenever we’re contributing to a Roth, what net effect is that going to have? So it could be something if you are never done a Roth before start, start with a few thousand bucks, start putting money on that account, start that five-year clock that Roth IRAs. You gotta leave the money in there for five years before you can take it out without a penalty to start that clock going for you and start having that money grow. For you, tax deferred, and eventually becoming tax-free.


Tammy: Right. And sometimes I run into people, you know, this is kind of the other end of the spectrum, somebody who’s saving 30,000 a year they’re getting close to retirement and they want to know what more can I do you know, how can I save more and of course, one way would be to put money to fund an IRA rather than just the TSP, but then sometimes I’ll even say to them, Hey, maybe consider shifting some of your contributions to the Roth option. So it’s going to feel like you’re saving more because you’re not getting as much of a tax break. But you’re setting aside that that pot of money that’s going to be tax free down the road. And especially for a lot of folks who have been around in government many years before the Roth, they never took advantage of it. So that could be a way to it’s not really increasing your savings so much as it’s giving you another outlet for where to take money from in retirement.


Micah:  I like it! Tammy today was really talking about kind of general concepts and thoughts on what to do. And then next time we get on the podcast, I want to drop a little bit more than details in that foundations of that financial plan about how do we solve for really what you should be saving, then that’s going to tie into our distributions. But let’s talk about some action items because this podcast is all about action items for our listeners. And I’m gonna say the first one, if you haven’t already done it, look backward and let’s next couple of days before tax season is over, and have you haven’t max fund on your 2022 Roth or IRA, make those contributions maxed, fund those accounts for 2022.


Tammy: Yeah, maybe another thing that people can do, especially this is for those who have that anxiety that fears about investing, take the time if nothing else, go on tsp.gov, and there have nice one-page fact sheets on the GFCS, and I funds was worried about what they’re made up of. They’re gonna tell you what the top holdings are in those companies. A lot of times, you’re gonna be familiar with those names. So get a little bit more education a little bit more than you have today. It helps, you know, I know you and I both learn something new every day, even when we just talk about it. And we learn from each other, but I think so many employees are afraid of that because that doesn’t feel like it’s in their wheelhouse, but learning about that can be a little bit fun. There. It’s not too intimidating if you start small.


Micah: Yeah, and If you are scared about it, put it in the G fund. It’s guaranteed it doesn’t go down in value, right? It’s not going to grow potentially as much as some other ones, but I would rather you increase your contributions if you’re scared to stick it in a G fund because at least the money’s in there right now, later, we can do something else with it. But if we miss the window, if we miss the opportunity to put the money in, there’s no makeup I can’t go backward in the TSP for 2022 and I’ve only put 15 grand in there. I can’t go back and make up the difference and put more money in there. I’m capped out by the end of the pay cycle. So that’s why it’s really important this year to increase those contributions. If you got the cash flow for it. If you’re scared about the markets, stick it in the G fund. We can have another conversation later, but at least get that money in there. 


Tammy: No, stick it in there for 30 years, though.


Micah: Yeah, I wouldn’t recommend that, right? The first step is to get it in, and we can talk about the investment step. And then Tammy, I’m going to say the third action item for our listeners this week is to work on determining what your gap is in retirement. So that gap again, how much do we want in retirement? What’s coming in and fixed income pensions and Social Security, and what’s the gap? What do we need in that variable income? What do we need to be able to pull from the TSP from your IRAs, etc., to make sure you have the money you need in retirement? If you’re not quite sure how to do that. Make sure you stay tuned to our next podcast. We’re going to get into that a little bit more.


Tammy: Right. And that’s how we get our estimates too. So if we get an estimate of social security, go get your estimate of your federal retirement benefit, then you’ll be all ready for our next session. 


Micah: Perfect. We’ll Tammy, it’s always a pleasure to do this. I like that. Bring your FERS estimate, and bring your Social Security statement to the next podcast. That’s a great idea.


Tammy: It’ll be a workshop then.


Micah: I love it,  it’s going to be a lot of fun. I got to make sure I don’t find this to make sure we do it next time. It’ll be perfect. Well, Tammy, these are always a lot of fun for me. Thank you so much for taking the time, and until next time, happy planning.



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