Ep #77: Withdrawals in Retirement

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You’ve been working and saving and planning for your retirement. And when you retire, you go through a psychological shift from accumulation to distribution. Here lies the importance of understanding your federal benefits and the best way to use them! The TSP is a phenomenal tool; your federal benefits, your pensions are phenomenal. Your health insurance is an outstanding tool. But is it perfect? No. 

There are gaps in these things, and we want to bring your attention to understanding how your tool set works. So they can be built for your retirement and never outlive your income.

Listen in as Jamie and Micah Shilanski go through the essential steps and explain the withdrawals in retirement.

 

What We Cover:

  • How does the TSP work in retirement?
  • What is different about now vs. in retirement with your TSP
  • What tax planning do we need to do with 
  • Should you use your TSP to pay off your house?
  • What is the ‘annuity’ with TSP
    • Be careful of decisions that you make that are permanent

 

Action Items:

  1. What is your distribution plan?
  2. What is your tax plan?
  3. How does this affect your survivor?

 

Resources for this Episode:

 

Ideas Worth Sharing:

You know, I think one of the things that most federal employees that we work with are ill-prepared for is the psychological shift going from accumulation to now distribution. – Jamie Shilanski Click To Tweet

The TSP is a phenomenal tool. Your federal benefits and your pensions are phenomenal. Your health insurance is a phenomenal tool. Is it perfect? No. Perfect, no, right. There are gaps in these things. – Micah Shilanski Click To Tweet

So making sure that tax planning is important is something that you're factoring in. So that you know, when you pull that lever, when you pull that income lever, what are the implications? – Jamie Shilanski Click To Tweet

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Full Episode Transcript
With Your Hosts
Micah Shilanski and Jamie Shilanski

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 the plan your federal retirement podcast. I’m your co-host Micah Shilanski and with me, not as usual, is a great advisor in her own right, but really I just like to think as my big sister Jamie Shilanski. What’s going on, Carlene?

 

Jamie: And by big, we mean older and not wider. I hope.

 

Micah: Can you say that my older sister, old sister, yeah, we could go with that one too, if that makes you feel better? 

 

Jamie: Well, I always introduce you as my baby brother. So and I think it’s an important distinction to make because since we’re both Shilanski is oftentimes when we go to conferences, or we’re talking to OPM, we’re doing different live events. People often confuse us they say, Oh, I was just talking to your husband and I was like, oh, yeah, that’s my brother. So I always like to call him like right out of the gate and let everyone know Micah is my baby brother. So yes, and I am his older sister, and together we comprise a lot of what makes up plan your federal retirement. So I am super, super pumped to talk to the audience today Micah because as you know, I do a lot of sourcing from federal employees across the country. And I always want to hear about what are the hot topics? What are the things that are most important to them to talk about, and really get advice from a federal employee benefits expert about and what I absolutely love about working with federal employees is that across the country, most of the time, and I’m not talking about special provisions, I’m not talking about LEO, but most of the time, you guys all have the same benefit package. It’s all the same. And so a lot of those concerns that you come to the table with when you’re meeting one on one with one of our benefits experts. We already have this framework of exactly how your benefits are going to work, and a lot of commonality around questions. So we just hosted in Anchorage, Alaska, where we had 78 people from just Alaskan agencies. We had NASA we had Department of Transportation. We had the National Park Service. We had the Army Corps of Engineers and they all came in the room and as we went through these ten different critical sections for federal employees, I mean hands just jotted up and and hands and heads were nodding around the room. So yes, that was my question to that was my question too. So there’s a lot of common ground even if you have a very unique situation, and I love that.

 

Micah: This is where I gotta like we’re gonna my mute button on free for you. It’s alright. So where I am going to come in at a little bit is saying why I love doing these classes in these workshops because what you said right, these questions that we get from real federal employees and working through it now one of the things that I was amazed at when we put out the registration for the class, now correct me if I’m wrong, she knew these numbers better than I. But we got about two times as many people that signed up that were not in the state of Alaska that wanted to come to the class; then they found out, Oh, it’s in Alaska, so a little bit longer commute form so they decided not to, but that really brings us a lot of it that maybe in the future is something we look at becoming a virtual event as well and having more people attend virtually. 

 

Jamie: Yeah. I love that. I mean, we had hundreds of people as we send out, I mean, every single week we’re sending out fat checks about questions that we get, and the questions that we get are from real federal employees. So when you jump on our website at plan your federal retirement.com and you submit your question, we’re sitting down collaborating, making sure we’re giving you the most up-to-date information and getting that back to you. So when we sent out these emails and said, Hey, great, you know, the pandemic has kind of opened up other facilities, and now we’re able to host classes again, we have hundreds of federal employees across the country say sign me up I want to, and we’re like, Great Are you coming to Alaska in April and by the way, we still have about four feet of snow. So and you know, they said no, but if you’re ever in my area, if you’re ever, you know, near the central hub, please let me know. I would love to come to these classes.

 

Micah: So let’s just transition a little bit. I know they’re at the infomercials always great. But I really want to transition, Jamie get your ideas on with some withdrawals in retirement, right. These are things that come up all of the times as we’re talking with federal employees, and it’s just okay, great. You know, you did such a wonderful job saving for retirement growing right we talked about the three phases in your life with when it comes to money, we the accumulation phase, I need to grow enough to have enough then we go to the preservation stages this will I have enough I need to be able to keep it and not lose it. Then we go to the third stage, which is the distribution stage which is Hey, show me my money right? How do I take this out and never outlive my income, which are three different phases in life, not just financially but emotionally. So let’s talk about those latter stages Jamie. About distributions once someone had money in there. What are some of the questions what are some of the concerns that we’re seeing from federal employees about how to take money out of their TSP or any retirement account?

 

Jamie: You know, I think one of the things that most federal employees that we work with are ill prepared for is the psychological shift going from accumulation to now distribution, because for most of the federal employees, whether your spouse is civilian or to dual Feds situation, your TSP, your thrift savings plan has been the bulk of your retirement planning. Yes, you get this amazing pension from the government, and you have all these other whole full benefits that you’re gonna get if you retire under those certain qualifications. But for most federal employees, their TSP that’s their nest egg, that’s their retirement plan. And so I think when they come in and they meet with us, their biggest question is, what do I do now? And no matter who we meet with, they always have different, you know, considerations, right? And there’s this, okay, I’m at the stage where have accumulated, accumulated accumulated, and now I need to start taking money out, and I don’t want to blow up my entire nest egg. How do I do this? So we go through how does the TSP need to work in retirement in order to hit your retirement goals? And this is one of the big pivots that we do in the class, right, because we talk a lot about what we’re doing in educational programs. What the TSP is, how the different funds work, and all of these different components of it. But now, when we shift to distribution, this is an individual conversation. This is what we need to do.

 

Micah: Yeah, that really is that aspect of it, right is how do we shift this a little bit and go back through, so let’s break that down from theory into reality. So one is, you know, we have to have a distribution rules and how the TSP works. You have some great options with saving money in the TSP now; sometimes some people come back on us J and push back and say, hey, you know what, you’re kind of beaten up the TSP a little bit, and that’s not the intent. The TSP is a phenomenal tool; your federal benefits, your pensions are phenomenal. Your health insurance is a phenomenal tool. Is it perfect? No. Perfect, no, right. There’s gaps in these things. And that’s what we want to bring your attention to, is understand how your tool set works. So they can be built for your retirement. Really, really important. So we’re inside of the TSP. And Jamie as you know, on those rules, right, we have number one is it’s an accumulation tool. So you’re building money and growing it for retirement. The only way we can take money out is really if one of two things happens taken out loans right not really talked about those. But if we have separated from service number one, or number two, if we’re at age 59 and a half or older, we can do an in service withdrawal. We can do an in service, transfer the TSP. So before we start taking money out, you got to meet one of those two criterias. Now, when we talk about separated, Jamie does that just mean retired from federal service or what has separated mean?

 

Jamie: Yes. Not just retired, but you got to be off those doors right? No longer receiving a paycheck is one of the things that we want to make sure we take into account and Micah and I you know, generally aren’t a big proponent. And this all depends on on your financial situation. Have you retire on the first and by the fifth of the next month, you’re already starting distributions out of your TSP? Now, Micah, I would love to know your thoughts. I know we get a lot of questions about..

 

Micah: We got to push into that one because that one’s just not going to happen, right. I mean, that’s a theory versus reality right there right? Just saying but I want to pull that out for our listeners is saying..

 

Jamie: Yeah, they may not get retired yet.

 

Micah: Well, it takes we there’s a whole process and taking money out of your TSP account. Now. There are times when it can happen very timely. And take money out. But if you go into the what Jamie was talking about retiring on the 31st, then five days later, expect your money in the TSP? The answer to that is probably no, it takes at least two weeks after you separate from service, and we’re talking retirement, right? Which isn’t separate from service; that could be retirement, that could also be just transitioning to another job, moving and doing something else. This could be postponed retirement, right? So once you separate, it only takes two weeks for the TSP office to know you’re no longer employed, then you’re eligible to do things with the TSP. And then we have our tsp rules which you’re going to take you can only have one distribution request within 30 days. And that’s different than actual distribution, which makes us a little bit interesting.

 

Jamie: So Micah, talk about the mechanics of that because we just had this happen recently to a federal employee, right, that didn’t understand those rules. So talk a little bit more about how that worked. 

 

Micah: Yes, and this was really interesting. So the TSP made massive changes, which is really great, allowing more frequent distributions. The old rules that we will remember were you can only make two distributions from the TSP a partial and a full, and that was it a couple of different ways that you could take those very, very restricted. Well, the TSP changed that in the TSP Modernization Act several years ago, and it allowed for more distribution options. But one of the things that they said is you can have one distribution within every 30 days, but that’s not actually the way it works. It’s one distribution request within 30 days. Now, you could be looking at it saying, Well, my isn’t that the same thing? Like I’m taking money out, I made a request. It’s within 30 days like what’s the big deal? Well, let me tell you a story about Bob and Sue. Bob had retired and he was over the RMD age, it’s now 72 or older at the time, it was 70 happening. He’s 73. So he had to take an RMD required minimum distribution addresses account when he retired. Well, he came in and we love to do these kinds of at the beginning of the year, he wanted to wait till the end. We came in at the end of October and decided to help him with his RMD request from tsp. We helped him fill out all the forms and submitted everything. Well, for whatever reason when he signed the spouse authorization they faxed it in. They only got two out of the three pages. They didn’t get the third page our copies and they got all three. They said they didn’t. So he got a letter in the mail that says, you know, your request is pending additional information. He logged into his TSP office, he clicked on it and when he clicked on it, he canceled the TSP request. And and he started a new request. And so we call he couldn’t figure it out. So he called us we call the TSP office together. They’re like, Yeah, you didn’t get this page, you’re like, Well, can we just send you the third page you’re missing? They’re like, No, because he logged into his account, we actually have to get all the paperwork. So alright, fine, whatever. So we get all the paperwork signed, we get a spouse to sign it as well for the consent. We then send this off again to the TSP office. It gets rejected a second time. We’re like what the heck we even called them and make sure they got all of the pages for the spousal confirmation on this. And they’re like, Yeah, well, we rejected it the second time, because he’s already had one withdrawal request within 30 days. It was like, Well, you didn’t send out the money, you rejected it. And they’re like, well, that doesn’t matter. We had a withdrawal request. And so it starts his 30 day clock. I mean, this is his RMDs required minimum distribution. We don’t take it it was a 50% penalty at the time. I was like this thing has to come out. And luckily we had enough time that it was you know, in November at the end of October, whenever this happened, we waited 30 days beginning of December. We then submitted a new request form and we’re able to get the money out right in the nick of time. And this is a huge issue, in my opinion within tsp because this could set you up for a massive tax penalty. This ties up your money. And Jamie one of the things we tell our clients all the time, sometimes custodians, forget who has money visits, it’s not their money. It’s your money.

 

Jamie: It’s not their money. It’s not the TSP is the office and they do a wonderful job. I really like working with them, but it is your money, right? And so one of the things that’s really critical as you listen to this and you gather more information as a as a listener, is looking at the rules versus the application, right? Because this situation with Bob and Sue and Bob and Sue are my favorite clients, right? But they follow the rules but in application it didn’t work out that way. It was me and by the way, for those out there listening wondering when mica said facts if he was dating himself or if it was an actual facts, it’s an actual facts. An actual fact so we did actually have confirmation pages associated with it. And what a lot of people may be not knowing is that when that on that RMD penalty is that if you miss your window and fail to take out your required minimum distribution from your tax deferred accounts, you’re subject to that 50% penalty, and you still have to take it you still have to take it and a lot of people forget that they’re like, Oh man, I just got this penalty, but you know, that’s okay, but I’m like no you’re gonna add that to your taxable income.

 

Micah: Yeah, and your 24% tax bracket. That’s a big number. Don’t grieve under the secure act 2.0, which we’ve talked about on our previous pod here as well, is they’ve reduced those penalties right up until last year was this 50% and now it’s reduced down to 25% and can potentially be even reduced if there’s a reasonable claim that that penalty can be reduced. But Jamie, to your point, that’s still a freaking penalty because we bring you our money. Yeah, so really understanding the first thing right, we’re barely getting to scratching the surface on these retirement drawers, but understanding the rules on when we’re first eligible for takeout is the first step to do it. Then the second thing we need to talk about is great. What’s our long-term plan? Right? Where people make mistakes with withdrawals in retirement. And Jamie, I know you can speak to this as well, is they really think about their investments is a magical bank account that says hey, I need 10 grand I’m gonna reach in there and grab 10 grand, I want to buy a car, I’m going to reach in there but take out 50,000 If you don’t want to pay off the house, I want to do this. And I want to pass it on to like, whoa, this isn’t a magical bank account. We need a plan for how is this money going to serve you so you never outlive your money. Right? I would say it’s a failing retirement plan. If we live longer than our money, and we can’t maintain our lifestyle that was not a good plan. We need a plan for longevity. And if we just like your bank account, you’re reaching in randomly, pulling money out you don’t have a long-term plan. You’re gonna run out of money.

 

Commercial: Dear Listener, You know here at Plan Your Federal Retirement that we love the Thrift Savings Plan for its accumulation power.  This employer-sponsored retirement plan gives Federal Employees unique opportunities to save for retirement. This is a powerful tool, but, like all tools, you need to know how and when to use it.   That is why we created a live online course where you can educate yourself on all your options with your thrift savings plan.  So, if you want to make smart and informed decisions about using your retirement tools, save your spot for our upcoming live online workshop on the TSP led by our well-known Tammy Flanagan and Micah Shilanski, CFP®.  Mark your calendar for 06.28.2023 and get your ticket today! 

 

Jamie: And Micah, this has happened to clients that we’ve had, nobody’s running out of money. We’ve been able to pump those brakes and stop it before, but we’ve had really educated individuals retire and those first couple of years we referred to it as your retirement bell curve. Right? Those are your gogo years of retirement. So you retire from federal service, you’re no longer doing that Monday to Friday grind and all of a sudden it were you enter into this mythology in your mind that you need to go into this reward stage, right? And so it’s the big trips, it’s the larger greenhouse. It’s these the all these little extravagances that are five or eight or $20,000 chunks that you keep withdrawing from your only retirement nest day, and we’ve had conversations where you get to the end of the year, and the client says, How come my TSP went down $100,000 in value? Well, because you made a lot of withdrawals that added a living, just you took out $120,000. So in our perspective, it’s doing great; it’s keeping up, it’s doing what it’s supposed to do from an investment standpoint. But we can’t necessarily control the withdrawals. You have to have a retirement plan for that. And especially knowing what you’re going to do and those go go years after you retire and how and when you should access your TSP that is critical to your retirement planning as a Fed.

 

Micah: Yeah, very, very critical on the retirement planning side of things. So we call this our retirement income timeline, right? How are you going to take money out at a certain time? So alright, we talked about important things. One, understand the rules when you take money out and understand how those distributions work. Number two, what’s your strategy for long-term withdrawals. Now one of the things that came up in the class we generally don’t talk about it that much, but it came up a lot in the in-person class we had Jamie was everyone was asking about annuities. Now, I want to throw this out here. I am not referring to your pension right that we don’t call your pension annuity in this podcast because it is a pension. I don’t care what OPM calls it. And the reason one of the reasons we do that is we don’t want to confuse it with the TSP annuity. And the TSP annuity you got to be very careful with I’m not trying to speak bad about it. The but however, anytime it’s an irreversible decision, that’s a red flag that goes up. That doesn’t mean it’s bad. But that definitely means I want a really big pause and I really want to understand how this works. And that’s what the TSP annuity is. If we buy that which could be good could not be good for your situation. There is no undo button. So in the TSP annuity is one of your withdrawal options and that’s where they give all of your money to MetLife or whatever portion you’d like to MetLife.  MetLife says Snoopy comes in such great news. We’re gonna give you X amount of dollars for the rest of your life. You do not get to choose that number. Based on current interest rates or based on your account value. Snoopy will tell you how much money you’re going to get. And then that’s going to be it. There’s survivor benefits with this are also very, very tricky. They do not work the same as they work with your federal pension. So I’m not going to get into details on it because it does get a little complex, but just know it is not the same. So be very careful about that before you walk down that path. Anything I missed on there, Jamie?

 

Jamie: No, I was really surprised. I was so surprised during our live class, how many people had questions on the TSP annuity and installment options, but I jumped over to the TSP office and was like okay, clearly some kind of publication just one out and as I went through it, when it talks about your distributions, and the first what two to four pages are all talking about annuities and installments. So as you go through this, you know, 12 page document, it’s really sort of putting that first that maybe this is the choice that you should make, and annuities and installments through the TSP aren’t bad, but they are confined right? There are very specific rules and you need to know what you’re getting into ahead of time and so there isn’t a time that an annuity in the financial sector makes makes sense. There’s times that the TSP installment makes sense, but not all of the time. So making sure as Michael mentioned that you have that retirement income line, really drawn out for everyone is an important factor working with somebody that really understands your specific benefits. Because if you call one 800 TSP, they’re gonna do exactly what you have asked them to do. They are not licensed to give you advice on this information. They can’t tell you what you should do. That is your responsibility as the federal employee so making sure you’re working with somebody that understands those benefits, and drawing out that retirement income timeline for yourself. What does the next 10 years look like? Because the TSP also has a lot of tax implications. So Micah, if you decide to do one of these installments, does that mean 100% of your TSP value goes into the installment payments?

 

Micah: Well installment payments? It’s a question right? What installment payments are you referring to? Are you referring to the lifetime income? Are you referring to the annuity are referring to the partial payments, right? So so again, this isn’t a simple question that says A equals B or one plus one equals two. This is what section are you referring to? If you’re referring to the TSP annuity, you can choose how much dollar value how much money you put into that TSP annuity. You don’t have to do your entire account. There’s a minimum you can only be a minimum use like 3500 or 3600. Something of that which you do almost any dollar amount into that. If you’re choosing installment payments, which is which could be send me a monthly income, then the question is you can do it based on your life expectancy. And the TSP will recalculate that benefit every single year and will change how much they’re sending out. So you don’t really know what’s going to be coming. It’s going to be based on the markets and based on your life expectancy. That will be readjusted. Or you could just choose monthly withdrawals where in you choose the dollar amount that they’re sending you on a monthly basis. So again, it’s not as simple question as just saying, Well, what is this option gonna give me because that option has a lot of other different flavors like Baskin Robbins, right you got 31 different flavors in your ice cream. Which one are you referring to?

 

Jamie: Since that we got was said, okay, you know what, I want to do these installment payments, but I don’t want to do it over 20 years, I’m really kind of thinking to 10 years, and as we walk through it with them, and I’m just gonna use 100,000 as an example, right? Instead of $100,000. I want to do a 10 year installment with the TSP and I said okay, but that 100,000 now becomes 80 and they said, Well, what do you mean it becomes 80 and I said they’re required under the IRS rules with these installment payments. If they’re less than 10 years, they have to withhold 20% and send it to the IRS. So making sure that tax planning is important is something that you’re factoring in. So that you know, when you pull that lever, when you pull that income lever, what are the implications?

 

Micah: Yeah, really important to think about that right? What are the implications were that what are the tax consequences? What are the inflation consequences? What are my Survivor Benefit consequences, right? All of these things are kind of put into place. So really important with the TSP get understand your options. Jamie another question that we get coming out is should I pay off my house with my TSP which I can totally get the emotional side of it right, which is hey, is let’s get the house paid off. It’s gonna feel so great not to have to make that payment but it comes at a pretty big price.

 

Jamie: Yeah, I get this question all the time, especially as people reach retirement, because this is the emotional versus financial conversation, right? So emotionally, they’re saying, Okay, I’m no longer going to work. And maybe they’re eligible for an immediate pension from the federal government, but maybe they’re not maybe they’ve got a gap. Maybe they’re waiting and they’re deciding which of these levers to pull. So maybe I have a pension, maybe I’ve got my first special supplement, and then maybe I’m going to start Social Security at 62 or should I do it at my FRA or should I wait and do it to age 70? There’s all of these different levers that they’re not quite sure which one to pull on first. And so then when we start doing the income and the Cash Flow Planning side of things, they they are committed to the idea that when they retire, their expenses are going to be less when I retire, my expenses are going to be less, and we started doing the cash flow and I said, Great, tell me what that’s like. And like I know you often joke about it that says, All right, listen, when you read it when you’re working in your working days, Monday through Friday, do you spend the most amount of money or do you spend it Friday night to Sunday evening, and we spend it Friday night to Sunday evening when we’re working? What happens in retirement when every single day of the week is a weekend? Your expenses are not going to necessarily go down? So when we start working with federal employees, and they start worrying about all that cash flow, the biggest expense they have normally is the mortgage. And so in their mind, they say okay, great. I’m just going to eliminate that mortgage payments, and then I’ll be able to live within my means, but one of the difficult concepts for most people to understand is that in your lifetime, you will probably own or live in five different homes. So the home in which you retire in is not often the home you’re going to end up staying.

 

Micah: Yeah, that’s such a great point. Well, in addition to that to Jamie, right, let’s just take the you have multiple moves out in front of you, right, so let’s totally agree, but let’s put that one aside. It’s a huge tax consideration that we need to be thinking about now. There’s a great one. On our website, plan, your federal retirement.com that really talks about this, but what are the tax consequences when you take out the big lump sums of money out of your TSP account? And it’s not like I’m in a 22% bracket? I’m gonna pull up 400 grand pay my house off. Okay, well, if you owe 400 grand, you gotta pull it a lot more than 40 grand and we love 400 grand, which is really $550,000 out of your account. Now you’re bumped to some pretty massive federal tax brackets not even including state income tax brackets. So this is an A never do. This is a pause in really look at the implications. Maybe this is we pay that house off over three years and beat their Senate 10s of 1000s of dollars in taxes, because we can strategically plan it. That way. Or Jamie you’re pointing Hey, we know this, you know, you’re still locked in your interest rate at 3%. Boy, does it really make sense to pay off I know it feels good to have it paid off. But does that make the most financial sense for you in the long term, where people get cashflow mistakes incorrect and I know you know this Jamie, but they say hey Micah at my house payment is $3,600 a month and once I pay the house off that goes away. No, zero. Yeah, but it doesn’t.

 

Jamie: Yeah, you still property taxes. You still have insurance?

 

Micah: Yeah, that’s exactly right. You got property taxes, you got insurance. You still got to keep on the house. Right. Those escrow accounts are set up there for a reason. So how does that fit into the mix? So again, it’s not a single question of oh, I’m going to use the TSP to pay off a house. Sometimes some more consideration needs to go into that.

 

Jamie: Yeah. So Micah, we had just recently actually, and this happens a lot in Alaska, especially when we’re we work with federal employees all across the country, but whenever we’re in Alaska, and you know winters are cold, Alaska’s for the young at heart, and it takes a certain level of endurance and when people hit that retirement age, even if they think that they are going to spend the rest of their life in Alaska, it starts getting colder, starts getting icy or starts getting harder, and they start thinking to themselves, okay, I want to relocate, and this is true of anyone in the Pacific Northwest. Or the East Coast. Right. I have harsh winters, and it’s no longer ideal situations. So I want to relocate but good news, where I’m relocating to is less expensive to live. Have you ran into that Micah?

 

Micah: I have, right? And that’s really a question that comes up and we normally find out is it’s not that much less expensive, like, oh my gosh, you don’t live in Alaska. You don’t understand this, but it’s like Micah, have you been down to Arizona if you’ve been down the fruit is so cheap, it’s so amazing. It’s so much less expensive. I know this could be a very an Alaskan thing, right? But we pay a little bit more for our food appear and it’s just not really the same quality tasting. Yes. The produce than we have in the lower 48. I was like, but just because something may look a little bit less expensive in one area, doesn’t mean it really is on the other side of it. So we got to look at it in a holistic approach.

 

Jamie: Let me try to heat bills for air conditioning because I like the ping pong of it. So it’s one thing that I really try to walk clients through that if you want to relocate, maybe you want to live closer to the kids maybe got grandkids coming, maybe you just want a bit of four seasons. You know, here in Alaska, we have winter break up in summer, you know, so we only have three seasons. So our construction and construction season which is taking place of summer. So as you begin to relocate looking at that and saying okay, is it really make the most amount of sense mica you mentioned that 3% you know, mortgage, but today, a lot of listeners could be paying six to 7% on mortgages when they relocate, right? Because we are out of that really really low interest rate period. And we’re moving into a different period in our history. And so people are like, Okay, well, I don’t want a 7% interest rate. So I’m just going to take all my money out of the TSP. Let’s just say for conversation, that’s $400,000 and I’m going to buy this house and I’m going to pay it off so I don’t have any interest on it. And I’m not paying 7%. Micah what’s the problem with dropping $400,000 on your income in a year?

 

Micah: What Jamie is what we just talked about, right? Is this reason we wrote this whole white paper on this thing of just saying, hey, if we decide to do this, there’s gonna have a massive tax consequence that’s going to be there. And that’s the reason we have the white paper on the plan your federal retirement website is we pull out that money, there’s a huge potential tax consequence, which is going to take place really kicking you into a much higher bracket, so we got to hit that pause button before we make any of these large lump sum withdrawals out of your account. Okay. So I know we’re running up on time, this podcast all about action items. So really important things for us to know is on knowing and understanding the rules, right, what do you mean I talked about that several times on the pod today, knowing and understanding how these rules work, how they come together, what needs to take place with them when you can take money out when he can’t understanding you know what the implications of those rules are knowing that just because we call something you may use the same word in TSP and your federal benefits. They could mean two totally different things like annuity for example, like survivor benefits, they don’t always work the same. So we got to know how those are different. And then looking at that bigger picture is really, really important. So Jamie, keeping those three kind of bigger things in mind. What would you say is our first action item for our listeners this week?

 

Jamie: I would take a realistic approach to cash flow in retirement. And I would say what are all my different income sources? What are my expenses realistically? And what do I want them to be in those gogo years? And don’t deceive yourself. You know, don’t look back on the last 12 months and say, oh my gosh, but when I retire, my expenses are gonna drop by half. That’s not reality. You need to come up with realistically, what is the amount of money that you are wanting to spend in retirement. Because that is going to drive so much of the conversation about distributions and how and when to take those.

 

Micah: Amen? And then the next one I would say is, what’s your tax plan? Right and I know we’ve talked about this a lot, but so important is the tax is probably gonna be the largest Bill you’re gonna have in retirement. And so what is your plan to make sure you’re beating the IRS out of 10s of 1000s of dollar and the third action item, anything that we do and you think about in your plan, especially if you’re married, you gotta hit the pause button and say, How is this going to affect my survivor? What are the survivor benefit options? Does that mean when I turned my pension on when I take money out of my TSP when I take my Social Security, right? All of these things have impact on survivor benefits, which are really, really important. So to get more information like this, make sure you stay on top of your benefits. Come on, give us five stars, you got to gotta love this thing. And then love for you to shout this out to more federal employees. We have a goal of helping another 1 million federal employees with their retirement, and the only way we can accomplish that goal is with your help. Jamie, thank you so much for joining us on the podcast today. And until next time, happy planning,

 

Jamie: Happy Planning

 

 

 

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