Real Question from a Federal Employee
Question 1739 from Bob:
My brother passed away and his quarterly tsp statement in the beneficiary summary says his “living trust is not a beneficiary. “ What do I do? He obviously submitted forms designating the trust a beneficiary since it’s listed? -Thanks Bob
Many federal employees spend years preparing for retirement.
You estimate your pension. You contribute to your TSP. You decide when to claim Social Security. You review your FEHB options.
Then retirement arrives.
But here’s something many people discover after they leave federal service:
The biggest retirement risks do not disappear once you retire.
In fact, some of them become more important.
Whether you’re five years from retirement or have already been retired for years, there are four risks that can continue to affect your financial future:
- Living longer than expected
- Inflation
- Market volatility
- Emotional decision-making
Understanding these risks may help you make more informed decisions about your retirement income and long-term financial strategy.
Risk #1: Living Longer Than Expected
One of the biggest retirement questions is simple:
Will my money last as long as I do?
People are living longer than previous generations. What was once considered a long retirement may now be fairly common.
For federal employees, a FERS pension and Social Security can provide a valuable source of income. However, retirement may last 20, 30, or even more years.
The longer your retirement lasts, the more important it becomes to have a strategy for income, healthcare costs, savings, and lifestyle expenses.
Retirement planning is not simply about reaching your retirement date.
It’s about preparing for the years that come after.
Risk #2: Inflation
Inflation affects nearly every retiree.
The challenge is that it often happens slowly.
A small increase in prices each year may not seem significant. Over time, however, those increases can have a substantial impact on purchasing power.
Think about how much everyday expenses have changed over the last decade.
Groceries, utilities, insurance. travel, healthcare.
Even retirees who receive Cost-of-Living Adjustments on certain benefits may find that some expenses rise faster than expected.
That’s why it’s important to think about what your retirement expenses may look like not only today, but ten or twenty years from now.
Risk #3: Market Volatility
Markets move up and down.
That’s normal.
The challenge is that nobody knows exactly when those movements will occur or how long they will last.
Economic conditions, global events, interest rates, and investor sentiment can all affect market performance.
For retirees, market declines can feel different than they did during working years.
When you are no longer receiving a regular paycheck, fluctuations in your investment accounts may feel more personal.
This is one the reasons some retirees choose to separate short-term spending needs from longer-term investment assets.
The objective is not to avoid risk entirely.
The objective is to create a strategy that supports your goals while helping you stay focused during periods of uncertainty.
Risk #4: Emotional Decision-Making
This may be the most overlooked retirement risk.
Money decisions are rarely based on numbers alone.
Questions such as these often come up during retirement:
- Should we take the trip?
- Can we afford to help our children?
- Are we spending too much?
- Should we make changes because the market is down?
These decisions can carry a significant emotional weight.
Unfortunately, emotions sometimes lead investors to make decisions they later regret.
Having a retirement strategy in place may help provide perspective when emotions are running high.
Why These Risks Matter Together
The four risks are:
- Longevity
- Inflation
- Market Volatility
- Emotional Decision-Making
The challenge is that they rarely happen in isolation.
Living longer increases your exposure to inflation.
Inflation may increase the amount of income needed throughout retirement.
Market volatility can create uncertainty.
Uncertainty can lead to emotional decisions.
That’s why retirement planning should be reviewed regularly rather than treated as a one-time event.
And while many federal employees focus on getting to retirement, the reality is that retirement planning continues after retirement begins.
While no strategy can eliminate these risks, understanding them may help you evaluate your retirement income, TSP withdrawals, pension benefits, and long-term goals more effectively.
Retirement is not just about reaching the finish line.
It’s about preparing for what comes next.
ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to help ensure a secure and prosperous retirement. His experience is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Floyd Shilanski (00:00)
Hi, Floyd Shilanski here with Plan Your Federal Retirement. One of the things that we look at as advisors, as planners, retirement planners, wealth managers, is typically we do a series where we talk about estate planning, we talk about tax planning, we talk about cash flow before we ever get to investments. But so many times as I read articles, I listen to the podcast, the first thing that advisors come in and start talking about rates of return and the investment allocations and all those different things.
One of the things I think is very important is that we always ask our clients, especially new ones coming in, what keeps you up at night? I talk to my retirees that have been retired five, 10, 15, as long as 20 years now, ask them the same questions. What keeps you up at night? And what I’m amazed to find out at, there’s four retirement risks that never get turned off. Am I gonna outlive my money, more life than money? And it used to be more money than life, and now let’s kind of flip-flop back again.
Longevity, something that has to be taken into consideration. That’s lifestyle, that’s how you’re living, how your parents genetically and so on. Inflation, one of the things that we cannot do anything about is controlling inflation. Taxation, we can make tax strategies and minimize what the IRS takes away from us by all means. Returns on investment, we can try, no one can predict the markets, ups or downs. So we take a longer term approach with that. Volatility, all right.
Now, who would have thought? Looking back, armchair wise, you could see that we could plotted the current administration’s what they were doing. And whether it was Venezuela, whether it is the Iranian war, could have possibly could have predicted that. But the reality is we don’t know. And in today’s AI ⁓ augmented world trading and nanosecond tradings and programs are automatically traced up.
These things happen so quickly that think short term is very difficult to look at. So taking a longer term approach. Now, the final thing, believe this or not, is emotion. Now think about that. Money is emotional, isn’t it? Do I take that trip? Do I spend that money? Do I give it to my kids? Do I be philanthropic in what I do? So emotions drive things. And what I always tell people that you make an emotional decision on how to invest, how to save, what to do with your money, then you justify it with
data and rationality later. So I think that’s really, really, really important. But let’s roll back just a minute. Let’s start thinking about these things in compounding effect. Longevity. It extends exposure to the window for inflation, volatility, and emotional mistakes. right? When my grandmother passed away at 65, 66, she had led a long, long life. Now when you think about it today and you hear someone passing at 65, 66, even 70, oh, they were so young. All right?
So looking and planning that. There used to be a rule of thumb is that a 4 % rate of return or drawdown of your investments by the time you got to be in your 80s, maybe into your 90s is when the money would run out. Okay, now we take in long-term care in that and how are we gonna take care of ourselves or how is the family gonna take care of ourselves? Whole different conversation I’ll have a little bit later. But then these are emotional things. My wife and I talk a lot about it. She wants to do XYZ, I wanna do ABC.
And then we have to come back and say, can we quote afford it? All right. Now as an advisor, I always try to do exactly what I tell my clients to do, whether it’s taking the trips, in place, doing those types of things because we have to live those things as we go through with it. The big thing we have to worry about that I believe is something that we cannot control and that’s inflation. And what does inflation do? It erodes our purchasing power. Now,
My family bought our biggest house way back in the early 80s and I think our interest rate was 19 % 16 % That was horrible. I remember the realtor that sold us the houses. Don’t worry about it in the future You’ll be able to refinance well young and dumb I’m not sure I really understood what that meant, but he wrote in purchasing powers extremely important There’s an Olin axiom that I use this is called it in net two
is after taxes, after inflation, if you net 2 % in your growth rate as far as your investments go, you’re really winning. So that’s something I think everyone needs to consider and think about. Is that what happens without involuntary volatility, right? And man, that flights everything. I can remember earlier on in my career, younger kids, I’m willing to take that risk Floyd, know, and roll the dice, you know, and we did a little more speculative investments.
And then when the investments didn’t work out, they changed their mind. It’s, man, I want CDs. I want something that is safe. And the whole thing is, it has to be balanced. So that’s very, very important. Then we have to worry about the compounding effect, whether it’s inflation or rates of return. And you need to continually look at that. And I’m not talking about daily. I’m not talking about really monthly. All right, but at a quarterly, semi-annual base, you need to kind of take a look at it. You know, one of the things I always encourage listeners to do as well as my clients is look at a five-year plan.
Over the next five years, what do you anticipate having? right? So if you’re worried about volatility, one of the ways to separate that is set aside the money that you need over the next three, four, five years on an account that’s not volatile, it a certificate deposit, be it government savings bonds, something that is not emotionally tied as the markets go up and down. And you sacrosanct that aside. I’m not gonna gamble with it. I’m not gonna speculate that with it. All right? And then if you wanna take a little bit more risk, let’s put some money in some different buckets. Those are the type of things we wanna think about.
And then finally, as you wrap all that up, make sure you’re doing projected tax planning in the future. I cannot over-emphasize that, all right? Now, we can control taxes, but we have to pay the check, all right? We can’t control inflation. So, planning out is a strategy, all right? And these strategies need to be linked into longevity. What does your emotional volatility scale look like? And how long do you think you’re gonna live, and what do you need to do to get there, all right?
Now, we like, and our firm is like to say we design financial plans to get you to age 100. After that, you’re on your own. Ha ha, all right. Hi, I’m Floyd with Plan Your Federal Retirement. If you wanna talk more about this, log on to planyourfederalretirement.com, request a consultation with one of our advisors, and we’d be happy to talk more about that. Until next time, happy planning.
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