Delivered on: Thursday, February 27, 2025

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What HR Can’t Tell You About Your Retirement

How to avoid asking for help from people who can’t help you.

• EXPECTATIONS: Understand what many employees expect of their HR department
• ROLE: Identify the critical role that HR must play in your federal retirement
• CONTEXT: Appreciate how little HR knows about you when answering your questions
• EFFECTS: Acknowledge the long-term effects of ill-informed decisions

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Prefer to read instead? A Transcript of this Webinar is Below:

Hello and welcome everyone to today’s FedImpact webinar where we’re going to be talking about what HR can’t tell you about your retirement. Many of you have had some interactions with HR in the last month or so, given everything that’s been going on with the administration and the deferred resignation offer and all of that jazz.

But definitely I think we are in a heightened state of alert right now, and so today’s webinar is going to be talking about those things that you might be asking HR about that they are not the person to be asking for that kind of help. I decided to do this webinar because I know that in times of financial crisis and panic that oftentimes it’s so easy to go to an office like HR and point some fingers and be able to give someone else the blame for things not going right.

There’s a lot of things going on right now, but I want to encourage federal employees to stop asking for help from people who can’t actually help you, and the reason I say that with respect to HR is because we got a large number of HR departments letting us know that people are asking.

For example, “Should I take this resignation offer?” And their answer is, “I don’t know. Beats me. I don’t know anything about you.” I knew that this was going to be a timely session to be able to cover. Definitely lots to talk about today.

You guys know me. I’m your presenter, Chris Kowalik. I am delighted to be the founder of ProFeds, the developer of the FedImpact Retirement Workshop. We do hundreds of these sessions all over the country and I’m also the host of the FedImpact Podcast, many of you came to us from those various platforms and we’re delighted to have you here. Today also happens to be my birthday, and I’m happy to share it with all of you and cover this really important topic.

Agenda

For our agenda today, we’re going to first talk about expectations. We want you to understand what many employees expect of their HR department. Right or wrong, the expectation is still there.

Next is the role. You want to identify the critical role that HR must must play in your federal retirement. There are lots of things you should not be asking them about, but there are several things that you absolutely should be asking them about and we’re going to focus on those as well today.

For context, I want you to appreciate how little your HR department knows about you. When you ask questions like, “Should I take this deferred resignation? What’s going to happen if I get fired? What about these rifts that are coming?” They only know what’s in your service record.

They don’t know anything about your financial life. And so the woulda, shoulda, couldas are really hard for HR to be able to deal with because as much as they want to be helpful to you, there’s also a lot that’s missing out of that context of their knowledge of you as an individual person, not as an employee, but as a person who is going to step into retirement.

And lastly on the agenda, we’re going to talk about the effects. I want you to understand and acknowledge that the long-term effects of ill-informed decisions. So when we ask somebody at HR, “Should I go ahead and take this resignation?” And they actually offer up an opinion, it is just that.

It is an opinion of somebody who really doesn’t know you well, and that’s why HR departments typically avoid those conversations altogether because they simply don’t want to be involved in you making a decision based on their opinion and then you not quite having the experience that you hoped for.

What this webinar will not cover

We are going to cover a lot today. I’m not going to cover a lot of the answers. Normally I love giving you lots of answers of how these benefits work and the numbers and the calculations and all of the rules and all of those pieces. But today is going to be talking more about the questions, the questions that you absolutely should be asking someone. It’s just probably not HR. That’s where we’re going to keep our focus today.

Some Recent Observations

I’ve made a couple of observations here recently. In the last month, of course, a lot of things have gone a little haywire, so everybody everywhere is on high alert.

Unfortunately, with respect to these announcements that come out and the deferred resignation and the FAQs and all those pieces, the layoffs, the department shutting, all of those things, the HR departments are learning about this at the same time that you do, the same time that I do.

Then they’re left to try to answer and fill in the gaps for all of you, and that can be a really overwhelming task when they haven’t been given any additional information than we’re all seeing.

And I would offer to you that most of the panic that we’ve seen come out of the last month has come from pure uncertainty because when we are unclear, when we are uncertain about something, we tend to make it up and we make it up negative. And believe me, there’s enough negativity to go around in all of this, but the panic, the financial indecisiveness of not knowing what to do because you don’t know how it’s going to affect you can leave a pit in your stomach that is really hard to get past.

If you felt off guard on January 28th when this announcement hit of the deferred resignation and even the subsequent decisions that have come out with certain agencies closing and mass layoffs and that type of thing, right now is the time to do something about it so that you’re ready at whatever that next wave is. Just recently, yesterday.

In fact, the story came out that the Trump administration has asked agencies to submit their mass RIF plans and get those back to the White House. And by all means, we all knew that this was coming.

The deferred resignation was not the single strike that was going to happen. It was the first strike, and now we’re seeing the subsequent effects of this, of people who did not take the resignation voluntarily. We’re going to start to see some involuntary actions that may leave you pretty unnerved.

But here’s the deal. Of the thousands of people who contacted us for help, this is what we know for sure. When you know your numbers, your financial decisions become obvious. If you know, am I already eligible to retire? Would I qualify for an early out? If I get either one of those things, what is my pension going to be?

When you have a pretty good sense of those numbers, it stops a lot of the panic that’s happening because the uncertainty comes from not knowing am I going to be able to maintain my life, financially speaking, and the only way to know that is to get super clear on your numbers. We’ll talk a little bit about how to do that as we go through today’s session. But here’s the deal, when we ask HR to do something out of their role, we are likely not going to get the answers that we want.

For all of you who were beating down HR’s door when this resignation came out and asking them, “Should I do this?” That was outside of their role, and so you were probably disappointed in the response that you got. It doesn’t help that everybody was trying to do the same thing that you were of trying to get retirement estimates and get answers even that are within HR’s realm because of the overwhelm that placed on the HR departments. It’s certainly been a tough go for them as well.

Your HR Department is NOT the Enemy

Today’s session, despite the title, today’s session is not about bashing on HR. This is understanding HR’s role. I want you to realize HR is not the enemy. They have a super important role to play in your benefits and preparing your retirement package, and you would be really wise to foster a positive working relationship with HR to make sure that that retirement package is in order, whether that is voluntary on your part or an involuntary retirement or perhaps a separation even.

But making sure that you’re doing everything you can to help your HR department to help you will put you in the best possible spot. And again, we have to understand the limitations of HR’s role and what will allow them to be used as a proper and great resource for you for the things that you should be asking them for. All the things they should be doing for you, we want to give them every opportunity to do those things.

What We SHOULD Expect From HR

Here’s what we should expect from HR. A couple of examples here.

#1 HR should help you access any agency system. If they need you to log into a particular portal to be able to submit retirement application or to accept something like Avira, we want them to make sure that you have access to those systems.

#2 They should be prepared to describe the rules of government benefits if you’re asking about health insurance and if you’re eligible to keep it, or what are my choices for keeping my life insurance in retirement? They should be able to explain the rules. Not whether you should do X or should do Y, but what are the rules?

#3 Next, we want them to help you identify the correct forms to complete. If you’re trying to take a particular action, HR is absolutely supposed to be providing you the right forms so that you’re able to effectuate that choice that you are making.

#4 Next, HR should have a clear understanding of the options that are available, not which one you should do, but here are your choices.

#5 Next, preparing your retirement package. We’ve talked a little bit about that one already.

#6 Part of the retirement package is completing a certified summary of federal service. This is the document that will help to solidify your service record on one or two pages to where they’re identifying all of the pieces of federal service that you’ve ever had in your whole career and making certain that it’s obvious which ones you get credit for retirement purposes on that document.

#7 And then lastly, giving you a retirement counseling session. Most of the agencies that we deal with have a system, have a portal that employees can log into and pull their own retirement estimate. Those are some of the basic numbers.

I don’t always love these systems because they leave a lot out and they include things that shouldn’t be included sometimes, but it’s at least a starting point. But then beyond that, the agencies are supposed to be providing you with a retirement counseling session to walk you through the process of what’s happening.

I’m not exactly sure how this is going to go moving forward because I know many HR departments were completely decimated with the deferred resignation, so there aren’t people there to do the counseling for you, and that’s just a very real thing that’s happening, and so you’re going to have to maybe take some matters into your own hands to make sure that you really understand the numbers that you’re looking at.

What is the value of having CENTS?

I want to talk about the things that are kind of missing from HR’s role, and it’s called the value of having sense. Here we have context, expectations, needs, timing and strategy. These are things that are not on the list of HR’s required things to do for you or for the things for them to think about.

This is not HR’s role to say, “Well, I don’t know. Tell me about your financial situation. How are things going? Do you have other sources of income? What about your spouse’s income? How’s that going to work?” Like that is not their job, and I think all of you inherently know that, but it’s important to remind you of that because when we’re stressed about money is currently going on, it’s so easy to make demands of people who don’t have this in their wheelhouse. This is not part of their role.

CONTEXT

Let’s talk about all five of these and give you a little bit of a sense of what that each of these five really mean. We’ll start with context. With context, it’s simply how does it apply to you? Does this rule even matter to you? Are you beyond the age or the service years or the situation where a particular rule or benefit applies? I don’t need you guys to learn a lot about things that don’t apply to you. We need to be thinking about the actual effect of the benefits that you’re looking at.

EXPECTATIONS

Next is expectations. Is it aligned with what you want? If you’re thinking about a particular benefit, a question you should ask yourself is this aligned with what I really want? And if it is, great. If it’s not, that’s okay too, but I need you to appreciate that HR isn’t going to ask this question.

When you ask them questions like, “How much of this life insurance should I keep when I retire?” They’re not going to sit down and say, “Well, let’s do a quick needs assessment and get an idea of what it is that your family needs if you should die.” That is not their role and you should not be asking that of them.

NEEDS

Next are needs. Does it get you what you want? Sometimes what we need and what we want are different things, but we’re going to assume for this purpose that it’s the same that you have identified what it is that you need and you want to make sure that whatever choice you are making is going to get you to solve that need to get you what you want.

TIMING

Next is timing. When should this thing happen? Whatever it might be. When does a particular benefit change? When does income get modified? When do premiums go up? All of those pieces. That timing of all of these things is important. Does it happen right when you retire? Does it happen at 65? Does it happen at 70, 75, later? Whatever the topic might be, the timing of when those things happen, super, super important.

STRATEGY

And last is strategy, how it integrates with other decisions that you are making. Strategy tends to be kind of that overarching umbrella of all of the choices that you are making and how all of that gets pulled together. And so how do we make sure that all of the decisions that you are making from a financial standpoint are all being pulled together in an organized and intentional strategy? And I think you can appreciate this is not HR who has this role.

Choosing Your Retirement Date

Let’s just start talking about some of the things that are loosely related to HR, but where particular questions just are a little beyond their scope. We’ll start with choosing your retirement date.

There’s all sorts of ideas of how to choose a retirement date. There are very broad decisions on what year, what several years you might consider retiring, all the way down to the month of the year or the day of the month that you should be retiring. Here we’re not talking about getting into the nitty-gritty, finer details, into that granular level. We’re talking about when you know it’s right to go ahead and pull the plug and step into retirement.

When Should I Retire?

The question is, when should I retire? Well, the first is, what am I really trying to accomplish by retiring? Am I escaping something? Are you trying to maybe escape some of the chaos that’s happening? I mean, that’s valid. Are you escaping to something where you have something in your life that you want to go do? Right? Maybe it’s a different career.

Maybe it is finally just stepping into retirement and embracing it and being with your grandchildren or traveling or whatever it might be. But understanding what are you really trying to accomplish will help you to have a pretty good sense of whether this is the right move for you.

Does my whole financial picture support me retiring? It’s great to have the feeling that you’re ready to go, but if the numbers don’t support you doing that, I have good news and I have bad news for you. The good news is that you can retire. The bad news is you probably can’t stay retired. If the money doesn’t support the decision to retire, then something’s got to give.

And there’s a lot that goes into having all the financials prepared and having all that in a cohesive strategy. But this is a super, super important thing. Just because you’re frustrated at work or with the administration or with your agency or with your coworkers, whatever it might be, doesn’t mean it’s the right time to go.

Will I have enough money to stay retired? This is not just looking at your pension, keep in mind, like this is looking at the whole financial picture. How can you stay retired if that’s really your goal? Is there a strategic advantage to waiting longer?

We had a number of people contact us and say, “Well, I’m already eligible to retire. I’m thinking of taking this deferred resignation, but in January of next year, I’m actually going to be 62 with 20 years, and I was really hoping to be able to stay to get that higher pension calculation.”

Well, you could stay, but you couldn’t take the deferred resignation. You wouldn’t be able to wait that long in a deferred status to be able to get that higher pension. And so there was a benefit of potentially not working for several months in this deferred status where you’re on administrative leave.

But you’re also giving up an extra 10% increase to your pension by getting that higher calculation. It’s all a balancing act. Rarely do the stars all align perfectly for any strategic advantage, but sometimes those are worth waiting for.

Will I have any financial hardship if I choose to retire? We had a number of people that said, “Well, I wasn’t planning to go, but now that this offer in front of me, I’d like to go ahead and do it, but I don’t have an emergency savings account set and I’m afraid the government’s not going to be able to pay me and then I’m going to have to use my credit cards.”

Or anything like that, “so am I going to have actually a hardship if I leave?” We’ll talk about saving money and how to do that a little bit later, but this is a big deal. Can the math support you stepping out the door and what that transition looks like.

How will I pay my bills while OPM is finalizing everything? OPM is going to take a little while and with 75,000 people all deciding to take the resignation come September 30th, or around there if they had a little bit of an extension, there’s going to be a processing problem even more so than it already is.

And so how long is it going to take for you to start to get those pension payments from OPM? And then how long is it going to take them to finalize it and start to give you your real pension check versus the interim payments that you all have heard about? These are all super important questions.

What will I do with the rest of my life? I put this one at the end because we can get into the nitty-gritty of all the details, but if we don’t know what the other side is going to look like, we have not painted a picture for ourselves about the remainder of our lifetime and what it’s going to be filled with. Many people find themselves disappointed on the other end.

It would take a long time for many of you to feel disappointed not going to work, but if you have a lifestyle that is unfulfilling to you on the other end, that’s something definitely to consider when you’re trying to make the decision of should you retire or keep working.

Federal Pension (CSRS/FERS)

Next up is the federal pension, so here we’re talking about either the CSRS or FERS pension. The vast majority of you are under the FERS program. Very few CSRS employees are left. The pension is always, it’s the foundational element of the retirement that you have.

When it comes to your federal pension, the first question is what role does my pension play in the bigger picture? Some of you, many of you are retired from the military. You’ve got that pension. You’ve got your VA disability. You’ve got your spouse, maybe your spouse is a teacher and they’ve got a pension. There may be several factors of income that you already have in motion, and so what role does your federal pension play in the bigger financial picture?

If you haven’t saved in TSP, you’re not married, or you are married and your spouse doesn’t have a pension, your pension’s going to play a really big role in all of this. It might not be as big as you want it to be, but the importance of this pension number is going to be heightened if this is the only piece of income that you have, aside from Social Security.

How can I significantly change my pension amount? I mentioned the example a few minutes ago about someone who really wanted to wait until they hit that magic age of 62 with 20 years of service so that they could get that higher pension formula. Those are certainly great ways to be able to significantly affect your pension.

But when we think about things like the high three average and where you are getting that and at what time in your life you’re getting that. If you are in, for instance, the D.C. area and you still have several years to go and you survive the rift that’s coming, you have several years to go before you’re eligible to retire.

If you move out of the D.C. area that has a really high locality pay and you come to an area that has no locality pay or really on the rest of the United States schedule, you’re likely going to take a pretty significant pay cut, and so your high three might’ve already been determined in D.C. even though you have several more years to go.

There’s a lot that goes into getting this pension, right? Things like deposits for temporary service. There’s only certain types of temporary service that can be purchased. We’ve got military service. If you ever left service and then returned, there may be a redeposit that is required of you.

But all of those things can positively affect your pension amount and those types of things HR should be able to help you with. That is part of their role of helping you get the right forms to be able to effectuate a deposit if you wish to do so. But there’s a lot that goes into your own decision about when you’re retiring and how that influences your pension amount as well.

Will pending legislation change my pension amount? It’s one thing for you to change it, but is it going to be changed against your will? There is some pending legislation for some changes to the high three. For instance, changing that to the high five as well as not including locality pay. In the high three calculation, there are calls to change the special retirement supplement.

Also, on the positive side, calls to not tax Social Security benefits. Right? It’s a seesaw of sorts of all these different changes that may be coming your way and so you understanding how your pension is going to be affected will be really, really important. That legislation is not passed.

There’s a lot going on right now, so I’m not sure that they have enough time to be able to pass some of this legislation to be able to get it all the way through both chambers, but very important that you are paying attention to those legislative changes that may affect your pension amount, whether you like it or not.

Will my retired compare, or how will my retired pay compare to my current pay? We did a whole webinar on comparing your last paycheck to your first retirement check and it’s really an eye-opening experience. We talk about this in our retirement workshops as well. It’s one of our favorite slides actually to deliver because it really summarizes all of the changes that are happening at the moment that you retire and how different things look.

It’s not always bad on the other side, right? Many people step into retirement and they feel like, “Wow, why did I wait so long? Things are great. I’ve got the money that I need to support the lifestyle that I have and be able to go do all these amazing things that I’ve waited my whole life to do.” But we have to understand how that retired pay is going to look compared to your current pay, because that will influence how much you’re going to need to take from other places.

For instance, when you plan to start Social Security, how much you take out of the TSP? What about the IRA or a or 401(k) that you have or that your spouse has that may supplement this pension to bring up the pay in total that you are going to need? But we have to start with understanding the federal pension amount and how that will relate to your current pay.

Will my pension be high enough to cover all of my costs? So it might look good on paper, but if your costs are increasing, for instance, the cost of your FEHB plan went up significantly this year, over 13% on average, you may have other expenses starting as well when you retire, like survivor benefit. We’ll talk about that here in a moment.

Your life insurance premium may increase, so there will be things that increase even though your pay has just gone down. We have to see in relation to all the costs that you’re going to have, how does your pension stack up?

Survivor Benefit Plan (SBP)

This next section that we have is the survivor benefit plan or what some of you refer to as SBP. With the survivor benefit plan, the first question is how much does my spouse actually need when I die? And this is really a loaded question and one that your HR department will likely never ever want to talk to you about because they just want to show you.

These are your choices. You have to decide how much your spouse is going to need, and that starts with having an actual conversation with them about what that looks like financially speaking. And I would offer to you if you go to your spouse and say, “What percentage of my pension would you like to keep getting when I die?”

They are not going to say 25 or 50%, which are the two options for survivor benefits under the federal government. They’re likely going to say something like, “Well, I’d like to have all of it.” Right? A hundred percent. Is that a choice? Well, it’s something that they can want, but it’s not something the government can provide, so it’s important to have that conversation of what they’re actually going to need and or want at that time.

Is SBP the best option for me and my family? Again, a loaded question because what is best for you is going to be determined by a number of different factors. Is this the only protection that you have for income for your family? If it is, meaning you don’t have other life insurance programs and things like that, survivor benefit might not be enough. Right?

It’s not a bad plan. There are some parts of it that I don’t love, but it’s certainly a great backup plan for someone who can’t get life insurance somewhere else to replace that income. But whether it’s the best option for you involves so many factors, right? Remember that strategy of this decision, how it gets informed by all the other decisions that you have made.

Can they just get all the money up front? So thinking about your family, in this case, your spouse, would it be all right? Would it be better instead of getting these monthly checks as a spouse, wouldn’t it be better if they could get it all up front? Well, that’s not available in the government program.

That’s available out in the private sector. There are some options that you could do, but this with respect to the specific relation to your pension, your spouse would not be able to get all the money up front and so they won’t be able to use it in lump sum either.

Can I make this income tax free to my spouse? Well, from the government program, you’re not allowed to do that. If you want to put some life insurance in place, that’s income tax free to your spouse when they receive it and they get it all up front, right? There are some options available to you, but it does take some prior planning to put all this in place.

Next question, what happens when I die? Do my kids get my pension? Well, if you’re not married, that’s a very valid question. And frankly, even if you are married, the question then becomes, well, what happens if my spouse dies first? Do my kids get my pension after that? The answer is no. That’s not how the spousal survivor benefit plan works. It is designed for a spouse.

There is an option for children. It is incredibly expensive and likely not worth the paper that it’s written on with respect to how much you’re going to have to pay and how little your children will actually get of your pension. We have a whole webinar on that. You’re welcome to go watch that. If you’re thinking about this option, I would encourage you to go watch it so at least you can declutter your mind of the things that you think are available in the government program that actually aren’t there.

Are there other ways to give them continued income? If you really want your kids to continue to get some continued income from you, are there other ways? Well, there aren’t under the government program. There are in the private sector.

Next question on survivor benefits. What happens if I change my mind once I’m retired? Like let’s say I decline the survivor benefit and then five years later I realized that I really want it or vice versa. Am I allowed to do that? And the answer is no, unfortunately, but I think it’s a valid question even though you don’t like the answer that I just gave. It’s a valid question to ask.

What happens if I don’t know all the details now and then later I realize that I needed it or that I didn’t need it or I had some other way to solve this problem? What am I allowed to do? I think that’s a really valid question to ask yourself and one that you should know before you make this decision.

And last question here, what about benefits for a former spouse? It’s not every day that we see people wanting to leave benefits, specifically their pension benefits, to a former spouse, but occasionally it happens. Is this program, the survivor benefit plan, the way to do that, or is there another way that gives you some more flexibility?

Again, today, I’m more about the questions than I am about the answers because just like HR doesn’t know anything about you personally on a financial level, I don’t know anything about you either, and so I would rather inform you with questions to be asking and to be curious about how these things work than really giving a lot of answers today.

FERS Supplement (SRS)

This is the program that looks a lot like the Social Security program. In fact, it’s modeled after Social Security, but it’s paid prior to the age of 62. If you are eligible to retire under an immediate pension, for instance, if you’re already fully eligible, let’s say you’re 57, you’ve got your 30 years of service and you take a retirement at that point, the supplement would be payable to you from that age all the way up until 62 when you are eligible for Social Security.

Under that program, here are a couple of questions. Is this program going away or changing? This question has been floating around out there for longer than I’ve even been working with federal employees and that’s a couple of decades. So is this program ripe for change in the current environment?

I will say yes. What that change looks like, I don’t know. We will see. It’s possible also that they grandfather people who are already employed and anybody new who joins federal service from this point forward ends up not having the supplement. We’ve seen that in many government programs and so it wouldn’t surprise me if it goes that direction.

Am I better off working longer and forgoing this benefit? Well, that’s certainly a possibility. We love the idea when you retire to be able to take a benefit, but is it more advantageous to you to keep working, for instance, up until 62 where you’re going to get that boost in your pension and you’re eligible for Social Security right away and all of those things, but meanwhile you went without the supplement.

It’s quite possible that it is financially beneficial for you to do so, but it goes back to one of those questions that we asked in the first section here, which was what are you really trying to accomplish? If mentally you are like, “I have to get out of this craziness. This is going to put me in an early grave.” Well, then having the most money coming in might not be your top priority, right? We all want different things for different reasons, and so getting super clear on that of what you’re trying to accomplish will help you to figure that out.

Can I get the supplement if I am still working? If you go ahead and retire at 57, you’ve got your 30 years of service and you go out and get another job, guess what? You’re probably going to give up all of the supplement. You’re going to make probably too much money because of the earnings test that’s out there.

And I’m not going to go into the specifics of it, but once you make too much money, you trip that wire, you start to give up some of that supplement and it doesn’t take all that much income to give it up completely. It’s very possible that if you go out and still work, you will not get the supplement. That all has to be factored into the finances of the decisions that you’re making.

What happens to my benefit if I die? For the first supplement, if your family is reliant on this income in addition to your pension, what happens if you die? Is this going to be taxed? Can I avoid being taxed? Well, I have good news and I have bad news for you. The good news is you can’t avoid being taxed on the supplement. The bad news is the only way to avoid being taxed is to not receive any.

The supplement, if you are receiving it, is going to be taxed as ordinary income at the federal level, and at the state level it will be taxed. However, your state taxes your federal pension, so many states don’t tax federal pensions or any income at all, and so the supplement would be treated like that. But for other states, it will be taxable to you.

Should I withhold taxes from my payments? This is going to be a decision that you’re going to need to be making along with your pension, frankly. You’re going to have a form on how much tax withholding you want OPM to take to be able to prepay some of the tax obligations that you are going to have.

Social Security

This is one that may be a little further on the horizon for many of you, but it is a program, at least loosely, that y’all are loosely familiar with respect to how it works. For Social Security, the first question is, will Social Security even be there when I need it? In the previous slide we had the wallet that was open but was empty. Many people think Social Security won’t be there at all, and I frankly don’t believe that.

I think that something sweeping is going to need to change with respect to Social Security for it to continue in its present form or in some version of its present form, but I do believe it will be there. It’s just a matter of what are we doing to backfill or to up the finances so that Social Security isn’t such a big piece of your retirement plan?

If you know, listen, even if Social Security goes away, I’m going to be all right, that puts you in a much different frame of mind than every time you hear about Social Security on the news, your heart sinks and you’re wondering, is this the time that they’re telling us this program is going away or the benefits are going to be reduced by half or whatever it is that is said out there.

If you know independent of Social security, you are going to be just fine financially, it puts you in the driver’s seat of these decisions.

Next question, when should I turn on my Social security benefit? Boy, there’s lots of choices that you’re going to have with respect to Social Security. The timing of when to turn that benefit on is a super important one. There’s some thought that you might as well take it as early as possible at 62 even though it’s a lower amount. That way if the program changes or goes away, you at least got something.

And then the other end of the spectrum is wait as long as possible, at least till 70 to turn it on because that’ll be your highest payout. And both of those have some validity to them and both of them are part of a strategy of trying to figure that out. The timing of when to take Social Security is certainly an important decision in one that shouldn’t be made in a bubble. You have to look at the rest of your financial picture next.

Can I change my mind later? Boy, this is a tough thing because you’re not allowed to change your mind later with respect to Social Security. You have 12 months to change your mind. After that, you’re stuck with what you’re doing. If you decide to turn it on, 13 month has passed.

If you’ve got it turned on, it’s staying on and that’s what that is. We need to understand some of these are irrevocable decisions with maybe a little bit of a buffer window for you to change your mind, but not in the long term.

What if I’m married? Does that change anything? Oh, boy, does it change things with respect to Social Security, because if both of you have a Social Security benefit that you’re expecting, there is strategy in which one takes it first and how much longer the next one waits. Big, big question here that you definitely should be asking.

Can I take Social Security if I’m still working? Just like the supplement, if you turn on Social Security while you are still working either for the federal government or out in the private sector, you are likely going to trip that wire of what we call the earnings test where you’ve made too much money to be able to qualify to receive this benefit.

So be very careful. I would rather see you, if you’re going to go out and make loads of money, I’d rather see you wait to draw social Security until such time that you’re not going to trip that wire.

Is this going to be taxed? Can I avoid being taxed at the federal level? Again, you are likely going to be taxed on Social Security. Typically up to 85% of your Social Security benefit is taxable. There are certainly ideas out there of changing the taxability of Social Security, which would be amazing, at least at the federal level, and so something to think about.

Who knows whether this changes. As of February 27th, Social Security is taxable, and whether that changes in the future will largely be determined by legislation and seeing what that looks like across the board, not just for federal employees but for everyone else as well.

Should I withhold taxes for my payments? Well, even if Social Security itself isn’t taxed, there is an opportunity for you to withhold taxes on your Social Security benefit to shore up maybe some other tax obligations that you have. It’s unclear if they do not tax Social security, will they still allow you to do a withholding on that money? I don’t know, because the legislation hasn’t passed, but it will be kind of an interesting twist when that happens.

What happens to my benefit if I die? Well, there are some survivor benefits available with Social Security and they’re so nuanced it’s important that you are talking with someone who actually understands how these Social Security benefits work with respect to survivors.

There is an option for a spouse, even some eligible children, but how this plays into the bigger lifestyle that your spouse is going to need to be planning for the bigger picture will largely be determined on your numbers.

Medicare

Medicare has lots of different parts to this program with respect to this program. Should I enroll in Medicare and in which parts? There’s even a slew of others that are out there. The question is this the right program for you to do? Does my spouse have to enroll with me? When do I need to make a decision? Wow, that’s an important one. Can I change my mind later to either get in or get out of Medicare? Does money I take from TSP affect my monthly premium?

Who on earth would think that this would happen if you take a hundred thousand dollars out of TSP that somehow it’s going to affect your Medicare premium? Spoiler alert, the answer is yes. We need to understand how all of these levers that you are pulling in, all of these different benefits, all these different parts of your life affect one another. That’s part of the strategy that we talked about earlier.

Life Insurance

Here we’re talking about the federal employees group life insurance plan. Under this program, the first question is how much life insurance should I have while I’m working? Most of you when you joined federal service were handed a stack of papers and one of those papers was your life insurance election and they asked you, “Which one of these things do you want?” You probably checked a couple of boxes, you signed it and you’ve never looked at it again.

How much life insurance you should have is largely dependent on what it is that you want that life insurance to do for you. Is it aligned with what you want and need? And if it goes into effect, meaning you pass, does it solve the problem that your beneficiaries had when you died, which was a loss of income?

How much life insurance should I have when I retire? This is a question, of course, HR departments get all the time when they are preparing that retirement package because one of the documents in that retirement package is the life insurance election for retirements. It’s called the continuation of life insurance form, and they’re asking specifically for the basic A, B, and C, what do you want to have happen to that coverage when you retire?

Which parts of FEGLI should I keep when I retire? Do they all operate the same? Are there advantages or disadvantages to the various parts of FEGLI? How much does my family actually need? This is not certainly a conversation you can have with HR, but even if you want to have this conversation, how do you know what you’re actually supposed to do? Valid question, just not the right person to ask at HR.

Are there strategic advantages to FEGLI in retirement? There are some pretty cool features of FEGLI if we’re doing it right and if we do it in the context of the bigger financial picture that you have. There may be some free parts of FEGLI that as long as you have the right amount of life insurance out in the private sector and it’s structured the right way, that you can take advantage of some free elements within the FEGLI program that you should certainly consider.

What if I just got a medical diagnosis? I just realized that I went through my final annual exam before I plan to retire, and unfortunately I got some bad news medically. What does that look like? How does that maybe influence the decision that you are making with respect to life insurance? It probably puts some things into perspective for you a little bit.

How does my FEGLI integrate with private coverage? If you have life insurance out in the private side, you don’t have to pick or choose. You can have both. You can have the FEGLI program and private life insurance coverage, but how can they work together to make sure to solve the problems that you have?

Who should be the beneficiary? Your spouse, your kids, a trust, somebody else, something else, a church, a charity, a cause that you care about? There’s a lot of choices that you have with respect to all of this, and if you don’t have those beneficiaries, right, you’ve got a former spouse listed or something like that, boy, all the other planning that you’ve done was just for somebody that you didn’t intend to get the money.

Health Insurance

Here we’re talking about the FEHB plan. The first question is, which plan is right for me and my family? You guys know every open season, every year, November, December, you have an opportunity to change up the coverage that you have.

But a lot of people ask, is there a particular reason I should switch plans in retirement? Maybe you’re moving and the plan that you have right now won’t actually support you where you’re going with respect to the kind of providers or the type of coverage that you’re needing.

What if my spouse has free coverage through work? Your spouse hasn’t been under your FEHB plan because they get free coverage or really great coverage over at their work, and so you’ve been under a self-only plan. What’s the future of that? Is your spouse going to have free coverage for the rest of their life or does that only go until they stop working?

All of that has to be integrated into the decisions that you’re making With respect to FEHB. When should I add family members to my plan? This kind of goes back with the bullet right before it. If you have a spouse who hasn’t been under your plan, when should you be adding them? If you’re trying to keep them under the FEHB plan.

How will my taxes be affected based on my FEHB costs? Many of you know that you get a pretty great tax break right now while you’re employed called premium conversion, and that allows you to not have to pay tax on the money that you receive, that you then turn around and pay to your FEHB premium, but that goes away when you retire, and so now you’re going to have extra taxable income to you even though your pay just went down.

Long Term Care

We’ve got the acronym on here for the federal long term Care insurance program, but many of you know that this program has not been active for over the last two years and it just received another suspension for another two years, so we’re going to have a four-year span that there is not an option in the federal government or for employees to be able to get long term care insurance.

We’re still going to talk about the concept here. Just know that the government doesn’t have a solution for you right now. For long-term care, what is the likelihood I’m going to need care like this? Many of you are in avoidance to this reality, and so it’s worthwhile to have this conversation.

How much will I pay out of pocket to get long-term care services? If you have no protection in place, no insurance, no other plan to pay for long-term care services, how much is it really going to cost you out of pocket to do it? What happens if I don’t ever need care? Then what? Let’s say you get insurance and then you don’t use it. What happens then?

Well, it depends on the kind of insurance that you had. There’s lots of different styles out in the private sector that kind of solve this issue, this pit in the stomach that people feel when they’re thinking about all the money that is going to pay for this insurance if they don’t actually need the care.

How long do most people need care like this? Unfortunately, it’s a couple of years, several years, and being able to pay this out of pocket is a blessing, but I’d really love for you to pay out of somebody else’s pocket, which is what insurance allows you to do. And again, lots of creative solutions out there in the private sector to be able to do this.

Does FEHB, Tricare or Medicare pay for this kind of care? The answer is no. I’m just going to answer that question right out of the gate. Long term care are different types of services. So bathing, dressing, feeding, those are not medical services, and the insurance programs that are listed up here, FEHB, Tricare and Medicare are insurance programs. These are healthcare related programs and the long-term care is quite different.

Is there another way besides OPM’s suspended option? The answer is yes. Like I have shared with you, there are a lot of creative solutions out in the private sector. Some of it is called insurance. Some of it are pieces that get added to other types of products that you might already have or purchase and be able to have some options for long-term care services in the event that you need them.

Thrift Savings Plan

With the TSP, the first question is, how much should I be investing while working? Many new employees ask this question of HR when they’re first hired and of course loaded question because the answer is as much as you can, but it’s hard to do when you’re younger. It’s hard to do when you’re older too, just so you know.

Should it be traditional or Roth? What’s the advantage? Well, these two options are quite different. In fact, they’re on parallel universes with respect to taxes. But should it be traditional or Roth or maybe a combination of both?

Which funds should I be invested in and when should I change? I might be really aggressive when I’m younger, but as I get closer to retirement and needing the money, I might feel compelled, at least in my gut, to get more conservative so that I don’t end up losing money right when I need it.

How much should you take from the TSP and how long will it last? Well, how much you take will directly affect how long it lasts, and all of this needs to be done in the context of the bigger financial picture that you have.

Should I pull from my IRA, my spouse’s 401(k) or TSP? In which order should you pull money from these different types of accounts? This is a huge question because most of the time the TSP is not the only tax-qualified account that’s out there. I would even add to this, how do I know when I’m supposed to pull traditional money or when I’m supposed to pull Roth money? All of that is part of the strategy.

Should I use TSP to pay off my mortgage? Boy, this is a scary thing. If you pull out a lot of money from the TSP and it’s all taxable to you, you’re going to have a pretty mighty tax bill. So these are the things we want people to be super, super careful of before they do them.

Is it smart to take a loan from the TSP? I’m not a big fan of loans because of the way that you’re taxed, and I won’t go into the details here because it’s helpful to have a little bit of a chart, but taking a loan from the TSP can have the consequential effects, like the opposite effect of what it is that you’re trying to actually accomplish, so we really want to try our best to avoid loans from the TSP.

Who should be the beneficiary? Your spouse, your kids or a trust or another entity, a church, a charity, a trust, or a church, a charity, or a cause that you care about? Lots of different options, and just like with life insurance, we want to make sure that these beneficiaries are set properly so that the people that you intend to get your money are actually getting your money.

Outside of Government Benefits

When we think outside of government benefits, this is always an important piece because you have a whole world of a financial life outside of your government benefits. How do all of the pieces of your financial life connect? How do they work together? Do you have your objectives clearly identified with dollar signs? It’s great to think about what you want, but how much is it going to cost you and when?

Those are super, super important to clarify your objectives. Are there any gaps that you’re not considering, or I would also add that you’re avoiding. Right? Maybe you don’t want to talk about long-term care or life insurance. It makes you feel icky inside. Hey, listen, I get it. I understand, but those are gaps within your financial life that without addressing, you are likely going to feel that you are not fully prepared to step into retirement.

Do you know the factors that influence your income? If you have lots of different streams of income, for instance, your pension, the special retirement supplement, then Social Security, TSP, your spouse’s 401(k), maybe your spouse has a pension. Those are all different streams of income that you need to understand what factors actually influence that. How do those change over time, for instance?

Do you have trusted professionals in your corner to help you? This is unfortunately something that I think a lot of people struggle with of feeling that they have somebody who’s not there to take advantage of them, but there to guide and that they are professionals who are licensed to be able to do this type of work, and they have special training to work with federal employees.

I happen to work with a network of them all over the country. We work very closely with these financial professionals to help bring all of these details together, so we’ll talk a little bit more about this here in just a moment.

The 8 ProFeds Planning Principles

I want to include in here the eight ProFeds planning principles because I want you to be thinking about this as you’re thinking about all the decisions that you’re going to be making.

#1 It’s never too late, too early or too often to plan. Many of you over the last month or so have felt like you got caught holding the bag. You are too late. You hadn’t done all the planning that you needed, and it certainly would’ve felt that way. It’s never too late to get started. It changes maybe what some of your choices are going to be or what some of your options are, but it’s never too late to start.

#2 When you know your numbers, your financial decisions become obvious. I shared that with you a few slides back, important that you know your numbers because it empowers you to realize what your response needs to be when the next RIF action happens or whenever that downsizing action happens.

#3 You are free to choose, but you are not free from consequence. There are a slew of decisions that you are going to be making as you depart from federal service, whether it is voluntarily or involuntarily, whether you are retiring or simply separating, there are decisions that you are going to be making that you will feel consequence from, good or bad. It’s important that when you’re making these choices, when you do have a choice, that you realize all of the things that come along with that in respect to the consequences.

#4 If you don’t make a decision, someone will make it for you. There are a lot of default options with respect to your government benefits, so you need to be an active participant in the decisions about those benefits.

#5 It’s okay not to the government solution to your problem. The government benefits that you have can be amazing in many ways, but they’re not perfect programs. They are all underwritten by private companies. For instance, your life insurance is not… The death benefit doesn’t get paid from the Treasury. It gets paid from MetLife. You obviously know your health insurance is all privately underwritten with all the carriers that the government uses. The TSP is managed by a private company. So all these things are important to realize.

#6 The hard conversations are always worth having, and that’s really the crux of today’s session. Even though it’s talking about HR, I’m hoping that the questions that I mentioned here today become the starting point for you to have those hard conversations with yourself, with each other if you are married, with perhaps your adult children, and a financial professional that can help you along the way.

#7 Retirement is complex. Seeking professional help is admirable. Please don’t try to do this on your own and then regret it later. We have some help available to you. We’re going to talk about that here in just a moment.

#8 Nobody, and I repeat, nobody should care more about your retirement than you do. You have to be an active participant in your retirement. Otherwise you get to have the default of what the government has in store for you, and I would argue you’re going to have different choices than they’ll make for you.

Wrap – Up & Next Steps

So here’s the deal. You need some professional help. If you feel like you’ve got it all figured out, then cool. I’m going to guess based on the response that we got from federal employees over the last month that many of you were scrambling trying to figure out heads and tails of all of this, so get some help now.

We have two main ways that you can get help. You can find a local retirement training session. All the pins that you see throughout the United States on the right-hand side, these are all the locations where we have workshops. I encourage you, go to fedimpact.com/attend. Find a location that’s close to you. We’ll do our best to get you in as soon as possible.

I know that there’s a lot of angst with respect to everybody’s belief that they’re going to continue to have a job and all of that. I know that things are feeling very uncertain now, so we’ll do our best to accommodate everybody. If you are in the that you feel like you need help right now, please go to fedimpact.com/meet.

By going there, you will be introduced to a financial professional who’s in our network that I have personally trained and that we support on an ongoing basis for any weird stuff that comes out of these meetings so that we can help make sure we’ve got accurate information.

You will sit down to develop a benefits report as a starting point to be able to start these conversations and get moving down the track. Those meetings come to you at no cost. This is part of the relationship that we have with this network, and I’m very, very grateful for what they do to help so many people. Again, go to one of these pages, fedimpact.com/attend or fedimpact.com/meet.

If you do end up going to a workshop, you are going to have the same opportunity to meet one-on-one to develop that report as if you went directly. If you have the luxury of being able to attend the actual retirement training, your one-on-one meeting will make a lot more sense and it will be a natural extension of the workshop training that you completed. We love to help federal employees retire with confidence.

Like I mentioned, attending a workshop, these are in-person training sessions. There is no cost for you to attend, and we cover all of the federal benefits topics and these decisions to be made. Normally federal employees are attending these sessions on the clock, on paid time. Their agencies can sign off and allow people to attend. We are seeing some reports of agencies who aren’t allowing any of their employees to attend any external training, and I suspect this will probably pass.

But I will tell you, even if you have to take a day of leave to come to this session, it will be the most productive day of annual leave that you’ve ever spent in all of your years at Federal service, so please get there. You can find all of the workshops that we offer at fedimpact.com/attend.

Thank you very much for joining us today. I know that there’s always a lot to think about with respect to these decisions, but I appreciate you being here, and I encourage you find a workshop at fedimpact.com/attend, and to go to the next webinar, you can sign up at fedimpact.com/webinar. Thank you all so much. We’ll see you next month.

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For an introduction to a financial professional in our network: FedImpact.com/request-to-meet

Register for our next short webinar: FedImpact.com/webinar

Find a comprehensive retirement workshop for your area: FedImpact.com/attend