Federal retirement expert, Chris Kowalik, shares how federal employees can get started in the often overwhelming process of planning for retirement.
Key takeaways:
- Practical steps to get started in your financial planning — and attain your goals
- Tips on how to tackle both the math of financial planning and master the necessary mindset for success
- What you should know and expect when seeking a financial professional for assistance
- The 3 financial planning commands
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Scott: Hello, and welcome to this episode of FedImpact, candid insights on your federal retirement. I’m Scott Thompson with MyFederalRetirement.com, and I’m here today with Chris Kowalik of ProFeds, home of the Federal Retirement Impact Workshop.
Chris, you’ve always had so much to share with our listeners. What do you have for us today?
I hope our listeners will stay tuned to the very end because we have the three planning commands that they need to hear. These are the commands they can give themselves when it comes to financial planning and what impact each of these commands will have on their ultimate outcome in retirement. This is my official new year’s pep talk to get our listeners started on their financial planning journey, but, again, I know our listeners will find value throughout the entire year.
Scott: That’s for sure. Everyone can use a good pep talk when it comes to planning. Chris, you’re right, getting started is often the hardest part. Frankly, this can be a pretty overwhelming topic to face.
Chris: Exactly. Most of the time, people simply don’t know what to do to take the first step and get moving. Any time we add in federal benefits to the mix, it becomes even more overwhelming. Sadly, when we all get confused or things just seem too complicated, most often we end up taking no action at all, and we know that that can’t possibly be the answer.
Scott: Right. The topic of financial planning can really be daunting in and of itself. Now, Chris, you work with financial professionals throughout the country who specialize in serving federal employees in their planning efforts. I’m curious of your take on why employees don’t get started sooner in life.
Chris: Hmm. In my mind, financial planning really has two core parts. First is the simple math of planning. These are the cold, hard facts, the way numbers work, knowing that you have to set aside enough money to save for the future as well as planning to have the money that you need today. That’s kind of the easier, more concrete piece of financial planning. The second part about financial planning is the mindset. This is the emotional side, and we often see this come into play when we think about the stock market, the fear and the greed that runs the stock market and the ups and the downs.
I see several common themes among our workshop attendees. They’re similar in many ways with the challenges that the larger population has, because the people that are coming to my retirement workshops are baby boomers. They have many of the same concerns as an average baby boomer out there, just with the different kind of complexity with the federal benefits. Part of my job as a retirement trainer is to help people to come to terms with these various challenges and face them head-on so they can have the retirement that they’ve imagined.
When it comes to this financial planning piece, lets first start with the emotions.
Scott: Okay.
Chris: The emotions that I typically see in the workshop are people who are ashamed that they haven’t done more. They’re embarrassed that they’re in the position that they’re at, maybe because of some of the choices that they’ve made throughout their long career. They’re frustrated because they know they should have done more, but they’re also overwhelmed. They’ve got so much to think about. They’ve got a job, they’ve got their family. They were on furlough for a while. They didn’t get pay raises for all those years. They’re overwhelmed, just wondering like, “What am I supposed to do?” Then the biggest challenge that’s kind of easiest for everyone to see is that they’re scared of making a mistake.
When we look at all of those emotions, those are challenging in and of themselves, but if we kind of flip that coin on its side and say, “Well, what’s the other side of those emotions?” to see how you might feel once you begin to tackle the financial planning goals that you have. One thing that we really share in our workshop is we want employees to feel empowered with this information. We don’t want them to be scared or overwhelmed. We want them to be empowered.
We also want them to feel competent, that they know what they’re looking at, they understand the consequences to the decisions that they’re making. We, of course, want them to be eager and excited to retire. We don’t want them to approach retirement with kind of dipping one toe in the pond. We want them to be ready to jump off the diving board and do a big cannonball into retirement. We want them to have fun transitioning into that part of their life.
Scott: Right.
Chris: Part of that fun is knowing that you’re poised to take on retirement. You know what’s coming. There aren’t any surprises, and you can be assured to have the retirement that you hoped for.
Scott: I think if anyone had to choose between feeling these two different ways, they’d always choose the second. Nobody wants to be scared or overwhelmed. It seems to me we would all want to take action to get feeling great about planning. Is that what you typically find?
Chris: I do, but even when folks can get past that scary emotion part of financial planning, they can still be overwhelmed in that they’re busy and they let that schedule get in the way. When it comes to being too busy, I have some words of encouragement for everybody. We’re all too busy, but it still has to be done. We’re all going to have to prioritize this as something that’s important to us. The sad reality is that most Americans spend more time planning a family vacation than they do planning for retirement.
Retirement is a part of your life that may last several decades, so we want to take the time to make sure that we’re being mindful of all those decisions. We don’t want folks to wait until they’re, quote, unquote, “ready” to plan for retirement, because you’ll never find that perfect condition or time to start, and before you know it, retirement’s here. I see these folks stepping into retirement at our retirement workshops and they’re like, “God, where did the last 20 or 30 years go?” We always want to make sure that folks are working to plan on purpose. We don’t want this to be some fly-by-night retirement plan that we put together. We want there to be methodical steps that we’re taking along the way.
When we think about the idea of procrastination, sometimes we’re intentionally procrastinating about something and we can see it when we do it, and other times it’s disguised. Procrastination can get the better of all of us. A year or 10 pass and then we wake up and our kids are grown and we’re about ready to retire and all those things. Many people say, “You know, I’m going to get to this. Let’s talk in the spring.” If we’re here at the beginning of the year like, “Hey, I really want to get started, but let me file my taxes first.”
We reach back out in May or so after taxes have been filed, and its like, “Oh, yeah, I really want to do this, but this is kind of a crazy time. The summertime will be better for us to talk about this. I’ll have more time then.” We call back in the summertime, “Hey, let’s help you out.” “Oh, summertime’s kind of crazy. Give me a call back in September.” We call back in September, “We’ve got the end of the fiscal year. Things are really crazy. Give me a call back here in a couple of months.” Then we have the holidays and then the next natural time is, “Give me a call after the first of the year.” A whole year has passed and nothing has changed.
We always want employees to know that the earlier decisions that are made are usually the best ones. Your health and your age are going to play a big factor in the value of the financial planning decisions that you are making. Things that I think a lot of folks are familiar with are issues like life insurance. If you truly need life insurance, which most people do to some degree, you have to be healthy enough to qualify to get it, and you want to be a young enough age that the premiums are reasonable. The earlier you make those decisions, the better off you are.
Another very common thing that I see in our retirement workshops is when the light bulbs come on for people, and I call this the trap. It’s the trap that the government benefits look so good while you’re working and for so long in your career they’ve been great, that most employees never just take a peek into the future to see how things are going to change. Oftentimes, if you could see how your current benefits will look well into the future, you would make some very different decisions today.
We want people to put time on their side. Don’t fall into the trap where you just think the government has a monopoly on good ideas and it’s perfect. Of course, math, that we talked about before, the power of compounding when it comes to investing and saving. The more time you put on your side, of course, the better. You know the old adage, most people don’t plan to fail. They simply fail to plan. We really run up against that in our retirement workshops.
Scott: Right. I suppose procrastination does have a profound impact on the end result, and even with the best intentions, the years can pass by before we even take action. I imagine some of your workshop attendees who are close to retirement wish they could just rewind and do everything over again.
Chris: Oh, you bet. You’d be surprised how many times I hear that very comment. If we could all just get that peek into the future, perhaps it would let us know exactly what we should be doing today to not end up there. Now while we don’t have that crystal ball, we can make some general assumptions about what we want our future to look like and use that at least as a starting point to make progress.
Scott: Okay. Now for our listeners out there who are just trying to get started, do you have some general action items that they can use to gain some momentum?
Chris: Oh, of course. The first is for all of our married listeners. We have to make sure that their spouse or their significant other is involved. Right?
Scott: Okay.
Chris: This is critical that you’re on the same page. Now there is one thing that I really took away from the military and my time there, and that is perspective. What you see depends on where you sit, and that happens in a marriage, that happens in an organization like the military. It certainly extrapolates over to the federal side where we’ve got headquarters and we’ve got field elements, and everybody sees something a little bit different, so everybody has a different perspective. The same thing happens with spouses, so we have to make sure both of them are involved in these decisions so that both of their perspectives can be taken into consideration.
The next piece of advice that I would give to those who are really just getting started is figure out what you want. Right?
Scott: Right.
Chris: Identify the goals. That’s the first step to any plan. Whether you’re making a plan to go to the grocery store and pick up what you need for dinner, you have a plan. You know what it is that you need to get at the end of that transaction, and that’s very much what we need to do on the retirement planning side. First step to any plan, figure out what you want.
Now figuring out what you want when it comes to money can be an interesting exercise for folks. We have, of course, short-range goals that we have that we want to accomplish in the very near future. We want to pay off credit card debt, if you have to replace the hot water tank that you know is going, you’ve got a car that needs to be repaired with a lot of damage or something that’s going to cost a lot of money out of pocket very soon.
Then we have more medium-range goals, and really, it depends on the age of the person that we’re talking about how far away these goals are. Some very common medium-range goals would be making sure your kids get to college. If that’s something that you want to do to help them to get through that part of their life, then that would be a medium-range goal. If you have a new car purchase that you know in the next five years you’re going to be due for a new car, those are some goals that you can begin thinking about and planning for. Not long-term goals, that’s retirement and beyond, but something that’s in the middle.
Then, of course, we have the long-range goals, so retirement. You might have a new home purchase, whatever that might look like. We always encourage folks to really take a hard look at the end game. What is it that you want to accomplish at those different ranges of your life?
Scott: Okay. Now for those who feel they can’t quite get ahead, do you have any advice for them?
Chris: I do. When I first started my financial plan, I was, I think, 21 years old. I was a lance corporal in the Marine Corps, and one of the most profound things that I remember my financial advisor telling me was that you had to pay yourself first. It’s the idea that you have to live within your means so you don’t have more month than money. Right?
Scott: Right.
Chris: We don’t want to run out on the 20th of the month when we have 31 days, so we want to pay ourselves first. That’s not to say we want to pay ourselves to go get the brand new car and have a home that’s really out of our range and all of that, but knowing that you have to set aside money for your own future. We want to trim our budget for the long-term good, so is it possible that you can squeeze your budget a little bit to find another $100.00 or $200.00 or $500.00 a month that you’re wasting and put it towards something really great? Right?
Scott: Right.
Chris: Whether that’s maybe one of your short-, medium-, or long-term goals. My financial advisor has shared something with me that I always thought was funny, but it really makes you think. He says, “Listen, the idea of paying yourself first is that if there’s anybody at the end of the month that’s not getting paid, it’s the Domino’s Pizza boy and not you.” You make decisions to say, “Well, I’m going to forgo ordering pizza this month because I’m more important than paying the Domino’s Pizza guy.” It was funny when he told me it, but it really is one of those things that just kind of sticks with you.
Another great piece of advice, especially since we’re turning over the new year, is for employees to utilize any pay raises or step increases to advance their financial strategy. Let me give you an example. Let’s say with the new pay raise and locality pay and maybe a step increase that we have another hundred dollars per month coming into someone’s check. Now we don’t want to siphon off all of that because we want you to feel the reward of the work that you’ve done and, of course, things are getting more expensive and all that.
We’ve got to accommodate your budget for that, but if you can take half of that hundred dollars a month or a paycheck, whatever it ends up being, and put it towards something good, whether that’s investing more, whether that’s life insurance, whether that’s a long-term care solution, whether that’s just an emergency savings, any of those things would be really powerful. It’s amazing how much you can accomplish if you just take those strategies of using those advances in your pay to fund your future.
Scott: Right.
Chris: Yeah. Another great piece of advice for those that just feel like they can’t quite get ahead. The reason most people feel like they can’t quite get ahead … We’ve all been there, right?
Scott: Yeah.
Chris: … is the idea that we have to tackle debt. When it comes to debt, it can be one of those overwhelming and frustrating and kind of embarrassing part of our life, because we end up racking up debt and then we’re like, “God, why did I do that?” Now, you have to figure out how to pay it all off. The first step in tackling debt is identify what they are. That’s the dollar amount that you owe, the interest rate that you’re paying, and the minimum monthly amounts. That’s the starting point. What’s the bare minimum that each of these companies need to be satisfied each month.
Scott: Okay.
Chris: The next is the idea of the snowball plan, and this is a very common financial planning theme when it comes to tackling debt. It’s the idea that what your discretionary income is, the money that you have to be able to put towards the debt, you pay off the highest interest debt first, so maybe that’s a credit card that’s 20% interest. You pay that down first, and when you’re done paying that, the money that you were putting towards that particular debt, we snowball that payment into the next highest interest rate product. If you have now another credit card that’s 18%, we’re just going to continue to roll that payment until eventually, all of that discretionary income that we have going towards debt is just attacking and crushing the debt that we currently have.
Now there’s a big part of debt and tackling that that’s important. It’s the idea that you have to crush those debts very methodically and you cannot accumulate more debt. Right?
Scott: Right.
Chris: That’s only prolonging the problem that you have. If you’re paying off debt but you keep accumulating debt, that, of course, is not a good combination. Another financial planning piece that we have in here that really goes hand in hand with the debt is the idea of establishing an emergency fund. Without an emergency fund, we end up turning to things like credit cards because we don’t have enough money on hand to be able to do things like fix the hot water tank or get the car repaired, whatever that might be. Having that emergency fund allows you to buffer, to cushion your normal household expenses when those things come up, and only use this bucket of money for truly unexpected and necessary expenses. This is not the vacation fund. This is not the TV fund. This is not the new car fund or fancy sunglasses fund. This is true emergencies that it’s there.
Scott: Okay. Those are great pieces of advice, Chris. Now what are some ways that employees can leverage or expand on what they’re already doing?
Chris: Yeah, absolutely. Most employees that we meet are contributing to the Thrift Savings Plan, and we’re always so happy to hear that. TSP is great in many ways, especially when you’re putting the money in. We, of course, want to make sure that FERS employees are putting at least enough to get all the free money out of TSP, so that’s the FERS match. In order to do that, of course, a FERS employee must put in 5% of their pay, and their agency ends up putting in 5% of their pay as well. Every single pay period, we’re going to get that free money.
The next thing is looking at tax-advantaged accounts. Of course, the Thrift Savings Plan is one of those types of accounts where you get either a tax advantage today, which is the traditional TSP, or a tax advantage later, which is the Roth TSP. In some of our previous podcasts, we’ve talked about the idea of tax diversification and the idea that if along the way we can build different buckets of money or fill different buckets of money that are taxed differently, then that ends up being very valuable to us in retirement because, depending on how taxes are at that time when you need the money, you could take it out of the appropriate bucket. Certainly, keeping an eye on those tax advantages and those tax strategies is going to be important to kind of leveraging what you’re already doing.
We also want to make sure that the diversification of the funds that you have in the Thrift Savings Plan or any investment out there really match where you should be at. We don’t want you to be too aggressive. We don’t want you to be too conservative, but making sure that all the money that you’re socking away in an account like the Thrift Savings Plan is working appropriately based on kind of your timeline for needing the money so that we know it’s not too much at risk.
I always have a challenge for employees, and I shared this in our TSP podcast, I think one of the first podcasts that we did.
Scott: Right.
Chris: It’s the idea of challenging yourself to contribute more to the Thrift Savings Plan. Is that 1% more? Is that, How can I max out the Thrift Savings Plan at 18,000 per year? How can I get the full catch-up contribution, just an extra $6000 per year? Wherever you’re at today, what is a way that you can just step up your game a little bit and make that work? Okay?
Scott: Okay.
Chris: That’s one of the things that folks can do that may already be working in the Thrift Savings Plan and making that happen, but ways that they can tweak that.
The next thing that I would offer to folks who are already started on their financial journey and they’re trying to just figure all this stuff out is the idea of transferring risk. Now from a financial planning standpoint, transferring risk is a very important thing to do. The idea that when something happens to us that’s bad financially speaking, we want somebody else to shoulder that for us. A good example is homeowners insurance . That’s a transfer of risk.
Scott: Okay.
Chris: That way, if your house burns down, you’ve paid a premium every month to your insurance company so that when that happens 15 or 20 years later, the house burns down, it is not you, the individual, paying to have your house rebuilt. You might have a deductible, but ultimately, it’s the insurance company that’s shouldering the vast majority of the risk of your house. Same thing happens with automobile insurance, long term care insurance, health insurance, life insurance. Those are all risk transfers and something that’s very important because we don’t typically have the capacity to manage all that risk ourselves.
Scott: Right.
Chris: Okay. Another really important aspect of financial planning is to make sure that you have the legal aspects in order. One podcast that we did, we devoted the entire podcast to this, was updating beneficiaries. So very important for any of our listeners today who did not watch that or listen to that podcast. Make a note to go back and listen to that because we want to make sure that for all the accounts that you have on the federal side, that the right person is going to get them if something should happen to you. For anybody listening, if you want those forms, you can go to fedimpact.com/beneficiaries. All the forms are listed right there and, of course, go back and listen to that podcast.
The other part of the legal aspect are things like wills. Do you have an estate planning trust? If you have minor children, how do you want your money left to them so that you’re sure it’s used appropriately? Do you have special needs children that grow up to be special needs adults and they need some special direction on how money is going to be used? All these things are just things to begin thinking about to tweak and make sure that your wishes are really going to be carried out if something should happen to you. Of course, all these documents that we’re talking about, a trust, wills, beneficiary documents, we want to make sure that you make a copy of all of those and keep them in a place that your family can easily find them.
Scott: Right. I suspect this pep talk is going to really be getting our listeners thinking about taking some serious steps in their planning for this year.
Chris: I hope so. We often overestimate what we can accomplish in a day and we underestimate what we can accomplish in a year. We have all these great ideas of what we’re going to get done on a Thursday, but we never get to all of them. It’s amazing when we really put our nose to the grindstone what we can accomplish in a year. What we want to see is folks squash the negative parts of their financial life, that debt and all of that. That way, they can allow all the positive parts of their financial life to be able to shine. We want people to make big goals and put a plan in place to tackle them. I suppose really all of this begs the question, How do I do this by myself?
Like you mentioned earlier, I work with financial professionals throughout the country who specialize their practice in serving federal employees with their unique planning needs. There are some questions that come to mind with respect to hiring a planner, and I want to kind of share them with our listeners because I’m sure they’ve at least had them in the back of their mind, but maybe not known how to articulate them.
Scott: Okay.
Chris: The three big questions that always seem to come to light are these. The first is, Why should I engage a planner? The second is, What should I expect when I do it? Third, What’s it going to cost me? Let’s kind of jump into each one of these, the first being why I should engage a planner. Here’s the reality. We’re all good at something. Our listeners have a unique set of training and experience that makes them great at their jobs. Likewise, financial planners are good at planning. That’s their job. That is what they devoted their professional career to doing.
Let’s use a little bit of an analogy. If I get sick, I go to the doctor, the pro, the person that has the license and education to provide advice to me. The nurse is going to take my vitals. They’re going to get my medical history, ask me a bunch of questions, any other meds I’m taking, all of that to do the true evaluation. Then the doctor comes in and they’re going to evaluate me and observe my symptoms, see what’s really wrong with me. They might order some tests like blood work to really get to the bottom of what’s going on. They’re likely going to make some recommendations of treatment or perhaps write a prescription for meds or send me to a specialist if there’s something really uniquely wrong with me. Of course, they’re going to follow up to monitor my progress, to make sure that I’m getting better.
The idea with all of this is we want to make sure that we’re going to a professional that can help us. Not diagnosing ourself and making all that happen, but going to the pros.
Scott: Okay, but what about those who do try to be do-it-yourselfers?
Chris: Yeah. I meet a lot of those folks at our retirement classes. I think most of the time, people are do-it-yourselfers because they don’t really know what else to do. They’re kind of afraid of engaging a financial planner and so they’ve just done the best that they can. In reality, do-it-yourselfers are less likely to achieve their goals. Looking back at that doctor analogy that I just shared with everyone, if I decided to be a do-it-yourselfer, I might Google my symptoms on the Internet.
I might visit WebMD and see all the scary stuff that might be wrong with me. I might see what other patients have to say and what they think I should do about my problem. Those are my peers, the people that are sick too. I might take their advice, even though I’m not really sure what’s wrong with me or that we have the same thing wrong with each other. Then I might self-medicate. I might try to figure out what’s wrong with me and give myself medicine versus making sure that I’m going to a professional.
My big question for our audience today is, in what scenario do I have the best chance of actually getting better?
Scott: Right.
Chris: Right? Is going to the doctor a pain in the neck sometimes? Yes. Do they sometimes give bad news that you don’t really want to hear? Yes. Do they have a mound of training and real-world experience that helps them to diagnose and make a recommendation for the thing that’s wrong with you? Yes. Financial professionals are no different. We live in a complex financial world, and if you are overwhelmed and you stand still and you try to do this all yourself, you’re just going to get buried and no progress is going to be made. Then you’ll look back and wonder what you should have done.
Scott: Right.
Chris: Financial professionals, one of the important aspects of working with one is that they’re able to foresee potential weaknesses and a plan before it’s too late so we can be proactive versus reactive. We don’t like reactive planning. I will make one caveat. For a financial professional that an employee goes to, they must understand the unique complexities of federal benefits. If they don’t, they’re unknowingly going to give bad advice.
Scott: Right.
Chris: They’ll be well-intentioned. They’ll be working off normal rules, but federal employees don’t operate on normal rules for most of these benefits. There’s exceptions for all of them. That financial professional, once they know how all these benefits work, they’re able to provide some creative solutions in the private sector that simply aren’t available on the federal side.
Scott: Right. Now what should an employee expect when they go to see a financial professional?
Chris: Great question. A financial professional will likely require a married couple to attend their appointments together. We’ve got to get both perspectives out, and there’s no sense in one party attending and then having to go home and try to explain it to the other party, and so we want them both together. The next is they’re going to begin to help you to articulate what it is that you want retirement to look like. Remember, the very first goal of any plan is you have to figure out what you want. They’re going to help you to kind of get that out of you and figure out what you want retirement to look like. Obviously, you have goals between now and the time of retirement as well, some of those medium-range goals for some of our younger audience. That’s kind of the starting point.
At that point, they’re then going to compare where you’re at today with where you want to be in retirement, and that tells us where the gap is. That gives you a starting point to begin planning to fill the gap or the hole that exists in your plan, but if you do nothing different than what you’re doing right now, there’s going to be a big swath of your retirement that you’re not going to be able to live because you’re not going to have enough money. They’re going to make a recommendation on the next steps to take you kind of on your financial journey. Okay?
Now those folks that have a financial professional are far more likely to be on track to meeting their goals than a traditional do-it-yourselfer. Let me share with you a couple of those things that I want everybody to let kind of sink in as you’re thinking about whether you should be engaging a planner.
Scott: Okay.
Chris: When you try to do these things yourself, to be a true do-it-yourselfer, you might be guessing, you might be hoping, or you might be winging it. Neither of these things are good. When it comes to financial planning, we don’t have a lot of room for significant error and mistakes that might be made. A planner will help you to have very specific goals that are identified. Remember, that’s the start of any plan. They’re going to explore and implement various options or strategies or products to meet those goals that you’ve identified and then help you to adjust your course as necessary.
A planner will help an employee to … By really providing a reassurance or a validation of the decisions that they’re making, so that gives an employee the confidence that they’re moving in the right direction. They’re going to help them to foresee those challenges and offer alternative ideas to aspects that an employee hadn’t considered, something that you hadn’t even thought about that a planner will bring up. They’ll also be coordinating with other professionals, if needed, like a CPA, an estate planning attorney. We want to make sure, of course, that all the financial affairs are in order and we don’t have anything kind of hanging out there that is left undone.
Of course, they’re going to help employees to get the best of both worlds by looking at government benefits and the alternatives out in the private sector that may allow for more flexibility or that you have a little bit more control over. All of those aspects are so very important. Of course, kind of the larger aspect of this is a financial professional, they’re used to providing strategies. The easiest way to describe strategy is knowing what to do and when to do it. Whether that’s tax considerations, when to turn on Social Security, how to withdraw money appropriately out of accounts like the Thrift Savings Plan. All of these strategies are something they’re very used to implementing with their clients.
The number-one thing that I see financial professionals do for their clients is to help them, the employee, hold themselves accountable to their own goals.
Scott: Okay.
Chris: When we can lay out what we want and we’re not doing what’s required to achieve that, you’ve got somebody knocking on your door and saying, “Hey, what are you doing? You told me you wanted these things, but your values don’t match your actions of what it is that you’re trying to accomplish.” There may be a little bit of psychology of having someone watch over your commitment to your own plan that really helps move you along.
Scott: Right. Now what can someone expect as far as cost?
Chris: Yeah. There’s plenty of free advice out there. Remember our doctor analogy where you can just Google everything and try to figure it out yourself, but you might not get quite the answers that you need. Less than 25% of federal employees have ever consulted a financial professional. I found that number shocking.
Scott: Right.
Chris: Paying a financial professional for their services, lets talk a little bit about that. Of course, part of what you’re paying for is not just sitting in a nice office and having this conversation, but the licenses and the education and the expertise that that professional must carry to make sure that they’re providing great advice to their clients. No professional works for free. I don’t work for free. You don’t work for free. Our listeners don’t work for free. If someone asks us to work for free, we would look at them like they were crazy. Right?
Scott: Yeah.
Chris: That’s not how things work. Advisors can charge in different ways. It’s really dependent on what type of help an employee needs, and that will determine how that advisor is compensated for their services. There may be a planning fee. There may be a product fee based on which product you choose. Talk with the advisor. Don’t be afraid to ask those questions, because we want to make sure, one, that they’re compensated for the great service that they’re providing to us, but we also want to make sure that we’re all being treated fairly and we all feel like we’re getting a good deal.
Now fees in and of themselves are always relative to the value that you are receiving. Don’t go with the government mentality of go with the lowest bidder. That’s not who you want to go with on your financial plan. It’s kind of like using a Groupon for a root canal. We probably don’t want to go to the dentist or the surgeon that has to put coupons out there for us to go see them, that kind of idea. We want to make sure that you’re seeking a planner that really aims to collaborate and advocate for you, even on areas that don’t make them any money.
A good example on the federal side is an advisor that’s making recommendations on how you should be positioned in the Thrift Savings Plan. They’re not making any money off of that recommendation, but we want to make sure that we have somebody that’s willing to advocate and make sure that we’re properly positioned even when they don’t earn a buck on that recommendation. Okay?
Scott: Right.
Chris: Now I am not of the belief that when you’re engaging a financial planner that it has to be a zero-sum game. That’s the idea that they win and you lose because they’re making money off the transaction. I am a big believer that advisors, financial planners can get everything that they want as long as they help enough other people get what they want. They’re going to be compensated if they’re providing good, solid advice to their clients, or in this case, their federal employees. It doesn’t have to be a you-win-and-they-lose kind of transaction.
Scott: That is so true. This has been a great pep talk today, and you mentioned at the beginning that for those who stuck around to the end of this podcast would get your three planning commands, and I bet the listeners are ready to hear those.
Chris: Yeah, so the three planning commands are sit, roll over, and fetch. Probably not what you were expecting, right?
Scott: Right.
Chris: Let me explain.
Scott: Okay.
Chris: We share this concept in our retirement workshop because it’s the command that you can give yourself to start to take action. The command of sit is the idea that you keep the status quo because change is hard or its uncomfortable. It’s just staying right where you’re at. You never dig into your numbers to see what the real consequences are because it might be a little painful, it might be a little scary. You kind of cross your fingers and you hope that everything’ll work out, but once you retire, you look back with a tinge of regret and say, “Oof, what should I have done differently to be in a better position in retirement?” The command of sit doesn’t sound good at all.
The command of roll over is really the same as sit, but you pretend that you’re making progress so that you feel better. When my dog wants a treat, she rolls over and she keeps rolling over, but she doesn’t get anywhere. She’s still in the same spot.
Scott: Right.
Chris: The idea that you go through the motions by saying things like, “Yeah, I’ll think about it. Yeah, I’m going to get around to doing that. Yeah, that’s important,” but you never really get anywhere because you don’t make any decisions. We make the assumption that what’s worked in the past will continue to work in the future, only to find out in retirement that that’s not really the case at all.
The third command is fetch, and that’s the idea that you make proactive decisions that allow you to get the retirement that you want. In that effort, you have to be honest with yourself about the consequences of your decisions or your lack of decisions, because both have an impact on you. In this idea of fetching your retirement, you take fiscal responsibility for your own future, even if it’s a hard pill to swallow, even if you have to look back, hindsight’s 20/20, and admit that things haven’t quite gone the way that you wanted them to, but you decide today that you’re going to tighten up your bootstraps and get the retirement that you want. What this does is it allows you to reap the rewards of decisive and realistic planning.
Those are aspects that I think are sometimes hard for employees to take in, simply because this is a big, overwhelming topic and they don’t exactly know where to start. Hopefully, our readers or our listeners today are not ready to sit, they’re not ready to roll over. They’re ready to go fetch.
Scott: That’s great, Chris. As always, you’re very generous with your insights on these important topics, and I appreciate you sharing with us today and to our listeners. You mentioned that you enjoy getting feedback from federal employees and want to encourage them to interact with you. What kind of feedback are you looking for and where should they go to give you that feedback?
Chris: Absolutely. First of all, I’m so grateful to be able to encourage employees to create their own financial future and live the retirement that they want. I know that this has been a big topic, a rather long podcast for us today, but such an important one. As for the feedback, if our listeners have ideas on topics or they just want to share their reaction to today’s content, they can visit fedimpact.com/feedback and share their thoughts. We’ve also put the link to that feedback form right below the Play button, so all of our listeners can click there and tell us what they think.
