Federal retirement expert, Chris Kowalik, introduces 20 critical financial topics to get squared away before you retire.
- CURRENT SITUATION: an honest assessment of where you are today
- PENDING DECISIONS: looking ahead to key decisions when you officially retire
- RED FLAGS: indicators of imminent threats to your retirement plans
- TIMELINE: a step-by-step countdown of action items to be ultra prepared
- Take the quiz today for Your Retirement Scorecard: FedImpact.com/quiz
- Local workshop locations and dates: FedImpact.com/attend
Hi, Chris Kowalik of ProFeds here and welcome to the FedImpact podcast, where we offer candid insights on your federal retirement. Now, you guys know this show is all about helping you to get super clear on what you want retirement to look like and taking action to make it happen. There’s a ton that goes into retirement readiness, everything from the financial aspects, to your health, to your fulfillment and purpose that you have in retirement, and all of these things are super important, but we’re going to spend our time today talking about the money, right, the financial readiness, to be able to take that leap into retirement very confidently. Don’t be surprised today, if you might feel a little bit overwhelmed with the questions that I’m going to be asking, just know that the intention is not for you to have all the answers today. It’s to know that these questions are important for you to get to the bottom of before you retire from federal service.
Our agenda today, we’re going to talk a little bit about assessing the current situation that you’re in and being honest with yourself about where you are today. We’re going to discuss some of those pending decisions that you’re going to have as you approach retirement, some of those questions that need to be answered or decisions that you’re going to need to make when you officially go to retire. We also might uncover some red flags, which are those imminent threats to your retirement plan. I think you’re probably going to see some of the questions that I’m going to ask today be very much aligned to those threats and ones that you really need to take a look at. If you’re checking off items on the list to be prepared, this is a great list to go off of because we are going to share a lot today. We are going to cover the top 20 topics to make sure that you are ready to step into retirement and like I mentioned, you’re going to have instant access to our new quiz, Your Retirement Scorecard, so that you have your score and a list of action items to get you started. Of course, any resources that I mentioned today will be listed right in the show notes and for anyone looking for additional training or help on their individual situation, we’ll tell you how to get that at the end, so stay tuned.
Rules of Engagement
All right, so we have to cover a little bit of background here. First, we’re going to talk about rules of engagement for our session here. I feel compelled to share this with you, because I need you to understand that today is about getting clear on where you are. It’s not where you wish you were and pretending that that’s the case, but really being honest with yourself. I want you to know that there’s no judgment on my part about the types of things that I’m going to be sharing today. There will be some of you who are like, “Gosh, I am hitting it on all eight cylinders. This is truly amazing. I’m really ready to retire,” and then others of you that will be like, “Oh my gosh, I really thought it was so much better prepared.” I need you to know I’m not here to judge, I’m here to help, and I’m here to provide just a little bit of leadership or guidance in the topics that I hope that you’re taking into account before you finally pull the plug on your retirement and go ahead and step into that phase of your life.
But here’s something really important that I hope that you will remember during today’s session and as you’re taking the quiz, and that is that all progress starts by telling the truth. If you are not honest with yourself, the only person that you’re hurting in this process is you. You don’t have to answer to anyone else, perhaps your spouse or your family, but you don’t have to answer to me, you don’t answer to your coworkers or to your boss or anybody else about your status and your preparedness to retire. This is for you and we want to make sure that you allow yourself the chance to be honest and be a little bit vulnerable, and then we’re going to all put on our big boy and girl panties and we’re going to go make it happen. No judgment here on my part, I’m here to help, and give you a little peek of the types of things that you should be thinking about.
All right, so the next thing I want to talk about is keeping score, so let’s talk about this idea of keeping score. It can sometimes feel a little bit overwhelming or put us in a little bit of a funk when we’re thinking of keeping score, but in order to be honest with ourselves about keeping score, we have to first identify what the goal is, then we have to negotiate any of the obstacles that we’re looking at, and commit or maybe recommit to the mission that you have. We know the end objective that you’re going for and being able to take action, to be able to win. That’s the whole purpose of keeping score in a game, in life, in retirement planning. We want to make sure that we’re very clear on what the goal is, what are the obstacles in the way, and then let’s go get it. Then once we know how to do that, we just lather, rinse and repeat. We just keep doing over and over again so that we get better and better and better results as time goes on.
Keeping score when it comes to retirement, preparedness is not a one time thing. This is an ever evolving process that will continue even when you’re in retirement. You don’t just set it and forget it and walk away from the planning process. It’s going to be something that you’re going to continue to look at and counsel yourself on to make sure that you’re still on track. Remember, this is not a score against someone else. This is a score against yourself and making sure that you are showing up in your very best prepared way as you step into retirement. We’re going to talk about 20 critical financial topics that I believe, when you address these things sincerely, and you’re not making excuses for yourself, and you’re not believing that these things won’t happen to you, but that you are honest with yourself and sincerely dive into each one of these topics to address them properly, that you are going to be in a really strong position to step into retirement and stay there. That’s the goal. We don’t just want you to retire, we want you to stay retired, and not have to come back into the work world because your finance is dictated that you simply didn’t have enough to survive. We are ready to jump into the down and dirty about the 20 critical financial topics to get squared away before you make the leap into retirement.
20 Critical Financial Topics
#1: Written Financial Goals
Topic number one are written financial goals. Do you have your goals written down clearly? Are each of them specific, measurable, and achievable? Those are three really big ones that when it comes to money, we have to be specific so that we know whether we hit our target. We have to know, in this case, dollars wise what it’s going to take to meet that financial goal or the thing you want to do that’s going to require money.
And then, is it achievable? And it’s not really a matter of whether it’s ever achievable. Of course, with enough time, everything’s possible. There’s no such thing as an unrealistic goal, just an unrealistic timeline, right? So, we want to kind of keep that in mind. But is it achievable on the timeline that you have? Next question, are your goals thorough, substantial, and meaningful? We can have easy throwaway goals that don’t really move the needle for us. But have you set your sights high enough that you’ve really thought through what retirement’s going to look like, that you feel like these are big enough goals that you’re striving for and that they bring meaning to you in retirement?
Ultimately, what we have to end up asking ourself with respect to the written financial goals is, “Will achieving these goals give you the standard of living that you want in retirement?” If they will, then I think you’ve hit the mark on your goals, right, as far as setting them. It doesn’t mean you’ve accomplished them yet. But by the fact that you have a goal that if you achieve it, you’ll get the standard of living you want in retirement, that tells us that your goals are aligned with your vision and we’ve got a good starting point. Okay? So, topic number one, written financial goals, we’ve got to have them written down.
#2: Debts & Financial Obligations
Topic number two are debts and financial obligations. Do you have a pretty good sense of what kind of debts and financial obligations you’re going to carry into retirement?
That’s a serious question because a lot of people don’t take that into consideration. Have you thought about those pros and cons of paying off debts, maybe high interest credit card debt or debts that require a high repayment amount like a mortgage? Right? There’s pros and cons to paying those types of things off. And next, are you confident that these obligations that we’re talking about won’t interfere with you being able to afford the retirement that you want? If you are under crushing debt, we might have to make some different decisions because it’s going to interfere with your ability to afford the retirement that you want. So, again, all progress starts by telling the truth, this is a hard one for a lot of people, so make sure that you’re giving special time and consideration to this topic.
#3: Retirement Budget
Next up, topic number three is a retirement budget. Have you created a budget for your basic living expenses in retirement? Most of you know that there will be some expenses that appear in retirement and some expenses that will disappear in retirement. We want to be clear on not only what the gross is that you’re going to be looking at for income, but how much of that is going to be taken by your basic living expenses. And I’m not talking about like downgrading your standard of living and doing with the bare minimum, I’m talking about just maintaining the standard of living that you have right now. What will that cost you? And how will those benefits change over time or those expenses change over time? You’re going to find that many of your benefits get more and more and more expensive and so we have to account for that in the retirement budget.
Next, have you created a budget for the fun, important, and meaningful things that you wish to do when you retire? It’s one thing just to keep living, right, which is what the first bullet’s all about. This third bullet is all about the fun parts of retirement. Do we have a budget for those? Because everything you plan to do in retirement is going to cost you some form of money. And if we don’t know what that dollar amount is, that is called a retirement wish instead of a retirement plan. So, we want to make sure that we know the types of things and how often you want to do those. Okay? And ultimately, how confident are you that this planning, this budgeting will allow you to maintain your standard of living in retirement?
If we’re pretty darn confident or ultra confident that the retirement budget is good to go, that we’ve really thought through everything, then you’re probably on a pretty good track. If on the other hand, you’re like, “Oh gosh, there’s all these things I hadn’t thought about of putting in my budget and how do I know how much my monthly expenses are going to be?” Well then, we might have a little bit of work to do. All right.
#4: Federal Pension
Topic number four is all about your federal pension. Are you sure that you are eligible to retire when you want or I suppose when you plan to? Are there any penalties applied to your pension or are there delays in being able to draw your pension maybe because of how old you are?
Have you certified your service to make sure that you’re getting proper credit for all of your federal service? And then, how certain are you of the amount of the pension that you’re going to receive and the taxes you owe on that pension when you retire? All very, very important questions. Of course, we’re going to be hinting at a lot of your benefits today on today’s session because, of course, all of these benefits have a financial aspect to them. But your federal pension is really the foundation for you stepping into this phase of your life and we’ve got to make sure that you are super squared away on your pension amounts.
#5 Income Planning
Topic number five is all about income planning. Do you know how much you’re going to get from the various sources of income that you have in retirement? Most of you will have your pension, you’ll have Social Security, you’ll have the Thrift Savings Plan, you may have a spouse’s Social Security benefit, perhaps a spouse has a 401(k), other pension money, whatever that might look like. Do you know how much you’re going to get from each of these various sources? And do those amounts stay level or do they change based on the market? Can you access your money freely or are there restrictions on being able to get to your money and to be able to pick and choose which bucket of money you take things from that are most advantageous to you?
And next, gosh, something we’re going to talk about throughout a lot of these topics today is, do you understand the tax obligation of each source of income? If you don’t, you’re going to be really surprised. And if you’re a student of mine, you know that I call tax and inflation the two carbon monoxides of retirement planning. If you don’t pay attention to them, they’re going to come up and bite you and you’re not even going to know it. We’ve got to understand the tax obligations of all of the different types of income that you might receive in retirement. All right.
#6: Investment Planning
Next up, topic six, investment planning. Have you stress-tested your investment strategy?
Now, for those of you who have never really gone down this path, let me explain what stress testing is. It’s the idea that you run your portfolio, your investment strategy, through a process that lets you know in the best of times and the worst of times what it has the potential of looking like and will it produce the income that you need it to at the times that you need it? Now, for you to do this on your own is a little bit difficult. Of course, financial professionals have lots of tools to be able to show you that. We’ll talk more about that process a little bit later. But stress testing is super important because you don’t want to guess and you don’t want to wing it that the investment strategy that you have is going to work.
And even if it works at the beginning, the next question is, do you know the timing of those specific changes that need to be made to your strategy? Remember this isn’t Ron Popeil’s rotisserie chicken commercial, right? We don’t set it and forget it. We’ve got to understand that retirement planning is a fluid ongoing process even in retirement. There are changes that are going to need to be made to your strategy and we want to make sure that you know when that is and what those changes are. Next up, do you have a diversified strategy and a balanced portfolio based on your risk tolerance? Okay? Risk tolerance I best describe is just that gut reaction.
When you open up your TSP statement and it drops by X number of percent, what is that percent that makes you want to throw up? Okay? That’s risk tolerance. Now, financial professionals of course use fancier words than that, but it is important to know that we’ve got to have the diversified strategy to where we have different asset classes, different types of money that can perform differently, and that your portfolio matches the tolerance, that gut reaction that you feel when the market goes up, but more importantly when it goes down. Certainly, we want to make sure that you are 100% certain which assets you’re supposed to use in different market conditions and how to coordinate those withdrawals.
So, imagine you have 10 different buckets of money that all behave differently and are taxed differently. Do you know which assets to take and when?
#7: Tax Planning
Topic number seven, tax planning. Nobody ever wants to talk about this one but it’s such a critical piece to retirement. So, the first question is, have you analyzed your tax situation in retirement? Here, we’re of course, talking about your anticipated tax situation. Do you consider yourself well-versed on how to leverage all the different tax strategies that are out there and those advantages that are there and how to use those strategies so that you don’t pay more tax than necessary?
That’s the ideal, that we’re going to pay everything we owe but not a penny more, right? Don’t pay more than absolutely necessary. And if you can master that, then you’re going to be well on your way to keeping as much of your income in retirement as you can. Now, next question, are you familiar with the tax obligations from different accounts based on when you take the money? Sometimes, the earlier you take money, the higher the taxes. There may be penalties involved. Some accounts are going to be fully taxable, some are tax free, some are taxed along the way, lots of different buckets of different types of money that can exist out there and we want to make sure that you are acutely familiar with the tax obligations before they become due.
And then, I suppose the overall question on the tax planning is, how confident are you in your strategy to manage all of this? One, do you have the knowledge base to do this? That’s part of it, and of course, tax regulations and all that. Good Lord, that is an awful lot to be thinking about for the average person. But someone in retirement might not want to spend a lot of time thinking about this kind of thing. Depends on what you plan to do in retirement. But some people say, “Hey, I could manage this strategy, but good Lord, I don’t want to. This is not where I want to spend my time.”
Next up, topic eight is inflation. Are you prepared for significant periods of high inflation in retirement?
I know a lot of people who are not prepared for the high inflation we are experiencing right now. And we know this because they’re contacting us asking if there’s any relief for federal retirees because they’re simply not able to afford what retirement looks like for them. Is there room in your monthly budget to absorb these higher costs when they happen? For most people, they don’t. They don’t have that wiggle room in their budget to just absorb it, which means that you’re going to have to take money from other places. So, the big question with inflation is, if you need to take money from other investments or savings accounts, will that jeopardize the long-term income that you need from those accounts for the rest of your life?
The fact that you need a lot more now because of high inflation, does that end up spiraling that account for later when you really need it?
#9: Social Security
Topic number nine is Social Security. Have you determined the right timing of when to start your Social Security benefits? And not just for you, but for you and your spouse if you’re married. Did you consider all of those factors that determine the “ideal” age to start benefits? There’s a lot of them. There’s a lot that goes into deciding when to start benefits. Will there be any penalties for your Social Security based on how old you are? And here’s the ugly one again, what are the tax obligations that you can expect on your Social Security benefits?
And last is an easy one for everybody to do, I hope that you’ll do it, and that is go to ssa.gov and make sure that you have an account established that you can access. This will make certain that you have access to your most recent earnings history as well as your estimated benefits.
#10: Spousal Participation
Topic number 10 is spousal participation. Have you discussed all of your financial goals and your plans with your spouse? And are you guys in sync? Are you aligned with the retirement timeline that you’re on, the financial expectations that you have, and the overall goals that you have with your money? Did both of you get a chance to air any of the worries that you have so that you can address them together? That’s a big part of planning to retire. And overall, do you consider yourself on the same page with your spouse? Very important question.
#11: Life Insurance
All right. We’re on the downhill slide here. We are topic 11 which is life insurance. Have you recently completed a formal life insurance needs assessment? This is not you pretending to throw a number out there and thinking that it’s the right number, but actually going through a worksheet that shows you, based on what your goal is, how much life insurance you should have. If you’ve done that, are you certain that you have the proper amount and the kind of life insurance in place? Just because you know what it should be doesn’t mean you actually did it. Next step, do you believe that you have adequately protected those who depend on you, and specifically financially depend on you?
And here’s a question. Unfortunately, we deal with a lot of widows and surviving children, does your family know who to call when you die so that they get immediate access to these benefits? Are they going to have to trudge through OPM’s website, or TSP, or your private life insurance company? Are they going to have to try to figure out what benefits they have access to or do we just tell them?
#12: Health Insurance
Topic number 12 is health insurance. Do you and any of your eligible family members meet the requirements to keep your health insurance in retirement? Now, for most of you, that is your FEHB plan. Some of you might be on the military’s TRICARE program. Whatever it might be, do you know with certainty that you and your family can keep that coverage in retirement?
Have you accounted for the rising cost of that insurance and the tax obligations that you can expect when you retire? Gosh, there’s that ugly tax obligation again. And have you weighed the pros and cons of enrolling in Medicare? Okay, now, for many of you, when you retire, Medicare is still a little off into the distance, but we want to make sure that you have a strategy that you’re thinking of and can fine tune that as you get closer to that age 65 mark.
#13: Long Term Care
Lucky 13, we have long-term care. Do you have a strategy to pay for long-term care when you need it? You’ll notice I didn’t say if you need it, I said when you need it. Because statistically, you have a 70% likelihood of needing some version of long-term care in your lifetime.
We can’t pretend you’re not part of the statistic. This is part of just being honest with ourselves about how all of this works. And then the big question is, has your strategy taken into account the rising cost, which of course is not covered by your health insurance, so that you don’t leave your family members in a financial bind? It’s really tough, especially when you’re needing this type of care to also know that you’re bleeding your family dry. Or the assets that you are hoping would be behind for your spouse to live on or for your children to receive is gobbled up chunk by chunk by the long-term care services that you’re receiving. And that doesn’t feel very good.
#14: Family Benefits
Topic number 14 are family benefits. Do you know with certainty which benefits will be available to your family, to your spouse or your children, when you die? How much will each of those benefits provide and how will taxes be calculated on each one of these payments? What we’re trying to do in all of these topics if you’ve picked up on it is avoid surprises. If we can just know ahead of time and have a plan in place, then when it happens, we’re not surprised.
#15: Legacy Planning
Okay, topic number 15 is legacy planning. How do you plan to pass on your wealth when you die? I know that’s kind of a morbid thought and one you’re probably not really excited to talk about. But will your money go to the people that you want it to go to, to your spouse, to your children, maybe you have other relatives or loved ones or causes that you care about?
I just did a retirement workshop in the Raleigh-Durham area and one couple said, “Hey, listen, we don’t have any children, but we’d like our money to go to St. Jude when we pass.” I mean, gosh, how neat is that, right? But that has to be intentional. Your money doesn’t just go there by accident, you have to tell it to go there. So, have we done the steps to make that happen? Next, what are the tax implications based on how the assets will be transferred to those people or to those entities? And have you taken steps to mitigate any unnecessary tax burdens specifically for your family?
#16: Court Orders
Next up is topic 16, court orders. Have you carefully reviewed any of those court orders, that might be a divorce decree or another judgment against you that entitles someone else to some or all of your benefits?
And if you have a court order, how will that order change the benefits that your spouse or your children may receive from you? And have you taken account of the loss of that income, of the benefit itself, when you’re thinking about the calculations that each of the benefits would provide to you, what you would expect to receive or what you would expect to provide to your family? That might be life insurance, that might be survivor benefits, that might be a big chunk of your Thrift Savings Plan, whatever that might be. Got to look at those court orders. I know that’s not a fun thing to do, I’m part of the club too so I understand. Look at those court orders and make sure that you know you’re good to go.
#17: Estate Planning
Topic 17 is estate planning. Have you consulted with an estate planning attorney to determine if you need a trust? If you did, if you did meet with them and they say, “Yes, a trust is a good idea for your circumstances,” did you create it and did you properly fund it? The attorney would provide very specific instructions on how to fund the trust. Did you follow through with those actions? Next, something I harp on all the time, please make sure that you have updated beneficiaries, not only your federal beneficiaries, but all the other ones that you might have with other products and ensure that proper powers of attorney are in place. Here we’re talking about financial powers of attorney, health powers of attorney, those types of things.
And then, the next question that you don’t want to leave unanswered is, where are those copies saved? Where does your family go if something happens and they need to know what your wishes are? That might be a safety deposit box, a fire box, you may have them on a thumb drive, I mean, you may distribute paper copies, whatever that might look like. But we have to know what the plan is.
#18: Consulted Professional Help
Topic 18, have you consulted financial help? Have you sought out advice from licensed professionals, that might be a financial professional, a tax professional, like I mentioned an estate planning attorney, to handle your more complex subjects and strategies?
And the next part is, did you actually follow their advice? If you went to them because you needed to seek their professional counsel, did you do what they suggested? And do you continue to work closely with them to keep your financial decisions aligned with your goals? Ideally, all of them are working together for your benefit, okay?
#19: Retirement Paperwork
Next up, we’re almost there guys, topic 19 is retirement paperwork. Have you contacted your HR department to see what kind of warning time they need when you plan to retire? Like how early they want you to submit your paperwork? Are you familiar with each of the irrevocable decisions that you’re going to make when you submit your final paperwork and it goes off to OPM?
Have you made any deposits for any kind of special service that you have like military time, or temporary, or refunded service before you retire? Very, very important. If you want to make those deposits to get credit for that service, you have to do it before you retire. And last, kind of an administrative thing but one that a lot of employees smack themselves on the forehead for after they leave service and that is, “I forgot to keep a copy of all of my stuff.” Right? So, do you have a copy of your Electronic Official Personnel File and any of the documents that you want to keep that you’re not going to have access to anymore when you retire?
#20: Nagging questions
The last question I hope is an easy one, but for many people, it stirs up an awful lot of feelings, and that is those nagging questions. Have you addressed any of those nagging or burning questions that you’ve had on your mind? When you think about retirement, is there something in your gut that you’re still worried about? Okay? Did you answer all of those questions and explore all of the possible answers to make certain that there are no unavoidable surprises in retirement? Guys, this is really what all of this is about today. How do we make sure that there are no unavoidable surprises? Because I want you to get the retirement that you want. And the way to do that is to make sure that you’ve addressed all of these topics.
By now, you know that we do retirement training for federal employees all over the country. If you know just based on the questions that I asked today that you have a lot of work to do to get ready and you want to attend one of our retirement workshops, I would highly encourage you to do that. We, of course, do in person training sessions, there is no cost to attend these workshops and we cover all of the federal benefits topics and those decisions to be made about these benefits. As a bonus, you get an opportunity for some one-on-one help following the workshop if you ask for it. You can see all of the dates that we have for training that are available by visiting FedImpact.com/attend. We’ll give you an easy way to get all of that information, if you happen to be listening and you don’t have the ability to go to that site right now, we’ll give all of that to you here in just a bit.
Are you ready to get your retirement score card? I hope you are because I had such an interesting time building this tool. It allowed me to really think outside just the federal benefits that I typically focus on to really get into all of the financial implications of the decisions that you’re making. How does everything of your federal benefits fit into the bigger financial picture of what you’re doing? This quiz is designed to give you a framework of action items. Remember, it’s not here to judge you. It’s not here to make you feel bad. It’s to identify where you are and the types of things that we hope that you’ll take action on to increase your score to get ready to retire. Before I show you the quiz itself and show you how to get it, a couple of things that I want you to think about, some pointers here.
If you’re going to take this quiz, here are three things I would really encourage you to do. First is take your time to answer each question. There’s no reason to rush through this. You don’t get extra points for answering fast. Take your time. The second is you want to read all of the statements carefully. They’re going to follow along with the 20 topics that we just talked about, so this should be pretty familiar to you when you get in, but read them carefully. The third is to answer the questions honestly. Remember all progress starts by telling the truth and this score is for you. If you’re not honest with yourself, your score’s going to reflect a higher readiness than you actually have, and that doesn’t do you any good. When you’re done with the quiz, we’re going to email you the results and as a little bit of a bonus, we’re going to email you a PDF that includes all of the questions that we asked in the quiz, that way you can use that as the action items to get started.
If you’re ready to take this 20 question quiz, please go to FedImpact.com/quiz. You will be walked right through all of these questions. Remember, read them carefully, take your time, and answer honestly. This is going to put you in a really great position to know not only where you stand, but the very action items that you need to improve your score and your ultimate readiness to retire.
We want to give all of our podcast listeners an easy way to be able to connect with us and make sure that you have not only access to this podcast, but all of the podcasts, as well as the link to the quiz. Do me a favor, pull out your phone, and text the word “PODCAST” to 224-444-6144, and we will make sure that you get access to all of our podcasts, as well as the show notes. For instance, the show notes in this particular episode will link directly to the quiz and some of the other items that we’ve talked about today. Again, text the word “PODCAST” to the number 224-444-6144, and we will send that right away.
Happy quizzing everybody. This, remember, is for you, and I hope that you enjoy taking this quiz and the action items that come out the other end. That’s it for today. I hope our talk about retirement readiness and these 20 critical financial topics has been helpful to you as you think through the various aspects of planning to retire. Stay tuned to the FedImpact podcast to get straight answers and candid insights on your federal retirement. Of course, if you haven’t already, subscribe today, so you’re sure not to miss an episode.