PODCAST EPISODE 139: Why Your Agency’s Retirement Estimate Isn’t Enough

If you’re getting close to the point of retiring, you have likely requested a retirement estimate from your agency. If you assume that this document is accurate, complete, and enough to make a decision to retire from federal service, please listen closely to today’s episode.

Hi, Chris Kowalik of ProFeds here and welcome to the FedImpact Podcast where we offer candid insights on your federal retirement. So 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. Most of you know by now that we conduct retirement training for federal employees all over the country. We get to meet feds from all walks of life, from all levels of preparedness. Some are super meticulous about their numbers and others being a little bit more trusting that everything will work out or that the agency will figure everything out.

Here at ProFeds, we are of the belief that we want to eliminate as many surprises in retirement as possible. And to do so, you have to be more involved in making sure that you have a firm grasp on your entire financial situation. Because remember, federal service is one of the areas of your life.

When we think about the various styles of these reports that federal employees have, it all depends on the agency that they’re with. And each one of these reports has some shortcomings. That is what we’re going to talk about in today’s episode, so you’re super aware when you see it happening. We’re going to talk about three areas where I think feds need to pay special attention when they’re requesting and reviewing these retirement estimates from their agency.

The first is, is it accurate? Are the numbers right? Are they based off the right information? Second, is it complete? Are all the numbers and the options there? Even if it’s just for your federal benefits, which of course is what this agency’s report is going to show. Do you at least see the choices that you have? And last, is it enough? Is the information presented enough to make a full decision about retiring?

Of course, as we go through today’s material, any resources that I mentioned will be in the show notes. And for anyone looking for some training or some one-on-one help on their individual situation, we’ll tell you how to get that at the end. We always want to give a path for taking action because that’s what this show is all about.

All right, so let’s give a little bit of background. Many agencies will either personally provide a retirement estimate or most likely give you access to a system where you can go generate one on your own. Overall, I think this is great. Any time that you could have access to data, I think you have a better chance to make better decisions. We don’t want to stick our head in the sand and just pretend everything’s going to be okay.

So when we’re seeking this type of report, I think that’s great and even better that the agencies allowing so many feds to be able to pull this data on their own and be able to look at it. But it’s super important to ensure that the data that you’re getting is three things: Accurate, complete, and enough before you use it to make decisions. Especially decisions as big as retirement. Good grief. This isn’t like, “Do you go to the grocery store today?” Right? This is a big decision, so we have to make sure we get this right.

So the agency reports, there are various systems that agencies contract with, and so each of you are going to kind of have your own names for these reports. So we have GRB, we have FedHR Navigator, Econ Systems, the Postal Service has their own, right? There’s all these different portals that agencies may allow you in. And frankly, some are better than others. But we do see some common themes in all of these reports where the systems are lacking. And so we’re going to cover those today and hit on two key points that many of you aren’t thinking about.

Something very, very important I need you to remember is that the government is not responsible for you to have a great retirement. It is your responsibility to do the work now to make that happen. It is not the government’s responsibility to give you a great retirement. You have to be involved in this process. And that’s essentially what today’s episode is about.

The government (through your agency) is going to give you a report. It’s your job to know when to throw the red flag to say, “This doesn’t make sense. This doesn’t apply to me. Why haven’t you looked at this? What about this thing? What are my choices here?” We’ve got to be able to have some perspective of what we’re looking at.

IS IT ACCURATE?

So we’re going to start with, is the report accurate? It would stand to reason that you would expect the report that you receive from your employing agency to be accurate, to contain the right numbers for you and your situation.

After all, they know your info, right? Gosh, not so fast. There are several areas of these reports that the agencies botch quite often. Let’s start with your service comp date and any special service that you might have. So the service comp date for leave, you have actually on your pay stub, and that becomes something that you probably looked at several times, but maybe don’t give a lot of thought to.

I’m not concerned about your leave service comp date. I am concerned about your retirement service comp date. That is the amount of time that is going to be included in your pension calculation. And where things get a little goofed up sometimes is when you have special service. Did you have some service perhaps when you were first hired with the federal government where you are not contributing to the retirement system and you owe a deposit for that service?

Maybe you worked for the government and then had a bright idea that you were going to leave and thought you’d never come back and you took a refund of the contributions that you made into CSRS or FERS and now lo and behold, you’re back in service and you’re wondering, How do I regain credit for the amount that I refunded?

And then of course, we have military service. About a third of the federal workforce are veterans. And so it stands to reason that we would wonder, how does your military service play into all of this? And we want to make sure that the agency’s report is reflecting this as true, right? Meaning if you didn’t buy back your military service, it shouldn’t be included in your estimate because that’s giving you an overinflated pension number and perhaps changing the eligibility that you have to retire, making an assumption that you’re going to do something that you haven’t done (like making a military deposit).

This is something that we see way too often and it can really throw people off. Again, like I mentioned, it can change the pension number (well, of course it will change the pension number if service has been included that you actually aren’t going to get credit for), but the big surprise is that oftentimes it makes you ineligible to retire, if you haven’t made a deposit for that service. You won’t have the right number of years to retire if you don’t make the deposit and now you think you’re eligible to go. You might drop your retirement papers based on that information only to find out after you’ve already retired that you actually didn’t get credit for that time. So this is a big one, and it’s why I put it right at the top of this list because it screws people up so badly and it gives them a false sense of readiness when it comes to retiring.

All right. Next up is your High-3. So most of the agencies reports assume that you will receive no pay change between now and the time you finally retire. So let’s say you’re trying to be proactive and you’re going to retire three years from now. You run an estimate. You say, “Hey, am I on track? Is there anything I need to be doing? Are there any red flags?”

You might pull that estimate, and it’s going to assume that you stay at the pay level that you’re at right now, and not just your GS and step levels, but the actual pay amount that you are receiving today. It’s not going to assume any pay raises between now and the time that you ultimately retire. So it’s going to underestimate your pension, which is not always a bad thing.

We would rather underestimate than overestimate, but it is something to think about when you’re really trying to dial in your numbers. Next up is the Special Retirement Supplement. So this is the benefit that’s payable between the time you retire from federal service up until 62 when Social Security begins. This is available for most FERS employees. The problem is that the SRS numbers in the reports that you’re getting from your agency, they’re supposed to be based on the Social Security benefit that you’re estimated to receive at 62, but your agency doesn’t know what that number is.

But instead of asking for that number (so that we can get an actual representation of what SRS is supposed to be) these agency software programs try to estimate what the estimate is. They say, “Well, if you make this much today, what do we think your history, your earnings history has been through Social Security for all of these years of your life?” And they’re going to try to back into that number and estimate what they think the estimate is that you’re going to get at 62 from Social Security.

This can throw your figures off pretty drastically, especially if you’ve had a big change in your pay. Maybe you took a big promotion, you took a big downgrade. Perhaps your health has not afforded you the opportunity to do a job you once did, and so you have to reduce the pay level that you have. Now, your SRS is going to be all off. And the SRS is one of the factors that we want to be looking at when we’re thinking about what your overall income is going to be in retirement.

Now, TSP. Of course, TSP is always a big one that we need to talk about. In this section of any of the reports, the agency simply assume that you keep putting money into TSP and that money keeps growing, which is fine. We have to make some assumptions here for the future. But some agencies, these reports are so hell bent on giving you a monthly figure from TSP to show you what your monthly income is going to be that they assume that you’re going to take one of the withdrawal options available from the TSP, and it happens to be the most inflexible of all of the choices. They don’t explain the other options or the advantages and disadvantages of each one of them when you’re thinking about how to take income from an account like the TSP once you finally retired.

Last step that I’ll mention here is FEGLI. So FEGLI, of course, is your life insurance. And part of these reports, gosh, it really makes my head explode, because what they assume is that you are going to take the reduced or free part of FEGLI without considering what it is that you actually need or want. This makes me crazy because when we have somebody who is about ready to step into retirement, they’re typically of a certain age. Right? You’re not a spring chicken anymore if you’re stepping into retirement, and life insurance at that point is really hard to come by, just because of health and age and the costs associated with each one of those. And so really, really important that you understand that sometimes the best option for someone is going to be to keep the government program in all or part.

It’s rarely to get rid of it all together. Okay? So it’s possible that what the agency is showing you in the “free” part of FEGLI it’s not free for everybody, and it’s not free perhaps for the duration of your retirement (it depends how old you are when you retire), but to believe that the only part that you want to keep is the part that’s free without considering the fact that you might actually need the entire amount of life insurance based on your health and your financial situation.

They’re not even showing you what it would look like if you tried to keep all of it so that you have some perspective of what you’re looking at. I think when we show examples for employees to be able to say, “If you do this, this is what it looks like. If you do this, this is what it looks like.” And keep in mind the decisions are based on all the individual parts of FEGLI.

So you’re going to have a decision for the basic A, B, and C. And each one of those typically have multiple choices that you can take. So you need to be able to see all of it to get some perspective on what’s available to you.

So when I think about the accuracy of these reports, to say that these reports are accurate on their face would not be fair. The reality is it doesn’t deepen the understanding that you need to have on the big decisions that you’re going to be making. So I don’t think these reports do it justice to give the accurate data to help you make big decisions. But that leads right into the next question that we have to ask is, is it complete?

IS IT COMPLETE?

Most of the agency’s reports don’t show the various options available when you retire, and they don’t give you that peek into what’s ahead in retirement either. So I hinted at this with the FEGLI program just now, but there are several areas where these agencies just don’t give the complete picture here. Even just with respect to your government benefits.

So let’s start with the retirement date. When you request an estimate, you are going to give a retirement date. But what happens if you just wait another couple of months or a couple of years? Could you have boosted your pension by working until age 62 or hitting your 20-year mark? Both of those are important. Right? Anytime we’re wondering, “Well, what if I do this versus that?” But these agency reports are way more one dimensional without a lot of customization.

Now, survivor benefits. Gosh, this is a way to protect a portion of your pension for your surviving spouse in the event that you die first. Well, what are your different choices? How can you protect your spouse? And then the bigger question is, how much does your spouse actually want? Of course, that’s not going to be on the report. You need to have that conversation with your spouse.

But being able to see what the different options are, allow you to better assess what you’re going to do. But again, the reports don’t reflect that. They’ll typically give the full survivor benefit, which protects half of the pension, and it looks like you’re stuck with that when in fact that might not be true.

All right, next step is FEGLI. Again, I alluded to this in the previous section, but what are all the various ways that you can customize your FEGLI coverage, both from a coverage standpoint (like how much death benefit is available when you die), and the cost? And aside from that, if you try to keep all of this FEGLI coverage in place, when can you expect those FEGLI premiums to jump and by how much? If you try to keep it all, what’s it look like?

I think that’s an important conversation to be able to have. And without the data to show you not just what it’s going to look like when you step into retirement (like that snapshot in time), but being able to look into the future to say, “What’s this thing going to do and when is important information?”

Next up, let’s talk about TSP. Always a popular topic, of course, when we’re thinking about retirement. What are we projecting to be in each one of the funds? Do we have a tax diversification strategy, traditional and Roth? How can I get my money out? Oftentimes, these reports only show that inflexible option that I mentioned before, which is the TSP annuity. Now, not all annuities work like the TSP does. Unfortunately, this is a pretty drastic version of an annuity that you see in the TSP program.

But in an effort to just give you a monthly figure that you’re going to take out a TSP is not addressing some of the bigger issues like, “Hey, from a tax standpoint, am I going to lose it in the shorts when I go to take this money out? How does taking money out of TSP affect my Medicare premiums?” Oh, good Lord. All of those things are really important to know.

So thinking about things like tax strategies, investment strategies in retirement, how do you withdraw money efficiently from the TSP so you don’t run out? And what do you do with other assets that you have? How do you decide where to take money out and when? We still have to think about the safety of our money in retirement, but how do we also make it continue to grow. If you die, what are you leaving behind? That’s our legacy planning. Then we think about the protection of the spouse if you die first or vice versa. Do you have special needs children? Right?

It is in some ways unfair to believe that the report that you’re going to get from your agency is complete because your life is comprised of more than just being a federal employee. But even on its face of the actual federal benefits that you have, I think these reports are woefully misinforming federal employees of all of the choices that they have when they go to retire.

It stands to reason that when you go to fill out your retirement application, you are surprised at some of the questions, the decisions that you’re making on that actual application and what it ultimately is going to do for you in retirement. So this is super, super important to get right.

IS IT ENOUGH?

the last question that I’ll ask about these reports is, is it enough? Is it enough information to make clear decisions? So just a few minutes ago, I shared with you the importance of realizing it’s not the government’s responsibility or even their goal to plan a great retirement for you. That’s on you. Again, it’s so important. I’m going to say it again. It is not the government’s responsibility to plan a great retirement for you. You have to be involved in this decision, and there are so many moving parts to your benefits even if they can be consolidated into a few pages of a report, there’s depth there that needs to be explored, and you have to carefully consider all of these things before making a decision about them.

And good Lord, you certainly don’t want to make a decision or do something like retire from federal service based solely on these numbers that you see in these agencies reports. As right or wrong as you think they are, you don’t want to look at this decision through two straws where you’re not paying attention to anything else around you. You’re just looking at the data in these reports. That’s really a pretty scary place to be when you’re making decisions just based off a report that your agency provided to you.

The reason is there’s way more to your life and your retirement than just these numbers. I hope that you believe that to your core, because oftentimes we see when federal employees make a decision based on what their agency told them, they realized that there was a whole lot more to that conversation that should have been happening before they decided to retire.

Another reason that it’s just not enough is that the numbers that you see on paper, again, even if they’re accurate for what they’re describing, don’t tell the whole story. They don’t paint the whole picture of what is available to you where the opportunities are, and where you can get derailed either now or later in retirement. Don’t you think those things are important to know before you make that big decision? I do, and I hope that you do. Okay?

No doubt, these reports are often a really great starting point for discussions. But where’s the discussion about this report? Are you having a discussion with your HR department or maybe your HR specialist? What exactly do you talk about? They’re not allowed to give advice (although some of them try) and they don’t know anything else about you or your financial life. So what does that conversation actually do to help you? Even if this conversation takes place, it lacks some serious context. Again, because they don’t know anything about you other than what you’ve decided to share with them.

But maybe the discussion happens with your spouse. And let me say, anytime you’re having your discussion with your spouse about your future and your plans and your vision, that’s a great day. But if the conversation revolves around a report that has inaccurate data that is woefully incomplete and lacks context, how productive of a conversation can you expect to have? The conversation has to be based on accurate and complete data to know whether it’s enough to make a decision. But since it’s your responsibility to get this right, what do you do? These are big decisions.

I want to offer a little bit of context and our approach to this tricky situation that we find feds in pretty often. So in our workshops, we discuss the importance of understanding the various options available to feds as they approach that retirement window. But as you can probably appreciate, the classroom setting itself doesn’t really lend itself to a one-on-one interpretation of someone’s situation.

We certainly can’t give advice in that setting. That would be inappropriate to do so. But we do offer an opportunity to sit down and customize a report for each and every federal employee who attends our in-person workshop. Because we want to open up that dialogue and have the right conversation about the situation that they’re in. And before anybody asks, I know this will always be a question, there’s no cost to this one-on-one meeting. It is actually a two-meeting process to develop the benefits report.

So what’s the difference between this process and what you can get from your agency? First, you’re part of creating these numbers, and your input matters greatly. If we identify something that needs your attention, we show you how to get it resolved before you decide to retire. That’s the key. You have to make these adjustments or throw the red flags before you decide to go so that you can advocate for yourself.

So if we see deposit service that maybe your agency is included in their report, but you haven’t made a deposit for it, well, we need to explore that. How do you do that? What form are you supposed to use? How does it actually change your pension? We can run all of those numbers for you so you see it. If there’s an error in your service comp date, if maybe some service wasn’t reported accurately, you need to get to the bottom of that. Gosh, now is the time to do it.

And occasionally we find federal employees who are put in the wrong retirement system. Unfortunately, it happens. It happened to tens of thousands of people when the new system CSRS switched into FERS. And we have to get those things corrected. So when we see it, we’re able to throw the red flag before the retirement application actually gets to OPM, and then is discovered by that point after you’ve left service.

Again, we want to make sure that we’re looking at any of those issues that we identify that really need your attention and help you to advocate for yourself.

Next, we put these numbers in context by seeing how the various decisions fit into the rest of the picture for you. And that’s really hard to do in a report that your agency creates for you that has nothing to do with you. It’s just the data.

A lot of this is about having a conversation. Well, what’s the ultimate goal? Are you trying to maximize your retirement pension? Are you trying to get the heck out of your agency right now because of some things going on? Everyone has a different goal. It’s not always just about the money, but we have to look at that whole picture to get a sense of where your federal retirement decisions are going to fit in. Lastly, if you identify areas that you need help, you have a licensed financial professional from our network available to help you pull it all together.

They’re having this conversation with you to get super clear on articulating your goals. Figure out if you stay on the current path that you’re on, how close are you to meeting those goals, and then start to make adjustments from there. Don’t be afraid to make adjustments. So again, accuracy, completeness, and I’ll say enoughness. I know that’s not a word, but I’m going to say it anyway. We have to make sure these numbers are accurate, complete, and enough to make these big decisions.

Now, like I mentioned before, I appreciate that agencies are trying to give more ready access to federal employees to be able to pull these numbers. But don’t just take it for gospel. Look at these numbers and ask an important question. “Are you sure?”

Right. And that’s not to question your HR department. That’s not to question your service record. It’s “are we sure that this is right?” And if we look at it that way and we identify something that is off or something just doesn’t look right and double checking those things, we can really put ourselves ahead of the game and make sure that we’re advocating for ourselves.

Very, very important. It is not the government’s responsibility to give you a great retirement. You need to be your very best advocate. And if we can help you to do that by knowing when things don’t look right, what to do about it and who to contact, you are going to be way ahead of your peers.

If you have not already been to one of our workshops or you just need a little bit of a refresher, please, please, please don’t wait. The earlier you do this in your career, the better off you are. Of course, since you’re listening to this in an audio format, chances are it is through a podcast service like Spotify or iTunes, and you’re not on our website right now.

The easiest way to get all this information sent directly to you is to pull out your phone and text the word PODCAST to 224-444-6144 and we will send that right away. Again, text the word PODCAST to 224-444-6144 and we will get that to you immediately.

And remember, as a bonus, and what ties right into this episode is that following the workshop where you get a good primer on how all of these benefits work, the different choices that you’re going to have. You get that chance to have one-on-one help where, “Hey, go pull your agency’s report.” Bring it with you. Let’s dissect it. Let’s really figure out where things don’t add up, so you can be your very best advocate for yourself, and know that the decisions that you are making are from a place of being accurate, complete, and enough. Okay?

So as our wrap up, those three things are super, super important. We’ve got to make sure that the data is accurate to begin with, that it’s telling the bigger story, that it’s complete. We have all of our choices laid out for us, and that it’s enough. You will never, ever find a retirement estimate from your agency that is enough by itself to make the decision to retire, because it will never include the rest of your financial life. So you’ve got to be able to find where do I bring those pieces in to make all of this make sense? And when things don’t look right, you have to know how to advocate for yourself and get this right.

As a final reminder, I know I’ve said it a couple of times today, you are responsible for your own retirement, so take the time and the effort to get this right.

Well, that’s it for today’s episode. I hope our talk about the retirement agency’s estimates has been helpful to you as you think through not only the various aspects of planning to retire, but knowing how to advocate for yourself and get the very most out of your retirement. Stay tuned to the FedImpact Podcast to get straight answers and candid insights on your federal retirement. And of course, if you haven’t already, subscribe today, so you’re sure not to miss an episode.