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FEFP: Your FERS Retirement: Back to the Basics (EP113)

FEFP: Your FERS Retirement: Back to the Basics (EP113)

Are federal employees sitting on far more wealth than they realize? In this episode, financial planners Tommy Blackburn and John Mason break down the fundamentals of the Federal Employees Retirement System (FERS) and explain why your pension is only one piece of a much larger financial picture. You’ll learn how the FERS pension formula works, what your “high-three” salary actually means, and how factors like minimum retirement age, years of service, and turning 62 can impact your retirement income. The conversation also covers how employee contributions have changed over time, how the Thrift Savings Plan (TSP) match works, and why understanding these core pieces is essential when planning your financial future.

Tommy and John also explore practical strategies federal employees can use to maximize their retirement benefits. They explain how survivor benefits work, how buying back military service can increase your pension, and how retirees often manage inflation and income changes in real life. You’ll also learn why delaying Social Security doesn’t necessarily mean sacrificing your lifestyle, how IRA withdrawals can help replace the FERS supplement, and why many federal employees may be “secret millionaires” thanks to the long-term value of their pension benefits.

Listen to the full episode here:

https://youtu.be/6lJaAo00gic

What you will learn:

  • Goals that we have for the business and ourselves. (3:00)
  • What FERS actually is and how it works. (11:00)
  • Different types of retirement under FERS. (18:20)
  • The importance of using your survivor benefits. (21:30)
  • What delaying Social Security can mean for you. (31:30)
  • What the diet COLA calculation is. (35:45)
  • The importance of working with someone who speaks your language. (42:00)
  • How you may be a secret millionaire. (50:00)

Ideas Worth Sharing:

  • “Every $30,000 to $50,000 federal pension is like having a million dollars extra in your TSP.” – Mason & Associates
  • “Just because we’re delaying Social Security doesn’t mean you’re eating beanie weenies. It just means we’re supplementing with IRA investment distributions. We’re optimizing how you get your cash flow, but your quality of life does not change based on when we take from different buckets.” – Mason & Associates
  • “FERS is a lot more than just a pension.” – Mason & Associates

Resources from this episode:

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Read the Transcript Below:

Congratulations for taking ownership of your financial plan by tuning into the Federal Employee Financial Planning Podcast, hosted by Mason & Associates, financial advisors with over three decades of experience serving you.

John Mason: Welcome to the Federal Employee Financial Planning Podcast and the Mason and Associates YouTube channel. In this episode, it’s FERS, back to the basics. We recorded episodes early in our podcast journey, FERS episodes one, two, and three. We’ll link those in the description below, but we’re gonna get back to the basics today.

We’re gonna discuss things like the formula, the high three, the value of a pension. We want to give you some tangible, actionable items as you explore how you calculate and how you maximize your first pension. Folks, unlike many content creators, we’re financial planners. First, we do this second, and in each episode, we share real-life experiences and strategies from decades of helping federal employees retire successfully, maximize their federal benefits, and navigate complex financial decisions.

Are you ready to move from general education to personalized advice? You can do that at masonllc.net or 757-223-9898. Not ready for an ongoing relationship? That’s okay. Keep hanging out with us right here. Hit that bell notification, subscribe and follow, and most importantly, share this content with folks across the country so we can help people just like you.

Tommy, welcome to the Federal Employee Financial Planning Podcast.

Tommy Blackburn: John, what a great intro. Thanks as always for doing these together. Really enjoy them and I feel like it is a, it just feels like it’s the right time to kind of do these types of episodes again, to get back to the fundamentals, the basics. Part of me is thinking, we just recently onboarded a new associate planner and it’s been a lot of fun going through the–and basics is not to belittle it, and just kind of going back through the fundamentals as we teach and share the nuances of specializing in this space.

Certainly, not basics, but just kind of the fundamentals of that first knowledge are really excited and think it’ll be fun to go back through this.

Commercial: We’re excited to share that Mason & Associates has been recognized with an Inc 5,000 award as one of America’s fastest-growing private companies. This recognition means the world to us, and it’s a direct result of our talented team, loyal clients and listeners like you who continue to support what we do. Thank you for being a part of this milestone with us and we look forward to what’s ahead.

This rating was given in August, 2025 by Inc. in consideration for the 2024 calendar year per Inc.’s methodology. An application fee was due to assist with processing applicants. Mason & Associates does not receive compensation by or for this rating.

John Mason: Well, sometimes it feels like we’re on, you know, like we were participating in some extracurricular activities before we hit the record button and we start just free flowing and talking about fun things. And we’re not like, maybe as, you know, sticking to an outline or a concept, it’s very sometimes abstract.

So we’re excited today to do a more just like, “Here’s the meat and potatoes, here’s how it works.” Maybe a little less stories and bloviating than normal. Today is January 14th, 2026, Tommy, and it’s FERS, back to the basics. I do want to just kind of acknowledge a few things early on. So audience, I know I said we’re not gonna bloviate, but a little bit here at the beginning of updates is it’s a new year. New year, new goals, and some things coming your way from Mason and Associates. One, if you haven’t already been to our website, masonllc.net, we’ve refreshed that last year. Go check it out. We have a new podcast website that’s coming. Federalemployeefinancialplanning.com, that’s live, but we have a refreshed website coming there too. Our director of marketing is helping us with a new ebook on survivor benefits that will be available to download again on our website.

And then we have been really, really good, thanks to our director of marketing. I think three months in a row we’ve had a newsletter go out, so that was November, December, and then January is coming. Please go to our website, register for the newsletter, stay connected with us, especially if you’re not ready to have an ongoing relationship. This is a great way where we can stay connected until you are ready, or even if you never become ready, it’s just good information. Your email is sacred. We know that. We promise you we will not make you regret your decision for providing that to us. We just wanna stay connected with you. We wanna nurture this relationship as long as we can, so please make sure you’re following, subscribing, and then check out the new content as it comes.

Tommy, my personal goals for the year, I don’t really have that many, but I have a few that I jotted down. So I’m probably gonna catch you off guard. So, surprise.

Tommy Blackburn: I was just thinking

John Mason: Surprise. I want to work out the same or more than I did last year. I went back and I saw on Apple Fitness, I think I had 250 something exercises last year, which could have been a breathing, it could have been a workout, it could have been multiple, it could have been a run and a lift in the same day.

But that feels like, yeah, I wanna move most days and I’m off to a bad start, FYI. Bad start for the year. So I wanna move more, or move the same. I want to continue eating well and eating healthy. Hopefully, RV nights and RV travel, more date nights with my spouse, and then, very importantly is just always increasing family time.

We have personal goals at the firm, too. We’ll probably hit a new asset under management goal this year. I wanna make sure that Kyle’s onboarded and has a wonderful experience as long as our new, or as well as our new operations team members. So a lot to be proud of, a lot of goals for the year. So that’s kind of what I’m looking at.

Tommy Blackburn: Those are great and I think, it’s funny, as you were speaking, before you said them, I was jotting down a lot of the same things and I’ve also was thinking no pain, no gain, because I’m feeling the same as the firm is growing and I think it is natural in life to a degree. We lay out good plans and we’re executing on those plans, but it’s kind of like a little bit, or you just feel a stretch as you grow.

And hopefully, it’ll come back to where some of these personal goals, ’cause I’m feeling the same, John, where it’s like working out is happening, probably not as much as it was. As we onboard new team members, roll out new initiatives, certainly a little bit heavier of a workload here, and we lay the foundation to support this growth.

But 100% believe the vision is it’s gonna come there and we’ll have more capacity, more flexibility, and life’s still good, audience. So I’m not asking anybody to shed any tears. For me, life is still good, but it’s certainly no pain, no gain, I think, is very true. Many of the similar goals. One thing that I’ve jotted down, which I haven’t been good about either so far this year, unfortunately, even though I think the discipline has been there, is getting more sleep. Not that I’m sleep, like overly sleep deprived, but you know, they say seven, eight hours. And our functional doctor, you and I both see, which I think has been very helpful in life, she would love to see me get seven and a half hours. And so that’s a goal.

I don’t feel like I’m hitting it yet. I guess I question if I will be able to. I’ve got a business, clients, two young children, family. It’s a lot to get done in a day and get that amount of sleep. And the problem is, John, that I feel like I’m seeing a lot of times, not that I’m not tired, I can go to bed on time, I’m not falling asleep.

I think it’s just too much going on. Too many thoughts being processed. I have no idea, but not even when I allow, allot the amount of time, that’s not being met. Anyway, that’s probably more than the audience wants to know. That’s another goal. I do wanna work out the same or more. I also had jotted down wanna have more fun with the kids.

I think we have a lot of fun, but just wanna have more fun with them. Eat well, be healthy and continue to travel. We are probably dialing down the international ish this year. but we still have a lot of plans to take some trips and my wife and I are getting ready to actually take an international trip, just the two of us.

But as a family, I think we’ll take a little bit of a break from those this year. Doesn’t mean we’re not gonna be traveling and having fun, just maybe not to Europe. And I’m sure there’s a pick back up the following year. Part of it, audience, maybe more than you wanna know, is our son is about two and a half years old and it just feels like, yeah, let him mature a little bit more.

I feel like there’s this age before two where they’re actually very good to travel with. And then like two is, it depends on each kid, but you know, it’s just a typical two. And it’s not anything wrong with them, it’s just communication, development, et cetera. Just have to go through it. Just, yeah, let them mature some.

And then probably three and a half on, we’ll probably back to, okay, we can do this traveling and like Zoe’s at an age where she’s awesome. She’s always been a good traveller, but yeah, she’s very much at an age that traveling is not an issue.

John Mason: So cool, man. I also wrote down, you know, sleep is good. I agree. Patience, if I can demonstrate. My son likes the pigeon books, don’t let the pigeon drive the bus. And these other ones, and there was one where he says, “Demonstrate exemplary patience.” So I will try to demonstrate exemplary patience in 2026. And last thing, audience, if it was easy, everyone would do it.

If it was easy, everyone would do it. Everybody would run a business. Everybody would have a million dollars. Everybody would have a beach body. So if it was easy, everyone would do it. We’re hoping to make your financial plan a little bit easier through decades of experience of helping people just like you.

And there’s a lot of noise out there. There’s a lot of content out there, and you can get lost in the amount of content that’s produced and do all this own research and still maybe not come up with the right answer. Or you can hire a team of professionals who help you sift through all the stuff and distill it down to what actually matters in your own personalized financial plan.

So Tommy, FERS, F-E-R-S, started in 1984, give or take.

Tommy Blackburn: What’s a FERS?

John Mason: What’s a FERS? Yeah. FERS started in 1984 to ‘86 timeframe. There was a weird period there where CSRS ended and they didn’t know what FERS was yet, but started basically in like 1984 to 1986, stands for the Federal Employee Retirement System.

I think the biggest thing, or one thing we have to cover right at the beginning, is FERS is a lot more than just a pension. So when you think about what is FERS, the Federal Employee Retirement System is a disability policy. It includes like your federal employee’s group life, your basic life insurance, your option B, it includes your health benefit access, it includes a match to your TSP, it certainly includes a pension, it includes annual leave. And oh, by the way, it also includes sick leave. And I’m probably missing things, dental vision. It is a comprehensive benefit package that is available to you, the federal employee. Most people think about FERS and they just wanna talk about the pension.

Tommy Blackburn: Yeah, I think it’s very good to elaborate on that. It is a lot more than just a pension. Although it’s funny when we talk to folks who don’t work with this demographic, it’s almost like they don’t realize that federal employees have a pension. So there’s also the other side of it where it’s like, “Oh, I didn’t know they got a pension.”

So, a lot of moving parts, a lot of important pieces to this comprehensive system. The pension is a huge, valuable piece of it. But there’s many other aspects of it and why having a focused body of knowledge and advice is very valuable.

John Mason: So let’s just cover, Tommy, briefly, some of the FERS, I guess, the things that people have when they have access to FERS. So, TSP match, I think that’s a good one that we can start off with. So why don’t you walk the audience through TSP match and how significant that is.

Tommy Blackburn: TSP match is, it’s very significant, and I’ll sideways a little leading into this, but FERS, normal FERS, you contribute 0.8% into it. In return, you get many things, as John laid out in the beginning, the various moving pieces of FERS, but just focusing on TSP, we get 1% out of the gate from the federal government. So we contribute 0.8% and we get 1%. We don’t have to do anything in the TSP as well as a pension benefit, as well as the life benefits, disability benefits, health benefits, so many other things already out of the gate, we get 1% flat to our TSP.

We also get a 100% match on the next three, on the first 3% we put in there. So now we’re up to four and then we get 50% on the next 2%. So if we do all of that, I believe we are at 5%. And so if we do, if we take advantage of our matches, we are at 5% that the federal government puts into the TSP.

John Mason: And Tommy, you hit on the FERS contribution of 0.8%                         . Let’s call out that we’re not talking about LEO or law enforcement or FERS special. In this episode, we’re talking about normal FERS, so not 1811 positions. 0.8% was the original contribution. I just Googled it, in 2013, I think they came out with what’s called the FERS RAE, which was revised annuity employee, and then they came out with the FERS FRAE, which was the further revised annuity employee. And what happened there is–

Tommy Blackburn: In my mind, that’s why I was trying to say normal FERS, because we do have these exceptions in different time periods.

John Mason: So the contribution rate, folks, has gone from 0.8% to 3.1% to 4.4%. Now the new contribution rates were only for the new people hired after those dates. They didn’t go back to 1984 and like boost everybody. Mathematically, should they have? Well, that’s, should they have, that’s probably not good English. Should federal employees have to contribute more? I don’t know the answer to that. Mathematically, the system could probably stand to have additional contributions going into the system, but I think we’re also happy that our clients who are actively FERS didn’t have to contribute more to the system.

So I don’t know the answer to that question, not smart enough to have all the data on what should have happened, but long story short, your 0.8% was not impacted, but even if you’re at 4.4%, you’re still getting a 5% match into your TSP, so you’re really out anything.

Tommy Blackburn: Yes. Yeah. When you think about, and who’s to say it’s not apple to apples, right? To compare federal service to a private sector or a military, each are different systems with their pros and cons to it. I think many people would look and say, “Well, private sector. Do they even get, do they get any employer contribution into their 401k? And if they do, they’re not getting a pension, are these other benefits?”

So that’s, I think, where that discussion comes in. But we’re muddying the waters. I was thinking too, to your point though, John, there was a discussion here recently as laws, tax laws are getting ready to pass of potentially retroactive, well, not retroactively, but requiring the normal FERS to basically get in line with FERS of further revised FRAE.

I don’t know if there’s a smoother way to say that. Remember that was part of the discussion was, “Hey, maybe we’ll end the supplement and maybe we’ll require all federal employees, regardless of when they were hired to step up to this higher contribution rate.” That didn’t pass, none of that came to fruition.

So all of what we said is true, but it’s certainly a topic of discussion and because we favor our clients, we certainly hope that never comes to fruition.

John Mason: Agreed. And this is not, this is off topic, but Virginia Retirement System, starting back in like 2010, they’ve changed their system a couple times, too.

There was VRS 1, 2, and then the hybrid system. And there was a point where Virginia residents who are participating in those programs paid $0 into Plan One or Plan Two, and they did go back to all those folks and say, “Hey, you have to start contributing.” And we don’t have the stats to tell you whether or not that was good or bad, or whether the pension was solvent or insolvent.

But clearly there was a need for those additional contributions. And if this comes to pass, yes, you have every right to be frustrated. Yes, if you have to contribute more, we would be frustrated too, but we also don’t want the system to go bankrupt. So there’s always that.

So types of retirement under FERS. So if you’re going to retire under FERS, there’s a couple things that you’re really looking for and we wanna highlight first, Tommy, the standard retirements, and then maybe we’ll talk about a deferred or delayed or a postponed, probably not gonna get into those ’cause we’re talking basics here.

So 30 years in minimum retirement age, minimum retirement age for everybody, or most people should be 57 at this point. CSRS, it could have been 55. Early FERS, people could have been 56 or 56 in some change. Let’s just say 57 from now on. 30 years in MRA, 20 years in age 60, 5 years in age 62. Those are the milestones, Tommy, where somebody can retire with an immediate unreduced annuity.

Tommy Blackburn: Correct. And so there are other options, but those are the ones where we are not gonna pick up an early retirement reduction. We’ll just get the normal formula, which, the normal formula, again, without all the various exceptions that can come into play, normal formula is 1% times years of service times our high three.

Okay. And so we’ll take that formula, no reduction. So if at age 57 we’ve got 30 years, it’s that simple. Now, there isn’t, there are some other parts to this. For example, are we taking survivor benefits, which no surprise to our audience, if you’ve been listening. Probably should be doing that.

That’ll be a 10% reduction as well. Pre-tax reduction. Go back and listen to many times we’ve talked about survivor benefits, the value, and why 10% is not 10%, but it’s 1% years of service high three, less a survivor benefit reduction, less we’re gonna have things eventually like taxes, whether we have it withheld or we pay it elsewhere, it is taxable.

Most of it, there is a slight return of contributions, so it’s not all taxable, but for purposes of simplicity, let’s just say it’s taxable. We’ll have withholdings. We will have things like federal employee health benefits potentially coming out of there as well, but high level gross amount 1% years of service, high three.

John Mason: And the high three is calculated as your highest 36 consecutive months of earnings. It is typically your last 36 months of earnings, but it doesn’t have to be. It could be in the middle of your career if you took a job in DC or a high cost of living place, or maybe you scaled back your job or something for personal reasons. Highest 36 months of consecutive service is how you’d establish your high three.

Let’s put some numbers to it. A hundred thousand for easy math. Tommy, I think you already did this, 30% is 30,000. If you take Survivor Benefits, that knocks you down to 27,000. It’s important to remember, we’re huge fans, like you said, of SBP, and we’ll link our, probably our most popular YouTube video, we’ll link that here.

But the $3,000 cost for Survivor benefits isn’t $3,000. It’s $3,000 less what you would’ve paid in taxes, right? So let’s say you would’ve paid a thousand dollars in taxes, the true out-of-pocket expense for you to provide 50% survivor benefit to your spouse is $2,000, not $3,000. So let’s make sure we’re talking about what the actual net differences in your take-home.

The gross difference doesn’t matter. The gross $3,000 is an irrelevant number. We shouldn’t be focusing on it. It doesn’t matter.

Tommy Blackburn: We’re gonna get three, right?

John Mason: It was never yours. It was never yours. The $2,000 was yours, not the $3,000. So the cost was two. Now, we’re huge fans of survivor benefits.

Remember that when you take SBP, it’s 50% of the unreduced amount. So it’s like 50% of 30,000, not 50% of 27. And Tommy, there’s three options with SBP and I’ll highlight those and then I think you’ll slam it home with what we typically say is you have the no SBP option, you have the 25% option, and you have the 50% option. How do we kind of help clients navigate to that 50%?

Tommy Blackburn: Several ways, but I think the simplest is zero is not really an option, right? Because in order to protect our spouse, the value of a pension as well as FEHB, those health benefits, preserving access, we have to have a survivor benefit. So we can probably just go ahead and say zero was never an option.

So now we’re down to 25 or 50, and at that point, we’re kind of splitting hairs in the cost here. So we might as well just go ahead and say 50%.

John Mason: I love it. You read my mind. We’re not gonna talk about MRA plus 10, which is minimum retirement age plus 10, but go back through our previous episodes. If we’re on our A game, maybe we can link to some more of those complex topics. But, let’s talk now, Tommy, about still, let’s stay on formula for a second and let’s talk about age 62 and some of the cool things that can happen there.

Tommy Blackburn: I think what you’re thinking of, which could be multiple, but is at 62, if we have 20 years of service, the multiple changes from one to 1.1%. So 1.1% times years of service times our high three. And percentages in math can get a little weird. Many people are very intelligent. This is not a slam. It’s just numbers and percentages can sometimes, if we don’t stop, easily mislead us. It’s a 10% increase. Going from one to 1.1% is a 10% increase.

So we get a 10% kicker, a 10% boost if we’ve continued to work to 62 or past that, oh, and we have 20 years of service.

John Mason: It is a very nice benefits, right? So if you had a $30,000 pension, your pension’s now 33,000. So it kind of, if you hit that milestone, could you say maybe that paid for SBP? Maybe you could say that.

Is it worth hanging out until you get the 1.1%? That’s an interesting question. I actually wrote that down this morning as a future episode that we’re gonna do is should you hang out until you achieve your 1.1%? And certainly if you’re 61 and a half, you should wait. There’s not that many times, audience, that we’re gonna should all over you, but if you’re 61 and a half and you have 20 years of service, you should wait until 62.

Like that’s a good idea. If you can retire at 57, maybe retiring at 57 is better than waiting for the 1.1%. You’re 64 and you don’t get your 20 years until 68. Do we really want to hang out until 68 to get the 1.1%? Stay tuned, future episode where we probably unpack that in a little more detail.

So yes, the 1.1% is significant. There are a lot of nuances around creditable service, buying back your military time, making sure that you have the qualifications to get the 20 years and the 1.1%. So make sure you do that. And we just teased military time. Many federal employees could have academy time, Tommy, or maybe had active duty time, and then went into the reserves, and we don’t see this as much anymore, but boy, what a lucrative opportunity to be able to buy your military time. What happens when you do that?

Tommy Blackburn: Well, it counts towards your pension. So you just bought a percentage rate. So it could be, if it was four years of service, that’s 4%, unless we’re in that over 62 and 20, it’s announced an extra four and a half, essentially percent. and it’s based on, John, you know this, backwards and forwards.

But it’s based upon what your base pay was, if I’m correct there. And so, like your academy time is essentially free to buy that time back.

John Mason: That’s correct. So I think the formula is 3% of base pay while you were military, so not your BAS, not your BAH, like your active duty military pay scale pay, which is a lot less than your full compensation. So 3% of that, if you do it within, I believe, two years of becoming a federal employee, you can just buy it and there’s no interest. If you wait after the two years, I think interest begins accruing at the end of the third year. The sooner you do it, the better, but even if you wait, or even if you’ve missed that, or even if you’ve accrued some interest, the cost is minuscule.

I mean, again, let’s go back to the hundred thousand math. You make a military deposit, let’s say it costs $10,000 or $20,000, but it increased your pension by $4,000, $5,000, $10,000 a year. It doesn’t take long for that break even to break even.

Tommy Blackburn: Exactly. Yeah. I mean, it’s probably, and that I feel like, John, we’ve seen examples where it doesn’t take even that long. So it’s probably one of the best guaranteed investments you can make if you find yourself in that situation. I would say a lot of times it seems like it’s within one to two years of collecting a pension that you’ve hit your break-even and chances are you’re gonna live a long life of, so it’s gonna far surpass that break-even and what you get back out of it,

John Mason: It’s quick. We will hit on FERS supplement because that’s something that I think you teased earlier already was on the chopping block and has been on the chopping block since 2010 when I joined Mason and Associates. But FERS Annuity Supplement, Social Security Bridge, Social Security Supplement, give it a name.

It’s been named that. It’s an additional benefit that helps you as a first person between 57 and 62. It’s like a social security ancillary benefit to help you bridge that gap. And we thought it was gonna go away. We really did this past year, but still, the first supplement has hung on the, we have a video.

I know there’s no possible way we can link all these videos, but we have a video on FERS supplement. The exact formula is more complicated. The easy formula is years of service divided by 40. So if you had 30 years of service, 30 divided by 40, times your age, 62, Social Security Benefit. That’s gonna give you a good ballpark of what your FERS Annuity Supplement would be when you retire.

And that’s gonna be from retirement until 62. You must qualify for an immediate unreduced retirement for that to be there. There’s no inflation adjustment on that. And we’ve talked about this many times, just understand that when you retire, Tommy, it takes a little while for the government to adjudicate your pension and that FERS Annuity Supplement doesn’t kick in until your pension’s been fully adjudicated.

So there’s a lot, and I guess I’ll also say, ’cause I’m, at 57, and this didn’t used to be a thing either. You live and you learn and you grow. There’s no inflation adjustment on a normal FERS between 57 and 62, which from 2010 through 2022, 2010 through 2022, it didn’t matter. I never talked about it because inflation was 1% and it didn’t matter.

But then all of sudden I had clients retire in 22 and inflation was running at like 10%, 12%, 15% and not getting any inflation adjustment for five years. We weathered that storm. That was a butt-whooping.

Tommy Blackburn: That is, yeah, it was unexpected. Just from like a, what we had experienced and even a historical, but the averages are just that. They’re an average.

So we have periods of very low inflation, periods of some high inflation, gives us an average. And yeah, we still got clients who are coming out of the backside of that. I met with one probably last week, as we were talking about replacing the supplement, because he’s hitting 62. And so we’re starting or increasing the IRA distribution as we delay social security.

So I realize I’m layering in a lot here. We can discuss. We’re not planning on turning on social security right now. FERS supplement’s going away at age 62. We need to replicate that cash flow. So, higher IRA distributions to help replicate it. Part of the conversation there, John, was inflation, though.

Clients said, “You know, I retired basically during COVID or right around COVID and we’ve had a lot of high inflation and I’ve more or less kept my cash flow the same.” And his point was, or his point, it wasn’t a point, it was a discussion. At the same time, we were turning on his spouse’s age 62, social security, and their question was, “Do we gotta reduce or take that into account of the IRA distribution and like lower it now that her social security will be coming in as well. And by the way, I haven’t really gotten a raise in five years or so, and inflation’s been pretty high.” The answer was yes, we don’t, or no, I guess; essentially, we do not need to reduce the IRA distribution.

You’re 100% correct. We factored inflation into your plan. You held the line, so let’s just allow her social security to come in as a COLA adjustment for all those years you didn’t get the inflation adjustment. And once we turn your social security on, that’s where we need to revisit this IRA distribution and potentially dial it down when that cash flow starts coming in.

But yeah, just drove home recent example of the inflation they went through, and maybe another good point to make, John, is we also tell clients with the social security timing, when we take it does not impact, or when we advise you to turn it on and take it, does not impact your quality of life.

And what that means is just because we’re delaying social security, doesn’t mean you’re eating beanie weenies. It just means we’re supplementing with IRA investment distributions. We’re optimizing how you get your cash flow, but your quality of life does not change based upon when we take from different buckets.

John Mason: Fascinating how our conversations develop every time we do this. But it is, we did a whole episode on, I know we did somewhere, on why financial planning assumptions are typically wrong and why financial planning software is typically wrong. And it assumes inflation over time, increased withdrawals over time and we kind of pushed back on that assumption, we’re like, “Clients don’t really come back and ask for inflation-adjusted distributions.”

And your example is we live through some of the highest inflation that we’ve seen easily in our career, but and the nation for a long time, and we didn’t have clients coming asking for increased distributions. They were able to weather the storm. They did get COLAs on a lot of them on Social Security and FERS and things of that nature. But yeah, just another example of how people did not inflation-adjust their withdrawals along with historic inflation.

Tommy Blackburn: And this is something we tell clients when we talk about it, is that what we typically see, we model in your plan linear inflation and two and a half percent, 3% a year just happens like clockwork.

But what we see with clients and that example points it out, and the examples that you’ve, or anecdotally what you’ve experienced, John, and what we’ve seen talking with other advisors, is people hold the line. They just change some behavior, substitute goods, whatever it is, they hold the line until eventually it’s like, “I’ve been creative and, guys, it’s time to increase it.” All the while, we’re usually, “Hey, we can do more if you’d like.” But clients kind of self-imposed this. So it is a discussion, but yeah, and then eventually it’s like, “Hey, let’s increase. I’ve done everything I can. I’m out of options here. I need an inflation adjustment.” All that to say, we’ve talked in many episodes about the plan is wrong, the assumptions, as you just said, or we know are not gonna be correct.

It’s a framework. Clients don’t do linear increase my spending. They go a while and then eventually it’s okay. It’s time to increase the distribution.

John Mason: Very good. So we’ve talked about quite a bit already. There’s a few other things that I know we want to get to. We’ve talked about survivor benefits, we’ve talked about inflation.

I know we want to talk about sick leave. I also wanted to suggest to the audience or inform them that just because your first supplement stops at 62 doesn’t mean you have to automatically turn on Social Security. Those decisions aren’t linked. And then I’m pretty sure we have an episode where we talk about disability, retirement and the differences, as well as LEO.

So just keep in mind, this is FERS, typical FERS, normal FERS, and then the COLA calculation. I’m just reading this because it’s always something that escapes me, but if CPI is 2% or less, you get the full CPI. If CPI is between 2% and 3%, you get 2% and if it’s over three you get three minus one. So I think the thing–

Tommy Blackburn: You get CPI less one, right?

John Mason: Yes.

Tommy Blackburn: If it’s over three.

John Mason: So it is, they call it Diet COLA, rather, so CSRS and military gets the full COLA. FERS, you get what’s called Diet COLA. And we would actually change it to COLI, which is cost of living increase because there is no decrease in it. Arguably, there’s a little bit of decrease when things like Medicare premiums go up.

But you have Diet COLA, CSRS, and military has COLA. The calculation, again, you can just Google first inflation and AI is gonna give it to you immediately, but it doesn’t happen at 57, it happens at 62. And I think there’s a weird caveat where you had to be like 62 by December 1st or something to be eligible. So there’s also like a weird nuance there depending on when your birthday is.

Tommy Blackburn: I was looking at this the other day, and there is definitely nuances to everything. But my understanding when I was reading the handbook was if you were already retired, so essentially, say you were that 57. I did MRA at 50.

MRA at 57 plus 30, I’ve been collecting a supplement. Now I’m 62, get my first inflation adjustment. If you are already in FERS, you get the full amount once you’ve hit 62, and it goes into effect. So example would be like, let’s say I’m turning 62 in February of this year. It’s not I have to wait an entire year and the following one to have been 62 the entire year.

It’s, “Hey, you already retired. You’ll get that inflation adjustment at the end of 2026,” in this example. so there’s no proration for the year you turn 62 because you are already enrolled in FERS, already collecting a pension.

John Mason: Correct. And then I think the other nuance there is if you’re retired for half the year. I don’t, I think you get half the inflation, if I’m not mistaken.

Tommy Blackburn: And I think that’s the, right? You weren’t retired before getting to 62. You weren’t already in that MA plus 30 type of retirement where you were ahead of it. I want to go back to the supplement real quickly, not to dwell on it.

We covered a lot of great stuff there, but also just be aware, there’s an earnings test, which is actually very similar to Social Security. So if you retire before age 62, and you’re collecting the supplement and you decide to go out and get a job, there are some nuances, some things to be aware of here where you could still collect it for X amount of time, but just know you go start earning.

It’s gonna be earnings tests could be reduced likely to zero if you’re, depending on the how substantial the work is, there are exceptions for our LEOS, where it works differently for them.

John Mason: So remember that as you get closer and closer to retirement, you can log into GRB, you can get a certified summary of federal service.

Only years and full months count towards your retirement. So if you have 27 days, then the 27 days effectively count for nothing and your sick leave converts into retirement time. And that also changed during my career back in the early 2010 to ‘15 timeframe. It used to be only half your sick leave counted towards retirement, but then they changed it to now all of your sick leave counts.

So it’s like 174 hours, Tommy, equals a month. You need years, months, days. And you need time that you worked, time that you bought and sick leave, and you add up all those three columns and that comes up with your total years, days, and months of service. The days don’t count for anything. So if you’re really, really good, you can burn some sick leave or whatever you need to do.

Tommy Blackburn: The FERS flu.

John Mason: The FERS flu, as they call it. You wanna retire as close to a full month as possible and not with 27 or 28 days, for example. And so you wanna do that calculation in advance. Also, and I know we have episodes on annual leave.

You do want to use your annual leave, you want to use your sick leave to extend your career, right? So yes, it’s nice to get a big payout when you retire. Yes, it’s nice for the sick leave to stack and increase your pension, but your quality of life along the way is also very important. And using your leave wisely over your career could potentially extend your career, Tommy, an extra 2, 3, 4, or five years. That’s a really good use of leave to make sure that you’re not miserable the entire time.

Tommy Blackburn: Yes. And not even just extending your career. Working is always financially, almost always, gonna be a better outcome. So that’s where, again, we’re not always just optimizing for the best financial, well, just like your mental, your physical, your general wellbeing.

That’s the message John and I are putting out there and hope that it resonates is use sick leave when you’re sick. Take your vacations. Allow yourself to be rejuvenated. It’s good for everyone. It’s good for your overall well-being. So we don’t have to just make sure we have the biggest paycheck when we retire, whether that’s having the sick leave tack on, or getting the nice annual leave out. Let’s just make sure we balance life and take some vacations. Give yourself some rest.

John Mason: Random thought that just popped into my head is this client we were working with maybe a decade ago, still a client, and they were doing, sitting down with a, I’ll do a air quotes, competitor, competitor financial planning firm.

And they showed him a financial plan. And the results of the plan was, “You’re never gonna be able to retire.” And it was not a very good financial plan, of course. So they came to see us and we looked at the financial plan and they were like, “Well, they left off $40,000 a year of cost of living adjusted income.”

Like, what the heck are you talking about? They’re like, they didn’t include your first pension in here. Of course, your financial plan’s not gonna work without that pension. You add in the pension and they’re at a hundred percent probability of success. So, audience, it does matter who you work with.

You work with somebody that can’t spell FERS and they can only tell TSP ’cause they know they can roll it, well, you’re gonna get what you pay for in a lot of circumstances. So just understand that you are complicated, there are nuances, and when you sit down with a financial planner, there’s gonna be a lot of data. And there are financial planners that are good that may not get your supplement correct or understand the inflation adjustment or understand these rules, ’cause they don’t work with you.

So you’re gonna be bombarded with great information when you go see a planner. Hopefully, good information, but there could be some bad data in there, especially if they don’t specialize with you as a federal employee. So keep that in mind. We would suggest if you’re gonna meet with somebody, you want somebody that speaks your language, not theirs.

You want somebody that understands you as a federal employee, you’re the secret millionaire. And we’re gonna expand on that. You’re the secret millionaire as a federal employee. You’re different than everybody else because you have benefits that nobody else has. And if you’re working with somebody that doesn’t understand that you have a financial plan that is not maximizing you and its potential.

So just understand that you’re the minority in this country, and assuming that every financial planner understands how to do that when the bulk of this country does not have your benefits would be, catastrophic is not the right word, but let’s just say that’s a catastrophic mistake.

Tommy Blackburn: Less than ideal.

John Mason: That’s a big mistake working with somebody who doesn’t get you and you’re the secret millionaire. You’re very special. And most people out there are speaking their language, not yours. They’re not talking to you. They don’t get it like we do, and the other planners that like us that specialize with federal employees.

So Tommy, why don’t you expand on secret Millionaire a little bit? I think our audience would love to hear that.

Tommy Blackburn: Yeah, as I expand on that, you mentioned TSP enroll it and so it just always comes to my mind, want folks to be aware in the general practice that we do here, like once people are a certain age, we may roll all of TSP, it’s all circumstantial, but in general, you do not have to close TSP and our general practice is we will move the bulk of TSP if we’re working together, but we’ll leave 25, 50,000 at TSP, so that account remains open for potential planning flexibility in the future, or if for whatever reason makes sense to go back to TSP or our relationship to end. So I just say this and that we’ve run across people.

This hasn’t always been the rule, but it is the rule now. It’s been this way for a little while now. As long as you don’t close the account, you can move the pre-tax funds back into TSP. So any advisor who’s working with you, to your point, John, this is just why I wanna drive that home. And they say, “We gotta move TSP, you gotta move it all.”

Anything like that, they don’t know you. They’re not speaking to you. They’re not thinking about keeping the most amount of flexibility available to you in today’s TSP rules.

John Mason: That’s wonderful. And I have to expand there too, is that when I started in my career, Tommy, there was many incentives to rolling TSP.

It was flexibility of distributions, more funds, access to your money, different, there’s a lot of reasons why you would move your TSP. Well, over time, TSP has become extremely flexible, more investment, or not more investments, but more flexible distributions, different distribution options.

Now we have access to the end plan Roth conversion this year. We still don’t have access to things like QCDs, qualified charitable distributions, but TSP has become a pretty flexible investment vehicle. There’s still some drawbacks, like tax withholdings, QCDs, who’s your customer service person?

There’s still not a ton of funds, which we can argue is good and bad depending on where you are in your financial plan. But I talked to some guy the other day. And he was like, “Well, I rolled some of my TSP out to this competitor again, and we did a Roth conversion and I had to pay all these taxes and I’m not doing that again.”

I said, “Dude, you’re flying blind.” He’s like, “Well, I went to somebody like you.” And it’s like, “Well, one, you didn’t even know when and how you’re gonna retire. So what was the baseline for the conversion amount?”

Tommy Blackburn: There’s a whole lot of questions there.

John Mason: There’s a whole lot of questions like if you don’t have a retirement plan, how do we have a conversion plan?

Tommy Blackburn: You clearly don’t have a tax plan either to complement that retirement plan.

John Mason: Correct. So then I have reflect on it and the selling point was probably like, “Hey dude, you should move your TSP because you can do a conversion with me and you can’t do a conversion there.” Well, it’s gotten to a point, audience, where if the incentive is like what cool investment can I have outside of TSP or if it’s, I guess I’m getting, what I’m trying to say is the incentive to move your TSP should probably be more on the holistic planning relationship, the team of professionals that you’re working with, comprehensive financial planning, tax planning, and estate planning advice.

Yes, maybe if you’re into annuities or something like that, there could be a reason, like you don’t have access to those within TSP, but TSP has done a good job knocking down barriers that you don’t just move your money to Joe to do a conversion now. Because you could have done that conversion inside of TSP. There needs to be a really, really good reason to have an ongoing planning relationship with somebody to justify the TSP transfer. I hope that makes sense.

Tommy Blackburn: It does, and I think that’s what we both wanted to put out there, is this is a tool, one amongst many in the toolbox.

Your reason for working with an advisor such as Mason should be ongoing management, planning, taxes, relationship. That’s why you move. And that’s why we’re also not afraid to leave funds at TSP and leave that door open because it’s a tool. If we need it, we can go there. It’s easier, ease of management, better allows us to serve you the best when it’s under our management, where we can customize quickly, make changes, align it with the plan, but we don’t need to close that door either.

And so, to your point, John, that’s the reason you engage us, isn’t because of we have more flexibility in our IRA than you have at your TSP. Like, yes, we probably still have more flexibility, but it’s more about us being able to serve you better part of the holistic relationship and bringing our best to you, and serving you yesterday. So I think that was all good.

John Mason: Yesterday, we met with that client who said, “I’ve gotten more from you in this hour, an hour and a half, than I’ve ever had from any other financial planning team, and we haven’t paid you a dime yet.” And we ended that call talking about AI and how AI may transform the industry.

And he was like, he basically said this to us, I think he did. Anyhow, hopefully I’m reading it correctly. That we have emotional intelligence, as well as like financial planning, competence, intelligence, and part of the reason that you wanna work with a dedicated team of professionals is they talked more than we did.

We listen the entire time to what they were trying to accomplish. We hear them, we understand their goals, and we solve their problems. We don’t just like try to swoop in and be the hero. They’re the hero, right? Like they’re the hero in their story. We’re like Obi-Wan Kenobi. We just like guide them.

We’re like Yoda, we’re like, here, we’re gonna give you all of the knowledge and all of the tools that we have so you can go conquer the dark side, like you’re the hero, not me. We’re just gonna give you the tools that you need. And he basically said that. They said that like, “Yes, you have the emotional intelligence and you’re using all of the tools. You get me. And nobody’s gotten me. Nobody gets me before.” He was like, “I don’t even think the prior firm understands what we’re trying to get accomplished.” So, break for a second, audience. You’re the secret millionaire. Okay, so we just went on a tangent, but I wanna bring it back to you’re the secret millionaire. You have something that nobody else has. Every 30 to $50,000 federal pension is like having a million dollars extra in your first bank.

Tommy Blackburn: You’re gonna throw it back at me to go on another tangent. Come on, man.

John Mason: Every 30 to 50,000 is like having a million dollars more in TSP. So when you look at your balance sheet and you’re all happy ’cause you have X, add an extra million dollars to it, add an extra $2 million to it. That is the value of your federal pension. So we go back to survivor benefits. We think about the value you wouldn’t light your house on fire at your death. Don’t let, don’t light your first pension on fire at your death either. Protect it for you.

Protect it for your spouse. Folks, your retirement’s going to be great. If you’re listening to this podcast or working with us, you’re gonna have a phenomenal retirement, and you have the ability, you have more money saved than most, and you have a $40,000 or $50,000 pension, many of you, that the rest of America doesn’t have.

If you don’t know that and you don’t feel empowered and you’re not living your best life, you need help. If you’re not empowered and you’re not living your best life, you need help to see how good this could be. Yes, we would love it to be us there. Go find somebody else if you don’t like the way I part my hair, that’s fine.

Find somebody else that can help you see the light and help you flex your money muscles and enjoy your retirement to your full potential. Or frankly, get out of your own way right now. Maybe you’re mid-career and you’re stuck. Maybe you feel like, “Wow, life is really hard. I’ve got kids in college. How am I ever gonna do this?” You’re freaking out ’cause you didn’t save enough last year. Maybe you didn’t need to save a penny. You need a team that can show you that. Tommy, that’s exactly what we do at Mason and Associates.

Tommy Blackburn: It is. It is why we really want to get to know you as the client. That example you threw out there, too, where they got so much more value and complimented us and that they haven’t even paid us yet, is part of it was just a discussion and it’s a continuing discussion of what’s important to them.

We talked about car purchases and they pretty much disclosed, “We are the children of great depression parents. so we have some baggage and part of that baggage is I buy a car in cash.” And maybe we can have a discussion, but John and I’ll come back or whatever advisor at Mason, we will come back and say don’t let perfect get in the way.

A good enough is always a consideration as well. Sometimes we really need to change a mind or a way to think about something to allow you to be that hero. Other times, it’s a different way to get to the same end result. It’s all fine. We are here. Yeah. And we do get fired up. I know I’ve went on a tangent.

I’ll go on another one here. When somebody doesn’t know, when a client says that other advisor told me to take an act of Congress to move my TSP back ticks me off, to be quite honest, because maybe they probably didn’t know what they were talking about, but it’s just not true. When somebody forgets that they have a federal pension in their plan, that is quality of life altering, and that is what we care about.

‘Cause it’s, hey, they’re now going into, “I’m behind. I’ve got to save. I’ve got, I’m in panic mode here,” where it’s just like, actually the conversation should have been, “You are ahead, you can retire. What are your dreams? What are some things we can help you get past some things?” Maybe some frugality was a strength earlier in life and now it’s a weakness.

So let’s try to help you live your best life, and that is what we’re trying to do. Provide clarity, put the pieces together, empower you to dream, dream big. And yes, we do that every day here at Mason. John, I think we’ve covered a lot. I hope the audience has enjoyed it.

John Mason: Well said, Tommy. Thank you for another great episode of the Federal Employee Financial Planning Podcast. Audience, if you’re still here, we’d like maybe one or two things from you. One, like, subscribe, share, do all the things for us, but two, you’ve been listening for a while. We’d love to hear from you at masonfp@masonllc.net or in the comment section here, like, where do you want this to go?

What type of podcast episodes do you want to hear? Did you like this kind of back to the basics as the framework where we still layer in some stories and some fun, or do you like more of like the abstract things that we’ve been doing as well? We’d love to hear from you in the comment section or directly via email.

Remember to connect with us. We wanna nurture this relationship that we have with you. We know it’s an important one, and we want to come alongside you and support you wherever you are in your journey. If you’re the DIY’er and you never intend to become a client, that’s okay. Stay connected. Go to our website, get the newsletter, get the great information. Be a hero for somebody else and share this with them across the country. And then maybe you are in your journey and you’re ready to become a client. We’d love to hear from you, and you can start that process. If you’re ready to move from general education to personalized advice, masonllc.net or 757-223-9898. This has been another episode of the Federal Employee Financial Planning Podcast. Thanks for hanging out with us today, and we’ll see you right back here next time. We hope you feel educated and empowered and we wish you well on your financial planning journey.

The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.

We encourage you to consult with the office of personnel management and one or more professional advisors before taking any action based on the information presented.

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