You’ve made it! You have finished up with the career you worked in for decades and you are now stepping into your first year of retirement. What does this look like exactly? And what should you expect financially? In this episode, Michael, Tommy and John will be discussing everything that you should have in place as you enter your golden years, as well as what you can anticipate throughout this first year.
Listen in as they share the importance of having a personal plan in place for your retirement years and why you must understand what your benefits are before retiring. You will learn what happens during the adjudication process, what you can do if you plan on purchasing a home after you retire and more.
Listen to the full episode here:
What you will learn:
- The benefit of seeking financial advice when you’re in the year of retirement. (5:40)
- What to plan for during the first year of retirement. (10:20)
- The importance of having a financial AND personal plan for your retirement years. (13:20)
- What happens if you’re retiring before age 62 under FERS. (18:19)
- What happens during the adjudication process. (21:30)
- How long-term care insurance can impact your finances in the first year of retirement. (25:45)
Ideas worth sharing:
“You’re a secret millionaire in your benefits package.” - Mason & Associates, LLC
“Make sure you monitor your mail in these first months of adjudication.” - Mason & Associates, LLC
“Many people are under the assumption that if they don’t have their financing in place before they retire, they’re never going to get it—and that’s just not true.” - Mason & Associates, LLC
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.
Michael Mason: Welcome to the Federal Employee Financial Planning Podcast, hosted by Michael Mason, certified financial planner; John Mason, certified financial planner, and Tommy Blackburn, certified financial planner and certified public accountant.
This episode, The Year of Retirement. So, you retired December 31st, come January 10th, you're going to get that paycheck that comes in, it pays you for the last two weeks you worked, and some of your leave will come in a little bit later. But what is retirement going to look like? So, that's what we mean, the year of retirement, John, Tommy, how we doing?
John Mason: Michael, it’s exciting again to be back with you, and if this is the first time somebody's tuning into this podcast, I think it's good to know that all three of us together and our sound guy Drew, we’re all here at a conference room table, recording this podcast live in Newport News, Virginia.
And it's something that we do every other week, same time as we record the radio show. We're also recording the podcast separately and for our listeners, Mike, masonllc.net is just a good resource where you can check out radio show content, blog post, and I love doing this guys. And Tommy, love recording with you as well.
Tommy Blackburn: It's a blast whenever we're together in person for our in-office days, because we're kind of a hybrid firm. We do all of our financial planning virtually, but we still come into the office for a few days each week.
And it’s beginning of April right now, the weather's turning nice, I guess, we're also getting pollen and so forth in the air now. And we're kicking off not only the end of tax season, but the beginning of our strategic planning meeting season with our clients. So, a lot of fun around here, busy time meeting with all those existing clients, but a lot of fun topics.
And this episode, I think we're going to talk about tonight is definitely real as we are helping not only new clients, but existing clients beginning to make that transition into retirement, and what is that going to look like.
John Mason: And during the strategic planning meetings, which are, Tommy, April and May, I guess by the time this episode airs, we'll probably be through it and hopefully, enjoying some summertime and relaxation.
But I know I have a few clients, guys, during strategic planning meetings where we're reviewing the upcoming retirement on December 31st of this year. So, we'll be covering topics that we covered in a previous podcast, as well as topics that on this one, we'll be addressing during the strategic planning meeting season.
So, it's just really fun because now, we're in the thick of it. We produced about 80 tax returns for clients this year using an outsource third party XY Tax Solution. So, that's been really exciting.
And I think everything's on the up and up. And Mike, I know you're doing the same thing that we are; strategic planning meetings, preparing for what's happening, anything specific that you're seeing as we kind of like dive right into this big season.
Michael Mason: You know, for me … and I have a different perspective even than you guys. Even John, we've been working together 12 years now. My clients are on maybe this other four or five years after the first year of retirement. And it's so rewarding for me because we led up to that retirement year, the year before retirement, which we did an episode on, and they're like they couldn't believe that it was all going to come together.
And then you get to this four and five years after and they see that just like we told them, it was going to be perfect, it was going to work. They wouldn't spend the money in their TSP, and that's the rewarding part for me.
Again, this first day of our strategic planning meetings, one gentleman, he said, “If I dream my biggest dream, it wouldn't have looked like this. I just had no idea that I'd be worth what I am and have life so guaranteed and successful.”
John Mason: Well, I think you and Ken coined the phrase, “You're a secret millionaire in your benefits package, and now, we need to start planning like one.” And that doesn't really hit home until you wake up in retirement, and just for waking up, you keep getting paid every single day.
And instead of having to worry about volatility, you continue to get those pay raises like our CSRs folks, 5.9% this year. It's hard to embrace that fact that you're a millionaire in your benefits package until you see that income start rolling in.
You bring up an interesting point, Mike, as you say, you're in like maybe a different kind of season, if you will, your clients are in a different spot than maybe some of our younger ones.
So, I'm curious for you, a lot of times people will hire us or contact us to become their financial planner when they're thinking about retirement two, three years before.
So, now, your clients have made it, let's say they've won the game. As a financial planner, are you providing the same value? More value? How does that compare and contrast to like two years prior to retirement?
Michael Mason: Oh, it's huge, the two years prior to retirement. Now, we're adding big value today as well, but that two years prior to retirement everyone comes out of the planning session, the financial planning presentation.
And they all say the same thing, whether they engaged us at 52-years-old or 59-years-old or 63. And that same thing is I should have done this sooner because there's a huge impact that we make in that first couple of years of strategy and financial planning. Not that we don't continue to add value, but that first two years, it's a game changer.
Tommy Blackburn: It's illuminating, I think for many, and as you hear in our song, folks feel like they can see clearly now. Now, they know where they stand, they see the path forward. Most people feel very confident and almost like they're walking on air after that initial planning meeting.
And we're not going to tell bedtime stories, so to speak — but we're going to paint a picture and figure out how we get there. And we lay that foundation. And then it's just so cool as we kind of maybe begin to get into the topic of tonight's episode, of let's pull the trigger and let's actually make this transition and see what it's like once we're there.
And there's tremendous value that is added on many levels from emotional tax planning different financial planning concepts that will happen once we've actually pulled that trigger and kind of entered that next season of their financial plan.
John Mason: Well, guys as we dive in, I just want to say that from my experience, which has been 11 years, I think same for you, Tommy. And Mike, you and Ken probably close to 30 or 35 years now doing financial planning for federal employees.
I think it's a bad perception that the most value that we'll ever add is on that initial contact. It is without a doubt like the sexiest value. Like it's illuminating, it's glorious, it's like “You mean I can do this? Like there's a path?”
You can't replace that, and maybe clients will say that that's the most valuable thing of the relationship with Mason & Associates, but I guarantee you, it's the decades of implementation of the plan that that's where we're delivering the most value. It's the tax planning, the Roth conversions, monitoring the net worth on a quarterly basis, all of these different jobs that we do.
Maybe they're not as sexy, maybe they don't seem as cool because they've heard some of this stuff before, but Mike, holding client's feet to the fire, implementing the plan, being an advocate for them every year, I would contend that we're adding more value as much or more value for your clients who've already retired. It's just different and it's maybe just not as beautiful and sexy as it once was.
Michael Mason: The beautiful part for me is that now, you have 5, 6, 7 years of relationship under the belt, and you can just say things that are just purely accepted versus what are they trying to do.
You know how that first relationship goes; is this better for them versus better for me? And the gentleman today, again, we're talking three appointments in our strategic planning two-month period, and I've got big stories already.
But one of the things we did is he took survivor benefits. Unfortunately, his wife passed away and we took survivors social security, and he's turning 70 in October. When I said to him, “You're going to make 40 to 45,000 in social security once we turn on your age 70.” And he said, “There's no way. There’s no way I'm going to do that.” And of course, we proved it. So, yeah, you're right, we continue to add that value.
Tommy Blackburn: I think painting the picture is one thing and maybe that always appears to be like the sexy part of it. But I think really the value through the many different jobs we do is walking that journey together with our clients.
I think that's what they really value as we see. And it's making those adjustments, the tax planning, the distributions, what tax law is, or isn't coming. You know being there, being that advocate, being there for the journey, I think that's the valuable part of it.
John Mason: Well-said guys, well said. So, let's dive in to the episode tonight that we're recording The Year of Retirement.
So, in this episode, we're going to assume for easy reference guys, that everybody's retiring December 31st of 2022 and their first year of retirement's going to be January of 2023.
We do that just so the examples are easy in the show, and I think it makes sense, hopefully, you agree, that we're going to talk about a few different areas of what this looks like for our clients and federal employees across the country.
So, what do we expect to happen? What are we planning for? And how do we as financial planners really kind of get in there and walk that journey with our client’s this first year of retirement. And Tommy, I didn't know if there was any other topics that you thought would be good.
Tommy Blackburn: I think it's a pretty broad encompassing topic. So, I think we're going to cover quite a few, so maybe if we want to kick this off of just it's, I don't know, we want to say it's January 1, so we've turned in … we just did an episode about the year before retirement, so if you haven't listened to that one, we would say please go back and listen to that as we kind of lead up to this moment.
And now, so we retired our last day was December 31st. It's January one or January 2nd. And now, let's think about what does that look like?
Michael Mason: So, this one's kind of easy because if you retire at the end of the year, you've got, what's going to look like a full paycheck sometime early January. And then maybe late January to early February, you're going to get that leave you sold back.
So, it only gets a little interesting when you begin to get that paycheck. That is the interim paycheck, and what does that look like? And will we be able to make ends meet on that interim paycheck?
So, it's really February 10th, 15th and beyond until you're fully adjudicated that we want to help hold your hand a whole lot in that period.
John Mason: I agree. In our experience, January tends to be a very rewarding month. It's decades, three, four decades of federal service; five decades, if you throw in military sometimes for our clients and federal employees. So, it’s a lifetime of good planning.
And then the first couple weeks of January are kind of like sunshine and rainbows. It feels like we’re cheating the system, we don’t have to get up at 4:00 AM anymore. So, we’re on cloud nine, we’re walking on water, whatever cliché we want to talk about. And the pay's good. Like you said, we sold our leave, we got paid our last paycheck. So, January's a breeze.
Now, like you said, Mike, we enter February, where how are we making ends meet? Is it TSP distributions? Is it IRA distributions? Are we living off of savings?
So, I think it's important to understand that like emotional part of January and then February, it becomes real. And it's like, okay, now, what's my new routine? What am I going to do every day? How am I going to stay busy?
If there's one spouse that does all the grocery shopping, we probably don't want to be the other spouse that just tags along. So, we need-
Tommy Blackburn: Underfoot, I believe, they say.
John Mason: Exactly. So, we need to think about not only just the financial aspect of this, but also the personal aspect of what that looks like.
Tommy Blackburn: John, I think my experience definitely echoes what you're saying that beginning that January cashflow, man that heartbeat is super strong and people, it’s kind of whimsical.
I think it's maybe late January, in this timeline we're putting out. I feel like I've seen folks kind of start to be like, okay, are we sure about how this process is going to go? Like I'm getting things about I'm entering interim, maybe I got my services online account, my CSA number, and beginning to kind of … some of the original euphoria maybe at the end of January begins to wear off as we kind of begin to process those next things.
As we think about those final pay stubs that we get from a tax planning perspective, one thing we do with our clients and we recommend is, go ahead and save those. We want that final pay stub because it's going to be critical from a tax planning standpoint.
It's going to tell us we've had a pay hit here in January between that last paycheck and our annual leave that was sold back, so we'll be able to see what taxes were withheld, what happened from a taxable income perspective as we map all that out. And we'll also get an idea of what benefits did we leave federal service with.
Later on … we should have also saved the application to see what we put down for that. And we're going to see when we get to the end of the process what did the federal government record for all those benefits, but saving all this documentation for multiple reasons makes a lot of sense.
Michael Mason: Yeah, and as we explain this to you guys, we can't be everybody's financial planner out there, so when we're explaining this, in the Mason & Associates world, you already know all that stuff.
You know where the income's coming from, you know the adjudication process (three to five months), you know that we've set aside the money so that you're not pulling money out of IRAs and TSPs too soon. It's already sitting there waiting to get through that process.
So, let's talk about the timeframe on adjudication, what the income should look like. And Tommy, you made such a great point, you are going to get paid in January. So, if you retire at the end of this year, you're going to get paid in January of 2023 double your two wages.
And we want you to be aware that if you turn on social security January of 2023, the IRS may send you a nastygram in 2024, to say “Wait a second, you made this much money and you shouldn't have turned on social security” and they want to claw some of that back.
So, whether we discuss that one right now or not, I really want to discuss what we should expect in adjudication. And then once it is adjudicated and you get that benefits book, what we want you to do with that.
John Mason: So, Mike, maybe going back and thinking, okay, we covered this before in the previous episode, but it's always important as a first employee to retire the last three days of the month.
And the reason for that is because you're not going to have any gap in pay. So, you retire December 31st, your retirement's effective January 1, you get paid in February.
Now, we see this all the time; clients come to us very scared: “I've heard through the grapevine, through friends of friends at the water cooler, adjudication is going to take 12 months or longer.”
Well, for three decades that you've been doing this, and the decade that Tommy and I have been doing it, we haven't personally seen an adjudication take longer than six months, unless it's a divorce situation.
So, overwhelmingly, this does not appear to be as concerning as the folks around the water cooler. We like to call them the water cooler financial planners — does not seem to be nearly as concerning as other people build it up to be.
And maybe that's just because our clients have their ducks in a row, their forms in order, or what have you.
Tommy Blackburn: Perhaps OPM is trying to be smart about setting expectations and under-promising and overdelivering here. But yes, it seems like there's a lot of fear stories out there in what we witness at least working with our clients.
And to your point, maybe they're just well-prepared, so it's a more smooth process. We don't see those horror stories, unless you have a special situation like a divorce on file.
John Mason: That's right and as we think about adjudication, we'll just focus on FERS I think, if that's okay with you guys, because that's most of the people retiring now.
FERS retiring before age 62, really, that's the biggest danger zone in my opinion, for this adjudication process. Because one, you're going to get 60 to 80% of your FERS pension, but you're not going to get any supplement. You're not going to get any supplement during this adjudication.
So, for a lot of our clients who have been FERS for 30, almost 40 years now, that FERS supplement could be $2,000 a month. It could be almost half of their guaranteed income that they're expecting. And to not get any fraction of that during the adjudication period is a pretty scary event.
So, those folks much different than CSRS really have to do, Mike, I think to your point, much more planning than the folks who are retiring at 62 and just immediately flipping on social security.
Michael Mason: Well, yeah, I mean I've often made fun of it and you just made a really good point. I've often made fun of folks that would say, “Well, I'm only going to get 70%, 60 to 70% of my benefit until it's done with adjudication.” I said, “Well, when adjudication is done, you're not going to get a 100% of your benefit anyhow, because you've got survivor benefits coming out.”
But to your point, if you're only getting 70% of FERS, the actual annuity and you're getting nothing of the supplement, then that's a 30 to 40% benefit and that's a game changer that you have to be ready for.
John Mason: And watch out if you're divorced, that's going to get even uglier. You could be down to 10, 15, 20% of your gross when you factor in that divorce situation.
So, Tommy, as we track our progress, because you can do that down in the services online opm.gov website. You can track your annuity progress to see those interim payments and adjudication.
Once the pay is adjudicated and that pay is now finalized, what should our clients and federal employees expect happens at that six-month mark?
Tommy Blackburn: So, right around that time, as we exit adjudication here, you're going to receive what we've joked about around here. And we don't mean an insult to anybody, but just us, it looks like a high school project was put together, and you're going to get a pamphlet, and it's going to say your federal retirement benefits.
While we joke about it, there is a lot of really great information in that booklet. So, when you get that, for our clients, we're going to want a copy of that. We're going to digitize it and save it in our files and glean all the important information we can.
But it's a treasure trove, so it's going to tell you what your monthly benefit is, it's going to tell you what FEHB you have, how much federal withholding is being taken out right now, what your FEGLI election was, if that was a player to you; it's also going to give you a breakdown of that retroactive.
So, as they adjudicated, we were only paying you somewhere between 40 and 80% of your benefit. And as we finalize, this is how the numbers shook out that we should have been paying you, and here's your retroactive payment and here's a breakdown of how we got to all of this.
So, a ton of just very useful information — our clients, we’re going to store that everybody … and from what we've seen, federal employees, and whether you're our client or not, you're going to hold on to that piece of information.
Michael Mason: And if you're a client of Mason & Associates, again, we will see a December 31st retiree typically, be adjudicated by the end of April is our typical world.
We're going to take that last active-duty paycheck. And then we're going to take that first booklet, and we're going to do a mock tax return. If you don't have Mason & Associates in your game, maybe you go to the person that does your taxes and you ask them to do the same thing, because it's a brand-new world, you might not even have told them you're retiring.
So, it's a brand-new world for your CPA or your tax preparer. They can't help you if you don't help them help you.
John Mason: That's right, Mike, and during the adjudication process, there are a few gotchas that can happen.
So, for example, maybe you went into retirement as married and seven withholdings, but you need to be set up as single at zero. So, we can adjust that during adjudication or once the pay is adjudicated, we can log into services online and we can forget all that stuff, guys. I mean, I, with a passion hate married and zero single and 12, I just want a dollar.
Tommy Blackburn: Oh yeah, absolutely. Which is the beautiful thing when we dial in our tax projections there, is we know dollar amount what we need, so we try not to speak in … I mean we do when we have to, but single and zero, married and two, so forth, so forth, it's just — whatever you have on file just say we're going to keep it, and we know exactly how much more we need to have withheld, let's enter a dollar amount.
Which is so nice when it's been adjudicated, because we can specify just have this dollar amount withheld.
John Mason: That's right, Tommy. And being able to go in and say, I need a flat a thousand dollars a month to federal, super easy. In fact, I know you do this too, Mike, and Tommy, I'm sure you do as well.
We'll look at all the sources of income and we'll just typically use the first pension as the place where we satisfy all the tax withholding, because it's so easy; login X dollars per month, rather than trying to submit social security, W-4s and all these different forms.
So, it's fun to just kind of pick on that federal pension for tax withholding, but also, remember, during those six months, no state taxes have been withheld during that time.
Now for our first employees, that maybe is not a as big a deal. And without going down the rabbit hole of CSRS — CSRS pensions can get pretty big in Virginia and not having any state taxes withheld for six months, we better make sure we're doing that tax projection immediately at adjudication and rectifying that situation ASAP.
Tommy Blackburn: And John, as I think about our clients or anybody out there going through this, in the scenario we painted, so we had that annual leave paid out and typically, there's a lot of withholding.
That's why this really is a transition time in that when your pension is adjudicated, we may not have a lot of ground to make up on the withholding because it's possible there was enough withholding on that final LES with that annual leave when that was paid out.
But we may have to also look okay, where are we at this year? Let's project that one out. And then let's also project out what about the following year when we don't have that large annual leave, how's our withholding?
So, in my mind, this can almost be a two-step process of let's get this year right, and we may need to also make an adjustment for the following year when things are kind of in a more normal pension annuity mode.
Michael Mason: Things can get a little hanky as well with your health insurance especially if the health insurance premium hasn't been paid for a couple of months, it always gets paid.
And Blue Cross Blue Shield, one of the big coverage insurers out there will ultimately take you off their bad boy list, but I've had people that needed help the first month or months of retirement. And they're like, “You haven't paid your premium.”
So, you're you get in this little zone, a gray area that it usually works out, but maybe you have to front some money until you're on the good side of Blue Cross Blue Shield again when you get your premiums in.
John Mason: I think the one that I've seen be the most scary, and I don't think there's ever been a situation that I can think of where a client has ended up in a bad situation, like they lost their FEHB and couldn't get it back.
But long-term care insurance, I think that's really the big gotcha because if those premiums lapse, I think your coverage could actually lapse. Whereas Blue Cross Blue Shield, maybe they're just going to confiscate those premiums as back pay or back premiums do.
But long-term care, I think you just need to really be checking your mail, really be diligent, understand like if this was coming, those long term-care premiums out of your LES and you've asked them to come out of your annuity, but maybe we need to like, Mike, you're saying, make some payments along the way until that adjudication is finalized.
That's the one that really sticks out to me, as a if you have it, we need to watch that closely. And in general, maybe you have in form delivery, the United States Postal Service app. Let's make sure we're monitoring our mail these first couple months in adjudication because there could be some pretty important stuff coming through.
Whether it be errors on your life insurance, continuation of life insurance, whether it be tax information, your benefits booklet — this is not a time where we slough off mail checking time.
Michael Mason: And one of the more important things that you don't think of … I called somebody last week and I didn't get to somebody I was calling because the primary phone number was their work number.
Now, in a perfect world and I'm not perfect, but I try to be, I would've eliminated that number because that was a client. I would've eliminated that, so I ended up calling that client's old work spot, but sometimes, also, you make your email at work your primary email.
So, it's important to tell the folks that you want to stay in contact with what your primary email is as well.
Now, that we had to close this episode, now, you're six months in into that first year of retirement — six months into it, what should we be thinking about now?
Tommy Blackburn: Well, for some of our clients and our federal employees, life is still happening. So, you may be going out to buy a house, you may be refinancing that mortgage, maybe you're buying a car.
Many people are under this assumption that if I don't have that financing in place before I retire, I'm never going to get it, there's no way I'm going to qualify for a mortgage when I'm no longer drawing a paycheck.
And that's just not true for our federal retirees, our military retirees. And the reason is because you have that strong guaranteed pension income. So, you will, from what we have seen, not have a problem qualifying for a mortgage to refinance, to finance a car or any of those items.
So, those options are all on the table in what has been a historically low interest rate environment. They've been attractive to look at and they give you a lot of flexibility. So, those options are on the table for you.
John Mason: Well, it’s a big concern, Tommy, for a lot of clients entering retirement like you've mentioned there. And if there's ever a point in time, maybe you're a federal employee who only had 5, 10, 15 years of service rather than the typical 30 or 35-year career.
Maybe at that point, your guaranteed income isn't enough to qualify you for that mortgage, then what do we do then? We can start an IRA distribution or a TSP withdrawal. And that withdrawal doesn't necessarily have to be forever, it just needs to be long enough.
Tommy Blackburn: There just has to be “kind of a paper trail.” So, that can even be knowing the bank that you're working with. They can kind of even kind of guide you through how to meet that. And a lot of times, just doing maybe even one IRA distribution is enough to get you through their underwriting process.
John Mason: At the six-month mark, guys, is also when we would like to try and kick off that tax plan. So, a lot of our financial planning, we're talking about, can I retire? What does retirement look like? And in theory, we're able to then begin executing that tax plan.
And it seems like … at least from my experience, Mike, and I think probably similar for both of you, that six months to nine months into retirement is when clients and federal employees have kind of settled down. They have now embraced this new world and they become very receptive to the implementation of this 30 or 40-year tax plan.
Michael Mason: Yeah. And it's kind of amazing to me that when we look at this in retirement … today, if you're retiring at 60 to 65, you've lived through some of the highest tax years ever, in the late nineties, early two thousands.
And then you start thinking about, “Oh, I'm going to pay 22% on my TSP withdrawal, my IRA withdrawal, is there any way we can get that lower?” And what you need to understand is that you're winning. You deferred it out of maybe a 31% federal and you're getting back to it at a 22.
It's okay to pay some taxes, it's okay to do that as long as you won. You won with deferral. You won taking it out of a higher bracket, now in a lower one.
Tommy Blackburn: It could be ideal and one of our strategic planning meetings recently, I talked with a client and he said, “I had colleagues around me that told me I was crazy for doing pre-tax contributions while I was working.” I said, “Well, you won,” to your point, Mike, “You won. And the reason is you now live in Tennessee and you're probably at least in the immediate future, we're projecting going to be in a 12% tax bracket.”
“So, now, is the ideal time to begin paying those taxes. You deferred when it was high and we're going to probably do some Roth conversions and make some tax-free money at the lowest tax point in your tax plan.”
John Mason: It wasn't until somewhat recently within the last 10 to 15 years that Roth TSP even became an option.
So, our federal employee clients who have 700,000, a million, 1.5 in TSP, the bulk of that's going to be pre-tax, and it was always on the mantras; you want to defer your taxes today, because you're going to be in a lower tax bracket when you retire.
Since we brought up strategic planning meetings, one of my clients has a mother who's 91-years-old whose tax plan has ballooned out of control. She is now taking massive required minimum distributions that she does not need because unfortunately, although that tax referral worked, to y'all's point, if we-
Tommy Blackburn: It worked too good, it worked too well-
John Mason: It worked too good, it worked too good. And if we take this easy action, which is retire and just not take any withdrawals, that tax plan can look from being very good where that tax deferral was perfect. But if we don't layer in some Roth conversions or start projecting out, how is this going to look 30 years from now, we may only have a 10-year window to do serious action.
Michael Mason: Yeah, you can be in a 22% tax bracket today and find yourself single because of a death in a 12% tax bracket tomorrow, and that changes everything. So, a 30-year plan — I said 12%, 22% while you're married filing jointly, and then a high 28 to 30%, if you find yourself single. So, thanks for giving me that sideways look, John.
Hey, it's time to wrap this up but let's go through just some final thoughts. We’ll retread some ground, I'll start. Make sure that you get your planner. When you retire, your retirement booklet, it usually comes in. When you've finally adjudicated, it'll show what your pays going to be, what they're withholding for taxes.
And then you're going to have to make some adjustments because they're probably not withholding enough federal and they're not withholding any state. So, get that to your tax accountant or to your financial planner right away.
Tommy Blackburn: And as part of that, we want to make sure we get that final LES because that's going to kind of just dovetail into that entire calculation and tie in everything together.
John Mason: Use those two items to get your current year tax projection. And we've got to hop on that fast Mike, because maybe our pay, remember, we're retiring December 31. If our pay is not adjudicated until May, June, July, we only have about six months to get that right.
Michael Mason: Absolutely, and remember, your retiring FERS, you may have that last paycheck in the new year that represented your last couple weeks of pay, then your leave sale back.
And the social security administration may come to you the following year and say, “Wait a second, you made too much money, we want to recapture it.” Just remember, they can't, that was money that was earned before the year you retired. So, make sure you're prepared for that.
Tommy Blackburn: So, as we've kind of implemented our tactical tax plan, we're probably not quite yet at that point of the more strategic one, we want to regroup and think about that income plan. So, our final leave payout has happened, do we need IRA distributions, TSP? How are we going to do that? So, that would be the next step.
John Mason: And finally, guys, is just re-solidify in your mind as a federal employee, who's retiring the year of retirement's going to be different. It's going to be an experience that you've never had before. You're going to have three to six months while we're waiting for this pension check to be adjudicated.
We're going to take our first investment withdrawal that's ever happened in our life after 30 or 40 years of planning for all of these things. For all of those events where Mike, you've said “One day when I retire, I'm going to …”
Well, all of that is coming in this year of retirement and we really, really enjoy this year because it's where we get to knock down those walls, help clients figure out what's important to them, and really begin implementing this next phase of life.
Michael Mason: You know, I think it's important to put some context into our comments. It's April 19th, 2022, we're releasing these podcasts every other week. When we say things like historic low interest rates, they were, but that can change quickly.
Just understand that the comments are as of April 19th, 2022. We really like what's happening in this podcast. John and Tommy, you guys made it happen early January. We've got over a thousand downloads so far.
Please, wherever you get your podcast, listen to the podcast, leave us a five-star rating. Guys, we've been doing these 35 years, helping federal employees. We have five outstanding advisors here, senior financial planning advisors.
We can't help everybody in a direct role, but it would be a shame to leave this knowledge sitting here just in these walls. We can help you as well.
If you have ideas, send them to us masonfp@masonllc.net. That's masonfp@masonllc.net. Tell us how we're doing, tell us what else you'd like to hear. This is the Federal Employee Financial Planning Podcast, hosted by Mason & Associates.
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.