Federal employees had the option to convert from CSRS to FERS when FERS was first created in 1987. Now all federal employees are automatically enrolled in FERS—there is no option to choose CSRS instead. Many federal employees who were hired after 1987 feel as though they were cheated out of a better retirement system, but Tommy, Michael and John would have to disagree. In this episode, they explain why FERS is actually just as good as CSRS, if not better, and several key components of FERS that you may not be aware of.
Listen in as they break down how to calculate your CSRS benefit and the three different parts of FERS that you should know about.You will learn which system has better options for a stay-at-home spouse, survivor benefits and long-term financial goals, as well as how to ensure you have enough money to do the fun things (travel, home renovations, children's education, etc.) when you finally reach retirement.
Listen to the full episode here:
What you will learn:
- Whether FERS or CSRS is better. (4:30)
- How to calculate your CSRS benefit. (8:15)
- Which option is better for someone with a stay-at-home spouse. (14:40)
- Which system has better survivor benefits. (15:45)
- Why employees who have FERS are better off. (21:20)
- How to ensure you have money for the fun things in retirement. (27:00)
- How to take advantage of your retirement system. (34:20)
Ideas worth sharing:
“The people who don’t trust the government the most are the people who work for the government.” - Mason & Associates, LLC
“FERS is just as good as CSRS, if not better.” - Mason & Associates, LLC
“Financial planning does not mean solve for the maximum retirement income possible.” - 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, I'm a certified financial planner; John Mason, certified financial planner, and Tommy Blackburn, also certified financial planner, certified public accountant.
Folks, Mason & Associates have over three decades of experience helping federal employees with their financial plans.
Guys, I've said this a couple of times, this a little off-script, but I said it a couple of times in our strategic planning meetings, introducing the Mason & Associates Federal Employee Financial Planning Podcast to folks.
And I've said 35 years of experience that I have, combined it's over a 100 years of experience. We can't take everybody as a client, but there's no reason for us to keep all that pent up knowledge in our heads and not out to the audience.
And that's why we do this podcast to make sure that one, people know they can find us for financial planning advice, but to share that information, a combined a hundred years.
John Mason: Well, I think it serves Mike three points. So, it’s marketing and branding for us. And kind of an the extension of that radio show that you and Ken launched15, 20 years ago, our live radio show that we do the first and third Tuesday of every month. So, it's an extension of that, it's an extension of the brand.
Number two is, it is a resource library for our existing clients. So, for example, we have episodes on the year before the year after retirement, we have episodes on FEGLI and federal employee health benefits.
And as we encounter situations with clients like during our strategic planning meetings, “Hey, Joe Jones, you're retiring next year. You're probably going to want to listen to two of these episodes because it's going to help you and help us as we jointly work towards those goals.
And then part three, to your point, is serving the public, getting the information out there. We recognize we can't help everybody, but we know through our listeners, through the downloads, through the podcast, that we're going to be able to change lives. And that's proven to be true.
For 15 years that you've done the radio show, we know people had been listening for 15 years and that their lives are better because of what you and Ken started 15 years ago. So, it does at least three things, if not more.
Michael Mason: Yeah, and tonight, we're going to have a little bit of fun. We've done about 16, 17 episodes.
This episode is really kind of fun for us because Tommy, we've heard folks say when you ask, "Hey, what's your service comp date?" What's a common response to that?
Tommy Blackburn: You know about that?
Michael Mason: Yeah, that's a good one. What does service comp date mean? And in reference to our episode that we're doing now, “It's 1984. I just missed a really good retirement system.”
John Mason: Yeah, it's very common when we look at people under the Federal Employee Retirement System under FERS and just kind of a shout out too — we did a three-part miniseries on FERS; episode one, episode two, and then episode three was law enforcement.
So, if you miss those and you’re FERS, you may want to go back in time, listen to some of those three previous episodes. But I've been doing this for 12 years, Mike, and it is very common, the people hired 1984 to 1989, the year CSRS was phased out and these people either were direct hire FERS or in like interim status, "I just missed it.”
Or, “Yeah, I'm in the bad system,” or “I know I have good benefits, but they're not as good as Joe who retired two years ago under CSRS.” So, I don't know if the right word is loathing or we just don't feel good. The general feeling is I'm FERS and I don't feel good about it.
Michael Mason: Yeah, and to Tommy's point, which you didn't hit whether I was actually going for. But you also hit something that was in my mind, which was another podcast that we've done.
Another episode, which is they are not talking to you. And you should listen to that one as well because the "theys" that are out there can really hurt you in your retirement system. And sometimes, the "theys" are the human resources folks that help you make that thought process.
“Oh boy, I just missed the good retirement system” or back to the point of doing these podcasts at all; we can't help everybody, but we can definitely keep you from being hurt by listening to this and taking the advice of somebody that doesn't even know what a service comp date is.
Tommy Blackburn: Exactly. You should know pretty quickly, whether you're talking to somebody who knows you and your benefits. And that's one of the ways you could probably quickly discern how familiar are they with the systems that you're involved in.
Another comment I think we get even at a recent party, was I'm not going back to the topic of this episode, is I'm not one of those federal employees, one of the ones that got it when it was good.
And that's what we're going to address in this podcast is, well, let's take a closer look at these different systems, how they stack up at the end of the day. And for most people, I think our conclusion is going to be FERS is just as good as CSRS or better.
John Mason: And maybe as we jump into that, Tommy, I know we've heard this before too; is the government offered the ability for CSRS folks to transfer to FERS? And I can think of at least three to five clients who we have, who are under the special handbook that's called FERS transfer folks. Those who have CSR.
That is a very special subset of people too. So, like CSRS, pretty unique group. This episode, we're not talking about you. The FERS transfer people, those ones with CSRS and a FERS component in this episode, we're not talking about you.
This is purely the old CSRS or the plain vanilla FERS. But we know that when the first transfer came out, our CSRS folks were like, “If the government's offering it to me, it must be a bad deal. I'm not taking it.”
And I know we all joke internally that the people who mistrust or don't trust the government the most are the folks who work in the government, in our experience. They're the most cynical.
And I think too, when it came out, they were giving these presentations, showing the power of what the TSP could be. And I think most people are in complete disbelief that, oh, 5% plus what I put in over a career is going to add up to a million dollars. Yeah, right.
Michael Mason: Yeah. And one other point, John, that you made with the FERS transfers and CSRS and one other group, and we're not talking on this episode about CSRS offset either. But it's another subgroup and maybe one of the best options available. You can't just opt for CSRS offset, you have to have a break in service.
So, from a high level and it's good to put it out there already; we believe that FERS is in the past. Anyhow, those original FERS employees, especially married, you're probably in a better system as long as you're doing the things you're supposed to do than what CSRS was.
So, I'm going to give the high-level overview of CSRS to calculate your retirement benefit, the easy way to calculate it. The hard way was the first five years is 1.5% for every year of service, and then the next five is 1.75.
So, that's your first 10 years of service, which equals 16.25%. So, the first 10 years equals 16.25. And then every year after that, you earn 2% for every year of service. So, the average that everyone knows, the number everyone knows, at 30 years of service and CSRS, you get 56.25%.
An easy way to say these guys is let's forget those first 10 years and just say most of your time, you're getting 2% of your high-3, and you're paying 7% of compensation to get that. And then FERS, how does the FERS calculation work?
Tommy Blackburn: So, FERS is going to be 1% for every year of service unless we've gotten to age 62 and 20 years of service. Then we're going to be at a factor of 1.1, so a 10% increase.
So, for our example, we'll assume a 40-year career, and that will put us at that age 62 and that 1.1 factor, which is going to be a 44% income replacement.
John Mason: So, and to be clear, guys, what we like to do on every episode as we're talking numbers, is we try not to talk too many numbers.
So, for today, again, everybody had a 40-year career, everybody made a 100,000. And as we look at these CSRS folks, 76% income replacement, FERS 44% income replacement. In dollars that equates to $76,000 and $44,000 of pension.
So, if we stopped right here, CSRS is greater than FERS. CSRS must be better than FERS. But what we haven't talked about yet is social security. We haven't talked yet about Thrift Savings Plan. And then we haven't talked about the differences and the cost-of-living adjustments or what they really should be called cost of living increases.
All of these are various factors, I think, that we're going to talk about tonight in this episode.
So, the next part … because remember FERS is a three-legged stool. You've got your pension, which Tommy, you just articulated. Part two is social security.
So, social security costs 6.2% of everything you make you pay into social security up to the cap, which is in the 130,000 range. FERS cost 0.8. So, 6.2 plus 0.8 equals 7%.
CSRS folks pay 7%. So, we need to compare CSRS by itself to FERS and social security. Because together, FERS in social security costs seven, whereas CSRS is a standalone as seven.
Michael Mason: Yeah, and just an interesting point, keeping math simple. Remember, we said, let's just assume 2% for CSRS and 1% for FERS. So, it costs CSRS 7% of their pay to earn 2% for every year of service. And it costs a FERS person 0.8% of pay to earn 1%. I mean you know something's wrong with the government's math when 7% get you two, and 0.8 gets you one.
Tommy Blackburn: Yep. In one of our previous episodes, I think when we hit on this. I can't remember the episode. We just said that we're not really sure how the actuarial math added up there, how we got there, pointed out that oddity. John, I think another thing you hit on a few things we're going to cover.
I don't know if you mentioned, we'll also talk about the difference in taxation of how this all adds up and some of the choices and flexibility you'll have there. So, that's another difference when we try to weigh truly is one better than the other here with how are they treated from a tax standpoint.
John Mason: That's a great point. So, as we dive into now adding social security into the mix, it's pretty common guys for us to see somebody who spent 30 or 40 years in the government retiring at 62 or later under FERS.
It's rare that we're seeing people at 62 that don't have $2,000 a month at social security benefits, which means if they were to delay until 66 or 67, their full retirement age, we're talking $3,000 or more per month in social security benefits.
So, for tonight, we're assuming that this FERS person makes $30,000 in social security, plus the $44,000 of FERS, bringing our grand total of those two pensions, Mike, to 74% income replacement. I will just go ahead and throw it out there that 74 equals 76 or 74 may actually be greater than 76.
Michael Mason: Yeah, and on the surface, it's good to have that discussion; 76 to 74, they're close enough, and I think we undershot social security at the $30,000 level.
But some of the other things that flow into this decision, are you married? Do you have a partner? Is your partner working in the federal government? If so, what is his or her pay looking like?
Or maybe they're a stay-at-home spouse. Maybe they're not doing anything other than supporting the family at home, which one becomes better if there was a stay-at-home spouse versus CSRS versus FERS?
Tommy Blackburn: Arguably, FERS, at least in the example we're painting here. Because now, social security of that stay-at-home spouse is going to pick up half of the primary wage earner's social security.
So, we set $30,000 for our FERS employee. Now, they get another 15,000 half of that for their spouse. So, now, we just turned 74 into 89, I believe. So, now we've far surpassed that, that CSRS number we had in our example.
Michael Mason: Yeah, when we look at this and my mom and dad effectively, dad was CSRS and worked 35 years and retired as soon as he could, I think 55. Mom did some real estate, but never really built a career in social security.
So, looking back, I would've much preferred dad to have had FERS where he drew a $30,000 (using today's number) — a $30,000 social security check, which mom picked up at 15 and let's not forget the 44,000 FERS check.
Then I just did this math a few minutes ago, guys, which one's better from survivor benefits? Assuming you took as much survivor benefits as you can take, that $76,000 CSRS person, the max they can take is 55%, and that's a $42,000 benefit.
I rounded it up 41,800 but call it 42. That's the max they can leave their spouse. If I'm that social security FERS guy, I leave my social security, the 30,000.
Tommy Blackburn: The full amount.
Michael Mason: Then I leave half of the 44, which is 22 — 52 versus 42. So, on a stay-at-home couple, FERS is looking pretty good.
John Mason: FERS is looking really good. And as we think about flexibility, because I think we're going to talk about flexibility, taxes, and general decision-making. So, FERS is looking really, really good for two reasons there.
One, the stay-at-home spouse, we got that benefit, that extra kicker that Tommy mentioned. What if we had delayed the primary age, the primary earner's social security until 70? Now, all of a sudden, we got an even bigger survivor benefit from social security by delaying social security until 70 because we have decisions.
So, under CSRS, you retire and you get a benefit and that's it. It could be a perceived negative that when the first supplement goes away, we could or could not turn on social security. Or that we can retire at MRA, but we don't have social security yet.
In our mind, it's like, well, that's great. Now, we get to choose when we activate it. Now, we get to choose when that secondary pension comes in. When does it make the most sense not only from a retirement income standpoint, not only from a tax standpoint, but from the survivor benefit aspect as well.
So, FERS is looking really good, the flexibility of determining when and how you activate social security, Tommy. And then we also get to talk about part three of FERS, which is the Thrift Savings Plan, and while having that be the additional retirement income component.
Most CSRS folks didn't participate in TSP. And if they did, it was relatively late in their career or maybe a little haphazardly. So, CSRS folks had one income stream, CSRS.
Our FERS folks have three because they knew that they had to contribute to TSP. So, how does that fit into the mix?
Tommy Blackburn: Well, it's going back to flexibility, it's a flexible pool of money that we can generate income from, or we can use discretionary.
Typically, what we see with most FERS employees or retirees is their TSP, that is really more of a discretionary because we just added up income here between their FERS pension and their social security. And that probably replaced most of their have-tos, if not all of their have tos.
So, now, they have this pool of money, which is not uncommon for that to be around a million. If you've been contributing the 5% plus getting the match for your entire career.
So, now, we have a million dollars of liquid money that we get to control when we turn it on, turn it off, when we're going to get taxed on it; we have a ton of flexibility at that point in time.
Michael Mason: As I look back on this, I've been doing this and helping federal employees since late 1987. It's very important to address easy for you to hear, TSP. If a CSRS person puts 10% of their pay into TSP, they're saving 10%.
If a FERS person puts 10% of their pay into TSP, they're saving 15%. And they knew they needed to do it because the government pretty much told them that if you don't contribute to TSP, you're not going to be as good as the CSRS guy.
You guys, you didn't know it because you weren't here in ‘87. I don't know if you'll ever remember it, John, but through the nineties, you weren't just allowed to put in the maximum.
Through the nineties, if you were TSP, FERS, you could put in 10 and CSRS could only put in five. So, they reeled you in on how much you could put in at that time too.
John Mason: Unbelievable. That's a great point. So many good points from this podcast already in this episode. I just did some quick math Tommy, when you said the million dollars, which is pretty common. We have a lot of clients we hear “I want to retire a millionaire.”
Well, again, here's a takeaway from this episode; you're retiring as multi-millionaires if you are a federal CSRS state employee with a pension, because your pension's worth a million or more, your social security is a million or more.
And what you've saved is probably around that million or more. So, you have the retirement security of somebody that has $3 million of assets. If we assume that that first person was already at 74% income replacement and they have a million dollars, now, they're at 94% income replacement because we could easily generate 30 to 40k a year in retirement income from that TSP.
So, now, we're at 94% as compared to the CSRS at 76, and we have more options. When do we pay taxes? When do we activate it? Can we pass it down to our kids and our grandkids?
Michael Mason: Well, that's the biggest point that I wanted to make at this, is the legacy. I've got a couple old friends of mine that retired back in the late eighties, early nineties, both of them CSRS.
And when I talk about secret millionaires and multi-millionaires, and they're very successful folks, they’re like, “Well, you can't compare our pension to millions because we won't leave it to anybody.”
And they're absolutely right; when both of them are dead, it's gone. But again, back to FERS, a third of yours too is going to be left to somebody and that's the TSP. And that's a legacy that we need to think about.
John Mason: And I think all of us agree as we were preparing for this Mike is that FERS people are better off because they were told. They were the underdogs. So, they had to fight for it from day one.
Tommy Blackburn: And not only were they told that was in the federal government that they had to fight for it, that you're in the worst system so you got ground to make up.
When I think about they're not talking to you, everything they've heard is you need to be saving at least 10%. You probably need to be saving 25% because you're completely out on your own out there, social security, this and that, that was in the mainstream media.
So, even if CSRS, isn't making them think, “Oh, I've got to save a lot.” Everything you're hearing around you is telling you that as a federal employee, they're not talking to you. So, if you listen to the media, you probably overfunded (if there is such a thing) your TSP.
John Mason: Probably overfunded and probably maybe could have enjoyed a few more vacations along the way, helped kids with college along the way.
It could have just been different had we known the score of the game, had we known all along that FERS and social security was going to equal CSRS and that TSP would be the travel vacation, extra stuff, that would've been nice to know.
Selfishly, we like delivering that news. So, we really enjoy the fact that a lot of people don't know this until they come see us at our financial planning meetings.
But yeah, it would've been nice to know 10, 15, 20 years ago that you've won the game, that you're on a good path. And that's what we're hoping this episode can do for us or for our listeners, for our clients, is continue to show that two legs of FERS equals CSRS, and then that third leg puts you over the top.
Michael Mason: What I want to reiterate here or maybe just iterate, because I don't know that we've said it yet, is we're going back in time, and people that may be listening to this, well, don't have that decision anymore. And why are you telling me?
Well, you might have 20 years of service, you may be 20 to 25, maybe 30, and you may be facing things like tuition for two or three children. And you've been thinking you're the underdog for all these years. And then you hear the people on the radio or TV say, "You can borrow for college, but you can't borrow for your retirement."
So, you don't know how good you have it and you fret. Even if you get them through college, you fret for those two or three years, instead of just having a planner like us, that says, “Why don't you just scale back to 5% on TSP? Let’s just scale back a little bit and it'll be okay.”
Tommy Blackburn: The score is you've won. So, all you're doing is running up the score. Now, you didn't even know you were winning.
John Mason: Tommy, I want to kind of close the loop on that just a little bit more. I can think of one client relationship that you and I worked together. It was a younger couple, mid-forties private school.
And when we did their financial plan, we saw that they had retirement one. I mean this couple had between 700,000 and a million already saved by their mid-forties. But we had some debt problems, we had some cash flow problems. We didn't have ...
Tommy Blackburn: A lot of stress.
John Mason: A lot of stress. And when you were able to deliver the boom that said, “We can scale back your TSP to 5%” and Mrs. Client said, "So, I can go shopping and not have to worry about what I'm spending and we can buy groceries and we don't have to stress out about it," that was such a huge experience for them.
Tommy Blackburn: It was and you recapped it great. And it's been awesome to see that situation and others like it, where you just see how much stress was relieved and how much you won the retirement.
Every meeting we've come back to, that's been the message is, “Hey, retirement's great. That is completely taken care of. How's today doing? Have you moved into the new house? You guys are loving it. That's awesome. The kids are getting educated. You're being able to enjoy today, you have clarity.”
I mean, truthfully, that situation was almost a little bit of paralysis, I would say, just because it had gotten so stressful and they didn't know the score. That is the best way I can think to say it. Once we gave them the score, we now knew what the game plan would be.
John Mason: Tommy, in that particular situation, we were able to empower our clients to do something that they would've not otherwise been able to do. And that was, lower retirement contributions, lower their savings rate, increase cash flow, do the things today that makes life a little more enjoyable.
We would've never gotten there if we couldn't have showed the score of that game. So, I just think about how much we were able to empower that client, how we were able to eliminate that stress.
And this is not just for that mid-career couple. My last strategic planning meeting guys, was a couple who could retire. We've showed them they can retire and they want new floors, and they are both maxing out their 401(k) and TSP.
And they're like, “Well, where are we going to come up with the money for the new floors?” It's like, “Well, if you can retire, we can lower your retirement contributions down to the minimum and we can get your new floors out of cash flow.” But the common theme is “I thought I need to save as much as I can leading up to retirement.”
So, again, empowering our clients to think differently about the situation. And just remembering that financial planning is not just how do I have the most amount of money possible when I retire? It is, we have to factor that into the equation, Mike.
How much money do I need to retire comfortably? But we also have to solve for all of these other stresses that we have today and as well, make sure we have enough cashflow to do a little bit of more fun things.
Because we want to get the floors, we want to get our kids educated, we want to go on those memorable trips. So, financial planning does not mean solve for the maximum retirement income possible.
Michael Mason: So, what you're trying to say, John, is once they knew the score, they got the floors.
John Mason: They got the floors, baby.
Michael Mason: Okay. And folks we've used this analogy for years, and I'll quickly tell you what we mean by it.
If you're the manager of a football team or the head coach of a football team and you're up by four touchdowns and there's two minutes to go in the game, are you stressed? Of course, you're not stressed. You're going to run the clock out because you know the score.
The problem is that you don't know the score cause many of your financial planners don't know it, they can't communicate it. Your human resources folks can't communicate it. So, when we say, “Do you know the score?” The score is everything we spent the last 25 or 30 minutes talking about.
How does the formula work? Are you going to replace 75, 80, 90%, maybe a 100% of what you've been spending? So, know the score.
And then that just segues guys into the highest inflation year in the last 40. And if we're going to compare CSRS and FERS, then we have to talk about knowing the score; are you really affected by this inflationary time? How is a FERS check cost of living adjusted versus a CSRS?
Tommy Blackburn: So, CSRS is going to get the full CPI. So, for 2022, that was 5.9% that went into effect. And for our FERS, you're going to get CPI, which I guess I should elaborate what's a CPI. That's the consumer price index. It's an inflationary measure reading by the government.
So, if inflation is running at 5.9, FERS got 4.9. They got inflation less one, social security got inflation. So, 5.9%. So, if you're FERS, maybe now, you're thinking, well, that's in our opinion, that's still great.
You're keeping up with inflation, maybe not 100%, but you may be thinking, well, I missed out. I'm not getting that full inflation as CSRS guy. But I think if we then talk about maybe some of the other differences here, like taxation, maybe it's more than offsetting it.
John Mason: And we compared and contrasted in a previous episode, CSRS versus FERS. So, CSRS is going to get that COLA from retirement forever. Whereas FERS, you miss out on a COLA from 57 to 62, so that's a little nuance.
But then as, Tommy, you were hitting those, I wrote down a lot of FERS folks got a 5.4% COLA this year. So, if you assumed half of their retirement income was FERS and half was social security, they effectively got a 5.4% pay raise compared to CSRS at 5.9. Again, we're really, really close, so let's transition to tax.
Michael Mason: Yeah, well, that's going to make the difference. It's all part of knowing the score.
So, your social security, which is not taxed in Virginia and John, what is it? 36 states and the district of Columbia that it's not taxed in either. And that got a 5%, 5.9% pay raise. So, that kept up.
Same pay raise as CSR has got, but in Virginia, your CSRS check is taxed. So, a third of your retirement in Virginia under FERS is not taxed in the state of Virginia. All of CSRS is taxed in the state of Virginia effectively.
Tommy Blackburn: And even on the federal level, CSRS is going to be mostly taxable. It does have some a small portion of it. We typically see around 5%, that's going to change over time.
But about 5% of it is tax-free. Whereas, social security at most, 85% is taxable. So, flip that around, another way to say it is at least 15% of your social security is tax-free. So, when we think about social security, 15% tax-free at the federal level, completely tax-free in Virginia and in most states.
That’s got to get us back to the same or more. It brings us back to an earlier example when we said CSRS is making 76 and we added FERS and social security to get us to 74.
John said we would argue 74 is at least 76, if not more, when we just account for those tax attributes we went through with social security. That's how we get to the more.
John Mason: And guys, as we're getting close to concluding the episode today, I just want to point out, I think we all did, as we were preparing for this episode that we're talking about normal FERS employees, those people hired between 1984 and 2012.
2013 and ‘14 we’ve started seeing some changes. So, FERS-RAE (Revised Annuity Employee, and then FERS-FRAE (Further Revised Annuity Employee). These people pay more.
So, the most recent FERS hires, the people that are young folks or the people that are getting hired by the government today, they're paying 4.4% for FERS, where the people hired pre-2013 are paying 0.8.
So, we may be getting into a situation now where the scales are tipping a little bit back in favor of CSRS. But at the same time, all of these points; social security, TSP, matching money, decision-making — I don't think we're entirely convinced that FRAE is that bad either.
And in fact, we know it's lucrative, we would just maybe need to think a little bit more if we were to do a direct comparison between that program and CSRS.
Michael Mason: Oh, there's no doubt. I mean, you don't have a choice at this point to go back and get CSRS or FERS original. So, at this point, yeah, if you could go back and get either one of those, it would be better. But FERS today is better than no pension whatsoever. No great health insurance.
Tommy Blackburn: We would argue there's a reason they revise the system, is because of just the financial landscape that everybody's planning in, longer lives, et cetera,
Michael Mason: Out of whack. Many people in Congress have to listen on a regular basis. You can afford to do this because you don't have to worry about your pension. And at some point, they have to say, “We can't charge 0.8% for that benefit anymore. We have to charge what it's worth.” So, that's where we are.
I want to kind of wrap up my point on this at a very high level. I think we've made it clear that under either system, you're going to be okay. Don't believe that you got into FERS back in 1989 and you missed the gravy train.
At the highest level, the higher your high-3, is the greater a 76% replacement's going to be, our example. Or you could even get to the 80% level.
It's 2022, and on everybody's minds, it would be Dr. Fauci in the pandemic and we've told you before, he was hired before 1983. So, he definitely started in the CSRS system.
It's hard to replace 80% of $400,000, high-3 with social security. Social security's going to cap out at 30 to 40,000. So, for those middle income folks, that's not low income. Anywhere from probably 60 to 140,000 of income, FERS and CSRS, original FERS and CSRS is about the same.
Tommy Blackburn: Absolutely. And then social security, that's capped at about 150,000 wage base. That increases with inflation. And so, that's Mike's example there. We have a $400,000 income, social security just not designed to replace once we get over that 150,000.
So, under CSRS, it is replaced. They don't have that cap, whereas under social security, it's going to be capped out. So, you'll have to save more into TSP or some other avenue to kind of get more income replacement.
I think we've hit on a number of great topics today. Is there anything else we wanted to cover on this episode?
John Mason: I think Tommy, maybe just wrapping up with a few action items, bullet points from the episode. If you guys don't have any yet, the big one I have is, it's time for you to know the score of your game.
If you were mid-career and you don't know the score of the game, it's time to find it. It's time to know what it is. It's time to embrace your reality and how good your retirement plan's probably going to be. We can do that for you.
So, Mason &Associates, masonllc.net, 757-223-9898. You can give us a call. We have live people who answer the phone during normal business hours, Monday through Thursday, Eastern time.
You can also request an introductory phone call right on our homepage at masonllc.net. If you don't know the score of your game, we'd love to hear from you.
Or you could reach out to folks like the XY Planning Network. You could Google “certified financial planners near me.” There's a lot of ways that you can know that score, but it's going to start with making sure you're working with somebody who speaks the language of a federal employee.
Understanding those lucrative benefits, the average Joe advisor is not going to put that into context.
So, the takeaway is let's know the score of your game. Hire us, contact us if you think we'd be a good fit. Or at a minimum, find a planner near you who specializes with federal employees.
Tommy Blackburn: I think that's wonderful, John. That’s clearly what I was thinking was know the score is the biggest action item here. The other one as we wrap up the show is, please rate us five stars and share this with your friends or anyone who you think could use some additional education.
We want to help as many federal employees as we can. We can't serve them all. We do look forward to new client relationships we can add, but we do this podcast to try to help as many people as we can.
So, please rate us five stars, share it with your friends. And please let us know future topics or questions that you may have.
Michael Mason: We've spent a lot of time with know the score. When I'm finished here, you're going to hear our song that says, “You will rest easy once your plan is done." I just want you to put these words in. Instead of once your plan is done, “You will rest easy, once your score is done.”
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.