Are you ready to retire comfortably and enjoy the fruits of your labor? Retirement planning is not just a reactive process—it's a proactive one. It's crucial to start planning for your golden years as early as possible to ensure you have the financial stability and peace of mind you deserve.
But where do you start? How do you know how much to save? What insurance should you have? What about survivor benefits? And how can you make more money in retirement than you did during your working life? These are just some of the questions that Michael and Tommy will be answering in this eye-opening episode.
Listen to the full episode here:
What you will learn:
- The importance of retirement planning rather than retiring without any plan. (3:56)
- How empowering it can be when you know the real number you should be saving for. (5:45)
- How to enhance your retirement AND your working life. (9:20)
- The importance of having the right insurance upon retirement. (13:50)
- Why it is essential that you say 'yes' to survivor benefits. (15:50)
- How to make more money in retirement than you did in your working life. (20:30)
- How to remove unnecessary stress from your life. (24:20)
Ideas worth sharing:
“There is a difference between retirement reacting and retirement planning.” - Mason & Associates, LLC
“You can rest easy when you know you’re saving the right amount for retirement.” - Mason & Associates, LLC
“Just say 'yes' to survivor benefits if you’re married and retired.” - Mason & Associates, LLC
Resources from this episode:
Did you enjoy the Federal Employee Financial Planning Podcast? Never miss an episode by subscribing on Apple Podcasts, Amazon, Spotify, Stitcher, and Google Podcasts.
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. And this episode, Tommy Blackburn, also Certified Financial Planner, Certified Public Accountant.
Mason & Associates have over three decades of experience helping federal employees with their financial plans.
This episode, Know the End in the Beginning. Know the End in the Beginning. It'll make sense to you as we dive deep into this.
But Tommy let's first and foremost acknowledge we just came off of a Thanksgiving holiday. Bobby and I had a good holiday, not exactly what we were looking for as we battled through COVID, so there was no turkey dinners and whatnot.
But it was a mild case and we're back in the saddle again. Hopefully you guys had a good Turkey Day and everyone's doing well.
Tommy Blackburn: We did. We did. We reflected, there was a lot to be thankful for, and it was a beautiful Thanksgiving Day. You don't always get those around here. Sometimes it can be a little chilly on Thanksgiving Day.
So, it was nice to be able to get outside, enjoy a meal with the family. We spent it with my wife's Jess's, her family, which was great to see everybody. The next day we got to see my parents, which was also a celebration of my birthday. So, that was fun.
And yeah, just very thankful that everybody's healthy, even given some mild illnesses that may be floating around, everybody's healthy and there truly is a lot to be thankful for, despite how the narrative may be presented in the media at times.
Michael Mason: There you go. And folks again, this episode, Know the End in the Beginning. It is Tuesday, just after Thanksgiving, we'd be remiss if we didn't acknowledge that we came into the office yesterday, found out that the Federal Long Term Care Insurance Program will begin a two-year moratorium where they won't be taking applications.
So, applications are good through December 18th. I don't even know that this will get out before December 18th. But it's important for the folks to know that everything we did in Federal Long Term Care, episode 14, is accurate information. The premiums may change, but it's accurate information.
It's just we don't know when, Tommy, that you'll be able to apply or even that you'll want to, if they adjust the premiums as high as it's been alluded that they may do.
Tommy Blackburn: Yeah, it's really a guessing game right now, trying to use educated information. They've said it could be 24 months before we know what the next side of this looks like. At least for new applications. We're not really sure what may happen to existing as far as premiums during that period of time.
But how the program works under the current applications still in effect. And most of those lessons still, I think, hold that we talked about in that episode, it's a landscape that continues to change.
Michael Mason: Just a very, very difficult, obviously difficult underwriting process for the insurance companies. As private sector has been doing it longer than the federal government. All of them seem to need to raise their rates to be able to fulfill the promises.
So, we'll keep our eyes and ears open. Maybe we'll do another podcast on the other side of this moratorium at some point.
But Know the End in the Beginning. So, I want to start this one with isn't it unique (unique may not be the right word), that you do retirement planning, you can't even get into a retirement planning sponsored by the government seminar until you're within five years of retirement.
So, you've spent 35 years in the government, now you get to go to a retirement planning seminar, and for years, 35 years in this business, I call that retirement reacting, not retirement planning.
Tommy Blackburn: Yeah. When we're thinking about an entire career, those last five years, there's only so much change we can do at that point. We can put some icing on the cake, kind of show up that foundation, position it even better, begin making some longer term moves from there.
If we haven't done a good job, if we find ourselves that we may have to work longer, I'm not saying that would be the case for federal employees, because as we're going to talk about they have a nice pension, which we've hit on before.
But five years out, man, there's a lot of a lot of ground that we could have been working on or envisioned we could have had before we got there.
Michael Mason: Well, if you knew at the beginning what the end looks like, maybe even if you get to the same spot, because the calculation is the calculation. If you work 40 years under the Federal Employee's retirement system, you can have a 44% income replacement. Knowing that in the front doesn't change it at the end. It's still going to be 44%.
Tommy Blackburn: Probably changes your journey over those next 35 years, even if it's just a psychological change.
Michael Mason: Right. And that's where we're getting it changes the journey. But let's also dive into that 44%, because you really don't know what you're earning. When you look and say, we'll use a hundred thousand dollars, you think you need to replace a hundred thousand dollars, but the first 10% of your pay goes for social security and Medicare and the FERS program.
And then if you're not putting 10% into your TSP, then you're screwing up from the start. So let's just assume you're not screwing up from the start. So, 10% into social security, FERS and Medicare, and then 10% into your TSP.
So, you're living on 80%, which a 44% income replacement on the full hundred thousand is 55% income replacement on what you're actually living on. So, half the job is done-
Tommy Blackburn: Over half, right?
Michael Mason: Over half the job is done, right?
Tommy Blackburn: That's right. And so, where Mike was going, we're trying to round some numbers here to make the math a little easier, but we figured that 20% off the top to Medicare, social security, FERS and our TSP contribution, so 80% of a hundred thousand is 80,000.
We said the 44% on a hundred thousand, that's our pension. So, that's 44,000. 44,000 over that 80,000 gets us to that, approximately 55% of our income will be replaced.
You said it, I just wanted to kind of spell it out a little further to make sure it was very clear.
Michael Mason: That's perfect. That's perfect. So, if we know in day one that we're going to replace 55% of the income that actually is coming into our household, we're empowered. We're empowered, and then if we're saving 10% into thrift savings plan, which is really 15%, you're almost going to get home without anything from social security.
Tommy Blackburn: Right. And as we've hit on in different episodes kind of when we walk through FERS in the beginning. So, you're going to have that pension that's getting you 55% of the way, you have your TSP, that 15% is going into when you account for the match. So, that's going to get us quite a bit of ways over 35 years as well.
And then social security we believe you can count on social security in some shape or form to be there by the time you retire.
Could there be changes? Certainly, it may look different than how it looks today, but between when you factor in social security and your TSP, we think you're going to get to a hundred percent income replacement there.
Michael Mason: And isn't that wonderful? A hundred percent income replacement, that means you'll make as much money for the rest of your life as you were making the year before you retired.
Wouldn't it be nice to know that in year one, through year 40 than to sweat bullets, over the next 35, 40 years, wondering how you're going to get there.
Tommy Blackburn: Seems like a much more enjoyable, less stressful journey. At least take that piece of the stress that everyone harbors going through life. If you can at least kind of alleviate that one a little, that sounds like a much more pleasant journey.
And I was thinking about our song, you can see clearly now, right? You can see clearly the end that it's going to be taken care of.
Michael Mason: Yeah, you can rest easy, now that your plan's done. And the plan starts with knowing … hey, and I talked about this before we started recording this. Can you imagine a major league baseball player wondering in game 150 of the season, “I wonder how many more games I'm going to have to play before the season's over?”
Can you imagine them not knowing that it's nine innings in a baseball game and it's three strikes and you're out and it's three outs and the innings over. But we have had, and I'm just going to call it out, we've met federal employees that believe the first retirement system is synonymous with TSP.
And they spent 20, 25, 30 years in this system, and they don't even understand that they have a pension. That 55% I was just talking about. They just think that, oh, they have TSP match when the old system didn't have it.
Tommy Blackburn: Yeah, it's kind of crazy to think about that that’s a secret that's kept somehow from them that they're unaware of that I was thinking we've had plenty of advisors that don't realize there's a pension there as well.
But it's kind of disturbing I guess as you think about what a more stressful journey you've probably had up until this point, because you didn't know you probably had at least a million-dollar asset growing in the background as you were approaching retirement.
I guess it's also, maybe it's found money quite relief when you go to the retirement seminar and realize you have a pension there you weren't expecting. But think most people would prefer from the beginning, to have that knowledge and take some of that stress away.
Michael Mason: That reminds me of a story. And before I tell the story, let me let the folks know there's episode, Federal Employee Financial Planning Podcast, episodes five, six, and seven that deals with the FERS retirement system.
So, this episode is just designed to help you understand why you win so much more by knowing day one, what the end looks like. But reference episodes five, six, and seven.
Tommy, you made a great point. We had a client, a prospect come to us who had met with another financial planner and the other financial planner told them they were $1 million behind their goal. $1 million behind the goal because that other financial planner didn't understand that their first pension was $40,000 a year. And guess what? $40,000 is the equivalent of $1 million, right?
Tommy Blackburn: So, their plan was in great shape. So, not only knowing these things, does it make life less stressful, but it helps you make better decisions as well.
And so, I think we're going to get into that. So, how much do we save for retirement? And if we are saving additional, realizing that we're just enhancing what it looks like at the end. But what about our life instruments decisions?
All of these things is we're trying to make decisions in life. If we can already see that on the front end, it's going to make the journey a lot more informed and hopefully less stressful.
Michael Mason: Yeah, I've watched over my 35 years people that, one, they don't really understand what the pension looks like 35, 40 years down the road. They have never had that consideration that they're going to take survivor benefits, they're married and they will elect survivor benefits at retirement.
And you are empowered when you know you're going to do that because here's one of my other, I'll call it great because I think most of my one-liners are pretty great statements. If you can afford to retire, you can afford to die, if you take survivor benefits.
We just have to get you to the point that you can afford to retire and one year of service means 1%, actually means nothing because you have to have five years of service to have a pension.
So, while you're building this big pension, then you need to have some life insurance in case the good Lord takes you off this planet sooner than you had hoped.
So, you buy the right amount of life insurance, and you buy it in term insurance knowing that when that term runs out, you are going to elect survivor benefits.
Tommy Blackburn: You are able to make the right decision there. You didn't need insurance for the rest of your life. You already knew what the answer was going to be at the end. So, that's how you were able to land on, I just need term insurance for this period of time. It's pretty plain vanilla, should be able to get it, fairly cost effective.
Versus going out and getting an expensive insurance product that is not even a verdict on that product. It's just a permanent whole life type product is going to be way more than you need. Because you already said it's solved at retirement.
Michael Mason: Yeah, that's correct. And we did an entire episode on Survivor Benefits and that's episode two, Federal Employee Financial Planning Podcast, episode two. So, you should reflect on that.
I would say that after 18 years, Tommy are doing radio which is going to end December 20th of this year. Probably the single biggest piece of advice that we've given over 18 years and the amount of families we've saved from really, really stupid mistakes, we can't even add them up because maybe we see 1/10th of the ones we've helped, but the other 9/10ths have just gone on to make a good decision that they otherwise wouldn't have made.
So, I would say the number one piece of advice we've given over the years is just say yes to survivor benefits, if you're married and retired.
Tommy Blackburn: It's hard to see that one being detrimental and more than likely it's going to be a huge boon. And we've even talked about in those other episodes just how valuable that is, the cost that they charge you being pre-taxed at 10%. So, it's really closer to like 7%. And just some of the unique features of the Survivor Benefit Plan. It is so well worth the cost that you're going to pay to have that.
Another thing Mike, as we were laying out here, we touched on TSP and got me thinking something we talked about too before the show was the investment strategy.
So, if we know 35 years from now, we're going to retire, we're going to have a pension, we're going to have social security at some point, we started layering all these things in, we're also putting that investment strategy in place to get us from point A to point B because we can see where the end's going to be.
We can begin designing those portfolios where we don't need to make a bunch of short-term reactionary changes in our investment plan. We know where we're going to go, we'll set the strategy.
Sure, there'll be tweaks along the way, but we don't need to make wholesale shifts trying to time the market get scared about things. We know what we're trying to do.
And the same thing, even when we enter retirement, we should be looking out over a long horizon there and know the strategy that's going to work for what we're trying to accomplish.
Michael Mason: Can you imagine, here it is, November, the end of November 2022, been a tumultuous time in the market. Can you imagine somebody that has 25, 30 years, you know, still to go in the federal government.
Or even somebody that's got five years to go in the federal government, but 30 years of retirement, laying awake at night wondering is there investment strategy or listening to Kramer, God forbid, and making changes to a portfolio that has a 35 to 50 year life expectancy.
Tommy Blackburn: You got to go check out episode 18. They're not talking to you. Because that is exactly what that episode deals with. You should not be up at night with those stresses.
Michael Mason: While we're hitting this and we talked about life insurance, federal employees, group life, option B, again, the episode, know the end in the beginning. All you have to do is do a little bit of research or just listen to every one of our podcasts. And you don't need to do any more research.
But you know that at age 45 definitely age 50, federal employees, group life, option B is going to get expensive. The only people that stay in that are the ones that are uninformed or the ones that can't get out because they're not healthy enough to get out.
Well, you should have known this in the beginning, and you should have locked in your good health, in a 30-year term policy so that you don't wake up at 54-years-old thinking, “Gosh, it's going to go up again.” And you scramble.
And here's what happens when most people scramble. They make a decision to drop the coverage without any financial planning whatsoever. The only planning was it's too expensive, so I'm not going to buy it anymore. Let's know the end in the beginning.
Tommy Blackburn: And so, then we might make another decision with unintended consequences. We want it all to be informed. We want it to be planned and not reactionary.
And Mike, I was thinking we recently met with a client that they had FEGLI option B getting ready to go into retirement and through a plan, survivor benefits, us addressing the different areas of the plan came to the conclusion, yes, you can drop this, and that was over $5,000 a year. That's going to fall to the bottom line.
So, then when we were talking about goals, like they wanted to go buy an RV in a truck we started saying, whoa, we free up that FEGLI option B, it's going to help with that.
And even the same thing with the health benefits. We, we just released an episode on that one. It looks like episode 21 talking about what is that going to look like in retirement? And they actually had TRICARE available to them, so found they were overpaying for FEHB and that was another, I think five or $6,000 savings.
So, it's fun for us when we're able to uncover these things and add this value, but being able to get that right on the front end could certainly help as well.
Michael Mason: Oh yeah. We love being the hero, but we would've loved to have met you 20 years earlier, been the hero then, so that you didn't go through all these expensive years.
And it's not just expensive. And before this is over, we're going to talk about the mental stress and some of the other dominoes that fall when you don't know the end in the beginning.
But as we talked about FEGLI, Federal Employees Group Life, let's not be remiss not to call out episode eight, Federal Employees Group Life.
Here's my favorite. If you know upfront, if you know in day one, or let's just call it year one of your federal employment career, that you are going to retire at age 65. I'm making the assumption, Tommy, you start around 25, so you're going to retire with 40 years, you're going to retire at age 65.
And all you have to do is pay into the FERS system, put 10% into your thrift savings plan, not do anything stupid. Betting on a hundred percent on the I Fund in given years, put 10%, be diversified, pay your social security, you're going to retire and make more money for the rest of your life than you were making the day before retirement.
If you knew that, how much does that free you up for the other 39 years of your federal career?
Tommy Blackburn: A tremendous amount. I can even think of a case we had of a client of the firm’s right now, which was when they met us, they're a younger client for us probably in their early 40s.
And he was maxing out his TSP, built up a beautiful TSP balance, but they weren't living in the house that they could afford. So, they weren't living life to the fullest. Didn't realize that they had already probably overfunded retirement as we really dove into it.
So, it was, again, we got to be the hero of painting the picture of saying, hey, retirement is funded. You've done it, you've done it great. Now it's time to maybe y'all go get that house that's more appropriate for the size of your family because you're still living in the house that you bought when you were single and now there's four of you.
And to see the weight lifted from them and to now see them really enjoying life the way they should, that is exactly where my mind goes as we think about this episode and seeing it on the front end versus having to wait until the back end.
Michael Mason: Yeah, and I have one other story, and I wish John was here to confirm it, but this was under the CSRS system. And this family, we met him probably 35 years into his career and he was just beat up.
He was distraught because for at least 20 years of that career he was flying back and forth to the Mayo Clinic with their child. the health insurance covered it, covered the health aspect of it, but trying to beat cancer and being there and staying in hotels and whatnot. And he was just distraught that he hadn't been able to put anything into TSP.
And he spent 25 years before meeting us, being distraught over that. And we showed him that CSRS in 40 years is going to be 80%, probably 42 and a half, but 80%, which is a hundred percent income replacement.
Boy, we would've loved for him to known in the beginning what the end looked like, so he wouldn't have fretted one moment while spending that precious time. And the story has a happy ending because that child beat cancer and is a viable adult today. But I just would've loved to have removed that stress from that couple earlier.
Tommy Blackburn: Yeah. Because they had enough on their mind. So yeah, being able to at least take that off their mind would've been tremendous in the situation, but at least there was a happy ending to it.
Michael Mason: Right. So, I wrote down some notes and if you have any more as we wrap this up. Know the end in the beginning, you can avoid years of stressing over, are we saving enough? Can we go on this vacation? How many vacations have you missed because you didn't believe that you were on the right track?
Tommy Blackburn: Yeah. It just brings us back to we only get one life to live and it's fragile honestly at that. None of us really knows when our day is going to come and so, you have to plan for tomorrow, but you have to balance it with today and you weren't able to fully enjoy the time you have. And that's a shame.
Michael Mason: Absolutely. I've seen parents, federal employee couples, elect to put their children in student loan debt, because they listen to the media folks that say, you can borrow for college, but you can't borrow for your retirement. Because they don't know that you're one of the secret millionaires and that you've already won.
So, you've missed vacations, your children have student loan debt. Maybe you've added stress to your marriage over the years, wondering, “Fred down the hall is saving 15% of the TSP. Why can't we get there, honey?”
If you just know the end in the beginning, you know that you didn't need to do that. If you can do the 15, well that's icing on the cake, but you didn't have to do it.
Tommy Blackburn: Needs to be your plan. And you need to have all the right, correct information to make good decisions. But it's not Fred down the hall's plan. It's your plan.
Michael Mason: Bingo. And my dad, God bless him, he's been gone now since February of 2019, but he retired National Institutes of Health back in 1987 and 1987, there was no Google. If you wanted to find out how the CSRS retirement system worked, well you had to go get the manual and you had to read it.
So, here's what I'm challenging you folks. You're listening to this podcast. If it's going to be, it's up to me. And that doesn't mean it's up to me, Mike Mason. It means it's up to you. If it's going to be, it's up to me, why would you wait to find it out at the end when you can find it out in the beginning?
My father, without any Google, without a computer, he went to OPM three times and said, “This is my retirement number.” And after showing them that number on the third time, they finally believed him.
So, he knew the number, he knew the end in the beginning, and he knew how to calculate it. And yes, I'm challenging you. You don't have to go into the deepest, darkest library or the federal government.
You could do something as simple as CSRS, VCP and you're going to find out what the CSRS Voluntary Contribution Plan or you could just listen to the podcast.
Tommy Blackburn: Right. Information is much more available today. It is somewhat surprising. I guess maybe I shouldn't be surprised, but that he had to challenge had to challenge OPM so many times on him. Because it's not the most complicated math. You've got to put all the pieces of information and the service record together to get it right.
But it's interesting because they should have the right information. So, I don't know why he had to go back and forth with them so many times, but again, at least it ended in a happy story, happy ending. Got to the right number.
Michael Mason: Bingo. Folks, this episode, Know the End in the Beginning. Use the rest of our episodes. Use the FERS. If you're still CSRS, you haven't retired yet, then go to the CSRS episodes. Understand what Voluntary Contribution Plan is. Retirement planning is exactly that.
We're looking around the corner. We're not reacting. Check us out, masonllc.net. Send in your email questions to us for the podcast. And Tommy, they should give us five stars, right?
Tommy Blackburn: Yeah, if you can please, please rate us five stars wherever you listen/get your podcast and send us those questions to Mason FP at masonllc.net.
And please share it with your friends. And again, if you can rate us those five stars, we're enjoying the podcast. We want to get it out to as many people as we can, and we want to talk about things you want to hear. So, let us know.
Michael Mason: We do take new clients. We take a handful of new clients every year. The podcast is designed to do two things. One spread 35 years’ worth of knowledge. We want everybody to win.
Two, we're going to find the highest quality clients to make clients of Mason & Associates, masonllc.net.
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.