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Federal Employee Financial Planning: Retirement Plan Success Rate = 100 % (EP22)

As a federal employee, you have many options available to you in order to plan for a successful retirement. In fact, with the number of benefits you’re entitled to, combined with proper financial planning advice, you’re almost guaranteed a 100% success rate in retirement. So, why are so many federal employees left uncertain about their financial future once they retire? In this episode, Michael, Tommy, and John will be sharing their advice for effective goal setting, including how to ensure you’re setting yourself up for the successful retirement you’ve worked your whole life for.

Listen in as they explain what you need to know before you submit your retirement papers and how to optimize your financial planning efforts. You will learn the importance of working with a financial planner who understands your unique financial situation, how to make sure you’re making good financial decisions and how to live the successful retirement lifestyle you deserve.

Listen to the full episode here:

What you will learn:

  • The pitfalls of using the software. (5:30)
  • Why federal employees have a 100% chance of success in retirement. (7:40)
  • What can blow up your retirement as a federal employee. (10:20)
  • How to find out if your financial advisor truly understands your unique financial situation. (13:40)
  • What you need to know before you submit your retirement papers. (20:05)
  • How to live the successful retirement lifestyle you deserve. (24:00)

Ideas worth sharing:

“Federal employees always have 100% chance of success in retirement.” - Mason & Associates, LLC

“The only thing that can blow up your retirement [as a federal employee] is crazy spending.” - Mason & Associates, LLC

“It’s not whether you’re going to succeed or fail, it’s about optimization.” - 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. Cross the plate from me, John Mason, certified financial planner, and Tommy Blackburn, also, certified financial planner and certified public accountant.

Mason & Associates have over three decades of experience helping federal employees with their financial plans.

This episode, Retirement Plan Success Rate = 100%. That's the title of it. As we dive into it, it'll make sense to you. But before we do that, John, how's it going? Tommy, same question to you.

John Mason: Well, Mike, it's exciting again, to be back doing in the podcast. I think it's been a couple weeks since … we've been doing our radio show together frequently, but it's been a little bit of a break since we recorded our last podcast.

And things are good, family's good, enjoying the camping this summer; our RV, and just really trying to spend a little bit more time out of the office. I know we have a vacation plan coming up soon and really, just enjoying that we were able to add a lot of value to clients a few months ago and now, kind of reaping some benefits of doing some more project-based stuff. And spending more time with the family's been great, and happy birthday to you.

I don't know exactly when this podcast will air, but tonight as we record it, 61 years young, I think is the saying, right?

Michael Mason: Yeah, isn't that crazy? Been doing this since 25-years-old, that's where the decades of experience began. Tommy, how about you?

Tommy Blackburn: Well, a happy birthday to you again. It was great. This is one of our in-office weeks. So, we're a hybrid firm, we work remotely. We meet with our clients virtually and we have dedicated collaboration weeks when we're all in the office together. This just happens to be one of those weeks.

So, it's pretty cool to see Mike roll in the door this morning, wish him happy birthday, although maybe wish he wasn't here on his birthday. He was out doing something fun, but it was kind of nice to have this in-person experience.

Things are going great. Zoe just turned two. So, she is full on toddler at this point and it's amazing to just watch her continue to develop, and how fast she's picking up things. And I talk to John and I'm kind of peering six to nine months around the corner, and that seems crazy, how much is going to change in those next six to nine months. It's very impressive to hear of the things that Carter is doing, and Zoe seems to be tracking six to nine months after him, we're experiencing it. So, it's been amazing to watch.

And summertime is great. Jess and I did a staycation, which was pretty cool. Would recommend it if you get a chance because it was almost like a week of dating. We got to spend some time together, which really enjoyed it.

And other than that, yeah, enjoying picking up the project-based work. It's been quite a bit as we're kind of rolling out of summer — we're still in summer, but quite a bit starting to pick back up with working on various things for clients.

John Mason: Well, I think we have to give a big shout out to Ken Mason. You know, Ken doesn't do the podcast with the three of us. Neither does Ben and Bobby and the rest of the team.

But Ken, founder of the firm, your brother, Mike, three years younger, if I'm not mistaken. So, he'll be 58 this week as well. So, we've got both of our founders birthday this week.

The birthday of Mason & Associates, I believe, is also this week. So, we're going to celebrate with the team tomorrow, hopefully, with a big team lunch. There's not much good in Virginia that happens late July, early August from like a weather perspective, but this is a good time at Mason & Associates.

Michael Mason: Yeah. And one other thing I wrote down, we'll do our live radio show right after we record this.

And 20 years ago, almost to the day, we were one game away from going to the Junior League Little League World Series. John, you were 14 at the time. How crazy and fast does 20 years go?

So, let's just dive into it, John; your topic on this one — Retirement Plan Success 100%. So, take it away and we'll fill in some gaps.

John Mason: Sure. So, retirement planning for federal employees is a really neat thing to do. One, because there's a lot of ways that we can add value, whether it's on the tax side, whether it is helping our clients understand the nuances of federal benefits, and then getting even more granular, which is like goal-setting; how much money can I spend? What's a realistic expectation?

Can I replace my income that I have today in retirement? Are those numbers equal? Am I making more, am I making less? So, we're going to talk about goal-setting and the concept of success rate, and then to do that, we have to understand the software that we're using.

Tommy Blackburn: Yeah. And there's a number of softwares out there. We use a software called RightCapital. We like it, our clients like it, there's a lot of benefits. It's very robust and it helps us present things visually, I think, as well as gives us — it just helps us in our analysis, and us verify things that we already know to be true.

Might sound arrogant, but we've kind of already sketched it out in our minds and this just confirms usually — it maybe points out some areas of some things that we want to think about further.

I think as we'll go into this though, there's a lot of pitfalls in using software and it's a tool. We always come back to it's a tool. You have to know how to use the tool, it's not the professional. And we have to understand what it's saying, which I think is part of where we're going today with that probability of success.

That is specifically about Monte Carlo analysis of running a thousand random — maybe not random, but a thousand trials based on various market conditions. Did we ever run out of money, is what that probability of success based upon what we have, the income we have, and the goals and expenses we're planning on.

And so, we're looking forward to talking about that today, and what does that mean to our clients.

John Mason: Well, Tommy, I think that was a really great point, and that Monte Carlos simulation, you said perfectly, is did you run out of money on like your 90th or 95th birthday before you passed away?

But we always joke, at least internally, and I know we mention this to clients too, that federal employees always had a hundred percent chance of success in retirement because we have that great pension, we have social security.

Even if we ran out of like TSP and IRA, we may have to cut the budget a little bit or tighten our belt, but there was never a situation where federal employees are not going to have a successful retirement.

Tommy Blackburn: Sure. I think if we really wanted to stress some of our clients’ financial plans, we could run the investment assets out to zero, and we still probably would chuckle to ourselves (that's not what we're planning for).

No client wants to see that happen. They do want their assets to remain, but even when we do that, it's like you still have a FERS pension or maybe a CSRS pension, maybe social security. So, we can probably add up at least six figures of guaranteed income between all of these sources.

And there also, was a house that we didn't liquidate. So, it's not the dire strange situation that it would have you believe.

John Mason: And what we'll also say, Mike, I know you say this with clients too, is this speedometer … and the reason we're going to talk for our audience benefit about this speedometer and this chance of success is like people are fixated on having a success rate that's 95, 96 or even a hundred percent chance of success.

And I know, Mike, you and I joke around with clients and say this is — it's not joking. This is the probability that you leave an inheritance. This is not the probability that you had a great retirement. It's the probability that you left an inheritance.

And as we talk about this, whether it's eMoney, MoneyGuidePro, RightCapital — the speedometer is only like … we actually, try not to show it because that's not what's most important about the financial plan.

Michael Mason: Yeah. And as you guys talk about this, and again, we've told the audience, I'm 61-years-old and I've been doing this 35 years. And what's kind of interesting is that many clients will tell you that if they leave their kids something, that's gravy for them.

They just assume live and spend it all. But then you show them a speedometer that says 10% success rate, which means they spend all but about 10%. Now, all of a sudden, they don't like it anymore. And your point was very good in that the only thing that can blow up, a career federal employee and especially a career couple that's federal employee.

The only thing to blow up your retirement is just crazy spending that you shouldn't be doing. Or the federal government doing something to weaken us so much that they can't fulfill their promises.

John Mason: Great points as always, Mike. And as we talk about this concept of success rate, I'm thinking of one particular client who's been clients of ours for a long time. They met with a financial planner who was using a tool and didn't know how to use it.

So, didn't plug in first, didn't plug in military correctly, didn't plug in SBP (survivor benefits). And when this person showed them their Monte Carlo simulation, it said 40% chance of success, you're never going to be able to retire. You need to save more.

And it's so frustrating because one, it's wrong. It's like bad input is bad output, but like that person's stressed, this family's stress for 15 or 20 years. It's so frustrating.

Michael Mason: Yeah, and excuse me, Tommy, but I said to you, I believe — and even if I didn't, it's good for storytelling. I said go back and have that planner add a million-dollar asset. Just add a million dollars to your TSP, whatever it is. It's 500,000, make it 1,000,005 and see what the success rate is.

And they came back and they said, “Well, it's a hundred percent. Where am I getting the million dollars?” Well, where did they get the million dollars from?

John Mason: The FERS pension.

Michael Mason: The $40,000 FERS pension. And trust me folks, you've heard the story, an aerospace engineer or what's not as smart as … is it aerospace or a rocket scientist.

Tommy Blackburn: It’s not rocket science.

Michael Mason: It's not rocket science. That's it. Thanks. Well, I've seen some rocket scientists, we're right down the street from NASA, and I'm not calling names, but I've seen some that thought FERS meant TSP. They had no idea that it was also the TSP, and it's the match to the TSP because everyone has TSP and the FERS annuity.

Tommy Blackburn: It really is, kind of you have your specialized body of knowledge and what you do every single day. So, no doubt these rocket scientists are very intelligent people who can do very complicated math and they understand Monte Carlo.

They definitely know what that means or what that tool is doing, but they don't understand all financial planning. To your point, they don't necessarily understand how FERS works, how taxes work, how this all comes together. So, they can very easily … it's just not what you do. You live, die, retire one time, we do it hundred.

So, we can very quickly pull all these pieces together.

John Mason: Guys, I think it's important for us to acknowledge and for our audience to hear that although RightCapital and Holistiplan and our tech stack is pretty robust and we have access to a lot of data.

If we were forced, like if all those softwares blew up tomorrow, we could do a financial plan for our clients in Excel. And that's not to indicate that the plan is so easy, but it's that we know how to calculate a FERS pension. We know what safe withdrawal rates are.

We have strategies in place, we've come up with ways to illustrate on a whiteboard, a post-it note, an Excel document, the impact of delaying social security. And because we've worked so hard on our presentation skills and we can present on a whiteboard, a post-it note or an Excel document-

Michael Mason: Bar napkin.

John Mason: Bar napkin, anything; anything we can present the concept of retirement. Then when we go into the software we know what we're actually looking for.

So, maybe if you're interviewing other financial planners and you're thinking “Do they understand me?” I would ask for that; “Show me my post-it note, show me my one-page financial plan. Can you produce it in a digestible format or are you only as good as your software?”

Michael Mason: Yeah, and I'm going to toss this over to you Tommy, but I've got a statement that if I sat down tonight and I said cocktail napkin, if I sat down tonight at the local bar and met a NASA engineer with 40 years of service, and he asked me, “What do you think?”

Without knowing much about that person, I could tell him that he or she that they'll make as much money for the rest of their life when they retire as they're making now.

So, Tommy, how do we set that goal? You know, do we set the goal, if you make a hundred thousand, then we have to replace a hundred thousand, how do we set that goal?

Tommy Blackburn: So, our goal with clients is always to start with what is your current lifestyle? What are you currently living off of? We want 100% replacement of that.

Now, we don't mean necessarily 100% of your gross income, we want to boil that down to what are you living off of? That's what we want you to replace. And so, there are these rule of thumbs out there which can line up to kind of get us to the same place.

But that's 70% of your income you want to have replaced. Well, what does that mean? We don't like that. We want to say you're going to have exactly to kind of what you said, exactly what you — you are going to have exactly what you have now, probably more as far as income.

Your lifestyle is not going to change. It's probably going to get better. So, then the question is, well, how do we get there?

And I believe now is where we want to introduce, we do it one way when we're using the software and we have the other Excel method, which is MCI (Modified Current Income).

Michael Mason: Yeah, and that's my bar napkin, MCI. And when we did seminars, we'd say when does 70% equal a hundred percent? So, when you hear the theory that 70% should be enough, that doesn't make you warm fuzzy. But let's talk about what you're really making.

And we use a hundred thousand as an easy number to use. If you're making a hundred thousand, you have to understand that you've got bills while you're making that a hundred thousand that you won't have the minute you retire.

Two of those bills are the social security tax and the Medicare tax. Another one is your FERS, what you pay into the FERS retirement system. You may be old FERS where it's 0.8% or you may be the newest FERS, what is it? 3.8 or 4% guys?

John Mason: 4.4.

Michael Mason: So, let's go to the really low scale of that. You’ve got 7.5% between social security and Medicare, 0.8% is FERS, so that's like 9% plus it's all after tax. So, just assume what you're paying for social security and FERS is 10%.

So, you're not living on a hundred, you're living on 90. And then you're saving 15 to 20% in TSP. If you're not doing it right now when you're 20 years from retirement, you're going to be doing it when you're five or six years from retirement.

So, if you put in 20% into TSP and you're paying 7% into social security and Medicare, you're living off 70%. Don't try to replace a hundred thousand that you were never making.

John Mason: So, Mike, I think as always, you explained that great. So, MCI modified current income recap is take the income that you have today, subtract off the bills you won't have tomorrow, and that becomes your goal. So, if you have $30,000 of bills today that you don't have tomorrow, 70k’s your goal.

If you've got Virginia Tech tuition on top of that, that's about to end, now, 50,000 is your goal.

Tommy Blackburn: If you have a mortgage that's going to drop off if it hasn't dropped off.

John Mason: Exactly. So, that's another however many thousand dollars. So, it's important to understand it's subtracting off those bills that go away permanently, not bills that only go away like a car payment for instance, where you have it, it stops, it comes back again. And it's also important to understand that MCI is gross. So, after tax is one way to look at your retirement goal.

What we like about modified current income is it's gross to gross. So, it takes the whole tax burden and tax bracket conversation off the table. Because we can say social security in FERS equals 70,000, your current MCI is 70,000, and you have a million dollars in TSP, you win.

And if your gross to gross is the same, 9 times out of 10 or maybe 10 times out of 10, your tax bracket and tax situation and retirement's going to be better than it is while you're working. So, 70k gross and retirement is higher or greater than 70k gross while you're working.

Michael Mason: That's perfect explanation. And then when we get into the software because different people are going to want to see more detail, when we get into the software, Tommy, that's when we begin to look at your actual expenses, your actual taxes and whatnot.

Tommy Blackburn: Yeah, we put it all the eat, drink, and be merry budgets, the after tax number, after we've accounted for everything else. It's just different ways, different conversations to get us to the same place. The way we present it in the software is probably a little bit more complex to get into some of those details and particularly, to illustrate some of those tax planning windows.

John, as you were mentioning, gross to gross, so those are equal. We know that we're probably better off and I just had to naturally think about that wonderful tax planning window we get so excited about, particularly because federal employees retire early, which means if we delay social security and RMDs don't start — so, social security could be delayed to 70, required minimum distribution’s not going to start until 72 under current law.

There's a period of time there where solid tax planning can really elevate your financial plan and optimize it. So, maybe that even brings us back to, well, my probability of success is a hundred percent.

We knew that from the beginning. There's still a lot of value to be added here. It's not whether you're going to succeed or fail, it's hit the optimize button, let's make this the best possible situation we can.

John Mason: So, as federal employees, guys, as they think about what their retirement goal should be, we want them to think about a hundred percent income replacement. Meaning, we're going to walk into retirement without breaking stride.

We're going to make the same or more money the day after we retire as we're making while we're working. So, we want that to be ingrained. And then, we hope to open your mind even past that.

But Mike, why is it important that federal employees, military members, state employees, why is it important that they go through our financial planning process to know that before they submit their retirement papers?

Michael Mason: And truly, John, I would love for them to know that 10, 15, 20, 30 years before they submit their retirement papers. So, if you're listening to this and you're 20 years from retirement, I want you to know as a federal employee, if you're doing some basic things, saving 10% to TSP, you're already paying — you can't be a federal employee and not pay into FERS.

Minimize stupid debt, work a career. Don't think my minimum retirement age is 57, work a career like the rest of Americans; 65, 66. You're going to retire and you're going to make more money for the rest of your life.

John, what you were teeing me up for is if you don't know this and you're trying to replace a hundred thousand when you only need to replace 70,000, you start squirming when you have that survivor benefit decision.

It's like, huh, I'm not replacing a hundred thousand and then they want me to pay 10,000 or 10% for survivor benefits. Well, if you know that you're going to have more spendable income after you've protected your spouse, which is what you should do, and you know it's all going to work out, it's an easy decision to make.

And guess what, if you knew at 20 years in advance when that whole life insurance salesman came to your door, you just shut it and you said, “I don't need whole life because if I can afford to retire, I can afford to die. The way I'm going to afford to retire is I'm going to do the next 30 years in the federal government, I'll buy term insurance, and then my permanent insurance is going to be survivor benefits.”

John Mason: So, shout out episode two, which many of you have probably listened to if you're listening to this episode by now.

But episode two, Survivor Benefits, Military and Federal; you may want to go back re-listen to that episode if you have questions or concerns on SBP, or shoot us an email to and we'll get back to you with any answers to your questions.

Tommy, our clients as federal employees are conservative by nature, they love to see a Monte Carlo at a hundred percent chance of success. Let's talk about why that is not necessarily a good thing.

Tommy Blackburn: So, we always try to respect and have a collaborative relationship with our clients and listen to their concerns, and not encourage necessarily frivolous spending. So, our clients, they have the habits they have, and we try to paint the picture to allow them to make the best decisions.

And John, where you're going, what we see is to us, a hundred percent probability of success means we didn't live life to the fullest. We were so conservative, particularly when we have such strong guaranteed income that regardless of what happens, that's about as bullet proof of a promise as you're going to get. And that's going to keep coming in.

Did we dream big? Did we not turn left and take that first class trip when we got on the plane? Did we leave things on the table? And if our clients can say “No, I'm living life exactly how I want to live it,” and that probability of success is still at a hundred percent, okay, that's great, then we don't need to spend frivolously.

But the other side of that is 90% probability of success, particularly with your guaranteed income, that's a great financial plan, and that tells us we've got a little bit of balance to that financial plan.

John Mason: Yeah, we're just kind of leaving some things on the table, Tommy, like you said, whether it's taking your kids with you on an awesome vacation or helping pay a down payment for your child's first house or contributing to a grandkid's 529.

Like when you see that a hundred percent chance of success and you're a federal employee, military, et cetera, you kind of have like this power that you could be doing more to charity, more for your family, enjoying it now rather than leaving this massive legacy behind.

And Mike, you alluded to this earlier, when we meet with our clients, when we do client events and we say, “Who wants to leave a bunch of money to their kids?” Nobody raises their hand, but then they come back and they want to see the speedometer at a hundred percent chance of success.

So, not always seeing eyeball to eyeball, it's kind of like apples and oranges sometimes as we go through this planning.

Tommy, I'm interested because I've been doing federal employee financial planning now for 12 years; at your prior firms or firm, what success rate would you show to maybe executives at XYZ company? What were they retiring with to maintain that similar lifestyle? Like what was their success rate?

Tommy Blackburn: Yeah, so if we were in the 90 percents, we were feeling great. I mean, honestly, an 85% probability of success was probably pretty realistic and pretty seemed fairly acceptable because they didn't really have any guaranteed income other than social security.

So, they're having to lean into those investments to support their normal living. We just ran through some quick MCI examples where we said you're going to make just as much income in retirement as you did while you were working.

So, your investments don't necessarily support replicating the same lifestyle. So, that's why your probability ofsuccess out the door can be a hundred percent. Whereas, much of private America, they have to take on risk because ultimately, what that probability of success is saying, their investments have to be a part of them replicating their lifestyle.

John Mason: And in that scenario, I've learned from you over the time that an 85% probability of success assumes things like there's always going to be the same rate of inflation, that you're always going to have these expenses, that nothing's ever going to change, that we never make any tweaks. So, 85 is like, yeah, that's not-

Tommy Blackburn: There's a 15% probability we're going to make an adjustment is what it really means.

John Mason: Exactly. Like there's going to be something that you do that if you start seeing that probability of success go down, you're going to course correct.

So, now, you think about that Mike, as a federal employee, number one, we're at a hundred already, private sector’s retiring at 80 to 85, knowing we can course correct.

Imagine like I mean, that's significant. This is thousands of dollars a month of additional income that some of our clients and federal employees across the country could be spending if they could just stomach 92% instead of a hundred.

Michael Mason: Right. I mean, the poor guy that has to look at 85% and say that's going to be good enough — well, he spent an entire career in an unknown environment because he didn't have that guaranteed job, that guaranteed pension.

This is why we use things, guys, like the secret millionaires. You spend a career being told by your peers that you're underpaid and over-benefitted. You spend a career thinking that you have to pinch pennies. All of us pinch pennies at some point, early in our careers when we have our children, when the children are in college.

But at the end of the day, you're the secret millionaire and you should realize it so that you make good financial planning decisions that you keep that long-term care insurance, my sister, at the current rate that it is. Don't worry about the little bit of a pay raise.

You know that you turn left when you get on that airplane and that you help your children. They don't have to go into debt for college because you are the secret millionaires in those pensions, you should plan like it. And if you don't have a planner helping you do that, you should seek one that has the experience like a Mason & Associates.

John Mason: Well, guys, let's wrap this one up. A couple takeaways, three big takeaways that we want our audience to have and mine, is let's go ahead and do that calculation for MCI.

So, reminding you what that is, it's an income you have today. Subtract off the bills that you will not have tomorrow and understand that as a potential good goal for you as you approach retirement.

Tommy Blackburn: I think the other takeaway here is using that MCI number, let's make sure we've already got those training wheels on. Let's begin living that retirement lifestyle.

Michael Mason: And if you're going to seek professional help, I like my one-liners that help you remember; find a financial professional that tells you about your benefits, not ask you about them. If they have to ask you how it works, you don't have the professional that's going to help.

John Mason: This has been another episode of the Mason & Associates Federal Employee Financial Planning Podcast.

Send us any comments, please rate us five stars. We'd love to hear from you at or our Facebook page or our website. This podcast is for you. We love doing it and we're really excited to continue this engagement. We're 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.