Federal salaries don’t always tell the whole story. In this episode, John and Tommy take a closer look at the true value of federal employment, highlighting how benefits like pensions, FEHB health coverage, TSP matching, and survivor options stack up against the private sector. You’ll learn why it could take a 30-50% higher salary elsewhere to match the federal total compensation package, and why those numbers matter when making career decisions

Whether you’re considering a move to the private sector or simply trying to understand the full value of your federal employment, this episode provides real numbers, financial planning insights, and key comparisons. Listen in to learn how strategic planning, tax efficiency, and long-term benefit structures can make federal employment one of the most secure and rewarding career paths available.

Listen to the full episode here:

What you will learn:

• What strategic planning season is. (2:40)
• What federal employees need to know when they leave their federal job in favor of private sector. (10:20)
• Why you may have more money coming in than you think. (14:00)
• Where you may find better job security. (20:00)
• The health benefits available to federal employees. (26:15)
• Why we love working with federal employees. (35:20)
• The importance of being informed. (45:30)

Ideas worth sharing:

• “You go from feeling underpaid to feeling, maybe not overpaid, but higher paid in retirement than that private sector person. And it’s a pretty neat experience.” – Mason & Associates
• “Federal employees have like phantom income… You make $160,000 on paper, but you’re making $250k and you don’t have to pay tax on that today.” – Mason & Associates
• “A $50,000 pension is like having over a million dollars in another 401(k) or TSP.” – Mason & Associates

Resources from this episode:

• Mason & Associates: LinkedIn
• Tommy Blackburn: LinkedIn
• John Mason: LinkedIn
• The Federal Employees Health Benefits (FEHB) Program
• Retiring in Uncertain Times? Avoid This Survivor Benefit Mistake 
• FERS Go Bag

Did you enjoy the Federal Employee Financial Planning Podcast? Never miss an episode by subscribing on Apple Podcasts, Amazon, Spotify, and YouTube Music.

Read the Transcript Below:

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

John Mason: Welcome to the Federal Employee Financial Planning Podcast. Today, we’re tackling a big question: How does federal compensation really compare to the private sector? The title of this episode: Federal versus Private: You Need 30 to 50% More Salary, and Here’s Why. What we’re covering today—why federal employees often feel underpaid, how benefits compare to private sector compensation, and what it takes to match federal retirement security in the private sector.

Be sure to listen until the end for actionable steps to evaluate your total compensation. Unlike many content creators, we’re financial planners first, and we do this second. In each episode, we share real-life experiences from decades of helping federal employees navigate the complexities of their benefits package and all areas of their financial plans.

Tommy, welcome to the Federal Employee Financial Planning Podcast.

Tommy Blackburn: Thanks, John. It’s always great to be here doing this together, as well as when we have other members of the team here or guests looking forward to it. For our audience, you probably know that we record these usually well in advance of when they’re released.

So currently it’s springtime weather here, which is really nice. And we are getting ready to go into our strategic planning meeting season. This will probably be released either during it or after, if I had to guess. And as we go into that season, we’re just thinking of things that are on our mind and sharing, creating episodes out of that. And just really looking forward to that season.

To be honest, John, I always feel like there is a lot of prep and lead-up going into it. And then it’s fun when you actually just get to have the meetings. Granted a lot of work comes out of those meetings, but it’s this big, getting ready for the game, almost like an athlete. A lot of work ahead of time. And then it is actually pretty fun when you get to just get in there, be with clients, get updates, have fun, and create actions to come out of it.

John Mason: Strategic planning meeting season is a really good time. And for the audience, if you haven’t heard us talk about this before, we will do our best to link to these previous episodes where we talk about it.

But essentially, Tommy and I and the entire Mason team despises the word “annual review.” When we hear annual review, we just hear, New York City stockbroker in a suit talking about performance of investments who tries to justify their existence because they beat an S&P500 index or their fees or whatever, and bro, that is not how you add value in financial planning. How you add value in financial planning is, sure, the investments need to be a tool, but we need to be forward-looking. We need to have strategy meetings. We need to be saying at the end of this meeting, here is the actionable advice. And we both leave with homework.

So if you haven’t listened to strategic planning meeting episodes, if you don’t know what that is, it’s a wonderful time. It’s our mandated, if you will. Action meeting that we have with clients throughout the year. Personally, for me, it’s a very happy time. I’m a big extrovert, and I also struggle with calendar management.

So when I know I have five client meetings every day of the week, it really makes my life a lot easier because I don’t have to think about how I’m gonna fill my day, Tommy. So I’m very excited to go into the—for the clients listening, I don’t mean this to be, I’m gonna show up brain dead to your meeting.

But it’s really excited to brainlessly be able to show up and just know what I’m doing every day and just be able to come in and add so much value through our financial planning process. Strategic planning meeting season, Tommy, April 15th. We’re recording on April 2nd, goes through the end of May.

So that’s six weeks. At the end of that period is when we’ll start onboarding new clients. And during this time, we’re just very, top priority. No new initiatives, no technology changes. No wild and crazy ideas, not onboarding new families, just taking care of existing folks.

Tommy Blackburn: Yeah. Very exciting time. We’re all looking forward to it. And I completely know what you mean, where it’s, every day you’re thinking about what am I gonna do today? When we’re in strategic planning meeting season, you don’t spend any brain power on that. I’m meeting with clients.

That’s exactly what I’m doing today. So I understand. I’m looking forward to this episode. Some of it is coming up. It’s a common theme, I think, with federal employees. You go through a career, you wonder, “Would the private sector be better? I have my friends, my colleagues everybody’s throwing out things and how does that compare to where I am?”

And it’s also top of mind just with what’s going on right now with whether you wanna say DOGE, RIF, VERAs, VSIPs, the downsizing, so to speak, of the federal government that’s currently going on. It natural to think this way as well, right? Like maybe I’m leaving federal employee, either voluntarily or involuntarily.

What does that mean if I wanna keep working? It comes up from multiple angles, or just even when we’re in this environment or not. So happy to share this because this is certainly top of mind all the time as well as currently. And so I guess John, I hit on it, but like, why do federal employees—to start with—why do they feel underpaid?

John Mason: Yeah, Tommy, it’s a great point. And I think just adding on a little bit to what you were saying about all those RIFs, VERAs, VSIPs. RIFs are not good. VERAs and VSIPs are pretty good opportunities. And the deferred resignation, we had the 1.0. As we think about it, which was through, I think it could go through September 30 or 12/31, depending on your circumstances.

And then it looks like we have deferred resignation 2.0 now, which you could still leave, and then I think you have to be off the rolls by September. Admittedly, I haven’t read the FAQs to see if this is materially any different than the first deferred resignation offer, but I think this episode is really applicable to that maybe 25-year-old up to maybe 45 or 50-year-old because maybe they’re thinking, deferred resignation sounds really good and I’m gonna go make the big money in the private sector, or something like that.

So I think this episode is really geared towards maybe active duty military in some ways. Maybe the kind of early to mid-career federal employee who’s looking maybe to jump ship.

The ones who are a year or two away from retirement, they’re not leaving unless they’re forced out or they’re taking this VERA, VSIP, and they’re probably not looking for that second job. So is that fair? Do you think it’s kinda like targeting that mid-career?

Tommy Blackburn: Yes, I agree. I think the one caveat I would throw, ’cause those were all great examples, is maybe like mid-to-late career as well.

‘Cause I have some folks in that come to mind where they’ve got over 30 years of service, probably about 50 years old. Maybe not quite 50 yet. And so I, in this like, hey, maybe I could take a VERA, and there’s certainly some silver linings to that, but I don’t think I can stop working yet. So it’s also thinking through, yeah, maybe you could technically retire, but it’s probably not gonna be the end of it for you.

And so just trying to think of what does the private sector mean from here? So very much yours. Just a little bit more just taking it a little bit further of where you can see a few wrinkles apply.

John Mason: It’s a fantastic point because it’s not uncommon to see a 52 to 53-year-old with 30 years of service who could go out on this VERA.

So there’s the one question of “I’m 35 or 40. I don’t qualify for anything. I can’t go out under a VERA. RIF’s not probably gonna help me too much either, so I’m gonna leave. What do I need to do to have similar retirement security, and I’m not leaving with a pension or really any substantial benefits until maybe a deferred pension, if that’s the right word, at 62.”

And then there’s the folks you just said, which is, “Okay, I can retire and immediately collect a pension. Now what do I need to earn, and how much do I need to save in the private sector to replicate what I would’ve had or enhance what I would’ve had if I just stayed federal until 57 or 62?” So that’s interesting because that subset of folks could actually maybe take a pay cut on their next job, whereas the other one needs a big increase.

Tommy Blackburn: That’s exactly what I was thinking. So one’s like the delta, what do we need to replace and I think it even starts with, like you just said, you’ve probably taken a pay cut. But you could afford to take the pay cut. So like here is equal, here gets you back to equal. And maybe getting a pay raise because we were able to activate a pension today if you meet the qualifications.

And then here is the pay cut, but gets you back to, because you turned on a pension and you have some of these benefits you’re able to keep, allows you to do that. And maybe that gets you to a happier place. And then there’s again, coming back to here’s really what your employment was worth. So if you wanted to conservatively, here’s your break-even.

You probably should be negotiating for more ’cause usually we want to get a raise out of things and we’re taking on more risk in the private sector, et cetera. So yes, all of those.

John Mason: And you asked the question, which I believe was why do federal employees need to make 25% or 30%, or maybe even 50% more when they leave their federal job in favor of private sector? And the big answer there is pension benefit. And separating that out, Tommy, into the three categories of FERS right now, and then additional if you add in for special or the law enforcement, but you could be a FERS employee paying 0.8% of your pay into FERS, or you could be a FERS employee paying 4.4%.

The 0.8% is a pretty sweet deal and a lot of the people that are caught up in this mid to late career are gonna be those 0.8% people, which means that is an extremely lucrative pension. I know we’re gonna cover this later, but a $50,000 pension is like having over a million dollars in another 401 (k) or TSP.

And it takes a lot to get there, Tommy, like you’ve gotta save, you’ve gotta have a good investment strategy. You need to rebalance. You need to not freak out when tariffs and market and et cetera happen. The pension’s pretty nice ’cause it just is gonna be there for you at the end of the rainbow.

Tommy Blackburn: Right. So we’re answering two questions, why did John and Tommy say you need probably 50% just to break even and maybe even more, let alone to try to get a raise out of this? Pension’s a big one like you laid out, I think you, you was $50,000 a number you used.

Yeah. So that’s probably about $1.2 million more if you were private sector to replace that $50,000 and have cost of living on it. $1.2 million you needed to put in a 401(k). And also answering the question, why do you feel underpaid? The reason you feel underpaid is because you may say, “I make 160k right now inside of the government. But I have friends, similarly educated, doing similar jobs in the private sector, and they’re making $200, I feel underpaid. They get bonuses, maybe they get equity incentives. I feel underpaid.”

The reason you feel underpaid is because you’re compensated differently. You just don’t see that pension, we just said, is gonna add up in that example to $1.2 million. That’s a lot that has to be saved, and I think, as John said, that’s probably 30% of your salary to replicate that pension. The private sector has to make more if they plan to be similarly situated in retirement as you.

Unfortunately, as we see, many private sector folks don’t save to replicate your benefits. So when we get to retirement, you’re typically gonna see you’re gonna have a far better retirement. So hopefully I made sense with that. We’re answering multiple questions here. First step of that big one, that pension benefit.

John Mason: And you have to break it down even further, which is $160k compared to $200k on paper is 40k. After tax is $40,000, less 30% federal taxes.

And then there’s Medicare, and then if they eliminate or continue to raise the ceiling on social security contributions, there’s that too. Just from a tax perspective, we could almost go out on a limb and say $40,000 is like $25,000 or $30,000 at best.

And then assuming you’re $160k, you’re probably close to, or at least thinking about fully maximizing your TSP. That $200,000 private sector person is maximizing their 401(k) too. So after their $40k salary, they net maybe $25,000. Then where are they gonna save? They’ve already maxed out all their retirement accounts.

They’ve probably been phased out of Roth. So it’s like now they’re saving in a non-qualified account that’s kicking out taxable income each year and then maybe net investment income tax on top of that. And you’re like, wow. It’s really hard to replicate that, and Tommy, I just wrote down, ’cause we’ve been talking about things like phantom equity as we nerd out with our mastermind group, but I wrote down like phantom income.

Federal employees have like phantom income. Meaning you make $160,000 on paper, but you’re making $200k, $225k, $250k and you don’t have to pay tax on that today. It grows tax-deferred and then you wake up in retirement one day, and you have this beautiful pension and that’s when you start paying taxes on it.

On the opposite end of the spectrum is people with real income today that have to pay taxes and save and make all of these decisions. So you have this phantom income.

Tommy Blackburn: Yes. Yeah, you’re right. And it’s funny, we game plan these things out, but our minds move in directions as we start talking.

We have a client who recently retired. That’s typical around here for us to have that client. And anyway, I was going through the Euro Federal retirement benefits booklet they receive. And one of it, when it was talking about taxes, it was saying this was the amount that you’ll receive tax-free.

What you contributed, that 0.8% that you were referencing, and it spread out from a tax basis over 310 months was what I believe I was reading in this perspective. So basically, John, it came, I call it $25,000. It was like what you put in there. One of the benefits without even counting the supplement, just the normal benefit, was about $65,000.

So just to me, that was one of those examples where it really drove home maybe to your phantom equity and income. It’s like this is a very outsized. A lot went into this for your benefit for you to only have put that amount in, and you get it back almost instantly—

John Mason:Less then 6 months, right?

Tommy Blackburn:Yeah. I mean it is pretty astonishing when you look at it that way.

John Mason: When we do tax projections, I don’t know if you do it this way, but hopefully, audience, you don’t think I’m too lazy, but for CSRS clients, I do actually look at the taxable versus tax-free portion of the CSRS retirement.

‘Cause it could be $7,000 to $10,000 for FERS people. I don’t think it’s all taxable because it’s the delta between taxable and non-taxable is so small. I honestly, it doesn’t even enter my brain half the time, compared to CSRS, which could be substantial.

Tommy Blackburn: I agree. And I do the exact same thing because it’s a projection and honestly, that thousand dollars of basis you got back during the year probably is gonna get either just gives us a little bit of room in the projection for as things change, like interest income, some dividends, et cetera.

So it’s taxable.

John Mason: I agree. Other ways, and why it takes federal employees, Tommy, why it takes so much more income to replicate what they have as a federal employee. We can talk about TSP versus 401(k)s, and there’s quite a bit to unpack there. But we could start with the match, right? So TSP gets a 5% match, 1% gimme 4% if you do what you’re supposed to do.

That’s not always the case in private sector.

Tommy Blackburn: No, it’s not. And I wish we had some stats at our fingertips. We don’t, but generally, no, that’s not, I think a lot of times you may get 2.5% to 3% because that gets a lot of 401(k)s, what’s called safe harbor, what they have to do so that everybody has the option to put the maximum $23,000, $24,000 in there per year plus catch up.

So that’s usually like the floor and they don’t even have to do that. They could do less, so there’s really no requirement. And then to be at a 5% match is definitely just anecdotally from what we see with our private sector clients, that’s not the norm, let alone if it’s actually better than that 5%.

So it’d say at least as good as a private sector. And we would just say it’s better than what the majority of private sector 401(k)s offer.

John Mason: Sure. And we can think about big companies, we can think about Lockheed Martin, Booz, and big insurance companies like Prudential, MetLife, we can think about maybe like GEICO and Richmond, I think, or Capital One in Richmond.

Tommy Blackburn:Yeah, Capital One.

John Mason:Capital One. A lot of these big companies have good match, good benefits, but not everybody works for a mega publicly traded company. In fact, I think it’s not made up that the majority of people in this country work for smaller companies.

And when you work for a smaller company, in my mind I have two, I have a construction firm in Pennsylvania that it’s in my head. Well, their plan’s top-heavy. They have a bunch of construction workers who do really great work. They make a bunch of money at this firm, but it’s really not probably feasible for them to do a 3% safe harbor contribution for everybody.

So they have a 401(k) that may or may not be top-heavy, which means the higher income you make, the less you can put in, right? Because it’s unfair to the lower half of the salary. Or maybe you’re a smaller employer that doesn’t even offer benefits because you can’t yet, maybe you’re early, or maybe you’re mid, or maybe you’re going through tariffs or recession or what have you.

The majority of folks in this country, Tommy, are not employed by mega companies, which means the majority of people in this country probably have, calling it out, pretty crappy benefits, I would guess.

Tommy Blackburn: Oh yeah. Again, a lot of times in the private sector, not always, like you said, there are some exceptional employers out there who have the means to do it, but a lot of times it’s really on that private sector worker to replicate these benefits outside of employer-offered benefits.

And you made a couple really good points that I just wanna elaborate on too. Like part of that, as you were talking, I was thinking about like job security. ‘Cause again, that small employer, it may be hard for them to put that 5% in reliably like the TSP, they’re probably, not almost guaranteed, not gonna be able to offer you the same job security that a federal employee has.

And we realize that sounds ironic to say that with what’s happening in the federal government right now, but these type of things that are happening in the federal government happen in the private sector all the time, and I’m not trying to say or be mean about it or anything, just saying like there’s better job security in the federal government, even with what is happening.

So I think we can still acknowledge that those companies, big or small, John, they may be able to say, Hey, we’re gonna give 5 or 10, if they’re doing very well and generous. I can almost guarantee you that’s very discretionary though, right?

Of yeah, we’re doing good now and we’ll do 5%, but the minute tariffs, whatever, kick in, we might have to erase this just because we have to be flexible. So I think those are some great points. And another one is you can knock the TSP—we certainly do at times. But generally, you have great diversification available to you at low, low cost.

Certainly, we can do as good in the private with what’s available outside of TSP. But a 401(k), similar to TSP, that’s what’s up to the employer. Like what the employer has put together inside of that plan for you. So even though there are low cost alternatives out there, that may not be available in that 401(k) plan.

So when you look at it that way, TSP is very cost-effective. Great diversification. As we’ve said, it’s a good accumulation tool.

John Mason: Yeah, and I think about our 401(k), we work really hard to keep our fees low. So we have Fidelity and Vanguard and other index funds in there, and Mason & Associates pays fees so that our team members have access to the 401(k).

Well, what do other firms do? And I can’t speak too much to this, Tommy, right now because there’s been the fiduciary standard that came out. There’s been all sorts of changes in the 401(k) administration space, whether you can be your own fiduciary or if you have to hire your outside fiduciary or third-party administrator.

I guess what I’m getting at is an easy way for an employer to offer a 401(k) is to offer a 401(k) that has a bunch of A share mutual funds in it with expense ratios of 1%, and those expense ratios of 1% then get turned into 12b-1 fees, and the 12b-1 fees pay for the 401(k) plan, so the employer doesn’t have to.

The broker who offered the plan gets paid, which good for them, but ultimately as that trickles down to the employee or the team member. They have a subpar plan for whatever reason, and we do see smaller 401(k) plans that you could have 0.5% to 1.5%, maybe even higher fees, which is not 1% in fees that’s upsetting. It’s 1% in fees for arguably no value that’s upsetting.

Tommy Blackburn: Yes. That’s a good point. I love it. A little bit of a segue, but paying more for something in and of itself is not bad. It’s their value for paying more, to your point. And we’ve talked about that previously, and I’m sure we will talk about that in the future as it arises.

I think we’ve covered 401(k) versus TSP, hit the pension, and so now if you want another one.

John Mason: You mentioned job security, so I want to go there first.

Tommy Blackburn: I love it. Let’s go job security.

John Mason: We talk quite frequently, I think, in one of our recently recorded episodes about how having survivor benefits in retirement changes your spending decisions, gives you flexibility, allows you to take advantage of opportunities.

Well, I wrote down job security, again, we know it’s crazy out there right now, so disclaimer, it’s crazy. We get it. But job security, like if you make 160,000 as a federal employee versus $160,000 at small employer in Newport News, Virginia, maybe the federal employee can keep $25,000 in savings, and maybe that private sector person needs to keep a hundred because the job security is not the same.

So then you take $75,000, you invest it. Dave Ramsey says you can make 10% to 12% like very easy all the time. So now you’re making 10% or 12% on that $75,000. What did that add up to over 30 years? A big number. Or you take advantage and you’re like, “Maybe I can move, or maybe I can do this, or maybe I could have a rental house, or maybe I could go on an extra vacation.”

You’re like, you think about what that job security actually means.

Tommy Blackburn: Dude, I love it. Yes. It impacts so much of not only your current enjoyment, but even your investment decisions. I’m no lover of rental properties. Though they can work and some people can do quite well, there’s a lot of variables that go into it.

But what I’m thinking about, we’ve seen it, right? We’ve seen some of the federal military folks, you guys accumulate rental houses, particularly if you move around as a military person, and I think it’s 100% a different mindset and a different risk threshold you can take on with job security and those type of investments versus now where you’re like, man, I might lose my job, and what if my rental house on top of that goes vacant or something breaks?

I always knew that could happen, but I never really thought about what if I lose my primary income source? ‘Cause it was pretty secure. I don’t know, just an example in my mind to drive home. You’re right, it’s a complete different mental shift. That job security’s huge in how you can approach things throughout your life.

John Mason: It’s fun episode. Other ways, Tommy, that federal employees have it pretty good. And I know we’ve talked about federal employee health benefits over the three years we’ve been recording this, but even now, I think Blue Cross Blue Shield, FEHB, Blue Cross Blue Shield for a family or self plus one, isn’t it like $550 to $600 bucks a month now for a family?

Tommy Blackburn: Probably for family. That sounds correct.

John Mason:Yeah. So audience, please don’t barbecue us if we don’t have the exact number.

Tommy Blackburn:I’m gonna double check it as we’re talking.

John Mason:We know it’s a big number. And we know the number has gone up substantially over the last few years.

Tommy Blackburn: Yes, it has, but inflation’s gone up quite a bit.

So I guess two sides to that giant, it has gone up, but the government share of it, because they’ve kept it, relatively proportional, steady, their share has gone up quite a bit. Family for FEHB Blue Basic, which we’re just referencing that one because that’s Blue Cross is what we see a lot of around here.

Self family basic monthly, just call it $660 a month.

John Mason: Is that for standard or basic?

Tommy Blackburn: That’s basic. Standard, $920 a month for self and family.

John Mason:$920?

Tommy Blackburn: Yeah. And if we could look up the tables, I’m sure we could, I don’t know. We’ll be able to do it, elegantly as we talk now to see what is the government share if the family’s at $920. You can bet it is a lot. It is a lot of money.

John Mason: Unbelievable. I’m sorry, audience. We see basic all the time.

Tommy Blackburn: Right. We apologize for that. But many times, again, we’re focusing on folks who are at or approaching retirement.

So the family coverage is usually gone by that point, and we’re looking at self plus one, or are self only when we’re talking.

John Mason: Yeah. So big numbers, and I don’t mind sharing what I pay. And I’m sorry, I don’t actually know the exact number that I pay for my family of three, but I’m pretty sure that our high deductible health plan for a family of three, everybody under 40, everybody pretty healthy, is north of $1,500 a month with a $3,000 deductible and a $10,000 to $15,000 max out of pocket or whatever it is.

So for a family of three, all under 40. We’re paying at least $1,500 a month, and that’s a big number compared to whatever the family coverage is that you’re paying under Blue Cross Blue Shield. And to Tommy’s point, the government’s kicking in a thousand dollars a month for you, which is effectively a cost share.

Tommy Blackburn: Yes. I was trying to see if I could do the math real quick. Wow. Yeah, because they, I believe, if I recall correctly, the government is paying about 72% of that premium. So that’s crazy. If the family standard at $920, you’re paying 28%. That means that policy’s $3,200 to $3,300 a month. That cost, and the government picks up the rest.

John Mason: Blue Cross Blue Shield Standard. When I started, it couldn’t have been more than $400 or $500 a month for that plan. And so it’s doubled over my career of however long I’ve been in this business now.

$920, it’s pre-tax while you’re working, so that’s nice benefit. Post-tax when you’re retired, so that kind of stinks. Again, audience, you can’t take our conversation today and apply it as advice for you.

We almost always try to go down to basic. We find that the coverage is very similar. There are reasons why you would be on Standard. Those are very personal reasons. A lot of time it could be unique or non-generic drugs that could push you over to that standard. But then especially as you think about retirement, Tommy, and you think about the value is…

Now we have Medicare Blue Cross Blue Shield rebates of $800 per person. So being able to roll back to Basic tack on Medicare Part B, but then Blue Cross Blue Shield refunds most families $1,600 a year. That’s not something private sector people get in retirement.

Tommy Blackburn: No, and you get to carry this for life. The government keeps picking up their portion of it, so it’s heavily subsidized. Great coverage from our perspective. Clearly something’s broken in the healthcare system, that’s nothing new for these costs to have increased and be what they are now. But regardless, you get fantastic coverage compared to what in the private sector, heavily subsidized.

And then before you get to Medicare, you retire with it and you had it for five years. You get to keep it. And that’s to not have to go in the affordable marketplace and keep, I don’t know, I would just say, in my opinion, take it for what it’s worth, the Basic plan, still a Cadillac plan. Granted I get Standard is even with those specialty drugs compared to what we see in the private sector, Basic is still a fantastic plan and to be able to keep that have heavier pension, not have to worry about playing any income games on the exchange, having fantastic coverage, go get another job.

That benefit? Yeah, it’s worth a bit. We would say easily probably $10,000 a year on a low end of what the government’s kicking into that coverage in retirement, if not more. So just looking at a percent of base pay, we would probably say you’re looking at somewhere between 5% and 10% to replicate that part of your benefit.

John Mason: That’s a great point, Tommy. And I’m just doing a little bit of math here, divided by 12. Divided by 2. So quick math audience. I don’t know if this is exactly correct or not, but I think it gets us into a ballpark. When you’re 65 and you retire with FEHB Basic, you also have—you don’t have to—but you can enroll in Medicare Part A and B.

Most people do A, because you’ve paid for it your whole life. B is optional. But if you had Blue Cross Blue Shield Basic, Tommy, and you took on Medicare part A and B, the monthly cost is about $450 per person for health insurance after rebates, which I think if our audience went back and they listened to the previous episode we just released with Brian Gay and you compared Medicare A and B, plus a Part D drug plan, plus the Part G Cadillac plan, federal employees maybe are paying more for this coverage than somebody with the supplement, the drug, et cetera.

We’re not health insurance experts here, but I would still imagine I’d rather have that federal employee coverage.

Tommy Blackburn: Yes, I think so. ‘Cause changes happen to those supplemental plans as well, and they’re great.

Your FEHB is still hands down fantastic. So yes, you are correct, and I’m still on the same campus. You’d rather have that FEHB—and at least currently, we still have an option on FEHB. We could decide we don’t wanna be on Medicare period. Will that option always be out there? We don’t know.

Nobody knows, but at least currently you actually have an option to forego Medicare, which is fairly, everyone has that option, but it’ll cost them dearly. And it’s not really an option. What else are you gonna do at 65?

John Mason: Yeah. And if you’re an active federal employee right now, why not look at FEP Blue Focus? That’s $303.

Is that gonna be as good as basic or standard? No, but you’re saving $350 a month pre-tax that you could put into a Roth IRA, you could put into your TSP, you could set aside for the higher out-of-pocket expenses. I don’t know, if I’m a federal employee and I’m pretty healthy, everybody goes on basic or standard.

I’d be looking if I’m a younger person, Tommy, at an HSA plan offered through the government where they put in quite a bit of money into the HSA for you or even Blue Focus to see if I could have some premium savings. I know it’s different for our target clients who are probably staying on basic or something higher.

Tommy Blackburn: Yes. Yeah, no, it’s worth looking at. You should always be checking these things out.

John Mason: So going through our outline, Tommy, I think we’ve covered almost everything in here. We’ve talked about job security, we’ve talked about health insurance, we’ve talked about TSP and the pension. Were there any other—I guess we wanted to talk about the psychological aspect or the psychology behind being underpaid on paper, but then what that actually looks like when you retire one day.

Because it’s like a flip-flop. You go from feeling underpaid to feeling, and maybe not overpaid, but higher paid in retirement than that private sector person. And it’s a pretty neat experience.

Tommy Blackburn: It’s an amazing experience.

We love our position in all of this being the advisors specializing with federal employees and plenty of private sector as well. But it’s just so cool for us to work with federal employees in their journey, particularly when they make it here, and we get to be part of that flip of the switch of now the pot of gold at the end of the rainbow, so to speak, where you were living on this base, this net income, and you were doing the things you were supposed to of saving, maxing your TSP potentially.

You were doing those right things, and then now the pension starts in between that and some other things. Your net is already covered and we probably still have TSP we weren’t even touching to get back to our normal take-home. So that’s gonna be an addition. So it’s awesome to be a part of that and you form such good habits to get you there.

The other flip side of that is we have to try to get you to realize maybe some new habits are needed to enjoy all of that good behavior leading up to it so that it’ll become a weakness. And what I mean by that is those good saving habits, et cetera, living below your means probably got you here.

Don’t let that continue to be a weakness going forward. A strength to become a weakness and you not enjoying what you’ve built because that’s why you got it and why you did it and was to get here. Now it’s time to enjoy it.

John Mason: It’s frustrating, Tommy, I’m not a federal employee, but I feel like the psychology is it’s frustrating to maybe have less disposable income from 22 to 62 than my friend in the private sector.

Tommy Blackburn: I’m sure. Yeah.

John Mason: And I spend 40 years having a little bit less disposable income, maybe not being able to do the same type of vacation or what have you over that timeframe. But then when I walk into retirement, I have 100% income replacement, meaning the lifestyle that I built for 40 years is the lifestyle that I have for the next 40.

And you flip that to the private sector. And they’re oftentimes taking a pay cut or reduced compensation when they get into retirement. So the psychological aspect of it is acknowledging that yes, it’s probably hard to have less disposable income when arguably if we think about the three variables—health, wealth, and time—yes, it probably would be nice to have a little bit of more wealth when you have your health and you have time on your side.

But then as you get to 62, hopefully, we still have 30 or 40 years left at that point. And we have a lot of wealth. We have a lot of time and yeah, health, wealth and time at 62, so I think it’s just interesting that you’re less likely to screw it up as a federal employee, you’re less likely to have a bad retirement as a federal employee, where that private sector person can continue to allow more lifestyle creep and continue to make worse decisions so that when they retire, they’re replacing 50%, 60%, 70% of their usual.

Tommy Blackburn: Well, they’re now retiring, right?

Like as a federal, you could be retiring at 57 with great income replacement and such a peace of mind. Financial freedom, independence, I would say granted you, yeah, you had to deal with it to get there and you had to watch your private sector friends and colleagues what was on the surface, and then probably spending money and making you feel like you were underpaid.

And then the truth will reveal itself once we get to these points in time and yeah. Private sector retiring in 57, that’s very unusual, I think, as we all know. I won’t say completely unheard of, but very unusual for somebody to put themselves in that position. Even at 62.

A lot of times with private sector, they’re having to work till 65. 65 is like the typical anchor in their mind because now I have health coverage. So to bring us back to FEHB, I’ve made it to Medicare, and maybe I have to keep going because I’ve gotta maximize social security benefit because I’m gonna be heavily dependent on it.

So I can’t retire and turn it on ’cause I need to delay it. So maybe I’m looking at least full retirement age of 67 or maybe 70. So there are trade offs here and it’s hard as humans to always envision the future in your future self. So it’s easy as a young private sector to spend that money now and enjoy it and figure you’re gonna make up for it in the back end.

And as a federal, you didn’t have a choice in the matter, but you have a great thing waiting for you at the end, assuming that all goes according to plan, which is also why we have to be flexible, realize that isn’t the case, but just want to help you understand the purpose of this is it’s valuable.

Don’t let people discount the value of that employment. And just be knowledgeable if you’re making a decision to change or you’re evaluating your options here. And it leads to, in our perspective, just a stellar retirement.

John Mason: If the government wanted to save some money, they could say, “Tommy, instead of me giving you this really cool pension, I’ll give you an extra $15,000 a year in salary.”

And so many federal employees will probably take them up on that offer to have more disposable income. But then they’d run into a—maybe they wouldn’t because they don’t trust the government.

Tommy Blackburn: That’s exactly what I was thinking. They’ve such distrust. I think they’d be very tempted, but I think they distrust the government enough. They wouldn’t do it.

John Mason: I think it would be really cool if the state government or federal government, if you were educated and informed, it would be really nice. I’m thinking about some young friends. I’m thinking about some of the people I grew up with who are federal or state and your retirement’s gonna be so great. It would be so nice to bring some of that cash flow forward.

It really would, maybe not every year, but it’d almost be nice to have a choice. Like this year, I’d really like to have an extra $20,000 to do the trip of a lifetime or fix my house. And then next year, I go back and it is more pension-focused.

So it does stink to not be able to bring any of that cash flow forward or be able, it’s one less decision, it’s one less opportunity that federal employees have, but in exchange for that, you have greater security. We talked about job security and how that allows you, Tommy, to make better decisions. Or more risky decisions, which can pay off.

And we talked about the 40 years of working, but when you have a $40,000, $50,000, $60,000 federal pension, you also have the 30 years in retirement that you can make different decisions. Lessen cash. Lessen bonds. More aggressive portfolio. Maybe you don’t need long-term care insurance where people in the private sector are buying that too.

And you just start thinking about the 80 years of job security and pension income. I mean, I know a person right now who’s in their 90s, they’re probably not gonna live that much longer, but retired military, and they’re going to pass away with $4 million. So then that’ll pass down to the surviving child, and then that’ll pass down to their surviving kids.

And the generational wealth created from job security and pension stability, 50 percent’s probably not. Our title is probably way off if you start focusing on generational wealth and how much that changes over time.

Tommy Blackburn: Yeah. To be clear, we say conservatively we’re at 30% to 50%, and this is at best a lateral move.

This isn’t, you got any races, right? So hopefully we think you can make a case for far more, and John, as we’ve talked, it’s really a shame that even on like college campuses, like you think about recruiting fairs, the government, and I’m sure it’s not gonna help their case with what’s going on in it right now, but, or maybe it will make it seem more competitive.

I don’t know. But it just seemed like at those job fairs when we were going to school, right? They just completely dismissed. They do such a bad job of getting credit for this is a fantastic career and everybody thinks that you’re underpaid, again, point of this. But if you really add it up and look at it and the awesome retirement, the generational potential changes here.

This is a great career field between that and the military. We’re not saying they’re not trade offs. We’re not saying there aren’t difficulties involved. Hopefully, we’ve acknowledged some of that, but it it’s a good path if it speaks to you and your plan.

John Mason:The coolest one, just real quick, Tommy, is The Reserve Retirement who, they leave after acquiring their 20-year letter and then they go GS. Then they work 20 to 30 years federal. They buy their active duty time. That also counts towards their reserve time and their federal time. And everything converges at about age 60, which is when the typical reserve retirement happens, and then all of a sudden, reserve retirement hits, social security hits, GS pension hits, maybe VA disability comes in and hits at the same time.

And these people, they don’t make just the same, they make significantly more because they never got the benefit of receiving all of these sort of pensions. The military, on the other hand, retired normal military, that’s a dangerous place because you can retire making $50,000 to $100,000 pension, get used to that lifestyle, and then when you retire GS, maybe you only have five to 10 years of service, it’s hard to replace that second income. But with the reserve, you’ve gotta—

Tommy Blackburn: You never got the benefit of it. It was forced delayed on you. And so you were used to living on that current salary, and then all of a sudden everything starts coming in at once. And yeah, we’ve seen some pretty amazing changes in the story at retirement.

John Mason:Any action items, Tommy, that you wanted to hit on?

Tommy Blackburn:I think we’ve covered a lot. I think the main thing, just don’t undervalue your federal employment. Like a cash-based salary, don’t overvalue that and discount your benefits. Thankfully, they have those total comp calculators.

It’s like GRB and EBIS, that I think that are out there. Use those. Those are at least a good starting place to get a feel for my base is far more than what my base says, like just my cash compensation. So just be informed and don’t discount the value of your employment.

John Mason: I love that. My action for the audience is basically just acknowledging the fact that it’s scary out there right now. And there’s another episode maybe we’ll link to, I dunno if we can call him a friend, but we’ve met him a couple times in the industry and Micah Shilanski did this video on the first retirement Go Bag, which is essentially—I’ll have to re-watch it—but essentially it’s like, what do I need to be able to leave? Or what happens if I do go through a VERA or VSIP?

And there’s other content creators that put out good stuff and honoring that video. It’s yeah, get your FERS Go Bag ready and start thinking about what it means. If I do have a VERA, VSIP opportunity, or if I were to get RIF, or if I’m going to leave dust off the resume, fine-tune the budget, do all of the things so that you are empowered to make decisions in a timely manner.

Don’t wait for something to happen before you get your Go Bag ready. And I think with Micah’s video specifically. He may have even referenced, Tommy, like hiking in the back country or something like that. And it’s like, “Well, if I’m hiking in the back country of Alaska, I need avalanche stuff. I need beacons. I need all of these things to be ready for when life happens. It throws me a curve ball.”

Similar right now is federal employees for the first time need to really be thinking about what happens when there’s an avalanche? Am I gonna have all of my tools ready, my emergency kit, to get me through that?

And one of those things could be a financial planner on your side that could help you through that process.

Tommy Blackburn: I was just thinking that. Yeah. And it’s so individualized, so I love that. I think the caveat, and this is how we would always approach, don’t live in fear. I don’t want you to be like, I’ve gotta be ready for a nuclear war, so to speak in my Go Bbag.

Realize, understand your situation, your benefits, and what your life would take. Financial planner could certainly help you with that so that you are adequately prepared. But we also don’t wanna see you necessarily like over-prepare. And as I was thinking about the brain cash forward and that young employee scenario, John was, that’s the beauty of “Hey, max your TSP.”

But then we understand retirement’s funded. So if we need to do that one year, let’s just go back down to the match. Let’s not over-insure ourselves ’cause we’ve got great insurance in place there, the insurance we needed, like term versus whole. So all those type of discussions. And so it’s all great.

I hope my little dovetail at the end added value to what you were saying because it’s an optimistic world out there. We wanna be prepared, but there’s opportunities everywhere.

John Mason: Tommy, I love it. Couple things for the audience. One, you’ll probably see I’m wearing my Virginia Tech Polo today if you’re watching on YouTube.

If you’re just listening, Tommy and I are both Hokies, and you probably heard that we’ve hired a business coaching consultant, and we are planning on hiring. So, yes, we have a bias towards Virginia Tech Hokie who come out of the CFP program, Certified Financial Planner program.

But if you’re a financial planner looking for a career, maybe Mason & Associates is a good fit. If you’re listening to this podcast and you know somebody who is going through CFP school or who’s already a certified financial planner looking to work with federal employees and tie-in with a group who does things the right way, we will be having job postings probably on the second half of the year.

And we’re looking to grow our team. So we’re biased towards Hokies, but that doesn’t mean you other CFP programs and other people with experience are not able to apply. So we’re growing our team. We’re excited. Wanted to let you know that.

Second, is our content helping you make informed decisions? Do you feel more educated and empowered? Have you made positive changes in your financial plan since you started following our YouTube channel and our podcast? If so, please share, like, do all the things for us. Leave us a comment in the comment section. And if there’s a topic that you want to hear about, send us an email to masonfp@masonllc.net, and simply share this podcast with friends, family, and coworkers.

You can be somebody’s hero by sharing what we’re doing here. Specifically, what comes to our mind is helping folks elect full survivor benefits at retirement. Thank you for tuning in to another episode of the Federal Employee Financial Planning Podcast. Remember, we’re financial planners first. We do this second.

As always, we hope you leave every episode feeling educated, empowered to make positive changes in your financial plan. Tommy, thanks for being with me on another episode of the Federal Employee Financial Planning Podcast.

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.