How do you know if you’re truly on track for retirement? And what should you be doing differently at 30, 40, 50… or just six months from leaving federal service? In this episode, John and Tommy break down retirement readiness by life stage, exploring the financial, tax, investment, insurance, and estate planning decisions that matter at different points in your career.
Listen in to learn why younger federal employees should focus on building strong financial foundations, paying down bad debt, saving consistently, and taking advantage of long-term compounding without sacrificing the enjoyment of today. The guys also share how to estimate future pension and Social Security income, evaluate your investment strategy, and determine whether you’re on track. You’ll come away understanding why being “retirement ready” is about much more than simply having a large investment balance.
Listen to the full episode here:
What you will learn:
- How young federal employees can balance saving with enjoying life. (7:30)
- Why paying off bad debt and building an emergency fund come first. (9:30)
- How time, risk, and compound growth can accelerate retirement savings. (11:30)
- Why retirement planning should start with a strong financial foundation. (17:30)
- How federal pensions and Social Security change the retirement savings equation. (22:00)
- How to fine-tune your investment allocation as retirement gets closer. (27:30)
- When you should start thinking about having all of your debt paid off. (33:00)
- The importance of having clarity around your financial situation. (42:30)
Ideas Worth Sharing:
- “You can’t be retirement ready unless you are emergency fund ready.” – Mason & Associates
- “The biggest thing is just saving. Saving and being aggressive with that long time horizon.” – Mason & Associates
- “Better to start sooner rather than never.” – Mason & Associates
Resources from this episode:
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Read the Transcript Below:
John Mason: Welcome to the Federal Employee Financial Planning Podcast and the Mason YouTube channel. In this episode, Tommy and I are discussing retirement readiness, specifically the financial planning, tax planning, and estate planning—all the planning that centers around how you get from where you are now to successfully retired.
We’re probably gonna hit things like 10 years out, five years out, one year out, a few months out, and maybe even dive into what happens after you’ve been retired for the first three to six months. Stick with us to the end. We have some exciting news about some future guests that are gonna be on the podcast.
We’re Mason & Associates. Thank you so much for joining us on another episode of the Federal Employee Financial Planning Podcast. Tommy, welcome.
Tommy Blackburn: John, it’s always good to be doing these together. I think our audience is gonna find this to be very applicable as we share our experience, and it’s just always a hot topic of retirement readiness and a large part of what folks seek us out for, and should be dovetailed, I think, quite well with some of the future announcements that you were mentioning at the beginning.
John Mason: Well, it’s exciting, audience. Today is July 1st, 2026, so, by the time this airs, it’ll have been after the Fourth of July, and hope everybody had a wonderful holiday. It’s pretty amazing to celebrate what this country’s been through. There’s a lot going on in the world, so we know that there’s people that fall on both sides of the political aisle, Tommy.
There’s good things going on, there’s bad things going on. But this is a special Fourth of July celebration for the country, and specifically in us and our area. I’m a little nervous about this weekend just with all the festivities and maybe enhanced traffic. It’s already madness, but I imagine this weekend it’ll be a new level.
Tommy Blackburn: Probably.
So where we are, one is already gets kinda busy around the summertime because of what’s called beach traffic of folks heading to the beach through the area. And then, we’re in Virginia. I’m in Williamsburg. Jamestown, the original settlement was here. So from like a historical and in 4th of July, which is to put it in context, we’ll probably will see some increased traffic.
But I am, yeah, I’m proud of the country. Not to say we’ve—always will have issues or not perfect, different political views on things, but it is neat. It is a neat milestone. And I think as many flaws and things we have to work on, and difference of opinions, a lot of great things have happened and probably will continue to happen.
So hopefully just a great moment of reflection and maybe some pride for everybody.
John Mason: No doubt. Yeah, I, thinking of a story, you defined Williamsburg and Jamestown, and I think we learned that in school. Virginia history is, like, third grade maybe. We learn a lot about Virginia history. And when we went to…
I played Little League baseball, and I was always on the All-Star team, and it was the 13, 14 All-Star team, and it was always York County, Yorktown, versus Warwick Little League. And Warwick had, I believe, one team, and we had the American League and the National League. So we had two All-Star teams, so our players were split.
I know this is not relevant, but they were split. So Warwick would tend to win, or York County American would tend to win, but York National, my team, finally won districts and went to states. And then we went at states, they were like, “Where’s Yorktown? We’ve never heard of Yorktown, Virginia.” And then we went to regionals, and we almost made it to the Junior League World Series, and they’re like, “What’s Yorktown?
We’ve never heard of Yorktown.” It’s like, man, I guess they don’t have Virginia history, you know, in all parts of Virginia, and certainly not once you get outside Virginia. So it was kind of amazing if audience, you’re listening and watching this and you haven’t done some research on what happened at Yorktown, or you forgot the stories of Jamestown, this historic area that we live in is just so much history, and it’s so beautiful, and we take it for granted that we can just get on a bike and just ride past places where battles were fought and wars were won and independence happened. I mean right there.
Tommy Blackburn: So John, I’ve, yeah, I’ve, and a story you and I, when we were at Virginia Tech and first getting to know each other, we were at some event and you said something about Yorktown, which I like history. Some people say like, “Oh, Tommy’s a history buff.” I don’t know that I consider myself like that versed in it, but I do enjoy it.
And probably growing up Virginia was also ingrained in me. But yeah, American Revolution, it blew me away. John’s like, “I’m from Yorktown.” And somebody’s like, “What is Yorktown?” I was like, “The surrender of the British where Cornwallis surrendered, and we gained our independence.” Like, you don’t know about Yorktown?
How does everybody not know about Yorktown? So yes, John, to me, like immediately, and that was when you and I were first meeting each other, and I was like, “I know exactly what happened at Yorktown,” and I thought everybody knew what happened at Yorktown.
John Mason: Not only did they not know it from history, they also, we can’t be friends because they’d never seen the movie The Patriot with Mel Gibson.
So, just saying, if that’s your only intro to Yorktown, maybe that’s a good start.
Tommy Blackburn: There you go.
John Mason: So retirement readiness, this episode. So we’re gonna talk about the financial planning side of retirement readiness. And Tommy, I don’t really know where we’re going, but you know, we’re 38, 39 years old this year, so I think we can talk about what we’re doing for retirement readiness and how we think about retirement.
Then I think we can move to the 55-year-old, or maybe 50, because federal employees can retire at 57. And then let’s move to we’re six to 12 months out. Audience, we have episodes that talk about the year before, the year after retirement. But I think we’re gonna break this down into three kind of groups of people: the younger, early career, or like us kind of hitting our stride.
We’re in our highest earning years at this point. So what are you doing now? What should you be doing when you’re within like five years, and then now you’re like six months out, retirement readiness. Does that sound like a good plan?
Tommy Blackburn: I think so. Yeah, let’s do it. And some of the process stuff that I know we wanna hit on will be in that, that last phase, I think.
So just to start, I think of like chronologically, probably start furthest out, what are we doing, our younger folks. To me, it is very— depends on where you are on that spectrum. I think it’s largely directional at that point in your career of saving, enjoying your youth, enjoying life, not losing track of that, because you can very easily get into a frame of mind of like, “I’m gonna save everything.
I’m gonna eat beanie weenies.” All the great financial habits you would be told to do, which, is good to be frugal and save and allow it to compound, build for the future, make wise decisions, but you can go so far with it, I would say you, you lose out on life, so you don’t wanna go that far.
But largely directional in that probably not gonna iron out like here’s exactly what that year at 65 cash flow is gonna look like, the taxes I’m gonna exactly pay, and like the moves I’m gonna be making then. To me, it’s just more of like, “Hey, what’s my income? What do I need to live off of and have some enjoyment of life?
Am I saving 10%? Can I save more than 10%? Am I maxing the tax-advantaged accounts? Am I doing it probably in a thoughtful way? Like should I be doing Roth or should I be doing pre-tax based upon where my income is? Am I thinking through health decisions properly in HSAs? Do I do a high deductible?”
But again, more… To me, it’s just more directional. Now, John, to you, in our phase of life, we can go down this more— I f— I feel like it’s beginning, it’s still very directional, but I think maybe a little more in depth as we think about it. It’s also very much a moving target, I think, for you and I right now as to what that means, when it means, but I think maybe it’s more of like, well, I think a lifestyle that I would enjoy would probably need X, and in order to generate X, I probably, this is a sustainable investment distribution, means I probably need this, account for some rough taxation.
So I think at our phase where I’m going is w— we probably begin to back into a little bit of a high level of here’s what I think I need, where am I at, am I doing the right things, and then just still a lot of flexibility. It’s like, well, who knows when I’ll retire and how these things could compound and where life will take me.
So still directional, but maybe becoming a little more concrete. Hopefully that makes, hopefully I explained that decently well.
John Mason: Well, you kind of broke up the younger, further away from retirement people into two crowds: the young and the, the young getting old. Yeah, and we kind of fall into the young getting old crowd at this point, which is still at financial planning conferences, we’re the young ones— Yes
But we’re the young getting old. So I agree, the young, you’re directional. I think at that point we’re focusing on paying off bad debt. I’m not a student loan expert, but getting out of credit card debt, getting out of student loans, not taking on massive car loans. Granted, cars are expensive.
But avoiding bad debt, getting out of debt as quickly as possible, specifically the stuff that’s crushing you, and then as quickly as possible saving at least 10%, but probably more like 15 into your emergency fund and then your retirement accounts. So you can’t be retirement ready unless you are emergency fund ready.
So to be emergency fund ready, you’ve got to have things buttoned up. You have to have the right amount of life insurance, you have to have your estate docs, you have to pay off your debt, you have to have the mortgage at a reasonable rate. You have to do all these things, take care of all the housekeeping items, and then we get to start investing for retirement and having fun.
But you don’t just get to jump to retirement readiness until you’ve covered all those other topics, which are very important.
Tommy Blackburn: Foundational, right? It’s about, I think, like, flexibility and laying the foundation is essentially the directions that you’re going there.
John Mason: Agreed. Young people, this is not financial planning advice, but the more stocks you have, realistically, the more your portfolio will grow.
So, a stock portfolio will grow at a higher and faster rate than a bond portfolio most of the time. Now, there are times when that doesn’t happen. So the Rule of 72, if you never heard of it, can change your life. Take 72, divide it by the interest that you’re earning, and that tells you how long it takes your money to double.
If you’re making 1%, your money will double in 72 years. If you’re 30, doubling your money by 100 is not that cool, okay? But if we’re making 8%, our money’s doubling every nine years. That’s why we take risk. That’s why the younger you are, that’s the reason you can get home with saving as little as 10%—
Tommy Blackburn: Time is on
John Mason: Your side
Is because you are getting this compounded growth over time. If you don’t take advantage of the time, Tommy, then what you could have got home on 10% mi— might need to be 20 or 25% savings if you drag that out too far.
Tommy Blackburn: I love it, John. I wanna kind of dovetail there too. What’s important, that compounding, that time, yes, most likely makes sense to be very aggressive because the goal, the usage is far in the future, and the further we go out in time, the more probabilistically those stocks are gonna have positive returns.
But where I’m thinking about this, John, is don’t get… I don’t think you need to get so wrapped up on, like, I’ve gotta go identify the best stock. I think it’s more just like, hey, get the right asset class, which we would say when you’re young in your career, generally stocks, be aggressive, but diversified, because you can go get crazy returns, but if you have small amount of dollars, it doesn’t matter.
Like, what really matters early on is you just gotta put it in there. Put it in there, and once you get that snowball rolling and those compound returns start to really add up. But the biggest thing is just saving. Saving and being aggressive with that long time horizon.
John Mason: You certainly don’t have to hit home runs timing Bitcoin or whatever.
The reason TSP is so successful for people is ’cause there’s three stock funds: C, S, and I, right? And that makes it very easy. Have some of all three is probably where you need to be if you’re young in your career, and just let it go to work for you. Don’t try to time the market. Don’t try to get in and out.
Certainly, if you’re 27 years old, who cares what happens in the stock market tomorrow? I know. I’ve been there. You never wanna see your investments go down. But when the market’s going down, that’s when you’re contributing. That is where you want to be contributing. Nobody wants to buy shoes when shoes are three times more expensive than what they should be, but everybody wants to buy stocks when they’re 20 pers— times more than they should be.
So keep that in mind. The other thing is keeping up with the Joneses. Along the way, Tommy, you said this, too. You’re working hard. You’re increasing your income. You’re doing the right things. You should allow yourself the freedom and flexibility and the joys of increasing your income and what comes along with that, meaning you go on a longer vacation, you take a better trip, you hire somebody to cut your grass, whatever it may be.
There’s gotta be some tangible benefit to you for that increased level of income. But don’t absorb all of it into expenses that continue to kick your butt. Like, it’s really easy to go on a vacation once a year and spend five or 10 grand, but that’s not a recurring expense. The second you fall into the trap of buying boats or, like me, an RV, or you have multiple houses, all of these things are the gifts that keep on sucking the life out of you, both your time, your energy, and your money.
So we just need to be careful keeping up with the Joneses, buying new cars, doing these things that continue to take away productive money. Now allow yourself to enjoy that specifically at the appropriate times. Like, there are times where you should be able to drive a nice vehicle and go on a nice vacation or buy a second house.
There are times where you’ve earned that right, but just understand that they really are negative in a lot of times on how they impact your cash flow and your retirement projection.
Tommy Blackburn: Yeah, I mean, it’s consumption. So I think it’s like having, again, good general direction, habits in place, but not losing sight of…
It’s just balance. Most people, the danger is they don’t save enough or give enough prudence to investing and saving. So that’s usually where the focus needs to be. But there are cases out there where you get so wrapped up on it, like, you just go so extreme into saving and investing that you pretend, you forego…
Life is meant to be lived as well, so we have to balance today and tomorrow. So that’s what we’re saying, just we have to try to strike a good balance, but really try to build that foundation and good habits that’ll serve you, really set you up down the road.
John Mason: Moving from young to young old briefly.
Young we can define as early in your career, maybe you’re newlyweds or about to get married, maybe no kids yet, maybe you have a, a fur baby, whatever it is. But then young old is probably where Tommy and I are, 38, 39 years old, kids that are in elementary school. When you get to, like, the young old, expenses start popping up.
A flight to Atlanta is really inexpensive for one. It gets more expensive for four. Vacations get a lot more expensive with four than they are two. And then you have daycare, and then maybe you have private school, and then you have all the things associated with having children and raising young people to be productive members of society.
Life gets expensive when you are in our phase of life. So take advantage of when you’re young, ’cause that’s like the honeymoon phase. When you get to, like, the young old, that’s when you’re gonna start see expenses really creep up, and the foundation that you built at young can carry you through— Yeah
This young old timeframe. And I’m thinking about, we’ll call them Bob and Sue, that young client we met with, remember? She wouldn’t go out and buy new clothes because— … she didn’t think they had any money. Meanwhile, they had, like, over a million dollars in TSP at, like, 45 years old, but they had young kids, like three kids, and a house, and all these things.
And we were able to scale his TSP contributions back from the max to 5%. Because of all that work they had done early on— He had already won retirement … we
Tommy Blackburn: Were able to give them some flexibility. Yeah. He had already built a foundation. It was gonna compound and do its thing, and I agree with you, John.
I think both of us probably think about that with, yeah, where we live in life right now. We’re certainly still saving, and I think by any measure being very prudent, but we’ve, we put a lot of work in early, that it’s just working now alongside of us. And as I think about this phase of life, yeah, everything is more expensive because you’re also trapped in a…
I say trapped, but like you’re subject to the school calendar, which means everything is at a premium and you have flexibility, and you’re pressed for time. And so you pay for convenience typically, and you pay for things that try to buy time because you’re pulled in so many directions, which all of that to say just your expenses get driven up quite a bit, in this phase of life.
So if you’ve saved when you had the ability and your expenses could be the lowest possible, can really help smooth out these phases.
John Mason: From an asset allocation perspective, you’re probably still 100% stock at the young old. Maybe you’re starting to dial it back to like 90 or 80, but like you’re probably pretty aggressive still because again, that Rule of 72.
Remember when you retire at 60, for example, that’s not when your plan ends. So if you’re 40, you have 20 years till retirement, that puts you at 60, and then your money is going to be invested for another 30 years past that point. So at 40 years old, you still have a 40, 50, 60-year time horizon on your investments.
Probably don’t need to be overly heavy in bonds or fixed income. Interesting transition that happens at this phase. It’s amazing. We didn’t plan this at all, audience. We’re just having fun. So this is the phase where your investment returns start exceeding what you have physically contributed every year.
So when you’re young, your investment returns are like a dollar and you’re contributing $10. Well, that starts flipping at young old where now your investment returns are like $30 and you’re contributing 10. So that’s a pretty fun place to be. And I know that’s where we are is when the market’s going up and things are great, it’s really hard to contribute as much as what the S&P 500 and these other indexes are gonna do.
Tommy Blackburn: Yeah, the snowball has reached a size where the returns are impacting it far more than what you’re putting into it. And that’s really only continues if you’re doing it correctly throughout your career. Just now continue to add, and over years, that’s certainly gonna continue to make a big difference.
‘Cause like you said, John, you got another 20 years. But you’re absolutely right. You reach a, almost like a tipping point where the, what the investments, what the markets are doing, you can’t outwork it, I guess, is where it’s like it’s gonna … amount of what you put in there is gonna match just the percentage based on that very, that, as that number becomes larger.
But it’s all still critical to be, have the right allocation, sh— probably aggressive, and continue, continue to add, save, be diligent. And part of it, like you said, John, if you just live to ev— what you’re making and you save nothing, well, you’re making it very difficult on the back end, right?
Because now you gotta replace all of that. So some of it’s even just like a discipline of a balancing of what you’re planning.
John Mason: Keep in mind, audience, that you’re a federal employee probably listening and watching, but maybe your kids aren’t or maybe your friend’s not, and you can get away with not doing the things that young and young old that other people can’t because you’re replicating so much of your income with your defined benefit pension: 30 years, 30%.
I know you could like turn your nose up at that and think it’s not that sexy and not that cool, but like it is really cool, and that, that income replacement that you have just for going to work every day, and you didn’t have to save, you didn’t have to do those things. Between Social Security and FERS, you’re gonna be all right.
Maybe not where you wanna be, but you’re gonna be all right. If you don’t have that, or you’re coming into a federal job later in your career and you didn’t do the things you were supposed to do early on, you’re gonna have to play catch-up. You’re gonna have to save more. So I’m just making this up.
If a federal employee can get away with 10%, a non-federal employee is gonna need to be saving 20. It’s drastically different. It’s not like 10 verse 12. Like these are big—
Tommy Blackburn: Oh, yeah …
John Mason: Big—
Tommy Blackburn: Big deltas …
John Mason: Big deltas. This is also a phase of life where I would encourage the audience to run a pension calculation, Tommy.
Inflate your salary by 3% or like give yourself whatever promotions, GS-11 to 13. If you think you’re gonna get a 15, you can use the GS-15 salary in today’s dollars. Inflate it by 3%, calculate your pension, factor in survivor benefits, get a number. Download your Social Security statement, get a number.
Grow your investments by what you have plus your contributions at the real rate of return, which is one plus rate of return divided by one plus inflation minus one, whole thing minus one, so maybe an 8% is a net 4.5 or 5% real return. Take 4 or 5% of that gross number to figure out your investment income.
This is a sniff test. How am I doing? If that number is really bad, then you know you need to step up savings. But this is certainly a time of life where you should have some sort of gut check— Exactly … where it’s going from moving from being directional to certainly being more intentional.
Tommy Blackburn: I agree. It’s definitely not the same, level of clarity or tech— it’s just, it’s not like the I’m six months out from retirement, but yes, it should begin to become clearer and also more motivating one way or the other. We’ve got less time. Either we’re ahead and we can take a breath, maybe not even change, maybe we change, but if we’re behind, like n— we still got, we still have time, and better to, better to start sooner rather than never.
So yeah, all good gut checks, more clarity.
John Mason: Make sure you have your estate docs. Sound like a broken record, but you need your estate docs in place. You have children at young old, so you need your estate docs. We need to be thinking through that. We need to be thinking about replacing FEGLI Option B if you have FEGLI Option B.
We need to be thinking about our life insurance strategy both now and when we retire. This is a really good time to commit to survivor benefits, early in your career, so you’re not buying expensive permanent life insurance. This is also a good time to find a podcast like ours, where it’s like, who’s gonna be like my, my guidepost?
Who’s gonna be my trusted advocate that’s gonna watch out for me? This is a time where maybe you wanna turn from general education to personalized advice or general education to a more, like, personalized podcast, for example. We typically work with folks that enter near retirement, so we’re not gonna have a ton of clients, Tommy, that fall into this young old category.
We’ll start seeing more clients when we get to that next category, which is like five years out, is more, more what we tend to work with. So yeah, fine-tune everything. Start like personalizing it. Get more concrete advice. What worked for you when it was general, when you were 27, now maybe we need somebody that speaks federal language a little better.
Yeah, I think all of that goes into getting ready and, I guess I’ll just give a shout-out while we’re here. If you haven’t downloaded our e-book on survivor benefits, this is applicable to you in this young old category. Commit to it early. Commit to it now. Masonllc.net. Download our free book on survivor benefits, why we think it makes sense, and certainly don’t let friends, family, coworkers decline SBP before you check out that valuable resource.
So commercial break over, Tommy. I know you had a thought.
Tommy Blackburn: I don’t know how much of a thought. There’s just a lot in all these stages of life, and some of it carries through from across all of them. Some of them are certainly based on that stage. We talked about kids quite a bit and the expense and time involved in that.
Yeah, I was thinking about, like, college. So this phase, essentially to me, once you decide to have kids, you sh— prob— probably should be thinking about whether it’s gonna be a trade school, higher education, whatever it is, but that’s probably another thing that we’re saving and investing for, just like saving for our retirement, although it’s on a much more compressed timeline.
Saving for college, the sooner, much, much easier. So that’s certainly on your, on the radar as well. And I guess now we’ll transition to more of what, a typical client of what we work with more is five years out and then, of course, the six months to 12 months out.
John Mason: I love it. So let’s say 50 to 52, 50 to 55, retiring somewhere between MRA, which is like 57, and 60.
So somewhere between that last 5 and 10 years before you exit. This period of time is certainly defined by you’ve reached your pinnacle, most of you of your earnings, maybe you’ve already capped out your earning potential and you’re just getting inflation-adjusted pay raises at this point.
Your kids are likely approaching college or exiting college. Granted, audience, everybody’s personal situations are different. We’ve met 65-year-olds who have two-year-olds, so bear with us as we generalize through some of this. This is a phase of life where, we’ve started to see people pass away.
This is the start of, we’re losing our parents, where, we’ve seen our parents suffer from Alzheimer’s or dementia. Like, life starts to get really real in this phase of life. Not that it wasn’t real before, but it certainly… You’re seeing kind of the, I don’t know if the dark side’s the right word, but life’s becoming real.
Your, your whole existence on the planet, the time you have here, people around you, kids, becoming an empty nester. Like, this is a very big time in life, a lot of transitions, right? So you have to be ready emotionally. Lot of transitions. So you have to be ready emotionally for that. From an investment allocation standpoint, your money’s still gonna be invested for 30, 40, 50 years, so we’re probably not slamming all into the G Fund.
So Tommy, asset allocation funds or target date retirement funds probably served you pretty well through the previous two, but now maybe they’re starting to not serve you so well. Maybe they’re slamming you into too much G Fund because you’re approaching retirement. So we may need to take a more proactive look at your asset allocation now, whereas in the previous two phases of life, we were just 100% stock.
It probably didn’t matter as much. We could have picked target date or our own. I think now we need to fine-tune that allocation some.
Tommy Blackburn: Yeah, it needs to be individualized, like we talked about with individualized medicine. So just because of some, you’re some age in your plan doesn’t mean that the general asset allocation fits you.
It may, but it should be individualized to exactly what your plan is, where you are, what’s going on. And a lot of times these asset allocation funds seem to get a little too conservative too quickly. And interestingly enough, as, to us, anecdotally and research-based, target date fund would have you get conservative and stay conservative.
This is, as we approach our retirement date, potentially one of the more dangerous financial times or most dangerous in our plan. But as you move past that retirement date, further through your plan, you have the capacity to increase your risk. It’s if you make it through that, the markets are cooperate, the plan works, you’re probably gonna get 10 years into retirement, and all of a sudden, you’ve got plenty to make it the rest of the way.
So you can get more conservative, stay conservative, or you could find that I can take a hit, and there’s plenty here. I’m only gonna live but so long, regardless of how long we wanna push this out. So there’s just the smile where you can actually begin to increase your allocation again. My whole point of this was not to say you should do this, not advice.
It’s just meant to say that general does not fit you, right? It just needs to be individualized to you.
John Mason: And the reason this phase starts to get into the more dangerous or risky period, like you said, Tommy, is, you’re retiring potentially at 57, so you have the longest time left on the planet.
You’re taking your biggest withdrawals, you’re doing all the fun trips, and you have the most amount of time that you’re still solving for. You know— Mm-hmm … when you’re 70, now we have a life expectancy of like 15 years or 20 years. We have a compressed window. The volatility doesn’t hurt us as much.
You can do some research, audience, on sequence of returns and see how that really changes the outcome of your portfolio. Now, beware, people can sell you things and scare you into things that maybe you don’t need by showing you sequence of return math and why maybe you need extra protections. But, again, not– I’m just gonna say not all annuities are bad, but just understand if it’s being sold to you based on fear, understand that.
And to Tommy’s point, as you age, the sequence of return risk becomes less and less because we don’t have as many years that we’re worrying about. So at this phase, hopefully all bad debt is gone. Should’ve been gone a long time ago, but if it’s not gone now, it definitely needs to be gone now. Not all debt has to be gone.
Here is the completed, updated transcript. Spelling, capitalization, and punctuation have been standardized while leaving the full content and sentence structure intact:
Tommy Blackburn: Exactly.
John Mason: Mortgages are fine. Decent car payments, fine. More than likely, you’re always gonna have a car payment. Maybe you’re a cash buyer, maybe you’re not, but, like, at least I think about myself, and on a best case, Sarah’s gonna get a new car, and then five years later, I’ll get a new car.
Or maybe it’s just gonna alternate. You’re always gonna have some sort of purchase like that. So not all debt has to be gone, but certainly the bad debt. And this is a phase where you’re gonna start looking at your paycheck, Tommy, and you’re gonna say, “Okay, I net $3,612 bi-weekly, and my spouse nets four thousand four hundred and twenty-six.
Times twenty-six divided by twelve. We live on 12 grand a month.” Unless we
Tommy Blackburn: Can show, yeah, unless we show like we’re building a brokerage account up and we’re not taking from it. But yeah, typically that is, that’s the answer. This is what we live off of right there.
John Mason: And this is the f— this is the time where we get to look at each other and say, “Honey, are we comfortable on this number?”
Or are we not? Are we net 10, but we spend 11? Houston, we have a problem, right? So we have to look at this. This is really real because guess what? And we’re gonna, might as well say we’re gonna have a guest on the show. His name’s Bob Laura, and he’s a retirement readiness expert, not— both on the, the mechanics of retirement and the financials, but also the emotional side. One of his sayings in his book, which we’ll talk about more next time when he’s on the show, is retirement doesn’t change who you are, it amplifies who you are.
So if you are not living to your budget now, there’s nothing magical that’s going to happen when you retire. You’re not gonna all of a sudden start living to a budget. You’re not gonna all of a sudden be financially disciplined. It, y— it’s probably gonna get worse. So stick to the budget. Are we comfortable with the budget?
And if we’re not comfortable with the answer, then pretty much the only option you have at this point is to just delay your retirement until, A, Social Security is bigger, or B, your life expectancy is so down that you can enhance your withdrawals from your portfolio. But by this phase, you’ve made your bed.
Now we’re just pixing— picking the exit day.
Tommy Blackburn: Yeah. Yeah, that’s, that is well, well said, John. And I think about what part of it was amplifies who you are. I do think people can change or, adapt, adjust, but there’s some science, and I forget what it is, about the amount of time it takes for a habit to stick of, like, you doing something to make it a habit and basically make it who you are.
So all just to say, like, yes, we have to look ourselves in the mirror. If we don’t like what we see, we gotta put a plan into place to make a change, and we gotta follow through with it. So there’s just work that has to be done. Think change can happen. We may find we have to work longer. We may find we can work less time.
I think doing that net income check is one of the best. Here’s what we live off of, and also thinking through, are there some additional expenses or some expenses that’ll go, go away? But that net income, that’s really, that’s the life you’re pretty much living right now, absent some adjustments that you tell us about or you know that are going on.
So begin planning for that, and then begin mapping out, here’s what Social Security looks like when it hits the pension, assuming, we’re federal and we have FERS pension, as well as what’s a sustainable investment distribution. Here’s what the taxes look like. Here’s what my longer retirement tax plan is beginning to look like.
We have a ton of control, a ton, like, and not all complete control. Can’t control pension for the most part. There’s guaranteed income coming in, Social Security. We can control when, but it’s gonna be what it’s gonna be. But those investment distributions, the tax efficiency, we begin to have a lot of control over our tax plan or more control when we hit that.
So begin laying it out and just figuring out what are some opportunities. But that’s not gonna tell us whether we’re ready to retire. That’s just gonna tell us, can we optimize, can we be smarter, can we do some cool things and not leave tips to the IRS? So yeah, you’re really fine-tuning fine-tuning the icing on the cake, and you may find that I’ve got to really pivot and shore up my investments if, I’ve been lacking there.
Maybe I need to work longer to allow this to continue to work. Most of our clients, that’s not what we see. Most of our clients, that’s a very— and maybe it’s just who we work with. Like, maybe this is a bias. We just happen to see people who are well prepared. Most of the time our clients come to us and it’s, “Retirement’s gonna look awesome.”
So none of— I don’t… I just wanted to pivot back from the, “You may be in a bad place.” Most of what we work with, most of our federal retirees, you’re in a really good place, a better place than you realize. You have probably… That retirement plan is probably ready to go. So now it’s just figuring out when do we hit certain thresholds and when are we mentally prepared for this?
John Mason: You’re the secret millionaire as a federal employee. You’re the secret multimillionaire. I mean, we stack the deck because we work with a lot of federal employees and are near retirement with a million dollars or more. So not only do they have a million dollar pension, a million dollar Social Security, they also have a million or more of investments.
So certainly retirement for those folks is gonna be great. Now, they can still… Just because it’s high income doesn’t mean it’s perfect, doesn’t mean that they’re emotionally ready, doesn’t mean that they’re disciplined, doesn’t mean that they’re gonna hit all their goals. Like, just because you have money doesn’t mean that retirement’s easy.
But certainly there’s a lot of cash flow if you fit that demographic. So you’re the secret millionaire, many of you the secret multimillionaire. We’re gonna link Tommy to, we did a video on YouTube about modified current income, which is also… So I’m not gonna spend a too much time, audience, going through that, but this is certainly a phase where at this point we’re really getting down to what does retirement income look like?
And I know we’ve touched on that already, but let’s say you’re netting 10 or, and your retirement income’s gonna replace seven. What are you gonna do about that? You net 10, but your retirement income is gonna replace seven, so we have a $3,000 a month shortfall. Chances are you’re not gonna be able to replicate that by saving more, working longer.
Like, that’s a big delta. Probably what we need to do is figure out how to cut two or $3,000 of spending now. So now is when we need to make those budget adjustments too, and you put the training wheels on and you say, “Okay, well if I’m gonna only have eight to live on in retirement, how do I live on eight now?
I pump more money into TSP. I direct more money towards the mortgage. I figure out what bills I have today that won’t be there tomorrow. And I start living,” to your point, Tommy, it takes a while to build up good habits. If I’m five years out, I should start living like I’m going to be retired. I shouldn’t think, “I’m netting 10 now, I’ll just adjust to seven later.”
That’s a bad plan. That’s called no plan. So—
Tommy Blackburn: Wishful thinking.
John Mason: Right. So put the training wheels on now. Check out the video, Modified Current Income. We’ll link that down in the description below. And, this is really not that retirement planning and financial planning is not valuable for the previous two groups of people. This is where we really enjoy the cash flow, the tax, all of the things, because it goes from directional to tactical.
So much of… Like, if we do a financial plan for somebody that’s 22, and you say, “You’re gonna save this amount of money. You’re gonna earn 15% a year,” they’re gonna look at you, they’re gonna have $456 billion because they bought SpaceX or whatever. That’s really not that valuable. Right. It’s really, like, now they got the right insurance, they did all these housekeeping items, valuable.
Right? Asset allocation, valuable. But, like, retirement income projection at 22?
Tommy Blackburn: It’s so hard to just say it’s marshmallows, right? It’s just so far in the future, it’s hard for it to be meaningful, and there’s so much variability between now and then.
John Mason: So this is where the rubber meets the road. We mentioned college-age kids, Tommy, and I think this is also a place where so much of the conventional wisdom would indicate that, you can’t borrow for retirement, but you can borrow for college.
Well, if you’re one of our clients or you’re a loyal, you watch this podcast or you listen to this podcast, chances are you’re better than most. Chances are you’re ready to retire. Chances are you have sizable assets. I would wager… Well, I know, because our clients can do this, but I would wager many of the people listening to this podcast can probably afford to back TSP down, maybe take TSP distributions, maybe use a Roth to help pay for their kids’ college education so that they’re not coming out 100, 200, $300,000 in debt.
And without getting on a giant soapbox here, Die with Zero, we’ve talked about that before. If we have to saddle our kids with that level of debt, think about how that hurts them in those first two phases of life. But now, because we don’t help them, we’re gonna leave them a bigger inheritance later when they’ve made it through hell and back, hopefully, right?
So maybe you need a financial plan to show you that everything’s gonna be okay, so we can unlock the assets to be able to help your kids to get through college so they are well positioned for phase one and two, as we’ve discussed today.
Tommy Blackburn: Yeah, I think it’s having clarity on your situation is where we’re ultimately going with it, of seeing everything that you wanted to do, your security is here, and so now we’ve got some excess, and do we wanna…
How do— what do we want a direction with? Do we just wanna run up the score as high as we can? Do we see family members that can use the help now for something that’s hopefully beneficial to them, like education, like you’ve laid out, John? I also get values, right? Like maybe there’s a, a line to be walked of like I want them to have some skin in the game, and maybe I’ll come in on the back end and relieve them of this pressure.
Or, I don’t want them wasting assets that I worked to do hell and back myself for them to just go blow it on a useless education. So there’s certainly lines to be walked here. We get that. But assuming that what they’re doing is valuable for them and our family, and we can look at our situation and know we’re good, I think most parents are gonna wanna help.
And so now if we can just sh— give you the clarity of like you can help, ignore the water, the water cooler financial planner. Your individualized plan says you can do this. And then, navigate with your kids, your family, the bigger values and goals. Actually, John, this is kind of fun as I think about it.
We had a client that, recent that you’re continuing to work with, and they’re… I think we kind of went through this with them where just showing them like, “Hey, you can help your family now.” And they, it was just a foreign concept to them. I don’t know if you’re thinking of the one.
Yeah.
John Mason: Mm-hmm. Yep. I mean, it’s helping your family now. I mean, I met with a client yesterday who said like, “I really want to spend the holidays with my sister every year, but my sister doesn’t have any money.” And I was like, “Okay, fly her up.” They’re like, “All right, where’s she gonna stay?” Motel 8 or something.
I’m exaggerating, audience, but th— this particular client stays at a, lives at a CCRC, continuing care retirement community, and I Google it, and sure enough, there’s visitor rooms. “Oh, those are very expensive.” No, they’re not. I was like, “So here’s the plan. Die With Zero came up.”
It’s like, you’re talking about reinvesting your RMDs. That’s not gonna bring you any joy. You’re not gonna get any value from that. But where you are gonna have some memory dividends and a lot of fun and change people’s life and your life for the better is flying your sister up, having her stay with you at the CCRC.
I don’t care what the cost is, because you’re gonna be able to walk down and have breakfast with her. And if we need to, we can hire a car service to go get her from the airport. Like, if we’re gonna do it, let’s do it right. Let’s make this a phenomenal experience for you and the family, and let’s do it multiple times a year if we can afford to do that.
So yeah, family is the best, and, Tommy’s not gonna have a America’s Funniest Home Videos moment, but I did hear a door creak on your end.
Tommy Blackburn: Yes. Yeah, Zoe is home from summer camp, and she was coming to say hi to me, and I’ll say hi to her once we’re a little more formally, once we’re off the podcast.
John, what I was also thinking about, and I had to walk back through it, was, one of those scenarios was the whole idea of like we’ve built this and it is for our family. And, I’m thinking of putting these complex trust structures in place and like here’s what I want it to do, and we kind of began peeling the layers back and it was like, do you trust our kids?
And are they financially responsible right now? Yeah, definitely. Like do you wanna make life difficult and more expensive with trust administration and taxation? Well, no, but I’ve been told this is what I have to do to make this happen. It’s like, why don’t you just have a conversation with them?
Let them know what the plan is. I think they’ll appreciate it, and maybe you can help them today when they’re maybe in a demanding phase of life. But also just let them know like here’s ultimately what we’ve built and what we hope it will be, what’s left behind and comes to you versus putting these handcuffs and complexity of this, crazy estate plan into place.
I think it was helpful for them because again, as a water- water cooler financial planner, you— people get these preconceptions or are told these things and they think the only way to do it is through these very complicated things and there’s trade-offs between control. Like if you want absolute control, sir, sure, a trust is probably the way to go.
But if we don’t need that, man, we’re putting a lot of cost, complexity, heartache into that versus probably what’s a very powerful conversation of just, “Hey, kids, here’s where we are. Here’s some help today, and here’s what we really hope this can be long term.” And I think that could be a very powerful family conversation.
John Mason: I agree. We’ve had so many good… Starting to have more and more family meetings, bringing in the children, bringing in these young adults into the conversation with the parents, and really starting to do a lot more like generational wealth and financial planning. So above and beyond can you retire?
Like the questions are so different. It’s pretty fun. So as we wrap up the podcast, we’re gonna try and be no longer than an hour. We’re at 48 minutes. You’re now about to retire. It’s real, and, here is the phase where if you haven’t hired Mason already, you should do that at least 12 months in advance or somebody like us 12 months in advance.
We— now is where we’re like really we had the idea of where we’re going. We had the direction. We knew we could do this. Now we’re really gonna formalize the plan and the actions. We’re gonna set up a distribution schedule. We’re gonna kind of fine-tune when we’re claiming Social Security. We’re gonna officially elect survivor benefits at retirement.
We’re gonna plan for gaps in pay, and we’re gonna plan for HR to screw things up. Not that they’re bad people, but there’s a lot of people retiring. We’re gonna plan for six months until our pay is adjudicated. We’re gonna plan for what happens when the market’s down 20% year one of retirement. All of these things we’re planning for, and we’re, like, laying that tactical plan on paper now rather than just living in theory land.
Hopefully by now we should be in victory formation. I’m not saying that you’ve done everything perfect. I’m not saying that there’s nothing left to be done. But by now, the question on whether or not you’re financially able to retire should have already been answered. Oh, yeah. Maybe you’re looking for this, like, final clarification, and if you’re a client, we know that you like one more check, six months be— it’s like, “Hey, before I submit this, tell me I’m good one more time.”
Of course we’re gonna do that for you. But we should be lining up in victory formation here, and now we’re not running out the clock like you’re dying. We’re just, we’re in victory formation because we knew we could do this. Now we’re starting to celebrate our success. Now we’re transitioning our thought to our guest, Bob Laura.
Maybe sooner we should’ve been doing this, but we’re transitioning our thought to what does winning in retirement look like? We’re transitioning our thoughts to what am I gonna do with myself? What’s a day in the life of John look like when I’m 65 and retired? We’re, we need to be thinking about a lot more.
We should have already known a lot of these other answers— That’s all right, man … Tommy, by now.
Tommy Blackburn: Y- yeah. That life part that we’re gonna get to, which I, maybe I’m telling myself a bedtime story, but it seems like our clients navigate it well. From people seem to be very happy and enjoying their retirement.
Seems like it can be one of the best phases of life. But particularly for a federal employee I would say, our identity, we’ve done a 30-year career. We’ve been in this, and this is our social network. This is a large part of our identity, being prepared for that change, being prepared to wake up and not have the work email to, to sift through anymore, which sounds so refreshing when you’re in it, when you get it, but you know, a month into it, when that’s no longer that part of your identity.
So I think that’s the longer term thing. I think about retirement readiness, the— so outside of just like the what do, what am I gonna do with myself, the leading up to it, John, is it’s not the checklist from HR of like, “Here’s what your pension looks like. Make sure your record is correct. Check these boxes.
Here are your elections,” which we’re— that’s part of the process, but it is not the process. Those are things we will help you walk through making those elections, verifying, we’ll be with it, but that’s not the process. That’s just a step in it. And some other, as I think about retirement readiness, John, and the victory formation, we’ve got a client, who recently retired, and I think they are probably the epitome of retirement readiness, like many of our clients, but it’s been a horrible retirement process with OPM, probably because of all of the applications they’ve been getting right around the end of the year with the, the deferred resignation plan, all of that.
So they were slammed, and this has been, I think, maybe one of the longest and worst adjudications that I’ve seen. But readiness to me is this client saying, “It’s fine.” Like, “It’s gonna work out. We’re on top of it. You’re on top of it. Our— we’ve got assets set aside. You’ve got a distribution plan.” Like, “This is all gonna be okay.”
That to me is retirement readiness to everything you just said, John. It’s like, “Hey, throw some hits in there. Some things aren’t gonna go according to plan, but we built it so resilient. We have the paycheck plan of, like, how we’re gonna recreate our income, but there’s absolutely no stress despite…” ‘Cause you can imagine some people going through this process, and they went, like, three months without an interim check, nothing.
That would destroy you if you weren’t prepared. Whereas for them to be completely stress-free and say, “Yeah, it’s fine. It’s gonna work out, and we’ve already positioned things. We already moved TSP or the bulk of TSP over, so we can take distributions if we need. And thanks, Tommy. Thanks for feeling us.
Thanks, Mason, for being here beside us, and we feel so much more confident ’cause you’re here with us, but— and we’re not stressed.” That to me is at least a big part of readiness is the financial stress is not there.
John Mason: Well said. You know, I think tagging onto that voluntary separation incentive pay, a VSIP, or a gigantic annual leave payout doesn’t make you ready to retire and shouldn’t be necessary for you to retire.
Now, those things are certainly nice if you were planning to retire anyhow. An annual leave payout can close the gap or fill the gap between interim pay and adjudication, but we shouldn’t be, like, waiting for that to be the thing that says, “I’m ready.” We should have— those are like icing on the cake type moments.
And we wanna make sure all your military time is purchased, all your federal time is, is right and accounted for. If you had a break in service, you’ve checked your personnel records, all of your time is counting. We’re fine-tuning what day we’re going to retire, how many days, months, and years of service I’m gonna have on that projected date.
We’re using our sick leave. We’re fine-tuning our annual leave adjustments. We’re designing an asset allocation that, like we said earlier, is maybe a 60/40, 50/50, something a little more conservative as you begin taking distributions. We have plenty of people who are still 80/20 into retirement years.
So, understand that’s a personal preference, too. Remember, if you have unusual circumstances, Tommy, like maybe a divorce decree on file, it could be 12 months plus for pay to get adjudicated. And in those scenarios, it really is bad because interim pay gets held up big time, you know— Mm-hmm … if there’s divorce decrees and whatnot.
Tommy Blackburn: It does, man. It’s slow. Usually, you still get something from interim on a interim pay, although it is a, a fraction of what it would typically be under a normal interim. That one scenario I’m thinking of, though, John, that was just so strange to me because they— I don’t know what was happening with OPM, but they— no interim pay for a number of months.
Like, nothing. It was— that was bewildering ’cause even— you’re right. There’s the divorce decree. That really garbles the system, slows it down, prepare for a longer process, less interim pay. But that was a unique one of just— and literally, I think HR at some point came back and said, “There was a glitch in the system.”
So I think of Office Space and, we fixed the glitch. So anyway, thanks for humoring me.
John Mason: If you’re not a federal employee, you need a healthcare plan when you retire. Are you going on Medicare? Are you going on the exchange? Federal employees, you just continue FEHB, which is pretty cool. Previous episodes talk about FEHB, TRICARE, Medicare, but you need a, a h- health insurance plan for you and your spouse, if you have one, as you approach retirement.
Wanna make sure we have deductions set up for long-term care payments, dental, and vision. Those things can get a little wonky as you approach retirement. We wanna retire the last day of the month if you’re FERS, that way your pension’s effective at the right time. FERS pays monthly, Social Security pays monthly.
You’re used to getting paid biweekly, so, understand your payment calendar or cadence is going to be a little different than maybe what you’ve been used to. So maybe you get your FERS pension on the 1st, you take an IRA distribution on the 15th. You kind of mimic what you’ve been used to.
A financial planning team should be able to help you come up with a s- a strategy that you feel good about. But yeah, I mean, even the transition going from biweekly to monthly is truly… I don’t know why I said truly, is actually a pain point. Like, it is a mental thing that they’ve been— people have been budgeting for every two weeks for 30 years, and now to switch everything to monthly, or Social Security just randomly picks a week based on my birthday on when they give me my money.
And I just have to be okay with that. I’ve— Yeah … I kind of liked 26 pay periods, and I kind of liked the bonus paycheck that made me feel like I had my vacation fund, and now I just have lost all the things that I was comfortable with.
Tommy Blackburn: Yes, you’re right, and that is funny with the Social… I’m guessing that’s just part of an arcane system of how they figured out based on when you were born, depends on the time of month you get your check.
And how that hasn’t been updated is baffling, but you’re right, it’s a good thing to point out.
John Mason: Beneficiaries should be reviewed and updated: TSP, FEGLI, life insurance. May be a good time to update your estate plan if you haven’t done that in a while. So yeah. I mean, this is, I know I said rubber meets the road before, but this is victory formation.
This is theory of how are we gonna do it? When are we gonna do it? To now we’re actually doing some of the things that we said we were going to do, and it should be a celebration. It should be a lot of fun. Audience, we know, and Bob will talk about this on the next podcast, but it’s not always roses.
It’s not always easy. Life’s not always easy. It’s gonna throw you curve balls. The market’s gonna be down. There’s gonna be historic inflation. There’s gonna be weird things from, personal losses, whether it be work-related or connections with other humans. Your health could go… There are so many things that can happen.
So if you are in retirement or approaching retirement and you don’t feel like everything’s great, you’re not the only one that feels that way. Again, just because you have money doesn’t mean all your problems go away. So we recognize that. We have to help clients through that transition. We’re not counselors.
But after 17 years of doing this, I do recognize where we sit, and it’s a lot more than just you have so much money that you’re good. That’s not the end of the story and can never be the end of the story.
Tommy Blackburn: It’s a process, the entire journey, and it’s a process and a transition once you get there, both financially of just getting used to the new system, but a lot of just what your life looks like.
As I think about it, John, and I think this is true of most of our clients, if not all. Probably all is a strong statement, they’re busier eventually. Usually everybody, not everybody, but most people need a break, so they take a little bit of time to decompress. But most are then busier in retirement than they were when they were working.
And so they find… So I think the whole theme here is they find ways to continue to stay active, hopefully in things they’re passionate about, new things, social circles, things to just keep them going, engaged, and active in life. And, those are the happy, successful retirees.
John Mason: I love it, man. Well, we stuck right to our goal, one hour in.
Audience, thanks for hanging out with us. Tommy, any closing thoughts?
Tommy Blackburn: I think they’ve heard enough from me. Thanks for hanging out with us.
John Mason: Audience, we appreciate it. Thank you for doing all the things: like, subscribe, share. We really appreciate you being on this journey with us, helping us grow to both the firm and our following here on YouTube and the Federal Employee Financial Planning podcast.
Remember, we are financial planners first. We do this content creation second. We hope you leave this episode and every episode feeling educated and empowered to make positive changes in your financial plan. If you are ever ready to move from general education to personalized advice, you can start that process at masonllc.net or 757-223-9898. If you’re not ready for that next step, that’s okay. Keep hanging out with us right here on the Federal Employee Financial Planning podcast and the Mason YouTube channel.
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.
