Latest / Federal Retirement Advisors | FedLegacy / Before You Attend a Retirement Seminar: The Numbers To Bring and the Questions To Ask
Transcript
- William Smith: today we're going to talk about what you need to know going into a retirement seminar. So, like one of the things that we've been saying, and we get we we have to address this ⁓ on on a weekly basis as a is Mr. Smith, we're just we're getting all of we're getting all types of things in the mail, invites to dinner seminars, in type to education seminars. Like, what's the difference? And so what we're gonna talk about tonight is. What you need to look out for if you're going to any demon dinner seminar, especially as a federal employee, because most of the seminars are mass blast things where they're talking, they're trying to talk to any and everybody. And so, like I mentioned before on on this webinar and in a lot of our material, is that as a federal employee, your retirement situation is very different from the masses. You can watch CNBC today, you could wat you could read the Wall Street Journal, you could read You know, Essence Magazine, whatever your publication is on personal finance, you can read it and it gives you advice, but it's very different than what you as a federal employee needs. And so what we're going to talk about today is what you need to look out for when you're going in those places to know that you're in the right place or not. And it's something that, you know, we drill down with that when it comes to our advisors to make sure we under that they understand that we have to show us we have to show up for our federal employees differently. Because the federal employees' retirement strategy is completely different than what it is for everyone else. And so the question that we normally get is is why do federal why do financial advisors always tend to tell, try to get me to move most of my money to FIAs or to some bond account to go for protection? That's a big one. And and why are they always trying to sell me on I need more income into the future? I can't tell you how many times I've Talk to federal employees and they're like, Well, somebody told me I need to put my money into a fixed index annuity and then make it get a bonus product so then I can draw income from it in the future. And I always say, like, fixed index annuities aren't bad products. There's some good ones, there's some bad ones. A lot of the fancy ones that offer bonuses and things like that are often income driven. But you as a federal employee, you don't really need that. And the reason being is your pension. Is something that most that most retirees just don't have, right? They don't work for like states, and some states still have it. But as a federal employee, you have a pension and it's a very, very nice pension. And so when it comes to more safety regarding income, that's that's what you're gonna get at a lot of those retirement seminars that you go to. That's not the right advice for you, right? And so the the three points that we're gonna talk about today is the 4% rule, understanding while that's not suitable for you as a federal employee, two. You already have safety in your pension. And three, why, what, what, what, what your fit federal benefits package has in it when it comes to growth that you need to take advantage of. So let's first start, let's first start with the 4% rule. Now, the 4% rule is something that you hear, it's a very common rule. It was, it was, it was created in the early 90s, and it was around it was it was, and I can't think of it, it a Wall Street guy. And what he realized is like as long as you can draw 4%. Down on your income based on standard market returns, then if you draw 4% down on your income, that amount of money, if you get to a certain amount of money and you can draw 4%, that lets you know what you draw on an annual basis, that amount of money should be able to ro last your whole life as long as you keep it in the four percent range. Now, that was then it's something that's been that that that we've seen just get pushed and pushed and pushed because it's the easy concept to remember. But as a federal employee, Your TSP is gonna work differently. The reason why your TSP is gonna work differently is because you have your first pension, you have Social Security. Most federal employees that we meet with, when it comes to sitting down and going over their finances, you all for the most part can take care of your expenses with your pension your and your and your social security. At least that's what we try to educate you on when it when if you come to us and you're trying to plan for retirement and you got a year or two. What we try to do is make sure that we get you into a a budgeting plan, debt reduction plan, something. Just even, you know, just just how you're thinking about retirement. We try to get you into that place that as long as your pension and your social security can cover your monthly bills, that's a really comfortable retirement. And the reason why that's a really comfortable retirement, because now your TSP is excess. Now it's there to be used, right? We get some clients. Who say, hey, Mrs. Mim, I want to take, I want to take two, three thousand a month out of my TSP, even though my bills are covered by my my my pension and my social security. All good. You worked hard, you worked hard for that money. You should enjoy that money. But if you're going to do that, which is a great idea, you don't necessarily need to adhere to the 4% because what that ends up doing, it causes you to invest your money more conservatively. You need, you know, you start thinking about putting money more in the G fund you start budgeting more of in a conservative way, which is okay. But if you're talking about long-term wealth, long-term things like long-term care, making sure you have enough money for those things, you can afford to be a bit more aggressive with your TSP in that case. So that 4% rule doesn't really work for you. And so I say that to say when it comes to your retirement, you want to make sure you sit down. And get a one-on-one plan with some type of advisor, somebody that's looking directly at your stuff, especially somebody, especially if you're a federal employee, someone that understands federal employees, because you can structure it a lot different and it makes a big, big difference in your retirement. Okay. And so now, let's say you're a person that you you you started working in the government late, mate, right? I was talking to a lady a couple of weeks ago. She's only been in the government for 10 years. She's now 65 she's ready to retire. Her pension is not that much. Her Social Security is a lot. She has a decent amount in her TSP. In her situation, we are going to take money from her TSP and money her TSP because she doesn't have that much in a pension, but she still wants to retire. Because most of her career was private industry. So in that case, we would kind of lean towards. Some sort of four percent rule because she really needs it. But for most federal employees that we talk to have 20 plus years in the federal government, you can afford to do something differently, especially when it comes to growth, right? And so, number two, safety bought twice. As a federal employee, the thing that makes you different is that you have a pension. That is so rare these days. You have a pension. The federal pension ends up being and it's a range, but it ends being between, you know, 25, 32% of your of your of your retired income in most cases that you still get. So you don't get the 80% like civil service once had, but you get between 25 to 32% of what you were making from your pension. Plus, you're now getting your social security. Civil Service didn't get social security. So then now you have those two checks. And those two checks, the good thing about those two checks, like we talked about last week, You're gonna get cost of living increases those checks. So security cost of living increase, and then you got your cola with your with your with your first pension. And they're and they and they're and they're pretty good, right? Like like we mentioned, anything above three percent on your cold on your on on the call on the the inflation report, you get that minus one percent as far as what your cost of living. So you're s you're always about one percent behind what inflation is, as long as it's above three percent or so. You know, wish we could match it like Social Security does, but you also have the growth of the money. And so this is why you can prioritize the growth of the money rather than having the money sit in the G fund and gain you two percent, inflation's up four, your paycheck is is is your cost of living increased for that year since it's four is only three. And so you're losing on both sides. And so because you have that safety in the in in the pension. you can afford to be more aggressive with your TSP. And so as as we always talk about, we like to say you can have your growth bucket versus your protected bucket. how those percentages work out is all individual to you. But we'll we'll walk through it on the call or when you meet with someone, you should talk about that. But that protected bucket, you know, if you have a lot of money in the CNS or, you know, you're still getting, and when you look at the CNS, if you look at the last 10 years, The C fund is around 14 as of today, and the S and the S fund is around 12, 10 to 12. And so you still get that long term growth. Yes, you might have some volatility over some years, but it's okay because you have some money in that protected bucket. Now, that protected bucket doesn't need to be the whole portfolio because you're not tr drawing down income, but you you you can have a portion there and have a portion in that in that growth bucket, and that amplifies the growth that you get. So you don't need safety twice. Your pension already gives you that safety. Social Security gives you that safety. They pretty much match inflation. You can have a small portion of it of your money, but you don't have to have all of it in a safety position. And oftentimes when you go to those dentist seminars or retirement seminars, non-federal employees, they don't understand that or they're just not looking for it because they've run through so many numbers of people that are not and they have their strict protocols. I mean, and even as us, as we we work with federal employees, we still have protocols that we abide by that are specific to federal employees. And so when we have people that are non-federal employees come in, it does require us to be a bit more flexible, but it's easier when we're working with federal employees. And so the reverse is the same for those dinner seminars where people are sending out mass mailers and then they have you come out, they're sitting down and talking to you, your pension is your situation is very different. And you don't just want to be caught getting generic advice when it comes to those things. And so and oftentimes when we meet with federal employees who have gone to multiple retirement seminars, they always say, Yeah, this is way different. I mean, that person didn't break that down to me like like y'all did. You know, we've been doing this now. Speak less especially me, been doing this now 18 years. It's not much I haven't seen when it comes to federal benefits. And so you want to understand that. So nothing about safety twice. Then the last the last point is your federal benefits in general. And what makes those different. And so the thing that makes the federal employees different is most retirement accounts, especially ⁓ 401ks that you have in in the private sector, there's a ⁓ there's thousands of different funds that they can invest in. As a federal employee, you have five. Now you have your life cycles, but it just those those are those are made up of of of the five funds. The G, F C S and I. You got five options. Not a lot of complexity there. They're five ETFs. They cover five different indexes. You got two safety. You got three growth. And so when it comes to federal employees, it's easier to make decisions because you don't have many options that you could go to. And so when it comes to your retirement, you want to understand. It's like, all right, I got these three, these three funds that are going to get allow me to grow my money. And I got these two accounts that are going to let me keep my money safe. Very simple to make a decision. Well, when you have the conversation, it's very simple. I know it might not be very simple for you. Now, but it makes you it it could be simple. Another thing that federal employees have that others don't is you have your first supplement. That's a big one. And a most a lot of advisors that are non-federal employees, they don't take that into consideration. If you're 57, you're retired as a federal employee, you get and you have 30 years of service, you get a portion, a social security supplement, basically. It's called the first supplement. gives you about 75%. of what your what your social security will be at sixty two, they give you that early. You have to factor that in to your income planning, your tax planning if you're retiring at fifty seven. And so a lot of retirement seminars, they don't talk about that. Also you are able to get that at sixty and have twenty years of service. So that's another thing when it goes into that income planning and things like that. You want to keep that in mind as you as you as you're getting ready to plan for your for your retirement. Another thing that federal employees ⁓ benefit from is the fact that the TSP is a very, very is is the fees on the TSP are very low compared to other 401ks where the fees can be a bit higher. TSP has a very low fee structure. And so you wanna keep that in mind too when you're going to these seminars and some of the talking points they have are fees, the fees, the fees. You wanna focus on, well my TSP doesn't have as many fees. And so That's another thing that you want to make sure you understand as you go into these dinner seminars. Let me think. Another one, one that a lot of federal employees run into is when it comes to long-term care. Long-term care is a topic that gets talked about a lot. Here's stance from helping thousands federal employees talk about their retirement and think through their retirement. And sitting through many, many, many seminars as a you know, as an advisor just because I have to to keep my license and stuff like that. ⁓ thing with federal employees is this when it comes to long-term care, especially in the products that are sold out there. When it comes to you as a federal employee, if like the if you're the client, like I mentioned at the beginning, who can cover your pension, who your bills can cover Let's say 80% of your pension of your bill, your your if your if your pension can cover pension and social security can cover 80% of your bills in most cases. This allows you to have your TSP to grow, right? If you're in that situation, long-term care is something that you can sell fund in most in most cases. And we run an analysis to to help see that. But one of the drive the the the the the the the drivers of fear that most generic advisors throw you away as hook is the fear of long-term care. And it's a real fear because we've all seen people have to take care of their loved ones, take time from work, you know, maybe even retire or move and all type of stuff happens when we have aging parents. And so we're f we most people are afraid of that. And so long-term care because something that you desire, but then also one of those things that You don't really desire it until you're older and you're like, well, now I need this. But then because you didn't get it when you were in your 30s and 40s, now you're in your 60s, and it's so expensive. And so you you're like, I should have this, but I so expensive. What do I do? And so what I would say, when I see that, what we do is we we say, okay, when we're looking at your TSP and we're doing the TSP planning, what we do is we say, okay, well, let's earmark a certain amount of dollars for long-term care. Because We sell long-term care. And one of the things that we notice when we're selling it, and while I'm not a big, big fan of it for federal employees is with long-term care, there's always a dollar amount limit. Right. And so you can have how many, how many, how much money you're going to receive day, how many years the coverage is for, if it's an inflation router or not on there, all that stuff. You know, what it covers, all those details. But at the bottom line, there's still a maximum spin. That the insurance company is gonna spend you in case, no matter what. And so what I what I well what what we did what we like to do at Fed Legacy is this, okay. And we know what that amount n typically is, right? So what we like to do is we like to say, okay, if this person has enough money, let's just earmark some money in case something happened. Cause you might not. You might I mean, hate to say it, you might pass in your sleep. You might, you might ⁓ Who knows what's gonna happen? We don't know. But instead of paying for something that you might or might not use that does go up in costs, you know, let long-term care policies are not fixed costs. And so, because they it can be because the cost of health insurance and health medical that stuff just fluctuates. And so so what we say is this let's put a certain amount of money aside in case something happens. And so we had that conversation with the people that we meet with. And oftentimes, and and but the thing that that's what makes you unique as a federal employee, because your cousin or your neighbor, their 401k, they need that because that's income every single month for them. Because all they have is that 401k and a small social security. They don't have a pension. So their 401k is everything. So if they were to get sick, they can't go into the hospital for long-term care using long-term care, also receiving income that their family needs at home. Have that pay their medical bills. As a federal employee, it's different for you because again, you're not using your TSP for income on a daily basis. Now you might suppl supplement your income, but you still have your TSP growing and growing and growing. So now you get to that point, you're in your late 70s, 80s, whatever it is, now you need long-term care. You have a bunch of money in your TSP. You can use that. You didn't pay any extra money for it. You just grew money that was already there. And so that's another thing when you go to these retirement seminars that you want to be mindful of is them pushing you things that you that most people need that you don't need.