Too much money, FEGLI, and balancing TSP on today is Fenobabble.
This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you. These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.
Welcome, everyone. Welcome back to Fenobabble, where Cassie displays are brilliant, and I tag along with her. Let’s go to a. I don’t know. Let’s go. Let’s go to question one.
All right. The first one, if you retire in the middle of the year and your salary. OK, so let me set this up. First off, they’re they’re talking about what people call Social Security supplement, which isn’t actually a thing. So we’re talking about special retirement supplement. OK, so that’s the context. So let me let me do this. What if you’re what if you retire in the middle of the year and your salary to that point goes over the earnings test total?
Will you receive the they put special retirement supplement here, which is actually are they put Social Security supplement, which is actually a special retirement supplement, or does your salary to that point eliminate you?
Because basically what it is with the earnings test, if you make more than at least this year, about nineteen thousand dollars and they start taking money away. So Cassie does that does their earnings for the first half of the year preclude them from receiving these special retirement supplement?
Here’s the thing.
You don’t you’re not yes or no. See, yes or no. That’s all I want to know. That’s it.
I know it’s not that.
OK, it’s not that easy, though. So, you know, their earnings, while they’re working and not receiving the special retirement supplement are not eligible to receive it because they don’t always receive the full amount or even a portion of it, depending on what that looks like and what their retirement. I mean, there’s a I’m back.
I know it’s confusing. This is a hard one, isn’t it? Just yes or no. Right.
OK, like I said, their income, while they’re working and not eligible for their special retirement supplement is not going to count for the earnings test. Right.
Hey, it’s well, they’re eligible and and collecting or supposed to be collecting the special retirement supplement.
That’s if they have any outside earnings. In addition to that. That and here’s the thing. They don’t even ask you until the next year what those earnings are so messed up.
And then, you know, I wouldn’t say lie to them, but you’re you’re going to receive that money and then the next year they’ll take it away if you’ve earned too much. So essentially, that’s how that works or reduce your benefit or whatever that that looks like for your income. But the income that you had while you were working, when you were not eligible to receive that benefit does not count towards the earning test.
OK, good that yeah, that is the answer. However, you’re right, there’s more involved. And I’m going to add one more wrench in there. And I think this is where you didn’t want to add the wrench, but I’m going to do it just for the fun of it. Oh, boy.
So during the show, someone retires. Let’s say they retire at the end of June. Right. So they have another agenda. Is it July is halfway during the year? I don’t know. I don’t remember. Anyways, it’s September, October, November, December. It is. Joy.
OK, anytime between May and August. Right. So let’s say you retire in the middle of the year, right. Then the earnings test could really technically start at that point if you earn more than nineteen thousand dollars after and that half, but you’re in the interim pension period and you are going there.
I am sorry. I shouldn’t. I know. So I look at the supplement and it isn’t Social Security supplement, but it’s the special retirement supplement. You don’t get it anyways because during the interim time you’re not going to be receiving it. It’s not until they finally they finalized your pension, which is about a year later. So the middle of the next year you’ll finally get back what you what they what you deserve. And by that time they may see, oh, you earn too much.
And so they. May not give it to you after all. So did I just confuse the heck out of everyone there? But yes, you’re right. Oh, my goodness, it is not a simple answer.
They may not give it to you on your pension from that point, but they might pay for the back pay. So then you still have to you still have to claim those earnings that they’ve paid you for the back pay on that year’s taxes that you got paid. Right.
So if they paid you a twenty twenty two because you separate the middle of twenty, twenty one and it’s not finalized, it’s twenty, twenty two. And then they determine, oh you earn too much so you’re not eligible for it from now on. But then you were last year because we owe you it.
Yeah. It’s and then does that different tax bracket because you were too close to the edge of the tax bracket and then of course you are you paying more in taxes than you should have been. This is why when people say, hey, Kevin, I chose to retire this day. Why? Because it sounds like a good day.
My mind goes, wow, I’m like, no, because I don’t want you to be put your put. It is possible to put yourself in situations you there’s no way to crawl out of and you don’t even know. And it could last two years after you retire and you’re still free and feeling the effects of not choosing when you should retire strategically. Oh my goodness. Right. Blown like, oh I’m going to retire at sixty one of eleven months.
Well wait one more month. Right.
If you have over twenty years service and get an extra 10 percent in your pension for the rest of your life, things can make a huge difference. Huge. Yes. Yes. So people really have to just OK, we’re getting out of the weeds, but you have to plan your retirement.
That’s the gist of it. And you’ve got to look at all of these different factors. You know, get in touch with somebody who has the answers for you. If they can’t tell you, hey, the Social Security supplement is not the special retirement supplement, you need to get a hold of us. Yep. So that way you can talk to somebody in our network of advisors who can distill that down for you and explain how to operate that and coordinate it with the rest of everything else.
Right. Oh my goodness. Yeah, my head explodes during that time and it can be again, in context of someone’s situation, it can simply be explained. I mean, it’s not difficult to explain it when. OK, what what’s your situation? How does that work? OK, there here is how it would work for you if you went down that path. If you went down this other path, you could actually save a lot of money, like thousands, even tens of thousands of dollars.
Going down this other path you could keep for yourself.
Which do you want, huh? No brainer, but no brainer.
That reminds me of this case I had the other night. I stayed up and drank coffee and everything to make sure that I was had this case to the adviser because there was I had to break it down into different options of, oh, good. That’s the way the employee had this question. And it was regarding military service. And then he wanted to separate this day. And so I had to really explain out, like what would happen if he if or when he bought back his military service for this option.
But then he wants to go out this day. This is what this would happen. And so we had to go through those different scenarios. But that’s what we do, is we make sure that people are informed about those situations and see, OK, well, if you go on this date, this is what this happens here. But then we’ve got to take into consideration these other things. Now, if you go out on this date, is that going to be better for you?
Because now we’re looking at these other different considerations and it might be more beneficial for you to do, because now that opens up maybe different benefits that you’re eligible because of, you know, even if you’ve been in a federal program for longer or what have you.
So I want to point something out that I want to point something out to everyone. Please understand that as when we when we say that you can get one of these reports from an Cassie creates these reports. Right. And we we basically have one of our one of the advisors and a trusted network reach out to you, gather your information. Cassie does the reports. This is the kind of thing you can expect. She stays up late at night drinking coffee just to make it work and look at all the different situations and then hands that back to the advisor.
Then the advisor talks to you. And again, all of this is no cost or obligation, no sales pitch, all of this. And and that’s the that’s. The extent that we go to make sure that federal employees have the information that we need and it’s no joke, this is it, it makes a huge difference in understanding it and not understanding it. Woops, I just hit my microphone. Sorry, but that’s so. Thank you, Cassie.
Thank you for drinking all that coffee. OK. Next question. Let’s look at this. So this person is a post office employee. I dropped off several years ago when I picked up private life insurance. OK, good. I’m a I’m a post office employee. It looks like I should have kept the basic.
Can I can I get it in? And I guess I should have gone in and capitalize that basic because that is a that is that is one of the options of the basic option. And and Cassie, why should why should that postal employee, why should they not have dropped the basic because in retirement.
Well, for one, postal employees get basic for free. That’s it.
Bingo. That’s exactly. It’s free. Why did you drop it. Don’t do that.
Postal employees only go to no one else.
Yeah, it’s you know, even a retirement after age sixty five. If you take a reduction it could also be free. Right. You have to take a reduction but then you have free life insurance in place. Or is that option. And if you already have no well option eight also reduces that one is also free but that one automatically reduces. OK, I’m OK and that one’s not free. I take that back only the basic. Is there a quote unquote free option.
Most employees pay for it while they’re in service. Postal employees get basic for free. If they retire, then they pay for it between the years of their retirement in sixty five, if they choose to reduce and have the seventy five percent reduction because there are different options for reducing it.
But I would say if you’re a postal employee, free insurance is free insurance man.
I’m not going to recommend it because I’m not a financial adviser and I can’t tell you what to do.
But it’s free insurance.
It’s free. Right. But can they get back in? Can they get back in now?
Oh, not without a qualifying life event. So go get married again.
Maybe. I know polygamy. It’s a thing now or not. I don’t know.
I’m not going to go there.
OK, so they need qualifying life event or adopt a child, whatever. There you go. Right. That works. There you go. So, yeah.
Can you get back. It’s not an easy thing to do. Yeah. You have to have the qualifying like that. OK, that’s question to question three.
Are there straight. OK, this is this is a complicated one and we have six minutes. Are there strategies that can be used to balance TSP investments as it relates to the suitability of investing in ROTH funds versus standard or traditional TSP one of the most difficult aspects in trying to predict future tax brackets in retirement. So they’re trying to figure out basically are the strategies to understand when I should put money in my ROTH and when I should put money into my traditional, because trying to understand the tax brackets in the future is a crystal ball and and it’s difficult to understand.
Well, it’s not a crystal ball as of today, because we know we’ve been told by our new president that taxes are going to go up. So we know that’s going to happen. But at the same time, here’s the thing. Taxes are always going up.
Yeah, yeah, yeah. I hate to say it.
If they don’t if they’re not going to now they’re going to five years from now or ten years from now like. Right. They’re going to continue to increase I’m sorry. Taxes, death and taxes are one of those things that are guaranteed and increasing taxes unfortunately is also guaranteed. Right. Right. But I think this actually needs to be looked at, as are there strategies that can be used to balance the TSP investments? Yes. Yeah, there are other contribution strategies.
There are tax strategies. There is a distribution strategy. Right. Where do I take these different buckets? The money do I pull from my ROTH, I pull from my traditional what does that look like? Is it just a tarp that you’re dealing with?
Right, and that’s why we’ve really got to talk to somebody who knows our specific situation and what our goals and priorities are for retirement, because until they know that, they can’t answer this question for you. I mean, other than saying, yes, there are strategies.
Right. That’s all that’s all we can really say today is yes, there are. But what’s right for you? There are. Right, exactly.
Yeah. No clue. No clue. Everyone’s a little bit different.
I like I are there, but I have no doubt.
Yeah, well it’s that well we just kind of let that episode off on a downer then are there. Yes. OK, next. Yeah that’s it. Go figure it out. Get it. Really. Yes, yes.
Yes. Go figure it out. Go do that. Go to that Fednobabble.com website and and sign up and have have Cassie create one of these reports for you. And then when you talk with an advisor, again, even the strategy piece of this, an advisor will talk to you about and kind of walk you through no cost, no obligation, no sales pitch still and they’ll walk you through. Where should you put your money. CFC’s and I ROTH traditional here.
You put it here, here, here, go. There’s no reason not to. Oh, my goodness. Then there’s all the reason to do it. If you can grow. One of the things I say in my workshop as I talk about there are two main reasons are two main goals for the accumulation phase or the phase that employees are in putting money in. Right. One of those goals is to grow your money as much as possible.
If you if you’re not doing that, why are you even using the TSP? I mean, there’s there’s no reason you might as well take it out and put it in a savings account if you’re not trying to grow your TSP. And that’s what they can help you with is if you don’t know if let me say this, if any federal employee doesn’t feel good about where they’re headed with their TSP, not just I feel OK. No, if you don’t feel good and confident about where you’re headed about in the TSP, get Cassie’s report.
You need it. I want every federal employee to feel good, not just yeah, I feel OK. I think I’m doing the right thing. That’s not an acceptable answer. It should be. Yes, I know where I’m going. I’m headed there and I’m excited to do that. That’s the feeling every federal employee should have about their TSP.
I think that. People just, oh, the the government’s going to take care of me, and these are the benefits that I have not happening, and they don’t do the proper planning, right. Retirement should not be something that just happens in life that you’re just going to figure out when you get there. Retirement should be a planned process. It should be something that OK, this is what I’m going and you should know what you’re going to have and what what you’re going to do when you get there.
Right. This this should be something that over time you take a look at and OK, at retirement, I will have a million dollars. And this is the amount of income that I’m going to have from that million dollars. And this is what I’m going to do with that. Right. And and this is what I’m going to have for Social Security. Like, it should be something that I mean, there are exceptions. Yes. Sometimes things happen and we have to do, you know, and figure it out just like anything.
But it should be something that OK, this is a planned point in my life. This is what I’m going to do and this is what I’m going to do to get there. Yeah, right. To make that happen for myself. And you can’t do that, though, until you know where you’re starting from. You know you can’t. Oh, well, I’m going to contribute this amount. Well, why why are you going to increase your chance?
Why are you going to decrease the amount that you put in your TSP and why are you going to choose those different funds?
You should know exactly why every single one of those moves you make, not just arbitrarily make them. Yeah, OK. So, OK, we’re out of time.
What are your numbers? There you go. There you go. All right. Thanks for watching, everyone. Take care.
And we’ll talk to you next time to get Cassie’s comprehensive report on your federal retirement benefits. At no cost, no obligation and no sales pitch. Go to Fednobabble.com. While you’re there, submit a question for them to answer on the show.