62 and 16, blue states, and ROTH options, all on today’s Fednobabble.com
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.
Hello, Cassie. Hello. Oh, hi. All right, so what’s the first question today? Kevin, here we go.
So age 62 with 16 years, I should be good to retire. I sure hope so. That’s classic. I hope you are, but it’s not always that way, though, right? I mean, I hate to say it. No, not always. Not always. But so. Yeah. So the answer is yes. Whether you’re a FERS employee or a CSRS, OK, are you good to retire? That’s a mental thing, I think.
Right. That’s I don’t know your mental state. I don’t know what it is. What is what what do you think?
But as far as fully retiring either or offers, if you’re sixty two, you can retire with five years and be OK fully retire. Now when I say fully retired Cassie wouldn’t you and I say fully retire.
Some people get the impression that I get as much money as someone who has worked 30 years because that’s full retirement. I don’t know if you’ve ever heard anyone say that before, but no. No, you don’t. Just go. I get privileges. Yeah, I do have to explain that there will not be a reduction, and that’s what fully retire means, that you are retiring under an immediate pension with no reduction. Right. So I am always clear when I am making notes to advisors on that point because they’re like, oh, well, they want to go out as soon as when they’re fully ready.
And I’m like, OK, well, this person’s fifty seven with only 15 years of service so they can retire, but then there’s going to be a reduction. So they’re not fully eligible to retire yet because they’re not going out with an unreduced with an unreduced pension. And so there’s going to be a penalty applied. Right. And that’s what it means to be fully eligible to retire. So this person. Yes, if you are mentally ready to go with 62 years and 16 or at age 62, with 16 years of service, then go for it.
If that’s what you if you want to do. Right. I don’t know that I want to retire that young, but everybody’s different. You know, if you have something to I think the mental part, like there has to be something that you’re retiring to. You can’t. Yeah. So good.
I don’t know if you’re financially good to go because I don’t know what your pension numbers look like and all of those different pieces of the pie, you know, Social Security. Are you going to take Social Security at 62? You know, financially, I don’t know if you’re going to be good eligibility. Yes, you’re good for eligibility, but you are there’s other factors that people need to take a look at for retirement that I think are simply missed just because they think I’m this age, I’ve got this many years of service, I’m good.
There’s other factors that we have to look at. What are you going to do after retirement? Are you going to start a business? Are you going to hang out with the grandkids? Like, what is that what is that goal of your free time? That you’re going to be kind of doing something else, because I know from experience that there have been several federal employees who separate and because they have nothing to retire to. They passed away shortly after retirement.
Yep, I’ve seen that as well. I’ve personally had, you know, I was helping this federal this federal employee and his wife, and he had to take a retirement due to some injuries. And he was a firefighter any. So he he took an early retirement, but that wasn’t something he was mentally prepared for. And so I think within three months of actually retiring from service, he had passed away. Wow.
Because he wasn’t mentally ready, even though he physically couldn’t do his job. You know, he didn’t look at other avenues either. As far as transferring an agency or what have you, there are other options if you’re not ready to retire. You know, look at those possibilities. And so I think people need to do more planning when it comes to this. And it’s just simply not based on, OK, am I am I eligible to retire? Sure.
Whether you are a good to retire to financially eventually are a whole other questions that we can answer.
Right. And and so, again, I don’t really know.
That’s why you brought up some really, really good points, though, that people don’t or that they either don’t think about or take lightly. And we shouldn’t say, OK, it’s can you retire? Yes. But again, should you I mean, we in the last episode we talked about this just because you can doesn’t mean you should or, you know, you could have retired 11 years ago. Why didn’t you retire 11 years ago at 62 with five?
Because you have you know, maybe you’re working for another company and you have your 401k and you’ve got all that done. Why did you work so long? And they’re like, I don’t know. I’ve had people who just keep working just because they don’t know if they can retire. Should they retire? I don’t know. Am I mentally ready to retire? Yeah, I could retire, but, you know, I don’t know financially if I can.
So they just keep working. And so, yeah, it’s all over the place. The law says you can.
Well, the law the rules say you can, but should you. Yeah, that’s another question. OK, next question.
All right. How long do I have to live in a blue state and how long do I have to live in a blue state to not get that taxed? OK, explain this one, because I think this is something from your webinar that I’m not too familiar with.
Yeah, this is this is very this is something specific from the webinar. That’s right. So woops.
So I showed this slide. All right. This is on part of a slide that I show.
And when when we talk about pensions getting taxed, I say here, the blue states, you don’t get taxed. They won’t tax your federal pensions. In the yellow states, they won’t tax some or all of your pensions. If you fit a narrow band of criteria and the gray states, you will be taxed. So. So really, the question is, so for example, I’m in Washington, I’m in Washington state, just outside of Portland. But let’s say I lived in Portland, Oregon.
I had let’s say I retired at the end of the year and then I kept living in Oregon for six months and then I moved to Washington.
Is my federal pension taxed? What do you think?
Cassie will want a portion of it be taxed? I mean, because part of the time we were living in a state where there was no tax. But OK, so are you are you living or are you a resident of the state? Does it matter? Because just because you’re living in a state for a time, say I’m living with family or something because I haven’t found a place or, you know, like we just moved across the country. We weren’t technically residents of Tennessee for like a month after we were here.
And so because we didn’t have an actual address, like we were waiting to close out our house. And so what does that look like? What are the rules around whether or not your tax I mean, just because you live in a state doesn’t mean you’re actually technically living there.
Right, exactly. And so it goes by the rules of the of the state. It goes by how long? I mean, because on the taxes. So in my circumstance, in the you know, going from Oregon to Washington in that example, I typically would say, OK, I lived in Washington a half of the year, so I don’t have.
To do state income tax return in Washington, because they don’t have any state income tax period, but in Oregon, I have to say that I received money there for six months. And so I do have to pay taxes on that. And then the other half I don’t. So it really depends on residency laws. And, you know, were you really living there or was it a vacation? There’s a state or there’s a law either coming or. It was passed in California that says and I’m going to get this wrong a little bit, but it’s something like if you lived in California and then you moved away, you still owe taxes to California for 10 years.
No doubt surprised me. Oh, my goodness gracious. So I’d have to look that up and see what that is again, because I read that in a number of places. I was just dumbfounded. So that kind of stretching, it doesn’t matter where you live, you’re still going to get taxed.
And I personally, I would be like, come and find me. Go ahead, come and find me. What are you going to do? But that’s just me. I don’t know. I don’t know how that all works. OK, let’s talk about the next let’s go to the next one here.
Does it does it have a ROTH option or should you go find a private ROTH? So is this relating to the TSP, the thrift savings plan?
Yeah, let’s yeah, I’m pretty sure it’s basically does TSP have a ROTH option or should you go find a private ROTH?
Again, I think with everything it depends. Right. That’s right. I mean, yeah, because it can be or it could be. And you have a ROTH. Yeah of course there’s a ROTH option but maybe you should do an and instead.
Yep. It I don’t know. I don’t know. Yeah. OK, first question.
Does it have a ROTH option. Cassie. Yes, yes, it does deal. Yeah, that’s easy. There’s there’s really no exception. I don’t think there’s any exceptions to that. That’s just the way it is, period. One of the few. There are some limitations with the ROTH, like, sure, you can’t transfer your traditional to ROTH, right? You can’t make a ROTH happen. You can begin contributing to the ROTH account. And that will set up a whole nother account for you in the TSP.
But you’re always going to have traditional and ROTH even if you’re 100 percent contributing to your ROTH from the beginning of your career, because the TSP isn’t going to match on the ROTH side. If you’re contributing five percent to the ROTH and that’s all you’re doing, then the TSP will still match you because you’re contributing to the TSP. It doesn’t matter traditional a ROTH now they only require you to to contribute to TSP and therefore they will match you. But their contributions.
To the TSP automatically go to the to the traditional side, they will not contribute. Their contributions, they’re matched to the ROTH side, even if you’re contributing to it, right, and basically because they don’t want to pay the taxes, they want you to pay the taxes on that, not them, make some cover.
That’s not going to give you free tax money, are you? Right.
I know it would be nice, but you’re right.
Now, if you want to have different buckets of money and you just, OK, TSP is TSP, I want to go find a private ROTH. There might be some benefits to having a private ROTH account that you can’t find in the TSP. But that’s going to depend on the state. That’s going to depend on, you know, a number of different factors on the types of policy that are available to you and what that looks like if you’ve got money to go into the ROTH or something to that effect.
That’s definitely something that you need to talk with a financial adviser about or a financial planner as far as that’s concerned, because you’ve got to have somebody that’s taking into consideration all of these different buckets of money that you’re going to have coming in to find out if a ROTH is even a good idea for you. Number one. Number two, what private ROTH plans are going to fit what you’re looking for and what your goals are? Right.
And one thing that I’ve seen some people do just to show you, not to show you specifically, but to show everyone listening or watching different options of what could happen. So you can so 19, at least for this year, nineteen thousand five hundred in your TSP, you can do another six thousand five hundred dollars and catch up contributions and you get your five percent TSP match. Well, OK, so that’s a that’s a decent amount of money going in.
Right. But what if someone is at the end of their career and they say, you know what, I can I can do more and I’d like to do more? Well, you can get an outside ROTH and contribute to that as well, so you can even do more. So, you know, there are strategies like that. Plus they have different they have somewhat some of some of the rules that they have are different. Some of the options they have are different.
So you can’t take advantage of that as well. So that’s that’s one of the things that isn’t talked about. A lot of mixing the government options with industry standard options as well and using them in conjunction. Really, I call that the best of both worlds.
You can do so much if you can do both of them at the same time that the offset each other’s weaknesses a lot.
And I’ve seen a lot of times where. Maybe an employee has a certain need that they can’t qualify medically for that. There’s different riders on a policy or benefits to a policy. Yeah, they’re called hybrid policies on the private side where they can’t do those things on the TSP. And so maybe it’s beneficial for you to do a private policy just because of the other benefits that that plan has as opposed to, you know, the financial side of it.
And so it really depends, though, based on what you need as far as you know and what’s available in your state, because there are some definite limitations for certain states on these different plans, though, as well, and what they can offer as far as different benefits. And so I can’t tell you just and I don’t mean you, but the employer tell the employer whether or not it’s going to be a good idea for them. I mean, do you live in California or New York, Florida, Washington, Montana, Ohio?
Like, what state do you live in? Right. And I don’t even know all the rules for that as far as what’s available. That’s why you’ve got to have somebody local or who or somebody who’s who knows your state’s rules. I shouldn’t say somebody local, because not always. This is somebody who’s versed in the federal benefits going to be local, especially Rakova, like we’re dealing with people all over the place. The thing is, is there’s, I think, different factors that if you’re looking for a financial adviser to answer this question for you, you’ve got to think about one.
Are they versed in the federal benefits? Two, do they know your state’s rules, are they licensed to do insurance products or, you know, different types of products, variable products, whatever in your state? Right. And and three, are they going to actually be able to help you or are they just looking for a quick buck? Like there are some financial advisers out there who are just strictly after one piece of the pie and just trying to sell you a product.
But, you know, there are other advisers who aren’t who are looking for who are genuinely trying to help you. Right. Just get the information that’s that’s best for you. And so if you need somebody like that, reach out to us. They’re going to give you two free meetings. They’re going to talk to you about what your benefits are before they even answer the question on whether or not you should have a private plan. Because first, they have got to figure out the other the other things.
Right. And so they’re going to give you those two or three meetings. So they’re going to give you that consultation, get the information from you, and then they’re going to be able to give you that benefits report so they can talk about what your federal benefits are and then figure out if they even need it, if you need their assistance or not, and what that looks like moving forward. So if you need somebody, we’ve got a network of advisers who we trust and we use and we help people get in contact with them because they mark off all of those boxes.
They know the federal benefits. We’re going to get you somebody who can help you, who’s available in your state, who knows the rules and can help you with those different plans, because if you need continued help, we want to make sure that you can get it. And specifically for these types of questions, right, Kevin.
That’s exactly right. Yep. You’re spot on. In fact, these as you’re talking about that and talking about these financial advisers, planners, whatever we want to call them. You’re right. They’re not looking to make a quick buck. They want to educate. And if they can give you the information like we are, we’re in the same business. We we want to educate people and help them with their retirement to make sure that they’re doing the right thing for their retirement.
So so if you would please, like, subscribe and hit the bell for more notifications if you’re on YouTube, all that good stuff other than that. Thanks, Cassie. And we will see everyone next time. Take care. Bye.
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.