Enough money. Best plan and pro-rata on today’s 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.
Hey, Kevin, how’s it going?
Good, how are you?
Good, good, good, good. Welcome to today’s Fednobabble. Let’s get started.
All right. Here is question number one. Question number one is, how do you know when you have enough money saved up to retire?
You know what? OK, I’m going to give a preface. OK, today’s today’s episode. These questions are like this. They’re all really broad. So we can always say it depends on all of them, but they’re just kind of wow that this is kind of a too big of a question to answer, isn’t it?
I think so, because how do I know if I have enough money to retire? I mean, the answer is going to be different for everybody. Not only is it too broad of a question because it’s so general, but it’s so general to because you can’t nail that. That’s like what is the best date to retire, right.
Oh, it it really is an individual unique situation to everybody based on so many different factors for the financial side of it that you can’t say what is enough? I mean, how long do you plan on living? What age are you at retirement. Right. What is your TSP look like? Do you have other financial investments? What is your pension amount do? What is Social Security look like for you? When do you plan on taking that? I mean, there’s too many different factors here to even put.
You can’t put a general number out because it’s different.
Yeah, it’s kind of like saying, I mean, we don’t have this question today, but it’s it’s very similar to saying when I retire, how much should I have in my TSP? Yeah. I mean, or hey, I’m hungry. How much food should I eat? I don’t know. I you know what can I get food. Should I eat. Right.
Right. Whoa. Yes. Know there’s just no way, no way to answer that. But there are you know there are some things that I think people can do to figure it out. And I think one of those things is to figure out to actually two things. How much money do you need in retirement and then how much money do you want? Because those could be very two very different things. Need is, OK, I’m just going to not not freak out about money and have enough to pay my bills and be done, maybe not travel a lot, but or do a hobby or whatever it is.
But I’m just going to have what I need and this will be good. Of course, you have to take into consideration inflation, cost, anything on so many things. And then OK, now, now the next thing is I want to travel. I want to do more woodworking. I want to, you know, visit all. I want to RV around and see all the national parks. I get that answer a lot. Right. OK, how much does that cost?
And add that on top of it. So a couple of different ways to approach it. But you’re right. No, there’s no way to answer this question.
Yeah. I mean, we just can’t because everyone like you were saying somebody might want to RV, somebody might want to do woodworking, somebody might want to travel with their collectible car or whatever. There are so many different things that I really don’t think that they can nail down this. No, but that’s why we have financial professionals in a trusted network. Yeah. For people to be able to get this answer. And these people understand the federal benefits.
They know how to coordinate that. What the other plans as well. And so you could take the you could take advantage of both worlds and really be able to leverage yourself to where you can at least have what you need and plus more than likely get what you want as well on the financial side of it. But then you can really distill down those numbers and figure out what is good for you, what is the amount that you need, what is the amount that you want?
What are the things that you want to do, the hobbies or the cost that you need to think about. So that way you can plan for, you know, for those things. And so I think getting in touch with a financial advisor and, you know, just to be able to help you distill out. Those numbers, that’s super important.
Yeah, yeah, I’ll add to that, because so many people, we live in a world of DUI right now. We’re always trying to do things ourself. And understandable, people want to do their retirement themselves because they don’t want to pay anyone. And hey, by the way, if you have someone help you with your retirement, sometimes it doesn’t cost anything. So it just depends. But anyways, people, you know, I’m going to figure this out of myself.
Well, part of the problem with that is that if someone is going to create a budget, a retirement budget saying, all right, when I retire, here are the things that I’m going to have to pay for. I guarantee that person is going to miss things. It happens every single time that we all going to you know, I’m going to figure out what that is. Oh, did you remember this? Oh, no. I totally forgot about.
You’re right. I am going to have to think about that. Yeah. And that’s a major expense. And then, you know, thing after thing after thing where a finance professional has done this a million times before, they can say, oh, yeah, you missed this and this and this and this. Let’s make sure we put that in there and save so much time, so much effort, so much money, so much hassle because they’ve done it.
Yeah, I think a big factor that they can really help with that people don’t think about is long term care insurance.
Yeah. So many people don’t, even if they do, if they do think about it, they think I don’t want the traditional policy because I don’t want to waste my money. But they don’t understand the products that can help incorporate those living benefits with, you know, life insurance or an annuity or something like that where they can’t or, you know, some sort of financial plan. They can get those things covered and maybe not have to pay for the traditional long term care and make their money work for them in more than one way.
So not only are these folks trained to answer and be able to figure out, you know, the answer to this question, but they can also help on what is going to be the most cost effective plan with the most bang for your buck, the most, you know, out of your money. And isn’t that what we all want as general consumers? I mean, your friend could say, yeah, this company, you know, helped me with X, Y, Z, but your knee might be something different.
So, yeah. Anyway, well, let me know because we’re trying to get off this thing before we do that. That’s true. But before we do, I got to give you the perfect example of this question in real life, and I think I’ve mentioned this before, but I was doing a live workshop in D.C. one time and this guy comes up and he said, I’m going to retire. I think it was like at the end of the month, I’ll retire at the end of the month.
I said, well, good for you. And he said, What should I do? I’m like, what do you mean, what should you do? Because, yeah, when I retire, I have no idea what I should do. I so I, I don’t know. What do you want to do. He goes, I have no idea. I’ve been working, I’ve been focused so much on work that I don’t know what to do when I retire.
I’m like, well dude, you got to figure that out. Yeah. He came up two more times and asked me the same question. He said, I got to figure out what I’m going to do when I retire. I’m like, Yeah, you do. Go figure it out. I can’t tell you I’m sorry. I could give you, you know, some ideas, but I’m sure. So I thought that was pretty funny. All right.
Next question here is what is the best plan for taxes in retirement? It’s the same same answer, right? To say, yeah, I don’t know, Kevin. What should I do when I retire?
Yeah, right. I will say this. We have to have a tax plan, some tax structure. It has to be there. So it’s not a matter of should you have one or should you not? The answer is yes, you should have one. But what is it like? Like we could take the same thing that we said for the last question and swap out a tax plan or tax strategy. And it’s the exact same conversation.
Absolutely. Because, again, what different buckets of money do you. You know, not only that, I mean, you have different buckets of money just in the TSP, you can have qualified a non qualified money or traditional and ROTH. Right. And so what do you do? You have different buckets within the TSP. Do you have other money outside of the TSP and or what money in your financial plan is subject to tax or not? Mm hmm.
And then if you once you find that out, I think then you can maybe do a better strategy for tax planning, but you have to have those things nailed down before you can even think about what that looks like as far as a plan for for taxes. Yeah, you kind of got to and this goes with what I say all the time. And that is you have to know where you start from to know where you’re going.
You’ve got to do it with your benefits. You’ve got to do it with your taxes. You’ve got to do it with a financial plan because that is going to include everything. In addition to your benefits, you’ve got to coordinate all of these different pieces so that way it can come together and really worked for you in retirement. And I think people just they kind of they don’t see it as one big picture. They see it as I’ve got a bunch of little different pictures and I don’t know how to bring them together, but really they’re just pieces of the overall picture.
And so you really got to talk to somebody, whether it’s a tax professional or financial planner. You know, if you have these specific questions, such as what is the best plan for my taxes, you need to talk to a tax professional, right? Yep. How much money do I need to have for retirement? You need to talk to a financial planner or an income planner right now. If you need if you have questions on your benefits, then please let us know.
We’ll get you in contact to somebody who can help you because or who can give you the answer. Right. We’re going to answer that question for them and say, hey, this person, you know, please let them know this is how you handle this situation, because a lot of times it goes into the financial side of things. And we need to take into consideration both pieces as far as the benefits. But either way, you’ve got to reach out to these professionals.
I mean, it’s like if you’re flying an airplane, you’re not going to ask the pilot to you’re going to ask the pilot to fly the airplane. Not one of the people sitting beside the.
Why the the plane. Yeah, I’m going to leave.
I, I’m not going to pilot the airplane .
And and here’s why. It’s because of the risk of what could happen if you didn’t. Right. If the risk is low, then, you know, I mean, for example, the the background. So I redid my office recently. And so this background, I put up the walls, I did the wainscoting on here and I painted it and, you know, I did all that and I didn’t know how to do that style. And so I just went to YouTube and I figured it out right.
YouTube is great for something like that where if I mess up not a big deal, I can figure it out in a different way. Right. But when it comes to flying a plane, it’s kind of a big deal when it comes to retirement. And it’s going to be years of of living and paying for things and making sure, yeah, it’s kind of a big deal. And when the risk is bigger, you got to go to the professionals.
Trying to do it ourselves is just crazy.
Yeah. And that’s simply why we don’t answer these types of questions. We’re not tax professionals, right? We’re not financial planners and we don’t have all of the pieces of your information to tell you how would you do these things, because it’s a very case by case specific and unique. You know, I’m not going to tell you what color is going to look better in your house compared to mine, you know, because it’s going to be different. So, yeah, you know what?
I just I mean, I just thought of that whole risk thing off the top of my head. I think I’m going to use that in my workshops as well.
I like it.
I’m going to use it. OK, all right. Last question here. Can you please explain? Fifty cents JC funds. And let me let me explain the scenario to you, because I use this in. Of course, these questions come from my workshops, and so this one is very specific to that in there. I talk about the the inability when you’re trying to pull money out of your TSP when you say, hey, I want five thousand dollars, right.
You can’t just say let me pull it from the fund or let me pull it from the sea fund. What I my example that I give is, is if you have 50 percent in the fund, 50 percent in the sea fund, every dollar will come out, 50 cents from both of them. So it comes out prerana. Right. And so and and that actually makes it so if you if your strategy is to pull out money from your TSP or from an IRA, the only option from the TSP is pro-rata, which actually in the long run makes it so you run out of money faster.
If someone like you said you can’t take your money just from the safe G fund and let this money in this fund grow. Correct. You have to take that money and then do some other EINER fund transfers to make sure that you have what you want in the seed fund to continue growing what you need in the G fund to be able to take that money and use it. But yeah, you can’t take from a specific fund now. You can take from a specific account, meaning if you have traditional money and if you have ROTH money.
Right, then you can just take the traditional money or you can just take the ROTH money. They did change a lot, but you can’t you still can’t decide or decipher particularly which fund to pull that money from. You can’t say, yes, I want traditional G fund money or vice versa, you know, ROTH, SRS fund money or whatever you call 80 percent from that one, 20 percent from that one. And you know, I think this honestly, from the TSP Modernization Act was the biggest failure right there that they didn’t do.
But at the same time, you know what I mean? I say it’s a failure because it is a failure for federal employees. But at the same time, if they’re going to keep the you know, the cost, the percentage low on the TSP, then the reason part of the big one of the big reasons why the TSP is seen as not costing nearly as much as others is because they don’t do much for you.
I mean, really, it’s what invitation’s.
Let me let me let me rephrase that. When you’re putting money in there pretty good, when you’re pulling money out, that’s where you see all the restrictions. And that’s why federal employees don’t know that is because they’re not in that stage yet. But when they get to that stage and realize, wait, I can’t do that, what what the heck, why not? And then they decide to do some maneuvering, you know? Well, fine, I’m going to pull out all of my G and put it in the C so I can pull it all out of the C, and then you’re like, oh, my goodness, don’t do that.
What are you. So anyways, I could we could go on and on and on about that, but our time is running out. But as always, if you want to not fly the plane on your own, if you want some help, please go to Fednobabble.com and we will get you in touch with and fill up the information. We will get you in touch with an adviser and our trusted network who will for no cost, no obligation, no sales pitch, create a report for you and make it so that you can know where you’re going, where where are you right now and where are you going?
You’ve got to figure that out. But really, it’ll just kick start your career planning. Really? Any other thoughts?
Cassie take action, know where you are starting from so you can know where you’re going and answer these questions for yourself, for your case. You know, get in contact with somebody. If you don’t have anybody to contact or you don’t know where to start, then let us know. Go to Fednobabble.com, like Kevin said and fill out your information and and let us help you find somebody. There’s going to be able to talk to you about your benefits and also the financial planning and answer these questions for you.
Great. All right, everyone, thanks for joining us. And we’ll see you next time.
I had 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.