Six months postpone and what order? All on today’s Fednobabble
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.
Well, hello, Cassie, welcome.
Hi, Kevin, how are you?
Good, I’m happy we have got some good questions. These are these are questions ones that people well I was going to say one that people ask. Well, of course, they’re all the people, especially these are ones that are, you know, come to the top of mind a lot. So let’s hit the first one here, OK?
Is it reasonable to retire within six months of deciding to do so? I don’t know. I don’t know or so, really. I mean, if someone wanted to, they could turn on their paperwork and retire on the same day that. So that’s possible. Is that reasonable, though? Is a very individual question. Let me give let me give two quick scenarios. One scenario is it’s six months out and I’m turning in my paperwork. Everyone knows I’m retiring and, you know, I’m looking forward to it.
They’re kind of back filling my position. They’re getting ready for that. The other scenario is it’s six months out and I want to retire, but I don’t want anyone to know because I. I need to just leave because it’ll be toxic. It’ll be a nightmare if people realize that I’m actually leaving. And so I just have to spring in on them at the last minute. And as you know, as late as possible, I’ve heard that I’m not you know, I’m not saying one is better than another, but all these situations are real situations.
And so six months. But let me ask this, Cassie. If we take just six months and we assume that everything’s OK, does that give HR enough time to do what they need to do typically to retire and start getting money afterwards?
Yeah, I mean, it definitely give us enough time. However, sometimes. Does it allow six months? Right. Sometimes they only want to see the paperwork within two to three months. And so even if you’re ready to give our six months, that’s not necessarily what’s going to happen.
Yeah, and this question is six months of deciding to do so. So that doesn’t mean that you’re turning in your paperwork six months in advance. Right. That just means that I’ve decided I’m going to be done and it’s reasonable.
And here’s here’s my question, which is kind of a follow up to that. What are you trying to accomplish within the six months?
Right. Why not right now? What paperwork and trying to figure out a financial plan like what are an attack strategy and all of these different things, like what is it exactly that you are trying to do before retirement?
Yeah. And, you know, if you’re trying to do all of those things, six months is definitely not enough time. You’ve got to give yourself as many years as possible. Yeah. To be able to put all of these different pieces in place and figure out, OK, what is a good retirement deal for me based on my financial situation and kind of go from there you to have your your retirement paperwork. That’s a whole nother subject, again, as we just talked about.
And just so that way, you know, even if you turn in your paperwork to H.R., they’re not sending it to OPM until after you separate.
That’s right. And that’s something I know I just had this question earlier this week during one of the live webinars and someone said, well, you know what? If I turn it in a year and a half early and I’m like, you’re not going to get your money earlier, it’s not going to matter because they don’t send it to H.R. or to OPM until you walked out the door and turned your badge on me.
Yeah, because what many people will think that they have enough time or will think that they want to retire on a certain date and then they’ll change it or they’ll withdraw their application. And that is why H.R. does not send it in to OPM any sooner than you walking out the door. Because if you decide, you know, two days before you have that separation date that you don’t actually want to separate because you’re not ready to retire, you can still withdraw that application and continue working.
So that’s why it does it necessarily I mean, it does matter a little bit. On the timeframe that has to complete the paperwork, but typically 60 to 90 days is pretty reasonable for them on their end to do their part as far as getting the FEHB and vaguely, you know, information in place for that proof of the five year test, if they need those or anything else that H.R. needs to handle in order to to make that a healthy retirement package.
Typically, 90 days is a general rule there. But again, how does it look on your end? How does it look on on the employees and on the financial side? That is something completely different.
And on the mental side, I would say as well, I can’t tell you how many people I’ve met who said I don’t care what my retirement, it’s like I have to get out of here. I can’t do it anymore. So kind of both. OK, so that’s question number one. Question number two, how what is this? I’m looking at a different screen there, a long confederal retirement pension, Social Security or TSP, deferred or postponed.
That’s not that that’s actually not a very good question. And can you explain why? That’s not a good question, Cassie.
OK, how long can federal retirement, pension, Social Security or TSP be deferred or postponed? So, I mean, these are three separate things that no one rules, right? Yes, absolutely. And you might have different strategies for each one on the pension side for what a deferral and a postponed pension are two separate things. So it kind of goes into what do you qualify for because that can change that answer. All right. So on the pension side, how much how many years of service do you have?
And did you did you separate prior to your MRA? Because that would be a deferral.
And if you have, you know, a certain amount of time frame, say you only have 10 years of service, you have to wait till age 62 at least to then begin your pension. If you have at least 20 years of service, you can begin your pension at age 60. If you have 30 years or more of service, then you can begin any time by your memory and on without incurring any penalties on those three rules. But even if you have 10 years of service, you can still begin at your Imray under the MRA+10 rules and take a reduced pension.
So as long as you have five years vested in the first service and you have over 10 years, you can begin in your memory. Of course, there’s different benefits to doing. You know, the age scenario, whether it’s 57 or 60 or 60 to postpone is going to be something different. If you take a postponed retirement, then you have reached Emiri and you’ve have at least 10 years of service and you’re simply just postponing to avoid or reduce the amount of penalty that you’re going to incur for your pension.
And you’re delaying your benefits. Right. Whatever deferred retirement, you don’t get any of your benefits. You separate it from service. You don’t qualify for the special retirement supplement, FEHB, LEO, any of that. But if you postpone your benefits back up, will you start incurring when you start receiving your pension?
So so Cassie, can you imagine someone trying to trying to say, oh, well, I heard that I should defer, so I’m going to defer, which they should postpone rather and and they do the wrong thing. And H.R. isn’t there to guide them, which most of the time they aren’t. To tell you the truth, these I can tell you all and I’m going to interrupt you real quick for it use two types of retirements are the ones that are most often confused, huh?
I can see why.
And the consequences are very, very different to those benefits. Right. And if you got fifty six and six months and you’re and you’re looking at deferring your pension, you’re thinking great. But if you’re thinking that. You’re actually going to get the postponed part of the benefits and you run, but you haven’t reached your memory because your MRA is 57. Why not wait six months and then take full advantage? Right. And so you have to be clear on what type of retirement you’re actually looking at.
Yep. You know what I think Cassie? I think part of the part of the issue here excuse me is, is that postponed is an A.. Deferred is an adjective. Full is an adjective. But they’re also titles. They’re a title for a specific way to retire. And they. So when you have titles, there aren’t any synonyms. Adjectives can have synonyms. Right. Deferred and postponed. Sound pretty similar. Right. So they could be you know, people can get them confused.
But when they realize that they’re actually titles and they have that they’re very, very different ways of retiring, well, then that changes things. And there’s a lot of that that happens in the government where, you know, you hear, oh, basic well, actually, basic is a title and not just a descriptor, right. Or full like full retirement. Well, full actually means something. It is a title, not just I get. So it’s really weird.
So it’s really easy for people to get these confused. Now, jumping over to Social Security. Yes. Can you defer that? What you never need to actually get it if you don’t want to. Social Security will never force you to you know you know, you have to take your Social Security now. They’re happy to keep your money and TSP. It’s the same way except when it comes to RMDs. So. Right.
Well, and there’s different ways to strategize these different things, too, right? Yes. You have more than one pension that you can start drawing on a state or local pension and then defer your federal retirement or postpone your your federal retirement until a later date to avoid penalties. What are the consequences of the benefits for doing each one of those Social Security? If you’re a widow or widower, can you draw a survivor benefit? Or even if you’re not, can you draw survivor benefit or a spousal benefit, rather, and defer your own Social Security payment until it’s more beneficial?
For TSP, do you need income or not from there? And what age are you retiring? If you separate from service any in the year that you turn age fifty five, then you can have a penalty free access for for the TSP funds. And so you might need to use some of that money, but maybe you want to put the rest of it somewhere else where it’s going to be accruing more for you and doing more things for you, you know, in and outside insurance type plan or annuity or something like that.
Right. So there is different ways and different things that you need to think about each one of these. But you can’t give a broad answer. No. For all of these.
No, because they’re very so. But you mentioned earlier you have to look at it as a whole. So not only do you have to look at them individually, but you have to look at them at a whole. So, for example, should you draw from your TSP first or from your Social Security first or at the same time? And that so really, it is an individual thing, but it is a holistic outlook. You have to look at this with stress.
And that’s what I love about our financial planners, is they’re looking at each one of these individually and how they’re going to work together. Yeah. In a financial plan for your benefit, they are looking at each year, but they are looking at it as a whole and how they can all coordinate together and really make make the best of a situation for you.
So can I give you a quick example? Well, actually, let me give you a quick example, OK? I was just talking with one of the advisors that we work with, and a couple of federal couple came in and said, here’s our plan that we created. And you said, great, let me take a look. And they said, please look at it to see if, you know, if it’s a good plan, which is a very smart thing to do, you know, create your own plan, but have someone look at it just to make sure.
So he did and he said, well, actually, let me tweak this, let’s postpone this, let’s do this. And over their lifetime, he really found, I’ll say found three hundred thousand dollars more that they could use.
Wow. And that’s a.
Was there like, oh, my goodness, yeah, we were all messed up. We obviously didn’t know what we were doing. It goes and that’s OK, but just take these extra steps and then you got that extra. I mean, that’s huge. That’s it. That is a huge difference. OK, so that next question is a follow up to that one. And I just I apologize because I’ve kind of taken over the question thing, but you’re so out of pension, Social Security and TSP.
What order which one should be taken first? One should should be taken second. Which one? And really now that I think about it in the story that I just told this adviser did exactly that. He said, don’t do this, do this, and then you can have that. But for different people, it’s going to be different. It’s not going to be the same for everyone.
No, because everybody has different accounts. I mean, how many people have outside accountants in addition to the TSP or if they have, they might have multiple TSP is because they have a military or something like that. Right. TSP account or maybe an old employer 401k or something like that. And so you really have to look at all of these different pieces individually, what the rules and regulations are for each one and how how do they coordinate these to make the most and find an extra three hundred thousand dollars of my retirement.
No kidding. Yeah. Now, another another example of what you’re just saying is, OK, if you if you have contributed a lot to your ROTH and not as much, you’re true to your traditional that your plan will probably be very different than someone who contributed almost all to traditional and very little the ROTH because you’re talking about tax planning at that point, you know, where you know. So it’s really interesting and it’s honestly a lot of fun to get into and look at that and see all the different scenarios.
But it is very individualized, individualistic individual. I don’t know how wherever you say that, I don’t know.
Yes, it is definitely a unique situation where you have to talk to somebody, you know, even if you have your own plan. Just just take the bad guys. Yeah, right. Um, who else would be able to say, hey, do these take these steps, tweak this a little bit here and you get an extra three hundred thousand dollars. I mean, you have to talk to somebody, talk to a professional and it and it comes up to the the same scenario that we talked about in a previous episode where you’re not going to ask your neighbor next to you and you’re sitting on an airplane to go pilot the plane because you don’t like the way the pilots piloting, right?
Absolutely. Because the risk of that happening and then taking over the controls is a lot greater. And the same for yourself. You’re not going to go pilot the plane, right? You’re going to stay in your seat. Pray to God that that works out. Don’t do that. All the financial planning side, you’ve got to you’ve got professionals in your area. If you don’t reach out to us at Fednobabble.com, we’ll have that information and we’ll be able to get you in touch with a professional and our trusted network.
Who is going to help you out with that? Who’s going to take your benefits, find out where you are and and help you plan for the future, because you got to know where you’re starting from in order to know where you’re going. So take action plan.
Yes, please. And if you would, as always, please, like, subscribe, share, follow, whatever, whatever platform you’re watching on, please do that and let your colleagues know that, hey, this is good bite size information that you need to learn, because, again, this is just crazy important for everyone to learn. So, yeah, there’s that. All right. Thanks, everyone. Cassie see you next.
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