Some of the biggest retirement mistakes happen when you don’t understand the consequences

Terry Gerton Talking about retirement issues, we’re still hearing that the administration continues to offer the DRP program in some places. What are you seeing in retirement numbers kind of across the board these days?

Tammy Flanagan Yeah, it seems like all of a sudden, just in the last week or two, we’ve been getting a lot of calls from people that are retiring either September 30th, which is kind of last minute, but they’re still calling for help, or the end of the year. So I agree, we’re still seeing DRPs and people leaving early and people trying to make this last minute decision about what to do, sometimes with two weeks to decide.

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Terry Gerton Well, you’re right. September 30th is right around the corner. And it feels like last year we were talking about September 30th, it’s such a big deal. As people are looking at that date, though, and it’s kind of logical, the end of the fiscal year, what kinds of questions are at the top of their mind? Are they ready to make that kind of transition?

Tammy Flanagan Yeah, some of them are because, as you know, some people plan for retirement throughout their career, which we should do, but there are some folks who really haven’t given it much thought until they got this little golden egg in front of them saying, hey, you can retire five or seven years sooner than you had planned or that you were even eligible before and so now what do you wanna do? And it’s very enticing to take that incentive to go out early, especially if you’re gonna get a payment, a buyout type of payment. But are you ready? And that’s not just financially, are you mentally ready for this transition, and can you afford it? Some people think they can until they realize some of the things that may not be as obvious, such as the cost of living adjustment doesn’t kick in under FERS until you’re 62. So if you’re leaving at 50, that’s 12 years before you get a pay raise. And that’s a long time to wait for more money to come in.

Terry Gerton Well, retiring feds are sort of a captive market. Even federal agencies, of course, are offering retirees training. What’s the difference between a good retirement training preparation and a session that just sort of walks you through what your retirement benefits are?

Tammy Flanagan Yeah, we’ve seen it all and we’ve heard it all from different agencies where we’ve come in and presented training classes. And I’ve found that sometimes, the easy way to do that is not always the best. You’ll have folks out there who will give free training in an effort to gain clients. Perhaps I’m a financial advisor and I’m looking for clients, I’ll just go in and give them a briefing. But yet when the questions come in about, you know, how much service credit is gonna be allowed or do I have to pay a deposit for this? You know, they’re not benefits experts. So they either don’t know and will say they don’t know, or they’ll give an answer that they think is correct and it’s not accurate. So you gotta be really careful when you’re attending a training class to know who it is that’s presenting it, how much experience do they have? Are they benefits people? Are they financial planners? There’s a big difference between the two. So, one way to test that is to ask a question that you know the answer to and see what they give you as the response. And if they don’t know the answer, are they going to give you a reference as where you can find out? So, accuracy is utmost important because we don’t need more rumors going around. There’s enough of those amongst the employees themselves. So be sure that the training is qualified and somebody’s qualified to on it.

Terry Gerton Should pending retirees look for training offered by their employing agency or should they go out on their own and look for private sector training?

Tammy Flanagan Well, if the agency’s offering a training course, absolutely, take advantage of that, don’t bypass that. You don’t know how many times I’ve walked into a classroom where someone will say, well, you know, I’ve been here 40 years, I know all this, they told me I need to come. And at the end of the day, they’ll apologize and say, oh, you told me some things I didn’t know, because there’s little nuances in our retirement system that that one little thing can either save you some money or avoid you from making a mistake. So I think taking advantage of agency training, usually it’s vetted in some way so that you can generally be sure that someone’s coming in that’s gonna really provide adequate and quality training. But if you don’t have that, and there’s a lot of federal employees who are never afforded a formal training program, there’s lot of places to go get it. Whether you’re going to the agencies themselves, TSP has wonderful online learning classes. Some of them are live, some are recorded. Social Security has YouTube channels, so does OPM. So even within those agencies themselves that administer the benefits, there are places to learn, whether it’s just going to the website and reading or listening to an online class. Those are wonderful opportunities. And then I also see outfits like NITP, they provide online training on a regular basis monthly by experts who have been doing this for decades. So, you know, there’s places like that that you can go to that you feel confident and comfortable that the information you’re getting is good, accurate, and it’s going to be helpful, give you some things that you can do now to prepare for that transition.

Terry Gerton Tammy Flanagan is a principal with Retire Federal. Tammy, you mentioned the nuances in the federal retirement system. Let’s talk about some of those. Where do you see people either be most surprised or make the biggest mistakes by not considering those nuances?

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Tammy Flanagan Yeah, there’s a lot of decisions that employees have to make when they retire, and sometimes the obvious answer is not always the right one. For instance, if I’m married, I have to consider survivor benefits for my spouse, and oftentimes I’ll hear someone say, well, my spouse is also a federal employee, or they work in the private sector, they’re going to have their own retirement, so I don’t see why I need to even consider leaving them a survivor annuity. Well, you know, while there’s two of you, you’ve got all these sources of income between Social Security and pensions and retirement savings, but down the road, which could be decades down the road when there’s one of you, can that single person survive on half of the Social Security, and without any of your retirement? And in some cases, without your health insurance, because one of the things that conveys with a survivor benefit is the ability for a non-federal spouse to maintain health insurance, or even a federal spouse who may not be eligible for their own retirement benefit. So that’s a big one, I see that a lot. Other decisions have to do with life insurance. A lot of people wanna cancel their life insurance when they retire and they don’t realize that some of that life insurance will convey free of charge once you’re 65 or older. And a lot of our retirees are already 65 so they would have free coverage if they didn’t cancel it. So there’s some things you really wanna know ahead of time to avoid missing out on an opportunity or making a mistake that you’re later gonna come to regret, and you can’t go back and change it because some of these decisions are permanent.

Terry Gerton A lot of people and a lot of our discussions focus on whether or not folks are financially ready to retire, do they have all their financial ducks in a row? But you mentioned something at the beginning of our conversation that I think is also really important and often gotten wrong, which is, are you personally and emotionally and psychologically ready to retired? How did people get to the point of really being able to answer that?

Tammy Flanagan Well, I think someone who’s been planning on retirement for many years, really preparing for it, has been thinking about that, has been making secret plans in their mind or with their family of, you know, here’s the things we’re going to do initially when I retire, here is what my retirement life is going to look like, here’s what I want for that. But someone who’s facing kind of a knee-jerk decision where they’re just all of a presented with the opportunity to retire, and they really hadn’t been giving it a lot of thought, at least not for the present moment, sometimes that can come as a mental shock when you go into retirement. First of all, you’re waiting for that first check, and you have some financial concerns until everything falls into place, so that can be very stressful. And then you haven’t planned on, you know, how much money do I really need? So am I mentally ready to move on to another career if need to fill in the gaps? Or, if I can’t afford to retire, what was my plan? Am I just gonna sit and watch TV and clean the closets and do that? Or do I really have some things I really wanna get into and learn some new hobbies perhaps or some new trades? There’s a lot of things you can do, but you gotta make an effort. There’s not a supervisor now telling you here’s what you need to do tomorrow. So you have to make your own plan.

Terry Gerton That’s right. Maybe you find out golf isn’t quite as much fun as you thought it was going to be.

Speaker 3 Not when you can do it seven days a week, as fun as that might sound.

Terry Gerton So if someone is approaching the point where they really do need to think seriously about retirement, what information would you want them to absolutely have in hand before they make the decision to leave government service?

Tammy Flanagan Yeah, how much time do you have? There’s a lot of things that you want to have in place. First and foremost, make sure that you have documentation of all of your federal service so that if somebody comes back to you and says, well, you only have 19 years of service and you really have 30, can you prove that? Can you say, well here’s my personnel action statement showing when I was hired, here’s the one when I left, here is the one when I was rehired, keep records of your personnel. You know, you can make a copy of your electronic official personnel folder in most cases. There’s some intelligence agencies, of course, where that’s not necessarily possible, but you can certainly ask for specific proof that I’ve done this work. You know I’ve had law enforcement people who didn’t get credit for being law enforcement when they move from one agency to the other. So at the last minute, they’re scrambling, trying to get that proof in place so that they can actually retire under those provisions. So, be responsible for your own career. Don’t expect someone else to do it for you. Chances are they will, but if there’s that one important piece of information that’s missing, you can be, if nothing else, stressed out until you find it, or maybe at a loss for a certain amount of service. So to me, that’s one of the most important things we can do. And then review that application. You know, we now have the online retirement application. It’s not as easy to review ahead of time, but those paper applications are still at opm.gov. So get your immediate retirement application, look it over, make sure you know how you’re going to answer those questions because there are some decisions you have to make. So, you know, be prepared. You know, think about this, get the training that you might need, do the research ahead of time. And don’t rely on something that your coworker did or that your best friend did because that may not be the right decision for you.

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