Are you a Fed? Is going into the office 5 days a week not for you? Are you retired or recently retired, and know you need a game plan, but have told yourself you’ll “get to it at some point?” If so, starting at the 7:30 mark of Episode 117 of PFLN, Steve and Dave discuss the financial challenges,solutions, and action steps for federal retirees in 2025!
Steve:
All right. Welcome to Plan for Life now episode one 17. Welcome to January everyone. Welcome to 2025. I actually, I was so convinced, Dave, that we had already done a 2024 recap episode, but I guess we kind of did it. It was mid-December. I mean, at that point, the year kind of feels like it’s over anyway.
Dave:
Yeah, I think that, I don’t know. I don’t remember each episode. We do. I’m like the commanders. I just focus on the next game, which will be in September.
Steve:
Come on. Before we get into all this stuff, we were going to do an episode last week and not for this reason, but we wound up not doing it. And you said, well, that’ll be good because now then I can talk about the commanders.
Dave:
Okay. I don’t have much to say besides, they’re the only sport I really root for that I have a passion about. I’m the only person I know being a native. You and I are native for people who don’t know that in the DC area, I’m the only one of my friends who kept their season tickets through all of the bad and just follow ’em obsessively. So what a great season. Super psyched about the season and going forward and happy for my son who’s 27 years old and loves the team. And this was his first taste of what we older people used to have. So yeah. Awesome. And now I don’t have to obsess. The obsession part becomes, it interferes with your life when they’re this.
Steve:
Are you kidding me? You’re going to obsess as soon as it starts to get the free agent dry.
Dave:
Oh no. It’s my year long hobby, but it’ll be normal for me.
Steve:
Okay,
Dave:
Now that was too much. That was also, I mean, too much good.
Steve:
Yeah, well, yeah, it does feel good. I didn’t like listening to some of the radio shows and podcasts that were all gloomy the day after they lost. I’m going, come on. You’ve had an incredible year. How can you be gloomy?
Dave:
Absolutely ridiculous. Crazy. We have nothing to be gloomy about When you have Jaden Daniels as your quarterback, it’s all good.
Steve:
Alright, great transition to what else we don’t have to be gloomy about was the investment world in 2024. The investment world was pretty darn good. And like I said, I felt I could have sworn we had done a recap, maybe I just did it prematurely in mid-December, but just a real quick recap. We finished the year with the s and p 500, up 25% on the year. Bonds. Didn’t have a great year, only up 1%, but cash was still up over 5%. So it was really a good year. Couple of quick notes that I had, and I think we talked about this part of the way through last year. First of all, how wrong all of the forecasts were going into 2024.
Dave:
They always are.
Steve:
Yeah. I mean, they’re always wrong. I mean, nobody’s going to nail it, but how wrong they were, the average forecast predicted a gain of 1.4%.
Dave:
Wow.
Steve:
And this is for the s and b 500, finish the year with a gain of 25%. So when you say that these forecasters, these predictions don’t have any clue, take that 1.4 versus 25, the consistent themes that we’ve seen the past couple of years, and these have been again and again, growth versus value growth just crushed it again last year. Large cap versus small cap, small cap way underperformed again and the US versus international, international stocks last year. Where are they even on this chart, Dave? The same thing as me. I’ve got in front of me here. Wow. International underperformed US stocks by 19% last year. Just absolutely. And that’s been the consistent theme for a couple of years. But all put all of that stuff together. A balanced 60 40 portfolio. This is according to JP Morgan, had a return of 10.0% last year. Pretty darn good.
Dave:
And that was when they said the 60 40 was dead. And now I’m looking forward to an article about international stocks are dead. When’s that going to come out soon?
Steve:
Yeah.
Dave:
Well, at a neighborhood financial prognosticator near you coming soon. International stocks are,
Steve:
Yeah. I mean I think I actually have seen that article a number of times there go, but they’ve kind of had the last laugh because really they have been dead or not dead, but just dramatically underperforming there. And I will say that the expression that nobody rings a bell at the top of a market, nobody tells you, okay, this is it. This is the top of the market. I don’t know. I kind of feel like maybe the incoming president and incoming first lady putting out meme coins the day or two before inauguration. I don’t know, maybe that’s the bell at the top. Could be. Okay.
Dave:
I don’t know if it is. You can’t make predictions, but it’s sometime in the future. You’re saying that my presidential meme coin crashed. I can’t believe it. That’s on you.
Steve:
Oh yeah. I mean you’re
Dave:
On you.
Steve:
This was as of a day or two ago. I read something that the Melania meme coin was down 83% and I think the Trump one was down 66%. And yeah, I mean I think whoever was writing it said, yeah, of course. Why are we surprised by this at all? Alright, but that’s not what we want to talk about here today. What we want to talk about, I will say, is Trump related. And we live here in a government town, and I’ll tell you what has dominated the discussion with all the government employees that we have talked to is the mandate to return to the office. Obviously Covid, the pandemic, ushered in this era of flexible work, work from home in the office a day a week, maybe two days a week. That was really unprecedented. But now Trump demanding everyone come back into the office, man, that’s just been the number one topic for all the government employees that we’ve talked to.
Dave:
Absolutely. But I do want to frame this and then we’ll get into it as if you were to look at, you have the United States of America who voters made a decision to put when putting Trump in. I mean, one thing about Trump, whether you like him or don’t like him, he says what he’s going to do
With the campaigns and then he does it. So I would say there’s zero surprises so far, but this was one of the things he said he was going to do and that was change fundamentally change the way the federal government operates and now he does it. That was voted on by the country. Now we’re a tiny subset of the United States, the DMV, and then there are a whole bunch of government workers outside the DMV, but that’s now who this has affected. I’ve never seen anything like this as far as affecting what we hear from the regular people, clients, whether they’re directly affected from it or they know someone who’s directly affected, number one. I think there’s two things. Number one is going back to work every day
Steve:
When,
Dave:
Yeah, I mean we’ve gone five years or whatever it’s been not in that situation. So it changes your life dramatically, emotionally, physically, and financially. And then I think the other part of this is for some people, it’s basically the philosophy of what’s going on. This would be more political maybe or just we are not doing what we used to do. And I can think of and it’s, but it might just be like, Hey, I used to do a talk. I worked for the government. I’d go overseas or somewhere to do a speech about my specialty and now none of that is, but we definitely saw that it’s a different 2016. What’s that?
Steve:
I said we saw that back in 2016 that there was this fundamental change in the way some of these agencies operated with Trump there and people felt that change. So yeah, I think there’s some of that, but combined that with the work from home or no work
Dave:
From home, my job is different and my job’s mission is dramatically different.
Steve:
So I’m going to make it a little bit personal just because you can’t help but think about how it affects you. My wife, she gone back to work full time in the last couple of years, was working from home or is right now working from home three days a week in the office, two days a week. She’s going to have to go back five days a week. I don’t know when it’ll be next couple of weeks there. Someone we met with yesterday works for social Security. She’s been working from home full time, going back full time. Here’s another one that I just heard about, Dave. This was a friend. They live in Cleveland, the husband’s office. Main office is in Chicago, has to go back to the office. Well, he’s in Cleveland now. They’re going to have to move the family or they’ve got a decision to make.
Dave:
I’ve heard more than story. There’s a lot of stories like that. So the point of today’s podcast is to go through what you’ve decided because of any of these factors, and this is you listening to this or someone, Hey, I’m leaving. I’m out. I’ve decided I’m going to either retire. That might be a lot of people in the age range of maybe starting with my age around 63, but maybe say late fifties, 63, you’re going to retire anyway. It’s been good and now you’re just feeling for whatever reason, I was going to do it anyway in a year, whatever. Now I’m just out. And then I think the other people would be a younger subset maybe, and that could be, Hey, I’m now going to leave the federal government. I’m going to get another job, but now I’m leaving the federal government. And a lot of these too, it could be in their not that young,
Steve:
I don’t know, people leaving the federal government. I think that’s going to be younger people. I think that’s a pretty small, I think once people are in the government, they’ve got 10 years. I think that’s got to be pretty rare. People leaving before retirement age there.
Dave:
Okay, well let’s focus on retirement age there and say this. So that’s what this is. That’s what we do. So Steve and I started Capital Retirement Strategies whenever 2010, but we’ve been working together a long time and a lot, many, many, many of our clients are feds and retired feds. So I think we have an idea of what we’re doing when it comes to financial planning in the situation of retiring or leaving the federal government. And that’s going to be what today’s show is going to be about as far as the nuts and bolts of doing that.
Steve:
All right, so here’s my thinking. Most of the people that we’re really talking to or talking about right now are going to be people who are eligible to retire. So when you talk about the FS retirement system, you’ve got to have a certain minimum number of years, but if you’ve got those minimum number of years, you could be as young as 56 years old and be able to retire. Now if you’re at that point, I’m sure you’ve done these calculations where you know that you’re basically getting 1% of your pay, 1% of your high three pay for every year of service. Now, if you retire under the age of 62, you’re also going to get that first supplement and that first supplement is designed to be roughly equivalent to the amount of money that you would get from Social security at 62. So say we have someone who’s 58 years old, they’ve been working from home, or like I said, working in a different city.
Now they got to go back into the office, they could retire, get their pension, get the first supplement until 62, and then they’ve got that decision to make there. So of course, I think that anybody who’s facing this should at the very least be aware of what their pension is, what the first supplement is. Those are the, I’ll say, easy parts of the equation there. The more difficult parts of the equation are the rest of my retirement. So the rest of your retirement is of course going to be from your own savings, your own investments, and your thrift savings plan. The thrift savings plan, I mean all you FS employees, you’ve heard the three legged stool. That three legged stool is your FS pension, the TSP, and then social security. So we think this is important for anyone to have some sort of plan put together for how am I going to take that money that I’ve been saving?
And this is not an easy switch for a lot of people to flip. How am I going to take this money that I’ve been saving for my whole career and now turn this into income? I have to live off this money and it’s got to balance these difficult objectives. Objective number one, at least in your mind. Objective number one is generating some income. I’d like to generate some income, be able to cover my expenses, all that. But objective number two has to also be, I got to get this money to last the rest of my life. And if you’re in my hypothetical example, you’re 58 years old, guess what? You’re going to live a long time in retirement. You’re going to live a long time.
Dave:
One thing that’s going on, I mean it’s so weird to factor this in, but let’s face it, medical science every year is getting better and better at keeping us alive longer and longer. A lot of times it’s just from preventative things and AI for all that you could say about it. One thing that I would say for sure is that the ability to deal with a lot of our health issues and let us live a longer, actually a better life is going to be there for someone who’s 58 years old or younger or whatever, or my age, 63. So that’s awesome. But financially, interestingly enough, that makes it more difficult for your financial advisors because that’s part of this is like we’ll talk about maybe at the end of the segment, but yeah, how do you devise a plan for that long life? It’s always been an issue, but as we’re living longer and longer, the strategies for taking your money and growing your money become honestly more, I would say require more sophistication. I like to say work like difficult, I’d rather say requires more sophistication.
Steve:
And I’ll say, I actually didn’t read this article, but I saw a headline just along these lines where Rick Edelman was saying, every financial advisor needs to plan for their client living to a hundred. Now, I didn’t, like I said, I didn’t read the meat of it, but I’ve read plenty of his other stuff and that’s very much along the veins where they’re saying, Hey, medical science is going to keep us alive longer and longer, and you’ve got a plan for that. So somebody who’s 58 years old, just continuing my example, that is quite the challenge because you got to generate that income now, but you got to have enough growth to continue that throughout retirement. So I’m just going to keep going with this hypothetical 58-year-old, I don’t know why I picked that age. So they’ve got to make a decision here, alright, I’m going to retire.
I’ve got to generate income, but I’m under 59 and a half, so I got to be careful here. If I roll over my TSP entirely to a traditional IRA, which is what a lot of people do when they retire from a company or from the government. If I take distributions, there’s going to be penalties before 59 and a half. If I leave some money in the TSP, there’s a special provision that says retiring post 55, there’s no penalty taking a withdrawal there. So it’s important to know that there. Now when you’re coming up with a withdrawal strategy, and this is something that we’ve done with all of our clients withdrawal strategies, one of the ways that we like to do a withdrawal strategy is something that’s called bucketing or time segmentation. I feel like time segmentation sounds so much fancier. It sounds, oh, time segmentation planning.
Dave:
I like it better than bucketing. To me, that sounds like I have a flood in my basement.
Steve:
Yeah, I mean, quite honestly, bucketing is kind of in our industry, the term that a lot of people use, and I’ve never loved it. I don’t know. But then I feel like, am I just being all highfalutin?
Dave:
Because people, it’s easier to imagine this money’s coming from this bucket, that money’s coming from
Steve:
That bucket.
Dave:
So I get it
Steve:
Right. But that’s the idea. You’ve got to have this withdrawal strategy because too often people say, well, I was doing this and it was working for me while I was accumulating money, and so it should work just fine when I’m taking money out. But if you’ve ever heard of a term called dollar cost averaging, and I assume that most of our listeners, most of our clients have some basic financial knowledge, and the idea behind dollar cost averaging is I’m putting money in every two weeks and the fluctuations in the market actually help me because sometimes the market will be down, sometimes it’ll be up, and that’s okay because I’m putting money in regularly. Well, guess what? That volatility, those fluctuations work against you when you’re withdrawing money. So it’s not a great strategy to just say, all right, I’m going to take these periodic withdrawals from the whole portfolio because if you have volatility, it can really mess things up.
So what does time segmentation do? It says, alright, we’ve got this money segmented off that I know my expenses for X number of years are covered and what are X number of years? Sometimes that’s three years, sometimes that’s five years, whatever the number is in your situation, it’s going to depend on expenses and underlying pensions and whatnot that you’ve got those covered. Then we can look at, well, what comes after that? What about if we have a five year segment? What about years one through five? They’re taken care of? Now how about five through 10? Most people don’t plan for that. Most people think, oh, okay, I’ve got some conservative money that should carry me. We want to take it that step further and plan for those next couple of years. But then you’ve also got to plan for those 10 plus years because the 10 plus years are going to be the more aggressive. We’ve got to get some growth in the portfolio there. So the idea is that you’ve got to put together this withdrawal strategy that’s going to give you this peace of mind the next time the stock market melts down.
Dave:
Right. I’m going to interrupt you for a second because as you’re planning all this, because that’s why we call this show plan for life now, because it starts with your whole life. You’ve got to address the long-term care
That nowadays that doesn’t necessarily mean by owning long-term care insurance, but quite frankly, if you already own it, that is, as we say, in the only thing I can think of is the sports world or anything you want to say about your health. That’s a blessing. It was easier to already get it. But the bottom line is we have to address it. We as a financial advisor, and of course you want to address it as it’s your money. What happens if 20 years from now I need to be in assisted living or my wife or I need memory care and today that’s costing $15,000 a month, but 20 years from now that’s costing $25,000 a month. A month, how do I deal with that? It has to be addressed to ignore things that happen to 70% of us before we die is probably just burying your head in the sand, and that’s why we address it.
A lot of this firm, I can honestly say to a certain extent, clientele wise, this firm was built on long-term care insurance. So a lot of our clients, a lot of you listening already have it, but the new generation has to address the issue. So we’re going to address that too, because the goal is to, and it’s weird, I’m trying to put this in a short little podcast, but you look at your long-term perspective, which sort of starts when I’m retiring, when do I need to start pulling money out of my investments? A lot of people, if we’re talking about a federal scenario here, talk about a blessing. Having a pension along with social security is a huge help to start this financial plan for many of you. But how do I make this thing last? That’s where the investment strategy comes from. It doesn’t come from, oh my gosh, Bitcoin’s hot now. It comes from I need to make this money last. It’s got to grow, but it’s got to be there for me for the rest of my life. That’s how you trickle down. Everything trickles down to an investment strategy that we start now and that we continue to hone as the years go on.
Steve:
Hey, I thank you for interrupting, because I had actually written down in my notes when I was talking about this, the first thing I had written down was insurance, life insurance, long-term care, health insurance. But I didn’t mention it. I skipped right over it because some of it, the health insurance, you’re going to have health insurance if
Dave:
You’re fortunate to have that health insurance.
Steve:
Trust me, I
Dave:
Can tell you about mine
Steve:
Because that’s a real problem for people retiring in the private sector. Say they’ve accumulated a nice chunk of money, maybe they even have a pension and they retire at 58. Well, guess what? They’re going to have to get private or get health insurance. Basically the Obamacare health insurance for a lot of people until they turn 65. As a federal retiree, you don’t have to do that. You’ve got the federal health insurance, life insurance. I mean, we’ve talked about this before, but any federal employee who has that fegley life insurance, that’s where you can select the option B, the one to five times your salary. I mean, if you’ve been a client of ours for a while and you still have fegley when you’re approaching retirement, that probably means you’ve got some serious health issues because for anyone who is healthy, you should not be 58 years old and still have any fegley life insurance. It’s really, really expensive for healthy people. If you’re an insulin dependent diabetic who smokes. Okay, yeah, that’s a good deal. And then the long-term care insurance, Dave, if you put it well, I mean that’s just a big risk in the portfolio there.
Steve:
And remind me, honestly, I was thinking about this. I can’t even remember, is the federal long-term care insurance, is that even an option anymore?
Dave:
No, that’s not an option.
Steve:
That’s what I thought.
Dave:
It was stopped and they said, oh, maybe we’ll bring it back someday. And the reason they’re not bringing it back is because this is, the claims are so expansive that they already have people who have the policies and dealing with that is enough. And many entities, they’re just not doing it anymore. They’re not selling it anymore. There’s still some carriers that sell long-term care insurance. There’s many that sell these hybrid plans, and I don’t feel like going into the specifics now because we’re not focusing on that. Bottom line is, and then some of our clients, if you’re fortunate enough to have X amount of dollars that we can make an argument instead of paying an insurance premium, we’re going to self-insure. Fine. But you have to plan your assets that way. Same thing. Some people are uninsurable. You have to put a game plan together with your assets that are not going to be, maybe they’re going to be different than you would do if the long-term care risk didn’t exist. This is just one of the many things that need to be addressed.
Steve:
I didn’t even tell you about David. I had this meeting with one of my clients the other day, and she’s got an old policy from a company that we did a lot of business with, and she was annoyed that the premium had gone up. I mean, you have these conversations all the time. She was very annoyed and she goes, ah, maybe I should just drop this. And I said, you’re whatever, 74, 75 years old, yes, it’s not fun to pay $4,000 a year, but her benefit was something like $360 a day, unlimited benefit period. She would have been crazy to drop it. So for all of you out there who’ve gotten these premium increases, a lot of you call Dave and say, oh, what can I do
Dave:
About, I take the anger because I’ve been doing these calls forever. It’s no fun to have the premiums go up. And I’ve had people call me angry. They’re blaming everyone. Obama, Trump, Harry, Truman. It doesn’t matter who they’re blaming and they’re pissed, and I get it. But the bottom line is, when we start to go through the analysis, just the analysis of the numbers, it makes sense to keep the insurance even based on the price hikes for virtually everyone I’ve talked to. And that’s not by me saying, oh, you should just keep it. It’s by just doing an analysis. Everything we do is not based on
Steve:
Emotion. Yeah. Well, and that’s what I did with this client is I said, listen, Heidi, if you had to buy this coverage, now, first of all, you couldn’t, right? The policies don’t exist. Secondly, at your age, I mean, you’d be talking tens of thousands of dollars to get this same coverage. So yeah, I know it’s not fun, but it is a steal. It is a good deal there. When you talk about retiring, leaving the government, I think that’s the number one thing is you’ve got to look at all these different issues. The insurance coverage, I think the withdrawal strategy, having some sort of strategy there. I also think, we don’t talk about it a lot, but we actually do it a lot with clients is evaluating social security filing strategies. Do I go ahead and say, I’m going to retire at 58. Should I plan on taking social security at 62, or should I wait till 67 or should I wait all the way till 70?
That’s a big gap. You’ve got to have a plan for where that money’s going to come from, but it might be the best long-term decision to wait. And that’s something that we do with clients all the time. So one other thing that I wrote down here just with the TSP, big advantage if you’re retiring young, is you can take withdrawals before 59 and a half. Big disadvantage of the TSP is when you take withdrawals, they come out proportionally. Now, that might not mean anything to you, but it’s a big deal when you’re doing that time segmentation thing that you can’t have proportional withdrawals. That’s not the way that we want to do it there. All right. Anything I left out, Dave?
Dave:
No, but I’m going to end with the commercial part of the podcast, and this is for, I mean, my honest feeling is anyone who is in this position of ironment needs a really good financial advisor who knows what they’re doing on this and has experience. And that’s not just us. But since you’re listening to this podcast, I wish it was podcast. This is why it’s important. I think it’s virtually impossible to cover all these bases and do all of this stuff and make sure you’re secure and to be able to follow through with it year after year, day after day, on your own as a lay person. I, I personally think it’s impossible, and I do think the best financial advisors who do this are well worth the fees. Assuming the fees are reasonable and lousy ones or don’t do it or aren’t focused or on the same page, you aren’t worth it.
Having said that, our way of going about this, if you’re interested in following up with us, is to not rush this thing. We don’t charge to meet. It’s a bunch of meetings before you ever do anything, because look at what we just covered in this short podcast compared to all the things we didn’t have time to get to. What your situation is so important, how do we go about figuring out what your risk tolerance is? Then we could put together a plan. Then we got to explain the plan over and over. Then we go through. So a lot of times we don’t start with somebody who’s on meeting with us, and sometimes they never become a client, and sometimes they do become a client, but it’s a bunch of meetings and going through everything before we even start that process of that person being a client.
But the bottom line is there’s a reason. Some people say, oh, we are blah, blah, blah, wealth management, or we are this, or we’re that. We are capital retirement strategies. We put that name made that our name, Steve and I, a long time ago for a reason. The downsides of that reason were that’s sort of long capital retirement strategies. But the upside is that’s what we do. Yes, it’s investment work. Yes, it’s insurance work. Yes, A lot of times it’s mixed, but at the end of the day, it’s a retirement strategy. That’s what we do. And we happen to be from the DC area and working in the DC area and have clients all over the country, but they started a lot of them in the DC area. That’s what we do. So that’s why we felt that this podcast was super important in such a transitory time for a lot of feds. So yeah, if you’re interested or know someone who’s interested, put in the good word for us, or send this podcast to ’em or tell ’em to check us out, and nowadays what’s good is it’s not just the DMV, the DC area, it’s also anywhere in the world
Or in the United States.
Steve:
All right. Very well said. I don’t think I can add anything to that. Thanks for checking in with us, and we’ll talk to you again next time.