You've worked hard, saved diligently, and now you're enjoying your well-earned retirement. But even in retirement, life can throw curveballs. An unexpected home repair, a sudden medical expense, or even a once-in-a-lifetime opportunity can strain your carefully planned budget. That's where an emergency fund comes in.
As a financial advisor, building a war chest containing an emergency fund and high-quality short duration bonds in a diversified investment portfolio is something I help my clients with on a regular basis.
Let's explore why you need an emergency fund and how to build and maintain it effectively.
Why You Need an Emergency Fund in Retirement
You might be thinking, "I'm retired. I've already saved. Why do I need an emergency fund?" Here's why:

1. Fixed Income Reality: Many retirees live on a fixed income from pensions, Social Security, and retirement account distributions [1].
2. Market Volatility: Unexpected expenses during market downturns can force you to sell investments at inopportune times [2].
3. Health Uncertainties: Medical emergencies can be costly, even with Medicare coverage [3].
4. Home and Auto Repairs: Major home or vehicle repairs don't stop in retirement.
5. Family Needs: You might want to help family members in financial distress.

An emergency fund provides a buffer against these unexpected costs, helping you maintain your financial stability and peace of mind.
How Much Should You Have in Your Retirement Emergency Fund?
While working, the general rule of thumb is 3-6 months of expenses in an emergency fund. In retirement, you might want to take a different approach:
General Guidelines:
For those near retirement or in retirement, having approximately 7 years of expenses in high quality, short duration bonds in your investment portfolio will provide a war chest to draw upon.
The exact dollar amount that you have saved up is going to be very dependent on your unique situation.
Example:

• $75,000 in annual living expenses
• $55,000 in fixed income (pension/social security)
• $500,000 investment portfolio
• $20,000 annual portfolio withdrawal needs

In this case, I would suggest having $140,000 in high quality, short duration bonds and the remaining amount ($360,000) in a diversified equity portfolio.
Factors to Consider:

• Your monthly expenses
• Health status and insurance coverage
• Home and auto condition
• Family obligations

Remember, these are guidelines. Your specific needs may vary.
Building Your Emergency Fund: Strategies for Retirees
If you're starting from scratch or looking to boost your emergency savings, here are some strategies:
1. Start Small, But Start Now
Even small, regular contributions can add up over time.
Action Step: Set up an automatic transfer of $50 or $100 per month to your emergency fund.
2. Reassess Your Budget
Look for areas where you can trim expenses to redirect money to your emergency fund.
Pro Tip: Review subscriptions and memberships. You might find services you no longer use or need.
3. Consider Part-Time Work
A part-time job can provide extra income to build your emergency fund while keeping you active and engaged.
Idea: Look for flexible, enjoyable work that aligns with your interests and skills.
4. Use Windfalls Wisely
Dedicate a portion of any windfalls – like tax refunds or inheritances – to your emergency fund.
Rule of Thumb: Consider allocating 50% of windfalls to your emergency fund until you reach your goal.
5. Optimize Your Retirement Account Withdrawals
If you're taking required minimum distributions (RMDs), consider setting aside a portion for your emergency fund.
Strategy: If your RMD is more than you need for expenses, direct the excess to your taxable brokerage account.
Where to Keep Your Emergency Fund
Your emergency fund should be easily accessible but not so accessible that you're tempted to dip into it for non-emergencies.
Good Options:

1. High-Yield Savings Account: Offers better interest rates than traditional savings accounts while maintaining liquidity [4].
2. Taxable Brokerage Account: Taxable accounts provide significant flexibility and investment options. Be sure to choose investments that are aligned with your cash flow needs.
3. Money Market Account: Often provides check-writing privileges for easy access when needed [5].
4. Short-Term CD Ladder: Can offer higher yields while still providing regular access to funds [6].

Avoid:

• Keeping large sums in low-interest checking accounts
• Investing emergency funds in stocks or long-term bonds

Maintaining Your Emergency Fund in Retirement
Once you've built your emergency fund, maintaining it is crucial. Here's how:
1. Regular Reviews
Review your emergency fund at least annually to ensure it still meets your needs.
Checklist:

• Has your monthly spending changed?
• Have you experienced any health changes?
• Are there any upcoming large expenses?

2. Replenish After Use
If you dip into your emergency fund, make a plan to replenish it.
Strategy: Temporarily reduce discretionary spending or consider taking a larger distribution from retirement accounts (if feasible, but keep in mind tax consequences) to rebuild your fund.
3. Adjust for Inflation
The purchasing power of your emergency fund can erode over time due to inflation.
Action Step: Increase your emergency fund balance by 2-3% annually to keep pace with inflation.
4. Balance with Other Financial Goals
While important, your emergency fund shouldn't come at the expense of other financial priorities.
Consider: Balance building your emergency fund with other goals like charitable giving or legacy planning.
Tapping Your Emergency Fund: When and How
Knowing when to use your emergency fund is as important as having one. Here are some guidelines:
Appropriate Uses:

• Unexpected medical expenses not covered by insurance
• Major home or auto repairs
• Family emergencies

Not for:

• Regular bills or expected expenses
• Discretionary purchases
• Loans to family or friends

Decision Framework: Before using your emergency fund, ask:

1. Is this expense truly unexpected?
2. Is it urgent?
3. Are there other ways to cover this cost?

Special Considerations for Washington State Retirees
As a Washington state retiree, you have some unique factors to consider:

1. No State Income Tax: This can make budgeting more straightforward, but remember that you'll still have federal taxes to consider [7].
2. Property Tax Exemptions: If you're 61 or older, you might qualify for property tax exemptions, potentially reducing your emergency fund needs [8].
3. Long-Term Care Benefit: Washington's long-term care benefit (WA Cares Fund) may reduce some future emergency expenses, but it's not a complete solution [9].
4. Climate Considerations: Washington's diverse climate means preparing for various emergencies, from wildfires to floods. Factor this into your emergency fund planning [10].

Your Emergency Fund Action Plan
Ready to build or optimize your retirement emergency fund? Here's your action plan:

1. Assess Your Needs: Calculate your monthly expenses and determine your emergency fund target.
2. Review Your Current Savings: Identify how much you already have set aside for emergencies.
3. Set a Savings Goal: If you're short of your target, set a realistic goal to build your fund over time.
4. Choose Your Account: Select a high-yield savings account or other appropriate vehicle for your emergency fund.
5. Automate Contributions: Set up automatic transfers to your emergency fund.
6. Review Insurance Coverage: Ensure you have adequate health, home, and auto insurance to reduce potential emergency expenses.
7. Create a Fund Use Policy: Establish clear guidelines for when and how you'll use your emergency fund.
8. Plan for Replenishment: Develop a strategy to rebuild your fund after using it.
9. Annual Review: Set a yearly date to review and adjust your emergency fund.
10. Stay Informed: Keep up with changes in local laws, benefits, and resources that might affect your emergency planning.

Remember, an emergency fund is more than just a savings account – it's your financial safety net in retirement. By building and maintaining a robust emergency fund, you're not just preparing for the unexpected; you're investing in your peace of mind and financial security.
Sources:

1. Social Security Administration, "Understanding the Benefits," 2024.
2. U.S. Securities and Exchange Commission, "Saving and Investing for Retirement," 2024.
3. Medicare.gov, "What Medicare Covers," 2024.
4. Federal Deposit Insurance Corporation, "Weekly National Rates and Rate Caps," 2024.
5. Consumer Financial Protection Bureau, "What is a money market account?," 2024.
6. Financial Industry Regulatory Authority, "Certificates of Deposit (CDs)," 2024.
7. Washington State Department of Revenue, "Taxes and Rates," 2024.
8. Washington State Department of Revenue, "Property Tax Exemptions," 2024.
9. Washington State DSHS, "WA Cares Fund," 2024.
10. Washington Emergency Management Division, "Hazards," 2024.
11. Consumer Financial Protection Bureau, "What is a home equity line of credit?," 2024.
12. National Association of Insurance Commissioners, "Life Insurance," 2024.
13. U.S. Department of Housing and Urban Development, "Home Equity Conversion Mortgages for Seniors," 2024.

 

As a former city employee and current financial planner specializing in Washington state public sector benefits, I’ve seen firsthand how the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) have complicated retirement planning for our public servants.
 
The recent passage of the Social Security Fairness Act on December 21, 2024, brings transformative changes that will affect millions of public servants across America [1].
 
The Problem These Changes Solve
 
For decades, Washington state public employees have faced reduced Social Security benefits due to two provisions:
 

1. The Windfall Elimination Provision (WEP) reduced Social Security benefits for employees who earn a pension from work not covered by Social Security
2. The Government Pension Offset (GPO) reduced Social Security spousal and survivor benefits by two-thirds of the government pension amount [2]

 
As someone who's helped State and Local government employees navigate these complex rules, I've seen these provisions significantly impact retirement planning strategies.
 
Key Changes and Timeline
 
Immediate Impact

• Complete elimination of both WEP and GPO [1]
• Retroactive benefit increases dating back to January 1, 2024 [3]
• Automatic recalculation by Social Security Administration
• No action required for current retirees

 
Financial Impact
 
According to Social Security Administration projections [4]:
 
WEP-Affected Employees:

• Monthly benefit increases will vary based on your specific work history
• Benefit calculations will now use the standard Social Security formula

 
GPO-Affected Spouses:

• Elimination of the two-thirds reduction in spousal/survivor benefits [4]
• Full earned Social Security spousal benefits will be restored

 
Washington State-Specific Considerations
Understanding Your DRS Pension and Social Security
 
Important Note: Your Washington State Department of Retirement Systems (DRS) pension remains unchanged by this legislation. The changes only affect your Social Security benefits. Here's what this means for different Washington public employees.
 
Have you ever worked in a position where you were not paying directly into Social Security?
 
If the answer to this is “yes,” then this is relevant to you.
 
In practice, I have seen that firefighters are the largest group who are not paying into Social Security. However, I have seen members of numerous DRS plans who are not paying into Social Security. Be sure to review your current and prior employment history to help understand how this law impacts you.
 
Action Steps by Career Stage
 
Near Retirement (Within 5 Years)

1. Request updated Social Security benefit estimate [1]
2. Schedule appointment with Social Security Administration
3. Review overall retirement income strategy
4. Consider timing of retirement with new benefit structure [3]

 
Mid-Career (5-15 Years from Retirement)

1. Update retirement savings targets
2. Review DRS benefit estimates
3. Consider contribution strategies for supplemental savings
4. Evaluate retirement timeline options

 
Early Career

1. Understand new benefit projection basis
2. Review retirement savings strategy
3. Consider impact on long-term planning
4. Evaluate supplemental retirement savings options

 
Tax Planning Implications
 
Critical Considerations:

• Federal tax bracket changes with higher benefits
• Impact on overall retirement income
• Social Security benefit taxation thresholds
• Required Minimum Distribution planning with higher income

 
Common Pitfalls to Avoid
 
Based on my experience with WA public sector employees:

1. Don't make retirement decisions before getting updated Social Security estimates
2. Don't assume automatic benefit updates are immediate
3. Don't forget to consider tax implications
4. Don't overlook healthcare costs in retirement planning

 
When to Seek Professional Help
 
Consider professional guidance if you:

• Have service credit in multiple retirement systems
• Worked in both public and private sectors
• Need to coordinate spouse's benefits
• Are within 5 years of retirement

 
Sources:

1. https://www.ssa.gov/legislation/legis_bulletin_122324.html
2. https://www.nea.org/nea-today/all-news-articles/landmark-victory-gpo-and-wep-repealed
3. https://www.napa-net.org/news/2024/12/wepgpo-repeal-has-retroactive-benefits/
4. https://www.napa-net.org/news/2024/12/wepgpo-repeal-clears-congress-bidens-signature-remains/​

As a Washington state public employee, you've dedicated your career to serving others. Now it's time to ensure that your legacy is protected, and your wishes are honored after you're gone. Estate planning might not be the most exciting topic, but it's crucial for securing your family's future and ensuring peace of mind. Let's explore the essential elements of estate planning tailored specifically for Washington public servants.
Why Estate Planning Matters for Washington Public Employees
Before we dive into the specifics, let's consider why estate planning is particularly important for you:

1. Unique Benefits: As a public employee, you likely have specific benefits like pensions and that require careful consideration in your estate plan [1].
2. State Estate Tax: Unlike some states, Washington has its own estate tax, which can impact larger estates [2].
3. Complex Family Situations: Modern families often include blended families, unmarried partners, or other non-traditional arrangements that require thoughtful planning.

With these factors in mind, let's explore the key components of your estate plan.
1. Will: The Foundation of Your Estate Plan
A Will is the cornerstone of any estate plan. It outlines how you want your assets distributed after your death.
Key Considerations for Washington Public Employees:

• Specify beneficiaries for your non-retirement assets
• Name a guardian for minor children
• Designate an executor to manage your estate

2. Beneficiary Designations: Ensuring Your Benefits Go Where You Want
As a public employee, you likely have benefits that pass outside of your Will through beneficiary designations.
Important Assets to Review:

• Pension benefits from PERS, LEOFF, or other state systems [4]
• Deferred Compensation Program (DCP) accounts [5]
• Life insurance policies

Action Step: Review and update your beneficiary designations regularly, especially after major life events like marriage, divorce, or the birth of a child.
3. Power of Attorney: Managing Your Affairs
A power of attorney (POA) allows someone to make decisions on your behalf if you become incapacitated.
Types to Consider:

• Financial POA: For managing your finances and property
• Healthcare POA: For making medical decisions

Washington-Specific Note: Washington recognizes durable powers of attorney, which remain in effect even if you become incapacitated [6].
4. Healthcare Directive: Expressing Your Wishes
Also known as a living will, this document outlines your preferences for end-of-life care.
Key Decisions to Address:

• Use of life-sustaining treatments
• Pain management preferences
• Organ donation wishes

5. Revocable Living (RLT) Trust: Providing Flexibility and Control
While not everyone needs a trust, it can be a useful tool for many Washington public employees.
Benefits of a RLT:

• Avoid probate, which can be time-consuming and expensive
• Provide ongoing management of assets for beneficiaries
• Offer privacy, as trusts don't become public record like Wills do

Consider This: A revocable living trust can be particularly useful if you own property in multiple states or have complex family situations.
6. Estate Tax Planning: Navigating Washington's Tax Landscape
Washington is one of the few states with its own estate tax, which can impact estates valued over $2.193 million (as of 2024) [2].
Strategies to Consider:

• Gifting assets during your lifetime (Washington has no limit on lifetime giving)
• Using irrevocable trusts to remove assets from your taxable estate
• Leveraging the marital deduction for married couples

Caution: Estate tax laws can be complex. Consider consulting with a tax professional or estate planning attorney for personalized advice.
7. Long-Term Care Planning: Protecting Your Assets
Long-term care costs can quickly deplete an estate. As a Washington resident, you have some unique considerations.
Key Points:

• Washington's Long-Term Care Trust Act provides limited basic coverage [8]
• Consider whether additional long-term care insurance is needed
• Explore Medicaid planning strategies if appropriate

Long-term care planning can help protect your assets for your heirs while ensuring you receive needed care.
8. Digital Asset Planning: Don't Forget Your Online Life
In today's digital age, don't overlook your online accounts and digital assets.
Items to Address:

• Social media accounts
• Email accounts
• Digital financial accounts
• Online photos and videos

Washington Law: The Revised Uniform Fiduciary Access to Digital Assets Act allows you to give your executor authority over your digital assets [9].
9. Pension Survivor Benefits: Understanding Your Options
As a public employee, your pension likely offers survivor benefit options. Understanding these is crucial for estate planning.
Key Decisions:

• Whether to choose a survivor benefit option
• How much of a benefit to provide to your survivor
• Understanding the impact on your own benefit amount

Action Step: Review your pension survivor benefit options with a DRS representative [10].
10. Charitable Giving: Leaving a Lasting Legacy
If you're charitably inclined, consider incorporating giving into your estate plan.
Options to Explore:

• Bequests in your Will
• Charitable trusts
• Naming charities as beneficiaries of retirement accounts

Tax Benefit: Charitable giving can reduce your taxable estate, potentially saving on estate taxes.
Creating Your Estate Plan: A Step-by-Step Approach
Ready to put your estate plan together? Here's a roadmap to guide you:

1. Take Inventory: List all your assets, including public employee benefits, real estate, investments, and personal property.
2. Define Your Goals: Clarify what you want to achieve with your estate plan (e.g., providing for your spouse, educating grandchildren, supporting a favorite charity).
3. Identify Key Players: Decide who will serve in important roles like executor, trustee, and power of attorney.
4. Draft Essential Documents: Work with an attorney to create your Will, powers of attorney, and healthcare directive.
5. Review Beneficiary Designations: Ensure your DCP, pension, and life insurance beneficiaries align with your overall plan.
6. Consider Trust Options: Determine if a trust is appropriate for your situation.
7. Plan for Taxes: Assess your potential estate tax liability and explore mitigation strategies.
8. Address Long-Term Care: Decide how you'll plan for potential long-term care needs.
9. Include Digital Assets: Create a plan for your online accounts and digital property.
10. Discuss with Family: Share the key points of your plan with family members to prevent surprises and conflicts later.

Your Estate Planning Action Plan
Ready to protect your legacy? Here's your action plan:

1. Gather Important Documents: Collect statements from your pension, DCP, life insurance, and other accounts.
2. Use Online Resources: The DRS website offers information on survivor benefits and beneficiary designations [11].
3. Consult Professionals: Consider working with an estate planning attorney familiar with Washington law and public employee benefits.
4. Review Regularly: Set a reminder to review your estate plan every 3-5 years or after major life events.
5. Coordinate with Your Spouse: If you're married, ensure your estate plans work together harmoniously.
6. Secure Your Documents: Store your estate planning documents in a safe place and let your executor know where to find them.
7. Stay Informed: Keep up with changes in estate tax laws and public employee benefits that might affect your plan.

Remember, estate planning is an act of love for your family and a testament to the care you've shown throughout your career in public service. By taking the time to create a comprehensive estate plan, you're ensuring that your legacy of service and care continues even after you're gone.
Sources:

1. Washington State Department of Retirement Systems, "Plan Choice," 2024.
2. Washington State Department of Revenue, "Estate Tax," 2024.
3. Revised Code of Washington (RCW) 11.12.020, "Requisites of wills," 2024.
4. Washington State Department of Retirement Systems, "Beneficiary Information," 2024.
5. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
6. Revised Code of Washington (RCW) 11.125, "Uniform Power of Attorney Act," 2024.
7. Washington State Hospital Association, "End of Life Care Manual," 2024.
8. Washington State DSHS, "WA Cares Fund," 2024.
9. Revised Code of Washington (RCW) 11.120, "Uniform Fiduciary Access to Digital Assets Act," 2024.
10. Washington State Department of Retirement Systems, "Retirement Planning Checklist," 2024.
11. Washington State Department of Retirement Systems, "Life Changes," 2024.

Are you a Washington state or local government employee dreaming of retirement, but not quite ready to make a clean break from your career?
You're not alone. Many public servants are discovering the appeal of phased retirement – a flexible approach that allows you to gradually transition from full-time work to full retirement.
Understanding Phased Retirement
Phased retirement is like dipping your toes in the retirement pool before taking the full plunge. It typically involves reducing your work hours while beginning to tap into your retirement benefits. This approach can offer the best of both worlds: continued income and purpose from work, coupled with more free time to enjoy life.
The Washington State Landscape
Before we dive into specific options, let's consider the unique aspects of phased retirement for Washington state employees:

1. Stable Pension Systems: Washington offers robust pension plans through the Department of Retirement Systems (DRS) [1].
2. Deferred Compensation Program (DCP): This voluntary savings plan can provide additional flexibility in retirement planning [2].
3. No State Income Tax: Washington's lack of state income tax can affect retirement income calculations [3].

With these factors in mind, let's explore your phased retirement options.
Option 1: Reduce Your Hours
One straightforward approach to phased retirement is simply reducing your work hours. Here's how it might work:
Pros:

• Maintain your current position and responsibilities
• Continue accruing pension benefits – for PERS 2 employees you will receive 1 service credit for each month that you work 90 hours or more. If you work 70-90 hours you will receive ½ of a service credit and ¼ of a service credit if you work less than 70 hours [1].
• Ease into retirement lifestyle gradually

Cons:

• May affect your final average salary for pension calculations
• Potential reduction in other benefits (e.g., health insurance)

Check with your HR department about policies on part-time work and benefit eligibility.
Option 2: Enter the Return to Work Program
Washington state offers a Return to Work program that allows you to retire and then return to state service on a part-time basis [4].
How it Works:

1. You officially retire and start receiving your pension.
2. After a required break in service, you can return to work for up to 867 hours per calendar year. Be sure to check your specific plan details. The number of hours can vary depending on what pension system you are in.

Pros:

• Receive both pension payments and a paycheck
• Continue contributing to the Deferred Compensation Program (DCP)

Cons:

• Strict hour limits and other rules must be followed
• May affect your Social Security benefits if you're under full retirement age

 The rules for the Return to Work program vary depending on your retirement plan. Always check the current regulations with DRS before making decisions [4].
Option 3: Deferred Compensation Program (DCP) Distributions
While not technically a phased retirement option, strategically using your DCP can create a phased retirement-like experience.
How it Works:

1. Reduce your work hours and supplement your income with DCP distributions.
2. You can start DCP distributions at any age after leaving employment, without penalties [2].

Pros:

• Flexible distribution options (lump sum, periodic payments, or a combination)
• Can help bridge the gap until you're ready for full retirement

Cons:

• Distributions are taxable as ordinary income
• Need careful planning to ensure your savings last

Consider using DCP distributions to delay starting your pension or Social Security, potentially increasing these benefits later.
Option 4: Phased Retirement Program (for Higher Education Employees)
If you work in Washington's higher education system, you might be eligible for a formal phased retirement program [5].
How it Works:

• Gradually reduce your work hours over a set period (often 1-3 years)
• Continue receiving a prorated salary and benefits

Pros:

• Structured program with clear guidelines
• Often allows for a smoother transition of job responsibilities

Cons:

• Not available to all state employees
• May have specific eligibility requirements

If you're in higher education, inquire with your institution's HR department about phased retirement options.
Creating Your Phased Retirement Plan
Now that we've explored the options, how do you create a phased retirement plan that works for you? Here's a step-by-step guide:
1. Assess Your Financial Readiness
Before considering phased retirement, ensure you're financially prepared.
Action Steps:

• Review your pension estimates from DRS [6]
• Calculate your expected Social Security benefits [7]
• Assess your DCP and other savings

2. Clarify Your Goals
What do you want to achieve with phased retirement?
Questions to Consider:

• How many hours do you want to work?
• What aspects of your job do you want to maintain or let go?
• How long do you envision your transition period lasting?

3. Understand the Rules
Each phased retirement option has specific rules and potential impacts on your benefits.
Must-Do: Schedule a meeting with a DRS retirement specialist to understand how different options affect your pension [8].
4. Communicate with Your Employer
Your agency's support is crucial for a successful phased retirement.
Discussion Points:

• Express your interest in phased retirement
• Explore what options your agency can accommodate
• Discuss how your responsibilities might change

5. Consider the Non-Financial Aspects
Phased retirement isn't just about money – it's a lifestyle change.
Reflect On:

• How will you spend your additional free time?
• What social connections from work do you want to maintain?
• Are there new skills or hobbies you want to develop?

6. Create a Transition Timeline
Map out your journey from full-time work to full retirement.
Example Timeline:

• Year 1: Reduce to 80% time
• Year 2: Reduce to 60% time
• Year 3: Enter Return to Work program
• Year 4: Full retirement

7. Develop a Backup Plan
Flexibility is key in phased retirement.
What-If Scenarios:

• What if your reduced hours don't work out?
• What if your financial needs change?
• What if you decide you want to fully retire sooner?

Making It Work: Practical Tips for Phased Retirement
As you embark on your phased retirement journey, keep these tips in mind:

1. Stay Engaged: Even with reduced hours, remain committed to your work. Your experience is valuable!
2. Keep Learning: Use your extra time to learn new skills, potentially opening up different part-time opportunities.
3. Mind the Gap: Ensure you have health insurance coverage, especially if you reduce hours before Medicare eligibility.
4. Maximize Your DCP: Consider increasing your DCP contributions during your final full-time years to provide more flexibility later.
5. Explore Volunteering: Supplement reduced work hours with meaningful volunteer activities to stay engaged and active.
6. Network: Maintain professional connections. They could lead to interesting part-time opportunities later.
7. Review and Adjust: Regularly review your phased retirement plan and be prepared to adjust as your needs or circumstances change.

Your Phased Retirement Action Plan
Ready to explore phased retirement? Here's your action plan:

1. Crunch the Numbers: Use the DRS website to estimate your pension under different scenarios [6].
2. Meet with Experts:
   • Schedule a meeting with a DRS retirement specialist [8]
   • Consider consulting a financial advisor familiar with public employee benefits
3. Talk to HR: Discuss phased retirement options with your agency's human resources department.
4. Explore DCP Options: Review your DCP distribution options and consider how they fit into your phased retirement plan [2].
5. Create Your Timeline: Develop a tentative timeline for your transition to full retirement.
6. Put It in Writing: Document your phased retirement plan, including financial projections and lifestyle goals.
7. Stay Informed: Keep up with any changes to retirement rules or programs that might affect your plans.

Remember, phased retirement is about creating a transition that works for you. It's an opportunity to design a unique next chapter that balances work, leisure, and financial security. With careful planning and the right approach, you can create a phased retirement that offers the best of both worlds – the satisfaction of continued contribution and the freedom to enjoy life on your terms.
Sources:

1. Washington State Department of Retirement Systems, "PERS 2" 2024.
2. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
3. Washington State Department of Revenue, "Taxes and Rates," 2024.
4. Washington State Department of Retirement Systems, "Working After Retirement," 2024.
5. Washington State Human Resources, "Phased Retirement," 2024.
6. Washington State Department of Retirement Systems, "Benefit Estimator," 2024.
7. Social Security Administration, "my Social Security," 2024.
8. Washington State Department of Retirement Systems, "Retirement Planning Checklist," 2024.

As you approach retirement, you might ask yourself, "Should I pay off my mortgage before I retire?" It's a question that many Washington state public employees grapple with. While the idea of entering retirement debt-free is appealing, the decision isn't always straightforward.
The Washington State Context
Before we delve into the pros and cons, let's consider some factors specific to Washington state public employees:

1. Stable Pension Income: Many WA public servants have access to defined benefit pensions through PERS, LEOFF, or another plan [1].
2. No State Income Tax: Washington doesn't have a state income tax, which can affect retirement income calculations [2].
3. High Property Values: Many areas in Washington have seen significant property value increases, which can impact your decision [3].

Keep these factors in mind as we explore the advantages and disadvantages of paying off your mortgage before retirement.
The Pros: Why Paying Off Your Mortgage Could Be a Smart Move
1. Reduced Monthly Expenses
Entering retirement without a mortgage payment can significantly lower your monthly expenses.
Number Crunch: If your mortgage payment is $1,500 per month, that's $18,000 per year you won't need to withdraw from your retirement accounts.
2. Emotional Security
There's a peace of mind that comes with owning your home outright.
Psychological Benefit: Reduced financial stress can contribute to a more enjoyable retirement [4].
3. Simplified Finances
One less bill to manage can simplify your financial life in retirement.
Time Saver: Less time spent on financial management means more time for retirement activities.
4. Potential for Reverse Mortgage
A paid-off home provides the option for a reverse mortgage later in retirement if needed.
Flexibility: This can serve as a financial safety net in your later years [5].
The Cons: Why Keeping Your Mortgage Might Make Sense
1. Opportunity Cost
Money used to pay off the mortgage could potentially earn higher returns if invested.
If you have a low-interest rate mortgage currently, this may be especially true.  If your mortgage rate is 3% for example and you make 8% on your investments, by keeping the mortgage you earn the 5% difference over the life of the mortgage.
Historical Perspective: The S&P 500 has historically returned about 10% annually over the long term [6].
2. Reduced Liquidity
Paying off your mortgage ties up a significant portion of your wealth in a non-liquid asset.
Emergency Fund: Ensure you maintain adequate liquid savings for unexpected expenses.
3. Loss of Tax Deduction
Mortgage interest is tax-deductible, which can be valuable even in retirement.
Tax Consideration: However, with the higher standard deduction introduced in 2017, fewer retirees itemize deductions [7].
4. Inflation Benefit
Fixed-rate mortgages become cheaper over time in real terms due to inflation.
Inflation Effect: Your mortgage payment stays the same while the dollar's value decreases.
5. Diversification
Keeping a mortgage and investing instead can provide better portfolio diversification.
Risk Management: This can help spread your financial risk across different types of assets.
Special Considerations for Washington Public Employees
1. Pension Security
With a stable pension income, you might be better positioned to manage mortgage payments in retirement.
Action Step: Review your projected pension income and compare it to your expected expenses, including your mortgage payment.
2. Deferred Compensation Program (DCP)
The DCP offers a way to save extra for retirement on a tax-deferred basis [8].
Strategy: Consider whether increasing DCP contributions might be more beneficial than paying extra on your mortgage.
3. Housing Market Dynamics
Washington's housing market has seen significant appreciation in many areas [3].
Consideration: Factor in potential continued appreciation when deciding whether to prioritize mortgage payoff.
4. No State Income Tax Advantage
Washington's lack of state income tax means you won't lose the mortgage interest deduction at the state level.
Tax Planning: This might reduce the tax incentive to keep a mortgage in retirement.
Crunching the Numbers: A Washington-Specific Example
Let's look at a hypothetical example for a Washington state employee:

• Current Age: 55
• Hoping to retire ASAP
• Home Value: $500,000
• Mortgage Balance: $200,000
• Mortgage Rate: 3.5%
• Monthly Payment: $1,500
• Annual Pension Estimate: $60,000
• DCP Balance: $300,000

Scenario A: Pay Off Mortgage

• Use $200,000 from DCP to pay off mortgage plus an additional amount due to income taxes on with withdrawal. 
• Reduce annual expenses by $18,000
• Remaining DCP Balance: $100,000

Scenario B: Keep Mortgage

• Keep $200,000+ invested in DCP
• Continue $1,500 monthly mortgage payments
• Potential for higher long-term returns

The best choice depends on factors like investment returns, tax situation, and personal comfort with debt.
Decision-Making Framework
To help you decide, consider these questions:

1. What's your mortgage interest rate? Lower rates make keeping the mortgage more attractive.
2. How does your mortgage payment compare to your expected retirement income? If it's a small percentage, keeping the mortgage might be more manageable.
3. How's your retirement savings health? If you're behind on savings, investing might be more critical than paying off low-interest debt.
4. What's your risk tolerance? A paid-off mortgage provides certainty, while investing offers potential for higher returns with more risk.
5. How long do you plan to stay in your home? If you're considering downsizing soon, paying off the mortgage might be less beneficial.

Strategies for Moving Forward
Regardless of which path you choose, consider these strategies:
If You Decide to Pay Off the Mortgage:

1. Make Extra Payments: Increase your monthly payment or make lump-sum payments when possible.
2. Refinance to a Shorter Term: Consider refinancing to a 15-year mortgage to pay it off faster.
3. Use Windfalls Wisely: Apply any windfalls (bonuses, inheritances) to your mortgage principal.

If You Decide to Keep the Mortgage:

1. Refinance to a Lower Rate: If possible, refinance to reduce your interest rate and payment.
2. Invest the Difference: Consistently invest the money you would have used for extra mortgage payments.
3. Review Annually: Reassess your decision each year as your financial situation and market conditions change.

Your Action Plan: Making the Right Choice for You
Ready to tackle the mortgage payoff decision? Here's your action plan:

1. Gather Your Financial Information: Collect details on your mortgage, retirement accounts, and expected pension.
2. Use Retirement Planning Tools: The DCP website offers retirement planning calculators. Use these to project your retirement income and expenses [9].
3. Consult a Financial Advisor: Consider working with a financial advisor who understands the nuances of public employee benefits and can provide personalized advice.
4. Review Your Risk Tolerance: Honestly assess your comfort level with debt and investment risk.
5. Create a Retirement Budget: Develop a detailed budget for your retirement years to understand how a mortgage payment fits in.
6. Consider Tax Implications: Discuss the tax consequences of your decision with a tax professional.
7. Make a Decision and Take Action: Once you've considered all factors, make your choice and implement your plan.
8. Stay Flexible: Be prepared to adjust your strategy as your circumstances or economic conditions change.

Remember, there's no one-size-fits-all answer to the mortgage payoff question. The right decision depends on your unique financial situation, goals, and comfort level. By carefully considering the pros and cons and using the decision-making framework provided, you can make an informed choice that supports your vision for a secure and enjoyable retirement.
Sources:

1. Washington State Department of Retirement Systems, 2024.
2. Washington State Department of Revenue, "Washington Tax Rates & Rankings," 2024.
3. Zillow, "Washington Home Values," 2024.
4. Journal of Financial Planning, "Psychological Factors in Retirement Planning," 2022.
5. U.S. Department of Housing and Urban Development, "Home Equity Conversion Mortgages for Seniors," 2023.
6. S&P Dow Jones Indices, "S&P 500 Returns," 2023.
7. Internal Revenue Service, "Topic No. 501 Should I Itemize?" 2024.
8. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
   
9. Washington State Department of Retirement Systems, "DCP Retirement Planning Tools," 2024.

You've spent your career serving the public and diligently saving for retirement. Now, as you approach or enter retirement, you're faced with a new challenge: how to withdraw your hard-earned savings in the most tax-efficient manner. As a Washington state public employee, you have unique considerations. Let's explore strategies to help you keep more of your money and less in Uncle Sam's pocket.
Understanding Your Retirement Income Sources
Before diving into withdrawal strategies, let's review the typical income sources for Washington public employees in retirement:

1. Pension: From PERS, LEOFF, or other state retirement systems (typically taxable) [1]
2. Social Security: If you're eligible (partially taxable) [2]
3. Deferred Compensation Program (DCP): Voluntary savings plan (taxable upon withdrawal), Roth options are also available (not taxable upon withdrawal) [3]
4. Personal retirement accounts: Such as Traditional IRAs (taxable) or Roth IRAs (tax-free) [4]
5. Other savings and investments: Taxed based on the type of account or investment

The key to tax-efficient withdrawals is understanding how each of these sources is taxed and strategically coordinating your withdrawals.
The Washington Advantage: No State Income Tax
As a Washington resident, you have a significant tax advantage: Washington does not have a state income tax [5]. This means your retirement income is only subject to federal income tax, potentially leaving more money in your pocket.
If you're considering relocating in retirement, factor in state taxes. Moving to a state with income tax could significantly impact your retirement finances.
General Tax-Smart Withdrawal Strategies
Let's start with some overarching strategies that can help minimize your tax burden in retirement:
1. Understand Your Tax Bracket
Your tax bracket in retirement may be lower than during your working years. Understanding your bracket can help you make informed decisions about withdrawals.
Estimate your retirement income and use the IRS tax brackets to determine your likely tax rate [6].
2. Diversify Your Retirement Accounts
Having a mix of taxable, tax-deferred, and tax-free accounts gives you more flexibility in managing your tax liability.
If most of your savings are in tax-deferred accounts like the DCP, consider contributing to a Roth IRA or taxable account to diversify your tax exposure.
3. Make the Most of Your Standard Deduction
In 2024, the standard deduction for married couples filing jointly is $29,200 [7]. Try to manage your taxable income to take full advantage of this deduction.
4. Be Strategic with Required Minimum Distributions (RMDs)
RMDs from tax-deferred accounts like the DCP and traditional IRAs start at age 73 [8]. Plan ahead to manage the tax impact of these mandatory withdrawals.
Consider Roth conversions in lower-income years before RMDs begin to reduce future mandatory withdrawals.
Specific Strategies for Washington Public Employees
Now, let's look at some strategies tailored to your situation as a Washington public employee:
1. Coordinate Pension and DCP Withdrawals
Your pension provides a stable, taxable income stream. Use this to your advantage when planning DCP withdrawals.
If your pension doesn't push you into a higher tax bracket, consider filling up your current bracket with DCP withdrawals. This can help reduce future RMDs and potentially lower your lifetime tax bill. If you are not going to use all of these withdrawals, you can always re-invest in a taxable brokerage account.
2. Leverage the DCP's Flexibility
The DCP offers flexibility in withdrawal options, including lump sum, periodic, or annuity payments [9]. Use this to your tax advantage.
If you retire before age 59½, you can take penalty-free withdrawals from your DCP, unlike an IRA which may incur a 10% early withdrawal penalty [10].
3. Consider Roth Conversions in Low-Income Years
If you have years with lower income (perhaps early in retirement before Social Security and RMDs kick in), consider converting some of your traditional accounts to Roth accounts.
While you'll pay taxes on the conversion, future withdrawals from the Roth accounts will be tax-free, potentially lowering your tax bill in later years [11].
4. Manage Your Social Security Taxation
Up to 85% of your Social Security benefits may be taxable, depending on your overall income [12]. By managing your other income sources, you might reduce the tax on your Social Security.
Consider delaying Social Security and taking larger withdrawals from tax-deferred accounts earlier in retirement. This could reduce RMDs and the taxation of Social Security later.
5. Use Your Health Savings Account (HSA) Wisely
If you have an HSA, remember that withdrawals for qualified medical expenses are tax-free at any age [13].
Pay for medical expenses out of pocket while working and save HSA receipts. In retirement, you can withdraw from your HSA tax-free to reimburse yourself for those past expenses, effectively creating a tax-free income source.
6. Qualified Charitable Distributions (QCDs)
Once you reach age 70½, you can make charitable donations directly from your IRA. These QCDs can satisfy your RMD requirement without increasing your taxable income [14].
This can help lower your Adjusted Gross Income (AGI), which may reduce the taxation of your Social Security benefits and potentially lower your Medicare premiums.
Creating Your Tax-Efficient Withdrawal Strategy
Now that we've covered various strategies, here's how to put them into action:

1. Project Your Retirement Income and Expenses: Estimate your annual spending needs and income from all sources.
2. Analyze Your Tax Situation: Determine your expected tax bracket and identify opportunities to minimize taxes.
3. Prioritize Your Withdrawal Sources: Generally, a tax-efficient withdrawal order might look like this:
   • Required Minimum Distributions (RMDs)
   • Taxable accounts (using long-term capital gains)
   • Tax-deferred accounts (DCP, Traditional IRAs)
   • Tax-free accounts (Roth IRAs)
4. Plan for Flexibility: Tax laws can change, so build flexibility into your plan.
5. Review and Adjust Annually: Your tax situation may change from year to year. Regular reviews can help you stay tax-efficient.

Implementing Tax-Smart Withdrawal Strategies
Ready to optimize your retirement withdrawals? Here's your action plan:

1. Gather Your Financial Information: Collect statements from your pension, DCP, IRAs, and other accounts.
2. Use Tax-Planning Tools: The DCP website offers retirement planning tools. Utilize these to project your retirement income and tax situation [17].
3. Consider Professional Help: Tax-efficient withdrawal strategies can be complex. Consider working with a financial advisor who understands the nuances of public employee retirement benefits and tax planning.
4. Educate Yourself: Stay informed about changes in tax laws and retirement account rules. The IRS website and your DCP's educational resources are good starting points.
5. Start Planning Early: The earlier you start planning your withdrawal strategy, the more opportunities you'll have to optimize your tax situation.
6. Coordinate with Your Spouse: If you're married, consider your combined tax situation and coordinate your withdrawal strategies.
7. Stay Flexible: Be prepared to adjust your strategy as your needs and tax situations change throughout retirement.

Remember, while minimizing taxes is important, it shouldn't be your only consideration. Your withdrawal strategy should also ensure you have the income you need to enjoy the retirement you've worked so hard to achieve.
Sources:

1. Washington State Department of Retirement Systems, "Retirement taxes FAQ," 2024.
2. Social Security Administration, "Income Taxes And Your Social Security Benefit," 2024.
3. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
4. Internal Revenue Service, "Retirement Plans FAQs regarding IRAs," 2024.
5. Washington State Department of Revenue, "Income Tax," 2024.
6. Internal Revenue Service, "IRS provides tax inflation adjustments for tax year 2024," 2024.
7. Internal Revenue Service, "Topic No. 551 Standard Deduction," 2024.
8. Internal Revenue Service, "Retirement Topics - Required Minimum Distributions (RMDs)," 2024.
9. Washington State Department of Retirement Systems, "DCP Distribution Options," 2024.
10. Internal Revenue Service, "Retirement Topics - Exceptions to Tax on Early Distributions," 2024.
11. Internal Revenue Service, "Roth IRAs," 2024.
12. Social Security Administration, "Income Taxes And Your Social Security Benefit," 2024.
13. Internal Revenue Service, "Publication 969: Health Savings Accounts and Other Tax-Favored Health Plans," 2024.
14. Internal Revenue Service, "Qualified Charitable Distributions," 2024.
15. Internal Revenue Service, "Topic No. 412 Lump-Sum Distributions," 2024.
16. Internal Revenue Service, "Retirement Topics - Exceptions to Tax on Early Distributions," 2024.
17. Washington State Department of Retirement Systems, "DCP Education and Planning Tools," 2024.

​As a Washington state public employee, you're building a secure financial future through your pension, the Deferred Compensation Program (DCP), and personal retirement accounts. But with the constant ebb and flow of the stock market, you might be wondering: How can I protect my retirement savings from market volatility? Let's dive into strategies to help you navigate these choppy waters and keep your retirement plans on course.
Understanding Market Volatility: The Retirement Rollercoaster
Market volatility is like a rollercoaster - it has its ups and downs, twists and turns. While it can be unsettling, it's a normal part of investing. Here's what you need to know:

• Volatility doesn't mean loss: Short-term fluctuations don't necessarily translate to long-term results.
• Time is on your side: The longer your investment horizon, the more time you have to ride out market fluctuations.
• Emotions can be your enemy: Panic selling during downturns can lock in losses and make it harder to recover.

Your Washington DCP: A Powerful Tool in Volatile Times
The Washington State Deferred Compensation Program (DCP) is a voluntary supplemental retirement savings plan designed to help you build added retirement security [1]. Here's how it can help you manage market volatility:
1. Diversification Options
The DCP offers a range of investment options, allowing you to spread your risk across different asset classes [2]. This diversification can help cushion your portfolio against market swings. The target date funds are also diversified.
2. Dollar-Cost Averaging
By contributing to your DCP through regular payroll deductions, you're using a strategy called dollar-cost averaging [3]. This means you're buying more shares when prices are low and fewer when prices are high, potentially lowering your average cost per share over time.
3. Professional Management Options
DRS offers professionally managed funds, including target date funds, which automatically adjust their asset allocation as you approach retirement [4]. This can help manage volatility without requiring constant attention from you.
Personal Retirement Accounts: Your Custom Volatility Shield
In addition to your DCP, you might have personal retirement accounts like IRAs or a taxable investment (brokerage) account. Here's how to manage these effectively in volatile markets:
1. Asset Allocation: Your Personal Shock Absorber
Your asset allocation - the mix of stocks, bonds, and other investments - is crucial in managing volatility.
Generally, the closer you are to retirement, the more conservative your allocation should be [5].
Review your asset allocation semi-annually. Rebalance to maintain your target mix.
2. Diversification: Don't Put All Your Eggs in One Basket
Spread your investments across different:

• Asset classes (stocks, bonds, real estate)
• Size (large cap, small cap)
• Growth and Value
• Geographic regions (U.S., international, emerging markets)

Remember: While diversification doesn't guarantee profits or protect against losses, it can help manage risk [6].
3. Cash Reserves: Your Financial Cushion
Having a cash reserve can prevent you from selling investments at inopportune times to meet short-term needs.
Aim for 3-6 months of living expenses in easily accessible cash [7].
If you’re planning on using investment funds within the next 5-10 years consider calculating how much you will be using and move these funds into high quality, short duration bonds.
Whether you're managing your DCP, IRA, or both, these strategies can help you weather market volatility:
1. Stay Invested: Time in the Market Beats Timing the Market
Historically, staying invested through market cycles has been more effective than trying to time the market [8].
From 2000 to 2019, missing just the 10 best days in the market would have cut your overall return in half [9].
2. Rebalance Regularly: Maintaining Your Risk Profile
Market movements can throw your asset allocation out of balance compared to your original allocation. Regular rebalancing helps keep your desired risk level.
Best Practice: Rebalance at least semi-annually or when your allocation drifts more than 25% from your target [10].
3. Use Tax-Loss Harvesting (for Taxable Accounts)
In taxable accounts, selling investments at a loss can offset capital gains and reduce your tax bill. This strategy, known as tax-loss harvesting, can turn market downturns into tax-saving opportunities [12].
The wash-sale rule prohibits claiming a loss on a security if you buy the same or a "substantially identical" security within 30 days before or after the sale [13].
4. Use Tax-Gain Harvesting (for Taxable Accounts)
In taxable accounts, selling investments at a gain will increase your tax basis (cost) and reduce future capital gains. Be aware, if your current tax rates will be lower in the future or the same, this strategy may not make sense for you.
Emotional Strategies: Keeping Your Cool in Volatile Markets
Managing your emotions is just as important as managing your portfolio. Here's how to stay level-headed:
1. Avoid Constant Monitoring
Checking your accounts too often can lead to emotional decision-making.
Limit yourself to reviewing your accounts quarterly or semi-annually.
2. Focus on Your Goals, Not Short-Term Performance
Remember why you're investing in the first place - for a secure retirement, not to outperform the market.
Instead of focusing on account balances, consider whether you're on track to meet your long-term goals.
3. Understand Your Risk Tolerance
Your ability to stick with your investment strategy during market turbulence depends on your risk tolerance. Think about how you felt during recent market downturns. Were you worried, the market was going to zero? Or where you not concerned. Your risk tolerance can drastically shift as you get closer to retirement so be sure to re-evaluate your risk tolerance as you get closer to retirement.
Special Considerations for Near-Retirees
If you're within 5-10 years of retirement, market volatility can be particularly concerning. Here are some strategies to consider:
1. Gradual Shift to More Conservative Allocation
Start shifting to a more conservative asset mix, but don't abandon growth investments entirely. You may need your money to last 20-30 years in retirement and inflation will be an issue during that time frame.
2. Build a Bond Ladder
Consider creating a bond ladder to provide predictable income in the early years of retirement, reducing your reliance on selling stocks in a down market [15].
3. Consider a Bucket Strategy
Divide your portfolio into near-term, medium-term, and long-term buckets, each with appropriate investments for its time horizon [16].
Your Action Plan: Mastering Market Volatility
Ready to take control of your retirement savings in the face of market volatility? Here's your action plan:

1. Review Your DCP Allocation: Log into your DCP account and review your current investment mix. Does it align with your risk tolerance and time horizon?
2. Check Your Personal Accounts: Review the asset allocation in your IRAs and other personal retirement accounts. Rebalance if necessary.
3. Assess Your Cash Reserves: Ensure you have adequate cash savings to avoid selling investments in a downturn.
4. Consider Professional Advice: Consider scheduling a consultation, or work with a financial advisor who understands the unique aspects of public employee retirement planning.
5. Educate Yourself: Take advantage of educational resources offered by the DRS. Knowledge is your best defense against panic during market turbulence.
6. Stay the Course: Unless your personal circumstances have changed, stick to your long-term investment strategy. Remember, retirement saving is a marathon, not a sprint.

Remember, market volatility is a normal part of investing. By understanding it and having a solid strategy in place, you can navigate these choppy waters with confidence. Your future self will thank you for staying the course and building a secure retirement, come rain or shine in the markets.
Sources:

1. Washington State Department of Retirement Systems, "Deferred Compensation Program," 2024.
2. Washington State Department of Retirement Systems, "DCP Investment Options," 2024.
3. U.S. Securities and Exchange Commission, "Ten Things to Consider," 2024.
4. Washington State Department of Retirement Systems, "DCP Target Date Funds," 2024.
5. Financial Industry Regulatory Authority, "Asset Allocation and Diversification," 2024.
6. U.S. Securities and Exchange Commission, "Beginners' Guide to Asset Allocation, Diversification, and Rebalancing," 2024.
7. Consumer Financial Protection Bureau, "An essential guide to building an emergency fund," 2024.
8. Vanguard, "Time in the market vs. timing the market," 2023.
9. J.P. Morgan Asset Management, "Guide to the Markets," 2023.
10. Vanguard, "Best practices for portfolio rebalancing," 2023.
11. Internal Revenue Service, "Roth IRAs," 2024.
12. Internal Revenue Service, "Topic No. 409 Capital Gains and Losses," 2024.
13. Internal Revenue Service, "Wash Sales," 2024.
14. NASDAQ, "Investment Risk Tolerance Quiz," 2024.
15. Fidelity, "Bond ladder basics," 2024.
16. Schwab, "Bucket Strategy," 2024.

​As you approach retirement, you probably have a lot on your mind. But there's one thing that you shouldn't overlook: your healthcare coverage. The Public Employees Benefits Board (PEBB) Program offers a range of options for Washington state public employees. Let's dive into what PEBB offers and how to maximize your retiree healthcare benefits.
Understanding PEBB: Your Retiree Healthcare Lifeline
The PEBB Program isn't just for active employees. It continues to be a valuable resource for retirees, offering a variety of health plans to suit different needs and budgets.
Key Point: Enrolling in PEBB retiree insurance isn't automatic. You must apply no later than 60 days after your employer-paid coverage, COBRA coverage, or continuation coverage ends.
Your PEBB Healthcare Options: A Menu of Choices
PEBB offers several types of plans for retirees. Let's break them down:
1. Medicare Plans (for those 65 and older)
If you're eligible for Medicare, PEBB offers these options:

• Medicare Advantage plans: These plans combine Medicare Parts A, B, and often D into one plan.
• Medicare Supplement plans: These plans help cover costs that Original Medicare doesn't, like copayments and deductibles.

2. Non-Medicare Plans (for those under 65)
If you're not yet eligible for Medicare, PEBB offers:

• Preferred Provider Organization (PPO) plans: These provide more provider choices but may have higher out-of-pocket costs.
• Health Maintenance Organization (HMO) plans: These typically have lower costs but require you to stay within a network of providers.

3. Dental Plans
PEBB offers dental coverage that is separate from medical plans. You have three options:

• Uniform Dental Plan (UDP): A PPO plan
• DeltaCare: An HMO-style plan
• Willamette Dental Group Plan: An HMO-style plan

Remember: You must also enroll in medical to enroll in dental3.
Costs: What to Expect
One of the biggest concerns for retirees is healthcare costs. Here's what you need to know about PEBB retiree insurance costs:

1. You pay the entire premium: Unlike when you were an active employee, there's no employer contribution.
2. Premiums vary by plan: Medicare plans are generally less expensive than non-Medicare plans.
3. Costs can change annually: Be prepared for potential increases each year.

2025 Monthly Premium Example:

• UMP Classic (Medicare): $419.36 for subscriber only
• UMP Classic (Non-Medicare): $898.12 for subscriber only

Strategy Tip: Consider setting aside specific savings during your working years to cover future healthcare premiums.
Spouse and Dependent Coverage: Keeping Your Family Protected
PEBB allows you to cover your spouse or state-registered domestic partner and dependent children. However, there are a few things to keep in mind:

1. Added Cost: Adding dependents will increase your monthly premiums.
2. Survivor Benefits: In most cases, your covered dependents can continue PEBB coverage if you pass away.
3. Split Households: If you're on Medicare but your spouse isn't, you can enroll in separate PEBB plans.

The Deferral Option: Pressing Pause on PEBB Coverage
What if you have other coverage options when you retire? PEBB allows you to defer (postpone) your retiree insurance.
Common Deferral Reasons:

• Returning to work for a PEBB-participating employer
• Having other qualifying coverage (e.g., through a spouse's employer)

Important: You must maintain continuous coverage to be eligible to re-enroll in PEBB retiree insurance later.
Making the Most of Your PEBB Benefits
Now that you understand your options, here are some strategies to maximize your PEBB retiree benefits:
1. Plan Ahead
Start thinking about your retiree healthcare needs well before you retire. Consider factors like:

• Anticipated healthcare needs
• Preferred doctors and hospitals
• Prescription drug needs
• Budget for premiums and out-of-pocket costs

2. Compare Plans Annually
Healthcare needs and plan offerings can change. During open enrollment each fall:

• Review your current plan's performance
• Compare the costs and benefits of other available plans
• Consider any changes in your health or financial situation

3. Utilize Preventive Care
Most PEBB plans offer free preventive care services. Take advantage of:

• Annual check-ups
• Vaccinations
• Health screenings

This can help catch potential health issues early, saving you money in the long run.
4. Understand Your Prescription Coverage
If you take regular medications:

• Check which tier your drugs fall under in different plans
• Consider mail-order options for potential savings
• Ask your doctor about generic alternatives

5. Take Advantage of Additional Benefits
Many PEBB plans offer extra perks like:

• SmartHealth
• Smoking cessation programs
• Diabetes Prevention Program

These programs can help you stay healthy and reduce your long-term healthcare costs.
6. Consider Your Spouse's Coverage
If your spouse is still working or has other coverage options:

• Compare PEBB options with your spouse's plan
• Consider whether it's more cost-effective to have separate coverage

7. Plan for Long-Term Care
While PEBB doesn't offer long-term care insurance, consider how you'll cover these potential costs:

• Look into private long-term care insurance
• Consider the new WA Cares Fund, Washington's state-run long-term care program
• Consider earmarking savings specifically for long-term care

Navigating Life Changes
Life doesn't stop when you retire. Here's how to handle some common life changes with PEBB:

1. Moving: If you move out of your plan's service area, you may need to change plans. Always update your address with PEBB3.
2. Divorce: If you divorce, your ex-spouse is no longer eligible for PEBB coverage. They may be eligible for COBRA continuation coverage.
3. Turning 65: When eligible for Medicare, you must enroll in Medicare Parts A and B and switch to a PEBB Medicare plan.
4. Returning to Work: If you return to work for a PEBB-participating employer, you may need to defer your retiree coverage.

Your Action Plan: Making PEBB Work for You
Ready to make the most of your PEBB retiree benefits? Here's your action plan:

1. Estimate Your Retirement Date: This will help you plan for the 60-day window to enroll in PEBB retiree coverage.
2. Attend a Retirement Workshop: The State Health Care Authority and Department of Retirement Systems offers these to help you understand all aspects of retirement, including healthcare.
3. Review Plan Options: Use the PEBB website to compare plans available in your area.
4. Calculate Costs: Use PEBB's premium calculator to estimate costs under different scenarios.
5. Consider HSA Contributions: If you're not yet on Medicare, maximize Health Savings Account contributions to save for future healthcare costs.
6. Mark Your Calendar: Remember critical dates like the annual open enrollment period (for 2025: October 28 through November 25, 2024)
7. Seek Expert Advice: Consider consulting with a financial advisor specializing in retirement planning for public employees.

Remember, healthcare in retirement is not a set-it-and-forget-it decision. Stay informed, review your options regularly, and don't hesitate to contact HCA with questions. Your health and financial well-being in retirement depend on making informed choices.
Here's to a healthy and secure retirement!

Picture this: It's Monday morning, but instead of rushing to beat traffic, you're sipping your coffee and planning your next adventure. No more alarm clocks, no more cubicles. Sound like a dream? It doesn't have to be. As a public employee in Washington, you have a unique opportunity to make early retirement a reality.
But here's the catch: Early retirement isn't just about having enough money in the bank. It's like a puzzle, and the whole picture falls apart if you're missing a piece. That's where I come in. As a financial advisor specializing in helping Washington public employees navigate their retirement options, I've seen it all. And today, I'm sharing my top strategies for bridging the gap between your dreams and your reality.
The Early Retirement Puzzle
Before we dive into the strategies, let's talk about the four critical pieces of the early retirement puzzle for Washington public employees:

1. Reduced pension benefits: Retiring early means your pension may take a hit. PERS 2 and 3 members can retire as early as 55, but benefits can be reduced depending on your total years of service. For PERS members, the full retirement age is 65. LEOFF 2 members can retire at 53 but face reductions if under the full retirement age of 53.
2. The Social Security gap: If you retire before 62, you'll need to bridge the gap until Social Security kicks in. And even then, waiting until your full retirement age (66-67 for most) will give you a higher benefit.
3. Healthcare costs: One of the most significant expenses in early retirement, especially pre-Medicare at 65. As a public employee, you have options, but they come at a cost.
4. Funding a longer retirement: Retiring early means your savings must stretch further. It's not just about having enough but also about making it last.

Feeling overwhelmed? Don't be. With the right strategies, you can make early retirement a reality. Let's break it down.
Strategy #1: Know Your Numbers
The first step is to get a clear picture of your retirement benefits. Use the DRS benefit estimator through your DRS account to see how much your pension would be at different retirement ages. Remember, knowledge is power. Don't forget to consider how different survivorship options will impact your total benefit.
Strategy #2: Bridge the Social Security Gap
If you retire before your full Social Security age, consider using your savings to create a "Social Security bridge." Set aside enough to replace your estimated benefit until you reach full retirement age, allowing your actual benefit to grow. The Deferred Compensation Program can be an invaluable tool in bridging the gap.
Strategy #3: Don't Let Healthcare Derail Your Dreams
As a retired public employee, you may be eligible for health insurance through the PEBB Program. While not cheap, it may be more affordable than marketplace options. Also consider your spouse's insurance if they're still working and maximize your HSA contributions if eligible.
Strategy #4: Make Your Money Last
To stretch your savings, consider a dynamic withdrawal strategy that adjusts based on market conditions and your expenses. Don't rely solely on your pension - diversify with rental income, part-time work, or dividend-paying investments.
Strategy #5: Leverage Your Deferred Compensation Plan
As a state employee, you have a powerful tool in your DCP. Max out your contributions leading up to retirement. If you are 50 or older, you're allowed to contribute a maximum of $30,500 ($23,000 if under 50).
DCP has an advantage over other retirement accounts in that funds can be withdrawn penalty free before age 59 ½. This flexibility is incredibly important in bridging the gap to full retirement age.
Strategy #6: Phase into Retirement
Retirement doesn't have to be all or nothing. Phased retirement, whether part-time work or retire-rehire arrangements, can help you transition while boosting your financial security. Just be aware of the rules to avoid impacting your pension.
For PERS 2 retirees, if you work less than 867 hours in a calendar year, your benefit won't be affected.
You can also work for an employer not covered by a Washington state retirement system without affecting your monthly benefit unless you've been approved for a disability retirement.
Strategy #7: Enjoy Your Retirement While Being Mindful
Early retirement is about enjoying the freedom you've worked so hard for. While it's important to be mindful of your spending, don't forget to invest in experiences that bring you joy. Consider travel, hobbies, or quality time with loved ones. The key is finding a balance between living your best life and maintaining financial security.
Strategy #8: Stay Flexible
The reality is, even the best laid plans can change. Be prepared to adjust based on market conditions, health needs, or shifting priorities. Flexibility is key to a successful early retirement.
Strategy #9: Plan for Taxes
Your tax situation can change a lot in retirement. Consider Roth conversions in low-income years, and use your tax-advantaged accounts strategically to manage your tax bracket.
Your Early Retirement Action Plan
Alright, let's bring it all together. Here's your step-by-step early retirement action plan, also be sure to check out the ​DRS Retirement Planning Checklist​​:

1. Crunch the numbers: Use the DRS benefit estimator and other calculators to know your numbers inside and out.
2. Bridge the gaps: Have a plan to cover reduced pension benefits and the years before Social Security.
3. Don't neglect healthcare: Research your options and budget for costs.
4. Diversify your income: Your pension is just one piece. Explore other income streams to boost security.
5. Maximize your savings: Take full advantage of your DCP and other retirement accounts.
6. Consider phasing: Explore options to gradually transition out of full-time work.
7. Be tax-savvy: Develop a tax-efficient withdrawal strategy to stretch your dollars.
8. Stay nimble: Be ready to pivot as life unfolds.
9. Consult the pros: Meet with a DRS retirement specialist to understand your options, and consider working with a financial advisor who gets public employee retirement planning.

At the end of the day, early retirement is a big decision that requires careful planning. But here's the great news: As a Washington state public employee, you have unique tools and options to make your dream a reality. With the strategies we've covered today, you can bridge the gaps and unlock a retirement that's truly worth celebrating.
So here's to you, to your years of dedicated public service, and to the adventure ahead. With smart planning and a little flexibility, your early retirement dreams are within reach.
If you’d like to meet with me to get your questions answered in a one-on-one setting, here’s a link to request a time to meet.