|
Picture this: You're 65, planning to retire next month with your PERS 2 pension, and suddenly the market drops 20%. Your supplemental retirement savings take a hit just when you need them most. If this scenario keeps you up at night, you're not alone. Market downturns near retirement can feel especially scary for public employees who rely on both their pension and personal savings for retirement security. Core Principles for Market Recovery Near Retirement When facing market volatility close to retirement, these fundamental principles can guide your decisions: 1. Time Horizon Matters More Than Age Your retirement could last 25-30 years, giving your investments time to recover even if you're close to retiring.¹ 2. War Chest Strategy Building 5 years of investment withdrawals in high-quality short-duration bonds creates a buffer that lets growth investments recover without forcing sales during downturns. 3. Diversification Beyond Stocks Washington State employees have unique advantages with stable pension benefits that can reduce reliance on volatile investments. 4. Flexibility Creates Opportunity Having multiple withdrawal options gives you control during market stress. 5. Washington State Advantage DRS members have more predictable income streams than private sector retirees, allowing for different recovery strategies.2 Your 5-Step Recovery Strategy Step 1: Assess Your Total Retirement Picture Don't just look at your 457(b) plan balance. Calculate your complete retirement income:
Create a 5-year buffer of investment withdrawals in high-quality short-duration bonds. This strategy protects you from being forced to sell stocks during market downturns. How to calculate your war chest:
If you have worked 30+ years in a non-LEOFF position you can retire with full benefits at 62 with 30+ years of service or 65 with 20+ years of or earlier with reduced benefits. During market downturns, consider:
Market downturns create unique tax opportunities, especially when combined with your war chest strategy:
As markets recover and your growth investments increase in value:
Case Study: Tom's Market Downturn Recovery Tom, a 60-year-old PERS Plan 2 member, was planning to retire at 62 and wanted to protect against potential market downturns. With $500,000 in his 457(b) plan, he proactively built his war chest two years before retirement. His pension will provide $3,200 monthly, and Social Security will add $2,000. He needs $7,000 monthly total, so he requires $1,800 monthly ($21,600 annually) from investments. Tom's proactive war chest strategy: · War chest built: $21,600 × 5 = $108,000 moved to short-duration bonds · Growth investments: $500,000 - $108,000 = $392,000 remained in growth investments (equities) · The downturn: Market dropped 25%, but only his growth investments were affected · Result: His $392,000 growth portfolio dropped to $294,000, but his $108,000 war chest remained stable Why Tom's strategy worked: · He could retire exactly as planned without touching depressed stock investments · His war chest provided 5 years of withdrawals while growth investments recovered · He avoided the emotional stress of watching his entire portfolio drop right before retirement · After 3 years, his growth investments recovered to $400,000, and he rebalanced by selling stocks to replenish his war chest Tom's proactive approach shows why building your war chest before you need it is crucial. Rather than scrambling during a market downturn, he had a predetermined plan that let him retire confidently regardless of market conditions. Your Action Plan
Sources and Resources Seth Deal
0 Comments
Picture this: After 30 years of teaching in public schools, you finally retire with your Teachers' Retirement System (TRS) pension. You're financially prepared, but three months in, you feel lost without your daily routine and professional identity. This scenario is more common than you might think among Washington State employees transitioning to retirement. A lot of people think retirement is just about having enough money saved up. But this is a common misconception... Your mental health and wellness in retirement is just as important as your financial security. Understanding this aspect of retirement planning can make the difference between thriving and merely surviving in your golden years. Here's what you need to know about maintaining your mental wellness in retirement: What does retirement mental wellness actually mean? Retirement mental wellness isn't just about staying busy. It's about maintaining purpose, connection, and emotional well-being during one of life's biggest transitions. Think of it as creating a new chapter of your life that feels meaningful and fulfilling. For Washington State public employees, you've likely spent decades serving your community in meaningful ways. Now you need to figure out how to maintain that sense of purpose without your regular paycheck and daily routine. Core principles you need to understand: Retirement is a process, not an event. The transition typically takes 12-18 months to fully adjust, according to retirement research¹. This means you should start planning your mental transition 2-3 years before your retirement date, not after you've already left work. Purpose doesn't end with your paycheck. Studies show that retirees who maintain a sense of purpose report 44% higher life satisfaction². This is huge when you consider how much of your identity has been tied to your career. Social connections are like health insurance. Research indicates that strong social ties can increase longevity by 50% and reduce dementia risk by 26%³. Those workplace friendships you've built over the years? They're more valuable than you might realize. Physical and mental health work together. Regular physical activity reduces depression risk in older adults by up to 20-30%⁴. When you feel good physically, it's easier to maintain your mental wellness. Your step-by-step mental wellness strategy Step 1: Create your new identity before you need it Your career has likely defined much of your identity for decades. As a public employee, you've contributed to your community in meaningful ways. The key is to start redefining who you are beyond your job title while you're still working. Here's how to do it: Start volunteering in your area of expertise while still working. This helps you transition your skills into a new context. Join professional associations as a retiree member to maintain those connections. Consider part-time consulting or teaching opportunities that let you use your experience in new ways. Explore hobbies that connect to your professional skills so the transition feels natural rather than jarring. Step 2: Build your social safety net Many public employees have strong workplace friendships. Don't let retirement break these connections, and actively work to build new ones. Your action items should include scheduling regular coffee dates with former colleagues and joining clubs or groups related to your interests. Why this matters: Adults who maintain 3-5 close friendships report significantly better mental health outcomes in retirement³. Step 3: Establish new routines and rhythms Structure provides comfort and purpose. Without work schedules, many retirees struggle with too much unstructured time, which can lead to feelings of aimlessness. Create structure through regular exercise schedules. Consider Washington State Parks' senior programs as a great starting point. Set up volunteer commitments on specific days to give your week structure. Establish learning schedules through community college classes or library programs. Maintain consistent sleep and meal times to keep your body's natural rhythms intact. Step 4: Address financial anxiety proactively Money worries are one of the biggest sources of retirement stress. As a public employee with a pension, you actually have more security than many retirees, but concerns are still completely normal. Protect your mental health by understanding your benefits completely. Attend workshops if you need to. Create a written budget for retirement so you can see your financial picture clearly. Build an emergency fund separate from retirement accounts for peace of mind. Consider working with a fee-only financial advisor familiar with DRS plans. Here's something important: Washington State public employees often underestimate their retirement security because they don't fully understand their pension benefits. Getting clarity on this can significantly reduce anxiety. Step 5: Plan for health changes Aging brings health challenges, and being proactive protects both your physical and mental wellness. Your preparation should include researching Medicare supplement options early, establishing relationships with healthcare providers, creating advance directives and healthcare power of attorney, considering long-term care insurance options, and staying current with preventive care. Different approaches that work for different people The gradual transition approach: Instead of stopping work completely, reduce your hours over 2-3 years. If you want to draw your pension during this time, make sure you're informed about return to work rules. The adventure approach: Some retirees thrive on major changes. Consider relocating, traveling extensively, or taking on completely new challenges. Washington's natural beauty offers endless outdoor opportunities for active retirees. The service approach: Channel your career experience into volunteer leadership roles. Former teachers might join school boards, while retired engineers could work with infrastructure nonprofits. The learning approach: Return to school or pursue certifications in new fields. Washington State universities offer senior audit programs, and community colleges provide continuing education specifically for retirees. Your action plan starting today Start planning now: Begin mental wellness planning at least two years before retirement. Don't wait until your last day of work. Assess your support network: List your current relationships and identify gaps you need to fill. Explore new activities: Try three new activities or groups while you're still working to see what resonates with you. Address money concerns: Schedule a DRS counseling session and create a retirement budget so you know where you stand financially. Create your health plan: Establish healthcare relationships and understand your insurance options before you need them. Remember, retirement mental wellness isn't one-size-fits-all. What works for your colleague might not work for you, and that's perfectly fine. The key is to start planning now and be intentional about creating a retirement that feels meaningful and fulfilling. Sources and Resources 1. Retirement Transition Research - American Psychological Association 2. Purpose in Life and Retirement Satisfaction - Journal of Gerontology 3. Social Connections and Health - Harvard Health Publishing 4. Physical Activity and Depression in Older Adults - Mayo Clinic -Seth DealPicture this: You're five years from retirement, sitting at your desk at the Department of Transportation, and your colleague mentions they're worried about making ends meet in retirement. Sound familiar? As a Washington State public employee, you have some unique advantages through the Department of Retirement Systems (DRS), but creating a budget that actually works requires more than just knowing your pension amount. Whether you're part of PERS, LEOFF, TRS, or another DRS plan, the key to retirement security lies in building a realistic, comprehensive budget that accounts for your specific situation. Core Principles for Washington State Public Employee Retirement Budgeting Before diving into strategy, understand these fundamental principles: 1. The 4% Rule Needs Adjustments The traditional 4% withdrawal rule may not apply perfectly to your situation since you'll have pension income covering a significant portion of your expenses.¹ 2. Healthcare Costs Require Special Planning Washington State employees have access to continued health benefits in retirement, but premiums and out-of-pocket costs will likely increase significantly.² 3. Your Pension is Your Foundation Unlike private sector workers, your DRS pension provides a guaranteed income stream that should form the base of your retirement budget.³ Your 5-Step Strategy for Building a Retirement Budget That Works Step 1: Calculate Your Guaranteed Foundation Income Start with what you know for certain. Log into your DRS account and find your projected monthly pension benefit. This becomes your budget's cornerstone. Key actions for this step:
Many retirement budgets fail because they underestimate actual costs. Research shows retirees typically need 70-90% of their pre-retirement income, but this varies significantly.⁶ Washington State Considerations:
Calculate the difference between your guaranteed income and projected expenses. This gap must be filled by your personal retirement savings. The Math: Monthly expense goal: $3,780 Guaranteed income: $3,425 Monthly gap: $355 Annual gap: $4,260 Important considerations:
Healthcare represents the biggest wildcard in retirement budgeting. Washington State employees have advantages, but costs still rise significantly. Current Reality: The average 65-year-old couple will spend $300,000 on healthcare throughout retirement.⁷ However, as a Washington State employee, you can continue your health benefits with some employer contribution continuing. Strategic Approach:
Static budgets fail. Build in mechanisms for adjustment and regular review. Flexibility Strategies:
Take these specific steps within the next 30 days:
Sources and Resources
-Seth DealMy focus in this analysis will be specifically how this impacts public employees. There are certainly additional provisions that I will not cover here. Here's what you need to know about the One Big Beautiful Bill as a public employee in Washington: What is the One Big Beautiful Bill Act? The One Big Beautiful Bill Act is simply a massive tax and spending law that "reduces taxes, reduces or increases spending for various federal programs, increases the statutory debt limit, and otherwise addresses agencies and programs throughout the federal government"¹. Think of it as one giant piece of legislation that includes hundreds of different tax changes and spending decisions all rolled into one package. For public safety workers and government employees, there are several key tax changes that could put significant money back in your pocket. The tax changes that may affect you directly Your current tax rates are now permanent - The bill makes permanent the individual tax rates you've been using: 10%, 12%, 22%, 24%, 32%, 35%, and 37%¹. These were going to expire at the end of 2025, but now they're here to stay. Standard deduction gets bigger - The bill permanently keeps the doubled standard deduction and adds even more to it through 2028¹. What this means: the standard deduction will be $15,750 for a single filer, $23,625 for a head of household, and $31,500 for married individuals filing jointly this year. Child tax credit increases - The bill bumps up the child tax credit to $2,200 per child¹. That's $200 more per child than the current $2,000 credit. No tax on overtime pay - This is huge for public safety workers. The bill provides an above the line deduction of up to $12,500 for overtime compensation ($25,000 for married couples filing jointly)². The deduction phases out for workers making over $150,000 ($300,000 for couples). How? Only the "premium" portion of overtime qualifies for the deduction. This means if you make $20 per hour and work 50 hours, getting paid $30 per hour for the 10 overtime hours, only the extra $10 per hour (the premium above your regular rate) qualifies for the deduction. State and Local Tax deduction limitation (SALT cap) - The SALT cap increases to $40,000 for those filing jointly. This exists until you cross $500,000 of income then it starts to phase out. HSAs - HSAs will be available for more plans now. Dependent Care FSA - The $5,000 limit will be increased. Starting in 2026, you will be able to contribute $7,500 if married filing jointly. Charitable Deductions - In the bill, there is a new $2,000 above the line charitable deduction for those who are married filing jointly ($1,000 single). In addition there is a new 0.5% AGI floor on itemized deductions for charity. Car Loan Interest Deduction - You can now deduct up to $10,000 of interest paid, even if you do not itemize. But this starts to phase out at $200,000 (MFJ) and fully phases out at $250,000 (MFJ). The car must be assembled in America. Estate and gift tax benefits - The bill increases the estate tax exemption to $15 million per person¹. For most public safety workers and government employees, this won't directly impact you, but it's good to know if you're doing well financially or have family planning considerations. Individual trust accounts - This bill created a new tax advantaged account for those under 18. It can be used for education, small business investments, or a first home purchase once the account beneficiary reaches certain ages. You can contribute up to $5,000 and it comes with a $1,000 contribution from the government for children born between 12/31/24 and 1/1/29. Senior bonus deduction - For those 65 and older, the bill provides an additional $6,000 deduction per year through 2028. This phases out for higher income taxpayers. 529 Plans – Increases distribution limit from $10,000 to $20,000 and expands qualified distributions to allow for expenses related to attendance at elementary or secondary school to be paid for from a 529. What you should do now Check your tax withholdings - With these permanent tax changes, you might want to review your federal tax withholdings to make sure you're not overpaying or underpaying throughout the year. Calculate your property tax benefits - If you're a homeowner, figure out whether the increased property tax deduction could benefit you. This is especially important if your property taxes are over $10,000 per year. Plan for family benefits - If you have children, factor in the increased child tax credit when planning your family budget. An extra $200 per child per year is still meaningful for your budget. Update your retirement planning - Factor in the potential Social Security tax changes when updating your retirement income projections. This could be a meaningful boost to your retirement security. Sources:
-Seth DealYou love your children unconditionally. From sleepless nights with a newborn to watching them take their first steps, you've sacrificed for them their entire lives. Now they're struggling in an economy that feels stacked against them. Every parent's instinct is to help—but what happens when helping them hurts your retirement security? Recent studies reveal a sobering reality: 50% of parents now provide regular financial assistance to adult children, averaging nearly $1,500 monthly.¹ More alarming, 61% of parents sacrifice their own emergency savings to help their kids.² For Washington State public employees approaching retirement, this trend threatens decades of careful DRS planning. The truth is hard but necessary: You cannot pour from an empty cup. As a parent, I understand the deep desire to shield our children from struggle. When I watched my 18-month-old daughter take her wobbly first steps, I wanted to catch her every time she fell. But I know she needed to learn balance on her own. The same principle applies to adult children and financial independence. Compromising your retirement security often shifts an even heavier burden to your children later. Core Principles: Your Financial Oxygen Mask 1. Your Retirement Cannot Be Borrowed Unlike college expenses or homes, you cannot get a loan for retirement. Your DRS pension calculation is final once you retire—there are no do-overs.³ 2. Financial Independence Is the Greatest Gift Just as we teach toddlers to walk by letting them fall and get back up, adult children need to experience financial challenges to develop resilience. Enabling dependency robs your children of the confidence and skills they need to thrive. True support means helping them build their own wings. 3. Emergency Boundaries Are Sacred 69% of Generation X parents sacrifice their emergency savings to help adult children.⁴ This creates a house of cards that benefits no one when it falls. 4. Clear Expectations Prevent Resentment Open-ended financial support breeds anxiety for parents and entitlement in children. Boundaries protect relationships and finances. 5. Washington State Advantages Matter With no state income tax and strong DRS benefits, you have unique retirement advantages—protect them.⁵ Your 3-Step Financial Oxygen Mask Strategy Step 1: Secure Your Own Foundation First Before helping anyone, ensure your retirement is on track. Use DRS benefit estimators to confirm your pension will cover basic expenses. If it won't, every dollar you give away delays your financial security. Your Foundation Checklist:
Step 2: Create Bounded Support Systems Help strategically, not emotionally. Create a separate "family support fund" with clear limits that never touch retirement savings. Smart Support Boundaries:
The goal isn't perpetual support—it's launching independent adults. Focus on building their capacity, not solving their problems. Independence-Building Support:
The Partnership Model Instead of giving money, create win-win arrangements. Adult children living at home pay reasonable rent covering increased costs. They save money while you protect your budget. The Emergency-Only Safety Net Provide help only during genuine crises—job loss, medical emergencies, or unexpected major expenses. This teaches resilience while offering security. The Investment Approach Support purchases that build their future: education, professional development, or down payment assistance for appreciating assets. Avoid funding consumption. Hard Truths About Retirement and Family Support You are not responsible for your adult children's lifestyle choices. You raised them, loved them through skinned knees and teenage heartbreaks, educated them, and launched them. Their struggles, while painful to watch, are theirs to overcome. Just as you wouldn't carry your toddler everywhere to prevent them from falling, you shouldn't carry your adult children financially to prevent them from learning. Sacrificing your retirement security helps no one long-term. When you run out of money in retirement, your children will face caring for you financially—a burden that could crush their own financial futures. Financial boundaries strengthen relationships. Children who learn to solve their own problems develop confidence and respect for themselves and their parents. Your peace of mind matters. Nearly 80% of parents supporting adult children worry about their retirement security.1 This stress affects your health, relationships, and quality of life. Supporting your children and securing your retirement aren't mutually exclusive—but they require intentional balance. Your retirement security is not selfish; it's responsible parenting that extends into their adulthood. When you model financial discipline and independence, you teach your children the most valuable lesson of all: how to take care of themselves. As I plan for my young daughter's future, I'm reminded that the greatest gift I can give her isn't a trust fund or endless financial support—it's the knowledge that she's capable, resilient, and strong enough to build her own successful life. The same applies to your adult children. The greatest gift you can give your children is not financial dependence on you, but the confidence that comes from knowing they can thrive on their own. Put your oxygen mask on first—then help them put on theirs. Sources and Resources -Seth Deal |
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
November 2025
Categories |
