Imagine this: After decades of serving your community, you're finally ready to retire. You've got plans – maybe travel, spend time with grandkids, or pursue a new hobby. But there's a ticking time bomb in your retirement plan that could blow it all up.

The Shocking Truth About Retirement Healthcare Costs
Hold onto your hat, because this might knock you off your feet: An average 65-year-old retiring in 2024 will need a whopping $165,000 just for healthcare costs1. That's not a typo – $165,000!
For Washington's public servants, this isn't just a number. It's a potential catastrophe waiting to happen.

Why Your Pension Benefits Might Not Be Enough (And What You Can Do About It)
You've worked hard. You've paid your dues. You've got your pension benefits. But here's the cold, hard truth: It might not be enough.
Here's what you need to know:

1. Medicare is Just the Beginning: Sure, you'll have Medicare at 65. But it's not the cure-all you might think. There are gaps – big ones.
2. PEBB is Good, But...: The Public Employees Benefits Board (PEBB) Program offers retiree health insurance2. It's a great start, but it's not the whole picture.
3. Long-Term Care Could Wipe You Out: In Washington, a private room in a nursing home averages $164,250 per year3. Let that sink in.
4. Inflation is the Silent Killer: Healthcare costs are rising about 5% every year4. Your retirement savings need to keep up.

The Hidden Gaps in Your State Benefits
As a Washington State employee, you have access to benefits that many others don't. But are they enough?

• Pension: Yes, it's a solid foundation. But have you factored in the rising costs of healthcare?
• Deferred Compensation Program (DCP): A great way to save extra, but are you maximizing it?
• PEBB Coverage: Valuable, but premiums can be substantial, especially if you retire before 65.

The bottom line? Your state benefits are valuable, but they're not a silver bullet for retirement healthcare costs.

5 Urgent Steps Every Washington Public Servant Must Take Now

1. Maximize Your HSA: If eligible, this triple-tax-advantaged account is your secret weapon5.
2. Consider Long-Term Care Insurance: The younger you are, the cheaper it is; however, it may not be enough. Also, consider “self-insuring” by allocating a portion of savings to long-term care.
3. Supercharge Your Deferred Comp: Your DCP could be the key to bridging the healthcare cost gap. Here's why:
   • Tax-deferred growth: Your money grows faster when Uncle Sam isn't taking a bite each year.
   • Higher contribution limits: In 2024, you can stash away up to $23,000 (or $30,500 if you're 50 or older)6.
   • Flexible withdrawals: Unlike other retirement accounts, there's no penalty for withdrawals before age 59½ if you've left your job. Withdrawals are still subject to income tax!
   • Diverse investment options: Tailor your portfolio to your risk tolerance and timeline.
4. Explore All PEBB Options: Including Medicare Advantage plans.
5. Stay Healthy: It sounds simple, but it's your best defense against spiraling healthcare costs.

Don't Let Your Retirement Dreams Fade Away
You've spent your career serving others. Now it's time to secure your own future.

Download Your Free Comprehensive DCP Guide Now
Every day you delay savings could impact your retirement readiness. Our in-depth Deferred Compensation Program (DCP) Guide is your roadmap to maximizing this powerful retirement savings tool. Here's what you'll discover:

• A clear explanation of DCP fundamentals, from enrollment to investment options
• Strategies for choosing between pre-tax and Roth contributions
• Insights on maximizing your contributions and optimizing investment choices
• Case studies of early career savers, mid-career optimizers, and near-retirees
• Expert tips on accessing your funds and planning for retirement
• Answers to common misconceptions and frequently asked questions

Download Your Free DCP Guide

​Remember, understanding your DCP is crucial for a secure retirement. Whether you're just starting your public service career or nearing retirement, this guide offers valuable insights for every stage. Don't leave your financial future to chance. Download the guide now and take the first step towards a more secure retirement!
Footnotes

1. Fidelity Investments. (2024). "How to plan for rising health care costs." https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs ↩
2. Washington State Health Care Authority. (2024). "Retiree insurance." https://www.hca.wa.gov/employee-retiree-benefits/retirees ↩
3. Genworth. (2024). "Cost of Care Survey." https://www.genworth.com/aging-and-you/finances/cost-of-care.html ↩
4. HealthView Services. (2022). "2022 Retirement Healthcare Costs Data Report." https://hvsfinancial.com/wp-content/uploads/2022/03/HVS-Data-Report-Brief-0312222.pdf ↩
5. Internal Revenue Service. (2024). "Health Savings Accounts and Other Tax-Favored Health Plans." https://www.irs.gov/publications/p969 ↩
6. Washington State Department of Retirement Systems. (2024). "Deferred Compensation Program (DCP)." https://www.drs.wa.gov/dcp/ ↩

 

It's 5:30 PM on a Wednesday. You've just wrapped up another long day of work. As you sit in rush hour traffic on I-5, your mind wanders to thoughts of retirement. The tranquility of Puget Sound, weekends free from email notifications, maybe even that trip to Olympic National Park you've been postponing for years. It sounds perfect, doesn't it?

But then reality sets in. How many years will that retirement last? Will your pension and savings be enough to turn those daydreams into reality? And for how long?

As a former city employee and a member of the Washington State Department of Retirement Systems (DRS), I've wrestled with these questions myself. The truth is, many dedicated public servants might need to think bigger when it comes to retirement savings goals. Let's explore why planning for longevity is crucial and how you can prepare for a longer, more comfortable retirement.

Living Longer Than Ever
Americans are living longer than ever before. If you reach age 65, you have a good chance of living into your 80s or beyond. According to the Social Security Administration, a 65-year-old today can expect to live, on average, until age 84 for men and 86 for women 1. And those are just averages - many people live well into their 90s or even past 100.

Why You Might Need More Than You Think

1. Healthcare Costs: As we age, healthcare expenses tend to increase. Fidelity estimates that an average retired couple age 65 in 2024 may need about $330,000 saved (after tax) to cover health care expenses in retirement 2.
2. Inflation: Even with a modest 2% annual inflation rate, the cost of goods and services could double over a 30-year retirement. Your savings need to keep pace with rising prices.
3. Lifestyle Changes: You might want to travel more, pursue new hobbies, or help your grandkids with college. These can all increase your expenses in retirement.

Your Washington State Pension: A Good Start, But Is It Enough?
If you're part of the Washington State Department of Retirement Systems, you have a valuable benefit in your pension. These pensions are inflation-adjusted, which helps protect your purchasing power over time. However, your pension alone may not be enough to maintain your desired lifestyle throughout a long retirement.

Strategies to Boost Your Retirement Savings

1. Maximize Your 457(b) Contributions: If your employer offers a 457(b) plan, try to contribute the maximum allowed. In 2024, you can contribute up to $23,000, with an additional $7,500 in catch-up contributions if you're 50 or older 3.
2. Consider Roth Options: If available, Roth contributions to your 457(b) or a Roth IRA can provide tax-free income in retirement, which can be especially valuable if tax rates increase in the future.
3. Diversify Your Income Sources: Don't rely solely on your pension. Look into other investment options like IRAs, taxable brokerage accounts, or real estate to create multiple income streams in retirement.

Planning for Long-Term Care
Long-term care is a significant expense that many retirees overlook. About 70% of people turning age 65 will need some type of long-term care services in their lifetimes4. Consider long-term care insurance or setting aside funds specifically for this potential need.

Estimating Your Personal Life Expectancy
While averages are helpful, your personal life expectancy could be very different based on factors like:

• Family history
• Lifestyle habits (diet, exercise, smoking, etc.)
• Current health status

Online tools like the Social Security Administration's Life Expectancy Calculator can give you a rough estimate, but consider consulting with your doctor for a more personalized assessment 5.

The Psychology of Planning for a Long Retirement
It's natural to feel overwhelmed when thinking about funding a 30+ year retirement. But remember, planning ahead can give you peace of mind and control over your financial future. Break your planning into manageable steps and celebrate small victories along the way.

Wrapping Up
Planning for longevity is about more than just money - it's about ensuring you can enjoy a long, fulfilling retirement without financial stress. While your Washington State pension provides a solid foundation, it's crucial to build upon that base to create a comprehensive retirement plan.
Everyone's situation is unique, and retirement planning can be complex. Consider working with a financial advisor who understands the ins and outs of Washington State retirement systems. They can help you create a personalized plan that accounts for your specific needs, goals, and potential longevity.
Remember, it's never too early - or too late - to start planning for a longer retirement. Your future self will thank you for the effort you put in today.

​Footnotes

1. Social Security Administration. (2023). Retirement & Survivors Benefits: Life Expectancy Calculator. https://www.ssa.gov/OACT/population/longevity.html ↩
2. Fidelity. (2022). How to plan for rising health care costs. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs ↩
3. Internal Revenue Service. (2024). Retirement Topics - 457(b) Contribution Limits. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-457b-contribution-limits ↩
4. Administration for Community Living. (2020). How Much Care Will You Need? https://acl.gov/ltc/basic-needs/how-much-care-will-you-need ↩
5. Social Security Administration. (2023). Retirement & Survivors Benefits: Life Expectancy Calculator. https://www.ssa.gov/OACT/population/longevity.html ↩

 

Picture this: You've diligently saved for retirement for many years. Your 401(k) is growing, and you're on track for a comfortable future. Then, suddenly, life throws you a curveball. A major home repair. An unexpected medical bill. A temporary job loss. In that moment, the retirement nest egg you've carefully built becomes a tempting solution to your immediate problem.

This scenario isn't just a hypothetical – it's a reality faced by millions of Americans every year. As a financial advisor, I've seen firsthand how a lack of emergency savings can derail even the most carefully laid retirement plans.
Today, I want to challenge a common misconception: that a strong retirement plan is enough to secure your financial future. The truth is, without a robust emergency fund, your retirement savings are at constant risk. Let's explore why emergency savings aren't just important – they're critical to protecting your long-term financial health.

The Unexpected Challenges We Face
Let me share a personal story that drove this point home for me. Recently, one of my dogs fell seriously ill, requiring expensive veterinary care. As I sat in the vet's office, mentally calculating costs, I realized how quickly unexpected expenses can arise – and how devastating they can be without proper preparation.

Why Emergency Savings Matter, even with a Robust Retirement Plan
Many workers have access to retirement plans through their employers. However, this long-term security doesn't negate the need for short-term financial stability. Here's why emergency savings are crucial:

1. Protection for Your Retirement Accounts: Without an emergency fund, you might be forced to tap into your 401(k) or other retirement accounts early, potentially incurring taxes and penalties, not to mention losing the future growth on those withdrawals.
2. Flexibility During Career Transitions: Life can bring unexpected changes. An emergency fund provides flexibility if you need to change jobs or take time off.
3. Complementing Your Retirement Savings: Your retirement accounts are designed for long-term growth. Emergency savings help handle the unexpected without disrupting your long-term plan.
4. Peace of Mind: As a parent to a young daughter, I know the importance of financial security for family peace of mind.

Tailoring Your Emergency Fund to Your Life
Building an emergency fund should consider your unique circumstances. Here's how to tailor your emergency savings:

• Cost of Living Considerations: Emergency fund needs can vary greatly depending on where you live. Adjust your savings goal based on your local cost of living.
• Family Considerations: Factor in the needs of all your family members. This could include unexpected childcare expenses, school supplies, or activities for kids. As a parent of a young child, I know these costs can add up quickly.
• Seasonal Preparedness: Washington's diverse climate can bring unexpected expenses, from winter storm damage to summer wildfire preparedness. Consider these potential costs when building your emergency fund.

Strategies for Building Emergency Savings

1. Start Small: Start with a goal of $1,000, then work up to one month's expenses and gradually increase from there until you are comfortable you could endure an unforeseen major expense
2. Automate Your Savings: Set up automatic transfers from your paycheck to a dedicated emergency savings account.
3. Use a High-Yield Savings Account: Find accounts offering competitive interest rates to help your emergency fund grow faster.
4. Consider a Roth IRA: A Roth IRA can double as an emergency fund if eligible. Contributions can be withdrawn tax-free and penalty-free at any time1.
5. Reassess Regularly: Review your emergency fund annually or after significant life changes to ensure it remains adequate.

Balancing Emergency Savings with Retirement Benefits
Many workers are in a unique position when it comes to balancing emergency savings and retirement planning:

1. Retirement Plan Security: Your retirement plan provides long-term security, potentially allowing you to allocate more to emergency savings early on.
2. Understand Your Plan's Flexibility: Some retirement plans allow for loans or hardship withdrawals. While not ideal, these can serve as a backup emergency fund. Always understand the terms and potential consequences.
3. Maximize Employer Match: If your employer offers a match on retirement contributions, prioritize meeting that match before building extensive emergency savings.

The Impact of Emergency Savings on Retirement Readiness
Recent research highlights the importance of emergency savings:

• 17% of households facing a spending shock took a loan from their retirement plan
• 48% increased credit card debt
• 13% decreased retirement contributions3

These actions can significantly impact your retirement savings, reducing your nest egg by hundreds of thousands of dollars.

Taking Action: Your Next Steps

1. Assess Your Current Situation: Take stock of your savings and monthly expenses.
2. Set a Savings Goal: As a starting point, aim for 3-6 months of essential expenses.
3. Create a Savings Plan: Determine how much you can set aside each month and automate the process.
4. Educate Yourself: Take advantage of financial wellness programs offered by your employer or seek out reputable financial education resources.
5. Consult a Professional: Consider speaking with a financial advisor who can help you create a personalized strategy that balances your short-term and long-term financial needs.

​Let's Continue the Conversation
Financial stability is crucial for everyone, regardless of their profession. It allows us to focus on our work and personal lives without undue stress from financial worries.
What strategies have you found effective for building emergency savings while balancing other financial priorities? Have you faced any unique challenges in your industry?
Remember, we're all in this together. By sharing our knowledge and experiences, we can build a more financially secure future.
 
Footnotes

1. Internal Revenue Service. (2024). Roth IRAs. https://www.irs.gov/retirement-plans/roth-iras ↩
2. Internal Revenue Service. (2024). IRC 457(b) Deferred Compensation Plans. https://www.irs.gov/retirement-plans/irc-457b-deferred-compensation-plans ↩
3. J.P. Morgan Asset Management. (2024). 2024 Guide to Retirement. ↩ ↩2 ↩3

 

As a financial advisor, I've seen firsthand the unique retirement planning challenges individuals from all walks of life face. Picture this: You're out on a serene fishing trip, pondering whether you have the right lure, where the wind is coming from, and whether I am in the right fishing hole. At the same time, you are pondering your financial future as well. Your savings plan seems reliable, but is it enough to weather life's storms?
As I've learned to adapt my fishing techniques to changing conditions, we must adapt our retirement strategies to ensure financial security. Let's dive into why tax diversification matters and how to implement it effectively for a more secure retirement.
The Hidden Currents of Retirement Income
Your primary retirement savings, whether a 401(k), IRA, or other retirement account, is like a strong, consistent current in your retirement river. It provides a foundation for your retirement plan. However, relying solely on one type of account can leave you vulnerable to unexpected financial challenges.
Tax diversification involves creating multiple retirement income streams, each with different tax treatments. This strategy provides:

1. Flexibility: Choose the most tax-efficient income source based on your yearly needs.
2. Futureproofing: Hedge against potential changes in tax laws.
3. Tax bracket management: Strategically withdraw from different accounts to stay in a lower tax bracket.

Mapping Your Retirement Streams
Let's explore the main types of retirement income sources available:

1. Traditional Accounts (401(k), IRA)
   • Tax-deductible contributions
   • Tax-deferred growth
   • Taxable withdrawals
   • Required Minimum Distributions (RMDs) currently starting at age 73
2. Roth Accounts (Roth 401(k), Roth IRA)
   • After-tax contributions
   • Tax-free growth
   • Tax-free qualified withdrawals
   • No RMDs
3. Taxable Accounts
   • After-tax contributions
   • Taxable dividends, interest, and capital gains
   • Preferential tax rates on long-term capital gains
   • No RMDs

Charting Your Course: Tax Diversification Strategies

1. Understand Your Current Retirement Savings: Assess your existing accounts and their tax implications to identify areas for diversification.
2. Leverage Roth Accounts: Roth contributions become especially valuable, providing tax-free income in retirement.
3. Maximize Tax-Advantaged Accounts: Take full advantage of employer-sponsored plans (and their potential matching contributions) and IRAs, considering both traditional and Roth options.
4. Consider Roth Conversions: In lower-income years, convert some traditional funds to Roth accounts to manage future tax brackets.
5. Explore the Backdoor Roth IRA: If your income is too high for direct Roth IRA contributions, consider this strategy for additional tax-free growth potential.
6. Use Taxable Accounts Strategically: For funds you may need before retirement or for investments that benefit from preferential long-term capital gains rates.
7. Adapt to Your Career Stage: Early-career individuals might benefit more from Roth accounts when they are in a lower tax bracket. Then in mid or later career you might be in a higher tax bracket and need the tax benefits of pre-tax contributions.
8. Plan for RMDs: Remember that your required minimum distributions (currently required at age 73) will impact your tax situation. Plan Roth conversions or other strategies to manage RMDs from traditional accounts.

Debunking Common Misconceptions

1. Myth: "My current retirement plan will cover all my needs." Reality: While valuable, your current plan may not account for all expenses, especially as costs rise over time.
2. Myth: "I can't contribute to a Roth IRA if I have a 401(k)." Reality: 401(k) participation doesn't disqualify you from Roth IRA contributions, though income limits may apply and even then, a “backdoor ROTH” may be an option
3. Myth: "Tax diversification isn't necessary with a good retirement plan." Reality: Tax diversification is crucial for managing your overall tax burden and providing financial flexibility in retirement.

Take Action: Your Next Steps

1. Review your current retirement savings mix.
2. Evaluate your retirement projections and identify potential gaps.
3. Consider increasing contributions to Roth accounts or initiating Roth conversions.
4. Consult with a financial advisor to create a personalized tax diversification strategy.

A Personal Note
As I balance spending time with my wife, caring for our young daughter, managing a household with pets, and planning for my future, I'm reminded daily of the importance of financial flexibility. Just as I adapt my plans for a family hike based on weather conditions, your retirement strategy should be adaptable to life's changes.
Tax diversification isn't just about minimizing taxes; it's about creating options for your future self. It's about ensuring that when you're ready to hang up your work boots and pick up your fishing rod full-time, you have the financial freedom to do so without worry.
Remember, the key to a successful retirement is not just saving but saving strategically. By diversifying your tax strategies now, you're setting yourself up for a more flexible and potentially more comfortable retirement later.
Footnotes

1. Internal Revenue Service. (2024). Retirement Topics - Required Minimum Distributions (RMDs). https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds ↩
2. Kitces, M. (2023). The Backdoor Roth IRA Contribution: A Step-By-Step Guide. Kitces.com. https://www.kitces.com/blog/backdoor-roth-ira-contribution-strategy-tax-efficient-retirement-account/ ↩