Hidden Social Security Cuts: What Washington State Public Employees Must Know About WEP and GPO11/28/2024 Did you know that over 140 different agencies in Washington State don't participate in Social Security(1)? If you're one of these public employees, you could face a shocking surprise in retirement: your Social Security benefits might be slashed by up to $587 per month in 2024 – even if your Social Security statement shows a higher amount(2). For many public servants, this hidden reduction could mean thousands of dollars in lost retirement income each year. Current Event Alert! As of the writing of this, the U.S. House of Representatives has voted with a bipartisan majority to pass the Social Security Fairness Act which would repeal WEP and GPO. The Senate still has to vote on this Act and it must also be signed into law by the President. Why Some Washington State Employees Don't Pay Into Social Security The story begins in the 1930s. When Social Security was created, many state and local governments already had pension plans for their employees. To get the Social Security Act passed, Congress allowed government agencies to opt out of the program if they maintained their own retirement plans(3). Today in Washington State:
Police Officers and Firefighters If you're in LEOFF (Law Enforcement Officers' and Fire Fighters' Retirement System):
PERS (Public Employees' Retirement System) members:
1. Windfall Elimination Provision (WEP) This provision affects your own Social Security benefits if you receive a pension from work not covered by Social Security(5). Here's how it works: The Social Security Administration applies three tests to determine your reduction:
Real-World WEP Examples: Example: James has been in the fire service for 25 years and worked various side jobs. His Social Security statement shows $1,000 monthly, but WEP reduces it to $5005. 2. Government Pension Offset (GPO) This provision affects Social Security benefits you might receive as a spouse or widow(er)(7). It's straightforward but severe:
Scenario - Full Offset: A retired firefighter receiving a $3,000 monthly pension would have their $2,000 survivor benefit completely eliminated ($3,000 × 2/3 = $2,000 reduction)(7). Legislative Updates and Reform Efforts Recent developments you should know about:
Early Career (1-10 Years)
Understanding how WEP and GPO affect your retirement requires deep knowledge of both Social Security and Washington State pension systems. As a financial advisor specializing in public employee benefits, I've seen how proper planning can help protect your retirement from these hidden benefit reductions. Sources:
-Seth Deal
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Navigating the Public Employees Benefits Board (PEBB) Program: Healthcare Options for WA Retirees11/21/2024 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:
If you're not yet eligible for Medicare, PEBB offers:
PEBB offers dental coverage that is separate from medical plans. You have three options:
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:
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:
What if you have other coverage options when you retire? PEBB allows you to defer (postpone) your retiree insurance. Common Deferral Reasons:
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:
Healthcare needs and plan offerings can change. During open enrollment each fall:
Most PEBB plans offer free preventive care services. Take advantage of:
4. Understand Your Prescription Coverage If you take regular medications:
Many PEBB plans offer extra perks like:
6. Consider Your Spouse's Coverage If your spouse is still working or has other coverage options:
While PEBB doesn't offer long-term care insurance, consider how you'll cover these potential costs:
Life doesn't stop when you retire. Here's how to handle some common life changes with PEBB:
Ready to make the most of your PEBB retiree benefits? Here's your action plan:
Here's to a healthy and secure retirement! -Seth DealPicture 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:
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:
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. -Seth DealThe Shocking Truth About Long-Term Care: What Washington Public Employees Need to Know Now11/7/2024 Picture this: After decades of serving the public in Washington state, you're enjoying a well-deserved retirement. Your pension checks are steady, and life is good. Then, the unexpected happens – you need help with daily activities like bathing or getting dressed. Suddenly, your comfortable retirement savings start draining away at $8,000 per month for in-home care. Scary? Yes. But here's the good news: You can prevent this nightmare scenario with smart planning today. The Hidden Threat to Your Retirement Dreams Here's a truth that many don't realize: Your pension alone won't protect you from one of retirement's biggest expenses – long-term care. Consider these eye-opening facts:
Why Your Pension Isn't Enough (And What to Do About It) As a Washington state employee, you've got a solid pension coming. That's great! But here's what they don't tell you: Your PERS or LEOFF pension wasn't designed to handle long-term care costs. Even with careful saving, one extended health crisis could wipe out decades of retirement planning. The Real Cost of Care in Washington Let's break down what long-term care actually costs in our state:
Your Protection Options: More Than Just WA Cares You've probably heard about the WA Cares Fund. Starting July 2023, you're paying 0.58% of your salary into this program. For someone earning $60,000, that's $348 per year. But here's what you really need to know: The maximum benefit is just $36,500 (though it will increase with inflation). That would cover about three months in a nursing home at today's rates. Beyond WA Cares: Your Protection Options
To qualify for WA Cares benefits, you must meet specific criteria:
As a public employee, you have unique advantages and challenges:
The long-term care landscape in Washington is evolving and a WA Cares Fund initiative is currently being voted on. Making the Most of Your Options Remember these key strategies to maximize your long-term care protection:
Don't let long-term care costs derail your retirement dreams. Here's what to do this week:
-Seth Deal |
AuthorsBob Deal is a CPA with over 30 years of experience and been a financial planner for 25 years. Archives
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