As a former city employee, I understand the unique challenges of planning for retirement in public service. These to-dos will help you navigate the crucial final two years before retirement.
 
For State and Local government employees approaching retirement, particularly those in the Department of Retirement Systems (DRS), the final two years are crucial for ensuring a smooth transition. Having worked with cities, fire districts, and other municipalities, I've seen how proper planning can make all the difference.
 
Remember: This should be customized to your specific situation and employer requirements! It may not include everything that you need to consider for your unique situation.
 
24-22 Months Before Retirement
 
Month 24

• Create a comprehensive retirement budget, separating essential needs from discretionary spending.
• Consider using a retirement lifestyle calculator to help you create your retirement budget. [3]
• Calculate your expected monthly retirement income from all DRS sources.
• Review your debt situation and create a plan to eliminate high-interest debt.

 
Month 23

• Begin exploring healthcare options and costs post-retirement.
• Start tracking monthly expenses to validate your retirement budget.
• Research Washington State-specific healthcare considerations.

 
Month 22

• Review and update all insurance policies.
• Begin researching Medicare options if you'll be 65 at retirement.
• Consider long-term care insurance needs.

 
21-19 Months Before Retirement
 
Month 21

• Evaluate your investment portfolio's risk level.
• Consider consolidating retirement accounts for easier management.
• Review your emergency fund status.

 
Month 20

• Analyze Social Security claiming strategies.
• Meet with a financial advisor familiar with Washington State DRS plans.
• Review DRS pension options.

 
Month 19

• Start researching tax implications of retirement withdrawals.
• Review pension benefit options.
• Consider downsizing needs and housing plans.

 
18-16 Months Before Retirement
 
Month 18

• Maximize contributions to retirement accounts.
• Review beneficiary designations on all accounts.
• Create a retirement income withdrawal strategy.

 
Month 17

• Evaluate whether to pay off your mortgage.
• Research health savings account options.
• Begin planning post-retirement activities and lifestyle.

 
Month 16

• Review estate planning documents.
• Calculate expected healthcare costs.
• Consider part-time work options if desired.

 
15-13 Months Before Retirement
 
Month 15

• Test-drive your retirement budget.
• Review and update your will and other estate planning documents.
• Research required minimum distributions (RMDs).

 
Month 14

• Check Social Security earnings record.
• Review life insurance needs.
• Begin transitioning to more conservative investments if needed.

 
Month 13

• Schedule Washington State DRS retirement planning seminar. [2]
• Create a retirement filing system.
• Review credit reports and scores.

 
12-6 Months Before Retirement
 
Month 12

• Begin Medicare enrollment process if applicable – You can start applying for Medicare 3 months before your 65th birthday, and the initial enrollment period extends three months’ pay your birthday. [4] Do NOT miss this sign-up window – doing so could be very costly.
• Review DRS pension survivor benefit options.

 
Month 9

• Schedule meetings with HR about retirement procedures. This may need to take place sooner, depending on your organization’s policies.
• Review unused vacation and sick leave policies.
• Begin organizing important documents.

 
Month 6

• Request an official benefit estimate from DRS. [1]
• Submit retirement paperwork to employer.
• Finalize healthcare coverage plans.
• Review required tax withholdings.

 
Final 5 Months
 
Month 5

• Set up new bank accounts if needed.
• Review automatic bill payments.
• Begin transitioning work responsibilities.

 
Month 3

• Complete a DRS retirement application at least 5 weeks before your intended retirement date.
• Confirm all retirement paperwork is processed.
• Review and adjust tax withholding strategies.

 
Month 1

• Complete COBRA or healthcare enrollment.
• Set up direct deposits for pension and other income.
• Create a schedule for your first month of retirement.

 
Important Considerations for Washington State Employees

• Factor in regional cost-of-living differences.
• Consider healthcare availability and costs in your chosen retirement location.
• Review Washington State-specific tax implications.
• Understand your specific DRS plan details and options.

 
Next Steps
 
Working with a financial advisor who understands Washington State retirement systems can help ensure you haven't overlooked any critical steps in your countdown to retirement.
 
Sources
 
[1] https://www.drs.wa.gov/life/retire/
 
[2] https://www.drs.wa.gov/life/retire/seminar/
 
[3] https://calculators.everfi.net/index.html#/lifestyle?nodeId=5836&accu=DRSWR&isChild=true
 
[4] https://www.insurance.wa.gov/when-can-i-sign-medicare
​

Did you know that choosing the wrong time to take Social Security could cost you thousands? As a Washington State employee, you have a unique advantage – your PERS, LEOFF, TRS, or SERS pension gives you more flexibility in this crucial decision than most Americans have.
Let me share a quick story. Recently I met with a prospective client, a long-time PERS 2 member working at the Department of Ecology. She was planning to take Social Security at 62, the earliest possible age. After we looked at her numbers together, she realized waiting until 70 would give her an extra $1,000 every month for life [2]. That's an extra $12,000 per year – money that could fund her grandkids' college funds or those dream vacations she'd been putting off.
As your fellow Washingtonian and financial advisor specializing in DRS retirement planning, I'm here to help you make this critical decision. Let's break down everything you need to know about Social Security timing.
Why Your DRS Pension Changes Everything
Here's what makes your situation special: Unlike most Americans, you have a guaranteed pension. This pension can be your bridge to larger Social Security payments later. Many of my DRS clients use their pension to delay Social Security, letting those benefits grow by 8% each year after full retirement age [2].
Think of it this way: Your pension is like having a reliable Toyota that gets you where you need to go, while Social Security can be your luxury car upgrade.
Your Three Main Options (With Real Numbers)
Let's look at what this means in dollars and cents. Say your full retirement age benefit would be $2,000 monthly. Here's how the numbers shake out [2]:

1. Early Bird (Age 62)
   • You'll get $1,400 monthly (30% reduction)
   • That's a permanent lifetime reduction
   • But you'll get payments for a longer time
2. Full Retirement Age (66-67, depending on birth year) [1]
   • You'll receive your full $2,000 monthly
   • No reduction in benefits
   • Works well with most DRS pension plans
3. Maximum Benefit (Age 70)
   • You'll get $2,480 monthly
   • That's a 24% increase over full retirement age [2]
   • Perfect complement to your DRS pension

The DRS Pension + Social Security Sweet Spot
Here's a strategy I often recommend to my Washington State clients: Use your DRS pension as your primary income source while letting your Social Security grow. Many of my clients find they can live comfortably on their pension plus some savings, allowing their Social Security to increase by that valuable 8% per year [2].
Healthcare Timing Matters Too
Here's something many advisors miss: While you can start Social Security at 62, Medicare doesn't kick in until 65 [2]. As a state employee, you have access to PEBB benefits after retirement, which could influence your timing decision. We need to factor in your healthcare coverage when planning your Social Security start date [3]. Health care expenses in retirement are one of the largest expenses that you will face in retirement.
Will Social Security Be There for You?
I hear this concern frequently. Recent surveys show that 72% of adults worry about the system running out of funding in their lifetime [4]. Here's the truth: Even in the worst-case scenario, if absolutely nothing is done to fix the system, Social Security would still pay about 79% of promised benefits [5]. Plus, as a state employee with a pension, you're better protected than most Americans against any potential changes.
Making Your Best Choice
Here's your action plan:

1. Calculate your monthly expenses in retirement
2. Add up your guaranteed income (pension + Social Security at different ages)
3. Consider your health and family history
4. Think about your spouse's benefits
5. Factor in your other savings and investments

The Bottom Line for Washington State Employees
Your DRS pension gives you options that most Americans don't have. Use this advantage! Don't just follow what your coworkers are doing – your situation is unique.
Remember my prospective client from the beginning? She decided to use her PERS pension as her bridge to age 70, maximizing her Social Security benefit.
Want to know exactly what this means for your situation? Let's talk about your specific numbers and create a plan that maximizes both your pension and Social Security benefits.
Sources:
 
[1] https://www.ssa.gov/benefits/retirement/planner/agereduction.html
[2] https://www.fidelity.com/viewpoints/retirement/social-security-at-62
[3] https://www.ssa.gov/pubs/EN-05-10147.pdf
[4] https://news.nationwide.com/adults-believe-social-security-system-needs-to-change/
[5] https://www.gao.gov/blog/there-are-options-reforming-social-security-action-needed-now

As a former city employee turned financial advisor, I've seen firsthand how healthcare costs can catch retirees off guard. I’ve learned that successful retirement planning requires a deep understanding of healthcare costs and coverage options. Don’t let your retirement be derailed by unexpected medical expenses.
The Reality of Healthcare Costs in Retirement
Recent data shows that a 65-year-old retiring today should expect to spend approximately $165,000 in healthcare costs throughout retirement [8]. This figure can be particularly concerning for Washington State public employees transitioning from active service to retirement.
The Washington State Advantage
One unique aspect of being a Washington State public employee is access to the Public Employee Benefits Board (PEBB) program. While private sector employees often face uncertainty about post-retirement healthcare options, Washington public servants have a structured system designed to provide continued coverage. However, understanding how to maximize these benefits requires careful planning and consideration.
Understanding Your PEBB Benefits: The Foundation of Your Healthcare Security
Eligibility Requirements
To qualify for Public Employees Benefits Board (PEBB) retiree coverage, you must:

• Submit your enrollment within 60 days of your retirement
• Be vested in a Washington state-sponsored retirement plan
• Ensure continuous coverage during the transition period

Planning Your Coverage Timeline
The transition from active employment to retirement requires careful timing. I recommend starting your planning process at least 12 months before your intended retirement date. This gives you ample time to:

• Review all available health plan options
• Calculate coverage costs for you and any dependents
• Understand how your benefits coordinate with Medicare
• Prepare for potential coverage gaps

2025 Coverage Options and Costs
The cost often takes soon to be retirees off guard. Let’s spend some time going over the 2025 healthcare plan options. If you’re going to retire in 2026, the costs will likely be higher than this.
Non-Medicare Coverage
Single subscriber monthly premiums for popular plans:

• Kaiser Permanente WA Classic: $893.00
• UMP Classic: $898.12
• UMP Select: $847.52 [1]

Understanding these base premiums is just the starting point. Your actual costs will depend on various factors, including:

• Whether you cover dependents
• Your choice of dental and vision coverage
• Any applicable surcharges
• Your expected healthcare utilization

Additional Considerations

• Tobacco use surcharge: $25 per account
• Spouse coverage surcharge: $50 if applicable [1]
• Optional life insurance premiums
• Prescription drug coverage considerations

Dental Coverage Options
Monthly premiums for 2025:

• DeltaCare: $41.50
• Uniform Dental Plan: $52.23 [1]

Making Strategic Coverage Decisions
When selecting your coverage, consider:

• Your current health status and family medical history
• Prescription medication needs
• Preferred healthcare providers and facilities
• Geographic access to medical care
• Future travel plans that might affect coverage needs

Medicare Coordination: A Critical Transition
When you reach 65, your coverage structure undergoes significant changes:

• You must enroll in Medicare Parts A and B
• PEBB becomes secondary to Medicare
• Monthly premiums are reduced by a state-funded contribution of up to $183 or 50% of the plan rate per retiree per month [1]

Medicare Enrollment Timeline
Missing Medicare enrollment deadlines can result in permanent penalties. Key dates to remember:

• Initial enrollment period begins 3 months before your 65th birthday and extends for 3 months after your birthday month.
• Special enrollment period exceptions for active employees
• Coordination with PEBB coverage transitions

Long-Term Care Planning: The WA Cares Fund
Washington State has implemented WA Cares, providing qualifying residents with up to $36,500 (adjusted for inflation) for long-term care costs, funded by a 0.58% payroll tax [5]. This program can be a supplement to your retirement healthcare planning. However, this is just a fraction of long-term care costs, additional planning must be done to ensure you’re covered if you need long-term care.
Supplemental Long-Term Care Considerations
Consider whether you need additional long-term care coverage based on:

• Family health history
• Personal risk factors
• Desired level of care
• Geographic location of potential care facilities

Check out the Genworth Cost of Care Calculator to help you estimate costs.
Beyond Basic Coverage: Emergency Planning
Having seen the impact of unexpected medical expenses – I cannot stress enough the importance of building an emergency medical fund. While PEBB provides excellent coverage, having additional savings can provide peace of mind and financial flexibility.
Building Your Healthcare Emergency Fund
Consider setting aside funds for:

• Out-of-pocket maximums
• Non-covered medical expenses
• Dental and vision care
• Potential long-term care needs
• Medical equipment and home modifications

Generally speaking, in retirement, I encourage retirees to save 10% of their retirement income for emergencies.
Action Steps for a Secure Healthcare Future

1. Schedule a PEBB consultation at least six months before retirement
2. Calculate your expected monthly healthcare premiums using 2025 rates
3. Review your pension and other retirement income sources
4. Build an emergency medical fund
5. Create a bridge strategy if retiring before Medicare eligibility
6. Consider supplemental insurance options for gaps in coverage

Common Misconceptions
Let's address some frequent misunderstandings I've encountered while advising public employees:
Myth: "PEBB coverage automatically continues into retirement." Reality: You must actively enroll within 60 days of your employer-paid coverage ending.
Myth: "Medicare replaces PEBB coverage at age 65." Reality: Medicare and PEBB work together, with Medicare becoming primary and PEBB secondary.
Myth: "Healthcare costs are fixed in retirement." Reality: Costs typically increase with age, and premiums adjust annually.
Proactive Planning Makes the Difference
One of the most valuable lessons I’ve learned is that early planning leads to better outcomes. Those who start planning their healthcare coverage early often have more options and fewer surprises in retirement.
Looking Ahead
Healthcare planning for retirement is complex, but as Washington State public employees, you have access to valuable benefits and resources. The key is understanding and optimizing these benefits while building additional financial safeguards.
Get Started Today
Ready to take control of your retirement healthcare planning? Here are your next steps:

1. Contact the PEBB Program for specific retirement healthcare options
2. Review the 2025 premium rates and calculate your expected costs
3. Consider scheduling a consultation with a financial advisor who specializes in public employee benefits

Successful retirement planning is about more than just saving money – it’s about creating a comprehensive strategy that protects your health and financial well-being throughout your retirement years.

Sources:
[1] https://www.hca.wa.gov/assets/pebb/51-0275-retiree-premiums-2025.pdf
[2] https://www.hca.wa.gov/assets/pebb/51-0275-retiree-premiums-2024.pdf
[3] https://wssra.org/view/download.php/about-wrssa/retirement-planning/retirement-planning-guide
[4] https://www.hca.wa.gov/employee-retiree-benefits/retirees/medical-plans-and-benefits
[5] https://wacaresfund.wa.gov/how-it-works
[6] https://wssra.org/view/download.php/misc-downloads/retirement-planning-guide
[7] https://hr.uw.edu/benefits/retirement-plans/nearing-retirement/insurance-during-retirement/
[8]https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961
[9] https://kingcounty.gov/en/legacy/audience/employees/benefits/retirement
[10] https://www.plansponsor.com/health-care-retirement-will-cost-average-315000/

I’ve been having conversations with lots of public sector employees lately. One of the biggest concerns that I have been hearing is they are not sure if their pension will be enough for the retirement they’ve envisioned.
 
If this resonates with you, you’re not alone. According to the National Institute on Retirement Security, 55% of Americans are concerned about their ability to achieve a secure retirement [1].
 
As a former city employee who now helps state and local government employees plan for retirement, I am on a mission to help Washington State public employees become aware of what the gaps are and how to fill them.
 
Understanding the Gap
 
Your pension provides a solid foundation for retirement, however, many are surprised that it’s not enough to fully meet your retirement needs.
 
Based on my experience, if you worked a full career in public service, your pension will only replace 50-60% of pre-retirement income.
 
Let me share a hypothetical story….Sarah, a PERS 2 member, assumed her 25 years of service credit would provide a comfortable retirement.
 
After getting her DRS benefit estimate, she was shocked to discover her pension would only provide about $4,250 a month – ½ of her current income.
 
This gap is what I call the “pension comfort disconnect,” and it’s more common than you might think.
 
This gap becomes particularly significant when considering factors unique to Washington State.
 
Consider the cost differences between living in Spokane and Seattle. The cost of living in Seattle is over 30% higher in Seattle than in Spokane [2].

Common Misconceptions
There are a number of additional misconceptions that I’ve encountered that can lead to inadequate retirement preparation.

1.“Healthcare costs are fully covered in retirement”

While some agencies offer retiree healthcare benefits, many don’t, and Medicare doesn’t begin until age 65. You will need to purchase a policy through PEBB, SEBB, or the healthcare marketplace.

Even if your organization does offer some sort of health care benefit it will be more expense in retirement than during your working years.

The Fidelity Retiree Health Care Cost Estimate shows that a 65-year-old retiring in 2024 will spend on average $165,000 in healthcare and medical expenses in retirement [3].

Long-term care costs in Olympia average $171,550 for a private room in a nursing home [4].
These health care numbers are staggering, and you need to be prepared for any situation.

2.“I can’t save additional money for retirement while contributing to my pension”

 You should consider and can use other supplemental retirement savings vehicles. Here’s a list of some common options available:

• Deferred Compensation Program (DCP) 457(b) – offered to most public employees in Washington State. The 2025 max contribution amount is $23,500. Additional catchup contribution amounts are available for those over 50.
• Roth IRA – Depending on your income you may be eligible to contribute $7,000 to a Roth IRA on an after-tax basis.
• Health Savings Account (HSA) – HSA’s offer triple tax advantages, and if you’re on a high-deductible health plan you can contribute to an HSA.
• Taxable Brokerage Account – The taxable account offers an immense amount of flexibility and opens doors that may not otherwise be available.

The PERS 2 employee contribution rate is 6.36%. The LEOFF 2 employee contribution rate is 8.53%.

In my experience, the most successful and prepared retirees are saving at least an additional 15% beyond their pension savings.

Bridging the Gap: Action Steps

Here are concrete steps that you can take to strengthen your retirement planning:

1.Maximize Your Deferred Compensation Contributions

You can contribute both pre-tax and post-tax (Roth) contributions to DCP. Once you separate from your employer, you can withdraw these funds penalty free before 59.5. There are very few other qualified retirement plans that have this flexibility. If you contributed on a pre-tax basis, your withdrawals will still be subject to ordinary income tax.
Some agencies offer matching contributions, so be sure to take full advantage of employer matches.

Consider increasing your contributions by 1% each year and if you're contributing on a percentage basis already, each time you get a pay increase, your contributions will increase.

2.Understand Your Pension Formula

DRS has a benefit estimator through your online account that can be used to estimate your pension benefit.

For PERS 2 members, your benefit calculation is 2% x service credit years x average final compensation [5].

Be sure to check the specific calculation for your plan.

As you approach retirement, consider how overtime or additional duties to increase your final compensation calculation.

Plan for the survivor benefit option that best fits your family’s needs.

3.Build Multiple Income Streams

Contributing to a Roth IRA and a taxable brokerage account gives you different buckets of money to pull from in retirement.

Think about part-time work or consulting opportunities in retirement.

4.Create a Healthcare Strategy

As you approach retirement, research health care bridge options if you’re retiring before Medicare eligibility.

Long-term care costs are skyrocketing and you need to be prepared for them through either long-term care insurance or through specific savings.

Consider utilizing a HSA if you’re eligible.

5.Plan for Tax Efficiency

Your pension is taxed at ordinary income rates. As you’re saving for retirement, consider strategically locating investments across accounts with different tax treatments.

Local Context Matters

Washington State's diverse geography creates unique retirement planning considerations. Housing costs, tax implications, and lifestyle expectations can vary dramatically based on where you live. A retirement income that might be comfortable in Spokane could feel tight in Seattle.

Recent data from the Washington State Office of Financial Management highlights these regional differences [6]:

• The median home price in King County is 2.8 times higher than in Spokane County
• Property tax rates vary by up to 30% between counties
• Utility costs can be 25% lower in Eastern Washington
• Healthcare costs vary by up to 18% between regions

These variations can significantly impact your retirement planning strategy.

The Impact of Career Choices

Your career path within public service can significantly affect your retirement outcomes. Based on my experience working with various municipalities, here are some considerations:

• Special duty assignments can boost your average final compensation
• Working for multiple agencies can affect your service credit calculations
• Some positions offer additional retirement benefits
• Overtime policies vary by agency and can impact pension calculations

Planning a secure retirement demands careful planning and the right strategy. Whether you’re just starting your public service career or nearing retirement, now is the time to assess your retirement strategy and identify any gaps that need attention.

​Sources
 
[1] https://www.prnewswire.com/news-releases/83-percent-of-americans-believe-all-workers-should-have-a-pension-new-national-institute-on-retirement-security-report-finds-302070695.html
[2] https://www.numbeo.com/cost-of-living/compare_cities.jsp?country1=United+States&city1=Spokane%2C+WA&country2=United+States&city2=Seattle%2C+WA
[3] https://newsroom.fidelity.com/pressreleases/fidelity-investments--releases-2024-retiree-health-care-cost-estimate-as-americans-seek-clarity-arou/s/7322cc17-0b90-46c4-ba49-38d6e91c3961
[4]  https://www.genworth.com/aging-and-you/finances/cost-of-care
[5] https://www.drs.wa.gov/plan/pers2/
[6] https://ofm.wa.gov/washington-data-research/statewide-data/washington-trends/economic-trends/median-home-price
 

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.