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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:
Option 1: Reduce Your Hours One straightforward approach to phased retirement is simply reducing your work hours. Here's how it might work: Pros:
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:
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:
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:
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:
What do you want to achieve with phased retirement? Questions to Consider:
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:
Phased retirement isn't just about money – it's a lifestyle change. Reflect On:
Map out your journey from full-time work to full retirement. Example Timeline:
Flexibility is key in phased retirement. What-If Scenarios:
As you embark on your phased retirement journey, keep these tips in mind:
Ready to explore phased retirement? Here's your action plan:
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-Seth Deal
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Freedom from Your Mortgage: Is Early Payoff Right for Your Retirement as a WA Public Servant?12/19/2024 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:
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:
Decision-Making Framework To help you decide, consider these questions:
Regardless of which path you choose, consider these strategies: If You Decide to Pay Off the Mortgage:
Ready to tackle the mortgage payoff decision? Here's your action plan:
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-Seth DealYou'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:
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:
Ready to optimize your retirement withdrawals? Here's your action plan:
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-Seth DealBalancing Act: Managing Market Volatility in Your Washington DCP and Personal Retirement Accounts12/5/2024 As a Washington state public employee, you're building a secure financial future through your pension, the Deferred Compensation Program (DCP), and personal retirement accounts. But with the constant ebb and flow of the stock market, you might be wondering: How can I protect my retirement savings from market volatility? Let's dive into strategies to help you navigate these choppy waters and keep your retirement plans on course. Understanding Market Volatility: The Retirement Rollercoaster Market volatility is like a rollercoaster - it has its ups and downs, twists and turns. While it can be unsettling, it's a normal part of investing. Here's what you need to know:
The Washington State Deferred Compensation Program (DCP) is a voluntary supplemental retirement savings plan designed to help you build added retirement security [1]. Here's how it can help you manage market volatility: 1. Diversification Options The DCP offers a range of investment options, allowing you to spread your risk across different asset classes [2]. This diversification can help cushion your portfolio against market swings. The target date funds are also diversified. 2. Dollar-Cost Averaging By contributing to your DCP through regular payroll deductions, you're using a strategy called dollar-cost averaging [3]. This means you're buying more shares when prices are low and fewer when prices are high, potentially lowering your average cost per share over time. 3. Professional Management Options DRS offers professionally managed funds, including target date funds, which automatically adjust their asset allocation as you approach retirement [4]. This can help manage volatility without requiring constant attention from you. Personal Retirement Accounts: Your Custom Volatility Shield In addition to your DCP, you might have personal retirement accounts like IRAs or a taxable investment (brokerage) account. Here's how to manage these effectively in volatile markets: 1. Asset Allocation: Your Personal Shock Absorber Your asset allocation - the mix of stocks, bonds, and other investments - is crucial in managing volatility. Generally, the closer you are to retirement, the more conservative your allocation should be [5]. Review your asset allocation semi-annually. Rebalance to maintain your target mix. 2. Diversification: Don't Put All Your Eggs in One Basket Spread your investments across different:
3. Cash Reserves: Your Financial Cushion Having a cash reserve can prevent you from selling investments at inopportune times to meet short-term needs. Aim for 3-6 months of living expenses in easily accessible cash [7]. If you’re planning on using investment funds within the next 5-10 years consider calculating how much you will be using and move these funds into high quality, short duration bonds. Whether you're managing your DCP, IRA, or both, these strategies can help you weather market volatility: 1. Stay Invested: Time in the Market Beats Timing the Market Historically, staying invested through market cycles has been more effective than trying to time the market [8]. From 2000 to 2019, missing just the 10 best days in the market would have cut your overall return in half [9]. 2. Rebalance Regularly: Maintaining Your Risk Profile Market movements can throw your asset allocation out of balance compared to your original allocation. Regular rebalancing helps keep your desired risk level. Best Practice: Rebalance at least semi-annually or when your allocation drifts more than 25% from your target [10]. 3. Use Tax-Loss Harvesting (for Taxable Accounts) In taxable accounts, selling investments at a loss can offset capital gains and reduce your tax bill. This strategy, known as tax-loss harvesting, can turn market downturns into tax-saving opportunities [12]. The wash-sale rule prohibits claiming a loss on a security if you buy the same or a "substantially identical" security within 30 days before or after the sale [13]. 4. Use Tax-Gain Harvesting (for Taxable Accounts) In taxable accounts, selling investments at a gain will increase your tax basis (cost) and reduce future capital gains. Be aware, if your current tax rates will be lower in the future or the same, this strategy may not make sense for you. Emotional Strategies: Keeping Your Cool in Volatile Markets Managing your emotions is just as important as managing your portfolio. Here's how to stay level-headed: 1. Avoid Constant Monitoring Checking your accounts too often can lead to emotional decision-making. Limit yourself to reviewing your accounts quarterly or semi-annually. 2. Focus on Your Goals, Not Short-Term Performance Remember why you're investing in the first place - for a secure retirement, not to outperform the market. Instead of focusing on account balances, consider whether you're on track to meet your long-term goals. 3. Understand Your Risk Tolerance Your ability to stick with your investment strategy during market turbulence depends on your risk tolerance. Think about how you felt during recent market downturns. Were you worried, the market was going to zero? Or where you not concerned. Your risk tolerance can drastically shift as you get closer to retirement so be sure to re-evaluate your risk tolerance as you get closer to retirement. Special Considerations for Near-Retirees If you're within 5-10 years of retirement, market volatility can be particularly concerning. Here are some strategies to consider: 1. Gradual Shift to More Conservative Allocation Start shifting to a more conservative asset mix, but don't abandon growth investments entirely. You may need your money to last 20-30 years in retirement and inflation will be an issue during that time frame. 2. Build a Bond Ladder Consider creating a bond ladder to provide predictable income in the early years of retirement, reducing your reliance on selling stocks in a down market [15]. 3. Consider a Bucket Strategy Divide your portfolio into near-term, medium-term, and long-term buckets, each with appropriate investments for its time horizon [16]. Your Action Plan: Mastering Market Volatility Ready to take control of your retirement savings in the face of market volatility? Here's your action plan:
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-Seth DealHidden 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 DealNavigating 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 DealAs a Washington state employee, you've dedicated your career to public service. Now, it's time to ensure your pension works just as hard for you in retirement. Many public servants wonder if their pension will be enough to support their retirement dreams. The good news? Your PERS or LEOFF pension can be a powerful foundation for your future financial security. However, you need to have additional savings beyond your pension. Understanding PERS and LEOFF: Your Pension Foundation Before we dive into optimization strategies, let's review the basics of PERS and LEOFF:
Know Your Plan: The Key to Maximizing Benefits Understanding which plan you're in is crucial, as each has unique features: PERS Plans:
7 Strategies to Optimize Your Pension Benefits Now, let's explore how to maximize the value of your pension: 1. Understand the Power of Vesting Patience can significantly increase your benefits. Most plans require 5 years of service to become vested (PERS 3 requires 10 years), but longer service can dramatically boost your pension:
2. Understand and Plan for Your "Final Average Salary" Your pension is typically based on your highest-earning consecutive 60 months. This makes your career trajectory in the years leading up to retirement particularly important. Here are some thoughtful approaches to consider:
Important Note: Always ensure that any career moves or additional responsibilities you take on align with your personal well-being and work-life balance. The highest salary isn't always worth it if it comes at the cost of your health or job satisfaction. 3. Understand the Impact of COLAs Cost of Living Adjustments (COLAs) help your pension keep pace with inflation: Most of the state pension plans offer a COLA up to 3%. It’s important to note that regardless of what inflation is, the maximum COLA is 3%. Any year that inflation is above 3%, the additional amount is applied to future adjustments. Any year that inflation is lower than 3%, the COLA can be pulled from the banked amounts from prior years. Planning Tip: When projecting your retirement budget, factor in these COLAs. They can make a significant difference in maintaining your purchasing power over a long retirement. 4. Leverage the Deferred Compensation Program (DCP) While not part of your pension, the DCP is a valuable supplemental savings plan:
5. Evaluate Survivor Benefit Options Protecting your loved ones is a crucial aspect of retirement planning. It's important to understand that choosing a survivor option will reduce your monthly benefit, but it provides ongoing payments to your survivor after your death. Here are the four options available:
7. Stay Informed About Legislative Changes Pension systems can evolve with new legislation. While existing benefits are generally protected, future accruals might be affected:
Remember, your pension is a valuable benefit, but it's just one component of your retirement plan. By understanding and optimizing your PERS or LEOFF benefits, you're taking an important step towards a secure and comfortable retirement. Consider working with a financial advisor experienced with Washington State pensions who can help you integrate your pension into a comprehensive retirement plan. -Seth DealThe Hidden Retirement Perks for Washington State Public Employees That Most Financial Advisors Miss10/24/2024 Did you know that as a Washington State public employee, you might be sitting on a gold mine of retirement benefits that even your financial advisor might have overlooked? What I'm about to share could be the key to transforming your retirement from ordinary to extraordinary. As a financial advisor and CPA who's been unraveling the complexities of public sector retirement planning, I've discovered some hidden gems in our state's system. These aren't just small perks – we're talking about strategies that could potentially add hundreds of thousands of dollars to your retirement fund. The Overlooked Powerhouse: Deferred Compensation Program (DCP) Imagine having a secret weapon in your retirement arsenal that could dramatically boost your nest egg. That's exactly what the Washington State Deferred Compensation Program (DCP) can be for you. But here's the kicker – many financial advisors don't fully leverage its potential. Why is the DCP such a game-changer? Let's break it down:
But here's where it gets really interesting. Did you know that by strategically balancing pre-tax and Roth contributions, you could set yourself up for significant tax advantages in retirement? It's a strategy many overlook, but it could make a world of difference. The DCP's Secret Weapon: Access Before Traditional Retirement Age Here's a game-changing fact that many financial advisors overlook: Unlike traditional retirement accounts, you can access your DCP funds before age 59.5 without penalties. Why is this such a big deal? Let's break it down:
This flexibility is a powerful tool in your retirement planning arsenal. It's not just about how much you save, but also about how and when you can use those savings to support your life goals. The $915,000 Question Now, you might be wondering, "Just how much of a difference can the DCP really make?" Let's crunch some numbers. Imagine this: You start contributing $750 per month at age 35. Assuming a 7% annual return, by age 65, your DCP account could grow to nearly $915,000. And that's on top of your pension! Think about what an extra $915,000 could mean for your retirement. Vacations? A dream vacation home? Financial security for you and your loved ones? The possibilities are endless. Health Insurance in Retirement: The Often Misunderstood Benefit Now, let's talk about something that keeps many soon-to-be retirees up at night: health insurance. The Public Employees Benefits Board (PEBB) Program offers retiree health insurance options that could save you a fortune. But here's the catch – many people don't fully understand how to maximize these benefits. Did you know that:
Understanding these options could be the difference between worrying about medical bills in retirement and having peace of mind to enjoy your golden years. The Leave Cash-Out Strategy: Your Hidden Treasure Here's a little-known perk that could give your retirement savings a serious boost: cashing out unused leave. Many Washington State agencies allow employees to cash out a portion of their unused vacation or sick leave upon retirement. But the real magic happens in how you use this cash-out. Imagine using it to:
It's like finding money you forgot you had – and who doesn't love that? The Return to Work Program: Having Your Cake and Eating It Too Now, for those of you who can't imagine fully slowing down, here's something that might sound too good to be true. The Return to Work program allows retirees to work up to 867 hours per year without impacting their pension benefits. Think about it: You could ease into retirement, keep your skills sharp, mentor the next generation, and supplement your income – all without touching your pension. It's the best of both worlds! Your Action Plan: Turning Insights into Reality So, you're probably wondering, "This all sounds great, but what do I do now?" Here's your roadmap to maximizing these benefits:
Remember, the key to a successful retirement isn't just in knowing these strategies exist – it's in taking action to make them work for you. The Bottom Line: Your Path to an Extraordinary Retirement As Washington State public employees, we have access to a retirement system with perks that many in the private sector would envy. By understanding and leveraging these benefits, you can transform your retirement from ordinary to extraordinary. Think about it: An extra $915,000 in your DCP, strategic health insurance planning, a significant leave cash-out, and the option to ease into retirement with part-time work. Combine all of these, and you're looking at a retirement that's not just comfortable, but truly remarkable. So, what's your next move? Will you boost your DCP contributions? Investigate your leave cash-out options? Or maybe schedule that consultation to create a comprehensive retirement strategy? Whatever you choose, take that first step today. Your future self will thank you for it. And remember, as a financial advisor specializing in Washington State public employee benefits, I'm here to help you navigate this journey. Together, we can turn your retirement dreams into reality. -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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