The Hidden Retirement Perks for Washington State Public Employees That Most Financial Advisors Miss

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:

1. Tax Advantages That Pack a Punch: The DCP offers both pre-tax and Roth contribution options.
   • Pre-tax contributions can lower your current tax bill.
   • Roth contributions set you up for tax-free withdrawals in retirement.
   • Think about your current tax rate and your future tax rate.
     1. If you think your current tax rate will be lower than your future tax rate, the Roth option might be best for you. (i.e. earlier career workers).
     2. If you think your current tax rate will be higher than your future tax rate, the pre-tax contribution might be best for you. (i.e. peak earning years near retirement).
2. Flexibility That Fits Your Life: You can adjust your contributions anytime. Got a raise? Bump up your savings. Unexpected expense? Dial it back. You're in control.
3. Fees That Don't Eat Your Savings: With lower fees than many private sector 401(k) plans, more of your money stays where it belongs – in your pocket.
4. Investment Options for Every Style: Whether you're a risk-taker or prefer to play it safe, there's an investment strategy for you.

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:

1. Early Retirement Flexibility: Planning to retire before full retirement age? Your DCP funds can bridge the gap until your pension or Social Security kicks in.
2. Career Transition Support: Thinking about a mid-life career change? Your DCP can provide financial cushion during the transition.
3. Emergency Fund in Disguise: While it's not recommended to tap retirement funds for emergencies, knowing you have penalty-free access in dire situations can provide peace of mind.
4. Phased Retirement Options: You can start drawing from your DCP while still working part-time, easing into retirement on your terms.

Imagine John, a 55-year-old state employee who's ready for a change. Thanks to his DCP, he can reduce his hours, supplement his income with DCP withdrawals, and transition smoothly to his encore career as a part-time consultant. Without the age restrictions of other retirement accounts, John has the freedom to reshape his life when it suits him, not when an arbitrary age limit says he can.

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:

• You might be able to cover your spouse or partner too?
• There are strategies to coordinate with Medicare that could significantly reduce your out-of-pocket costs?

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:

1. Pay for several years of health insurance premiums without touching your savings.
2. Make a final, significant contribution to your DCP account.
3. Create a buffer for those first few years of retirement, allowing your other investments to grow.

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:

1. Take a close look at your PERS or other pension plan. Do you know your projected benefit?
2. Explore the DCP. Could you increase your contributions, even by a small amount?
3. Consider how the DCP's flexibility for withdrawals before age 59.5 might factor into your retirement timeline or career plans.
4. Investigate your agency's leave cash-out policies. You might be sitting on a goldmine!
5. Start planning your health insurance strategy now, even if retirement seems far off.
6. Consider how the Return to Work program might fit into your retirement dreams.

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