Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make small, smarter financial decisions. Raina Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Well, Frank Sinatra says the best is yet to come. And we know that every year money numbers change.
Yeah, Reina, I get a raise and life is better a little bit every year. Well maybe that's true, but that's not what I'm talking about. I'm talking about all of our retirement planning numbers change every year. And you say, what are you talking about? Well, there's an earnings test for Social Security. There's tsp, there's how much money can I contribute? There's how much money is catch up. There's what are these limits that we have to know? How can I operate? What are these boundaries in which I must operate or stay in order to maximize or minimize or whatever.
So let's go over some of these and see what's. What it's looking like for next year as it stands right now. Now clearly these are projections, but we're close enough to the year that these are pretty, they have pretty much, they have pretty good heavy authority. So there is a COLA set for next year, not Lola, but C O L A cola. And they're showing it at 3, 3.6%, pretty strong cola. So you say, why do I care about that, Reina? I'm still working.
Well, if you're about to retire pretty soon you're going to get a cola if you're how old? Over 62. Yes, you down front, you're correct. You get a COLA in your first retirement if there's a COLA with Social Security. If you're over 62 now, you 56, 7, 8, 9 year olds, you 60 year olds, you 61 year olds, earmuff. Nope, not for you. But you have something to look forward to, which is nice. So this year there is one. It's an increase in the prep and you get it. So that's pretty cool. Pretty, pretty awesome. Loving that one.
There is. Okay, so the, you know, they can only tax you with your Social Security amount on a certain amount of your wages. Social Security says, hey, last year this year, rather, if you made up to, you know, anything over 184,500 did not was not subject to the Social Security taxes. This upcoming year it's up to 192,000. So that increased. So you have a, you can make more money and they're going to tax you on a little bit of a higher threshold. They're going to tax you on a little bit more. But anything above 192, 300. No. 192,300 rather.
No, they're not going to be subject to Social Security.
Now, the earnings test. What is that? Okay, so remember, you can retire and receive Social Security or you can retire and receive the supplement, the Fers special supplement. And you can also work a job.
A job, some people call it just over broke.
Not necessarily. It depends what kind of job you have. But if you're working a job job in retirement while you're receiving Social Security or the supplement, the earnings test is the same. The earnings test this upcoming year, $25,560. This past year was 24, 4 80. Come in around the bend is 25,560 just around the riverbend. And that is the maximum amount of money you can make at your other job job while you're receiving your Social Security or your supplement before they start reducing the benefit of your supplement or Social Security. So remember, for every $2 you go over this 25 grand. 25,562. 5,556. Oh, for every $2 you go over it, they're going to dock you a dollar off of your Social Security. Remember, the government don't like no double dipping. You already done been dipping. You can't be double dipping. Don't be dipping your finger. My cool. They don't know what flavor it is. That is very Louisiana term. So y' all Louisianans. You know what I' talking about. That's what they say. You say, don't be dipping your finger. My Kool Aid. You don't even know what flavor it is. And that's the thing. You can't double dip while you're receiving Social Security and or the supplement. Now you could, but there's a penalty. You get a little.
Now some people say I don't care about the earnings test because I'm making go zillion dollars in my other job. They can keep their stupid money. And remember, you actually get it back eventually anyway. So that's a story for another day. But the earnings test amount has increased, which is pretty cool.
Now remember, there's also an earnings test. When you get into your full retirement age, that has increased. Like, if you're in the year you're turning your fra, it's increased by a couple grand. Nobody really cares about that, honestly, because it doesn't affect as many people. A lot of people, if they're in the year of their full retirement age, they're like, yeah, I could turn on my income, I can turn on my Social Security, but I'll probably just retire after I'm my FRA anyway, and they're making the money at their job. So you know what I'm saying? If we need to address this, we will in one of our individual meetings when we go over it. So, tsp 401k. How much money can you put in the bucket?
Well, this year, the maximum. If you were a little whippersnapper under the age of 50, you could only put in 24,500. That was your max contribution. This upcoming year, it is up one G.
Rena, what's one G? One grand. $1,000 you can put in now $25,500 if you're under the age of 50. Now, remember, y' all TSP holders, this is either Roth or traditional. So regardless of your income, you can contribute into the TSP, Traditional or Roth, up to the 25,500. Excuse me. If you're under the age of 50, there's your max. Now remember, Raina, I make too much money for a Roth. It doesn't matter.
In tsp, you can contribute into the Roth regardless of your income.
So that's kind of a cool little tidbit. I was talking to somebody yesterday. They did not know this. They're like, I make too much money. I'm like, no, you don't. They're like, yeah, I do. I'm like, you make too much money for a normal Roth IRA outside of the TSP, but within the TSP, or within a 401k that has a Roth in it, you're able to contribute into the Roth, which is a party P A R, T. Why? Because I got it. Now, if you're over 50, you can do some more money. Mo Money mo cash. Mo what? You can put in 500 bucks more in catch up this upcoming year 2027. So. So that's another 500 bucks that you can defer. Or that's another 500 bucks that you can roth it on up there. And that's pretty cool. That gives a total between those two sources, 34 grand you can contribute. So some people say to Me, Rayna, I maxed out. I'm putting all the money into my dsp. Okay, what percentage are you, you know, how much are we putting in there? Oh, 10%, 15%. There is no percentage maximum.
There is no defined percentage maximum because everyone's salary is what different.
So you may make in 200 grand, you may be making 60 grand, you may making somewhere in the middle. And that percentage would wind up vastly different, as you can imagine, because a percentage of any number is based on that original number.
So the maximum is a dollar amount. So if you're trying to max out, you would of course contribute a dollar amount. So you know exactly how you're going to end up. And how many pay periods do you have? 26. So we're going to take that 34 grand and if you're coming up on what you call it. Oh, sorry, somebody needs into my gate to what's the number you ever had somebody need to get into your house and you're trying to tell them the code and you're trying to talk to somebody else and you're trying to tell them things, and somebody else needs your help and everybody needs you. It makes you feel really good. That's like that part in Driving Miss Daisy when Morgan Freeman is talking to Dan Aykroyd and he's been Driving Miss Daisy around for a while.
And you know, ultimately he. He wants a raise, right? But you don't know what they're about to talk about. So they get in the office and they're talking and he says, yeah, you know, this, this other lady up there, man, she was telling me that, you know, she. That I could. She wanted me to drive for her.
Said you could name your prize best movie. One of the best movie moments, I think, in cinema history is this ding sound. Dan Aykroyd, he looks at, oh, said you could name your prize. Name your own prize. Ding. He says, oh, it's money. He wants a raise. And he said, well, what'd you tell her? He said, Now, Mr. Worth, and you know, I didn't accept this. And so then ultimately he gets his raise.
But the ultimate at the end, before he leaves the office, after they negotiate the raise, he says, did you ever have anybody fight over you, Mr. Worthen? He says, no, I didn't. He says, well, it sure does feel good.
So makes you feel good to be needed. It's pretty good. Pretty good. But you know what else is needed? Your money into your retirement plan. So you have the ability to put more catch up in here. And as I Looked into this. That's why I looked at my calculator. We're going to take $34,000 and divide it not by 12. A lot of people are so used to a monthly scenario, but not your feds. You have a 26 pay period program.
So used to be we were, we were in the 1250 a pay period. Remember to do the 32,500 max. Well, now it's 34,000. So what's our max per pay period if we're starting in January 1307. 1307, a pay period. So the beauty of that is that you know exactly from the beginning of the year to the end of the there how much money you can contribute to max out, if that's your goal. Why would I max out? A lot of people have major discretionary income and they're like, well, I'm shoveling a bunch of money into my bank. Okay, great. Well, what is the bank paying you? Some ninth of half of a quarter of a percent of a percent.
And compared to even the G Fund in dsp, your earning interest rate has a significantly higher opportunity to grow in comparison to the bank. So the more money you put into tsp, obviously the more interest you can earn, especially in comparison to a lot of other financial vehicles. But what if you're really super cool, right? Paul McCartney says, Will you still need me? Will you still feed me when I'm 64? But if you're 64, you have exceeded this magical extra catch up. Remember, there's another catch up for people who are age 60 to 63. Used to be this year you could only do an extra amount of $11,250.
This year they added 5 hundo. So you can do an extra 11,750 if you're between 60 and 63. So when I get old and losing my hair many years from now, you can contribute more to your tsp.
And you'll never forget it because I sang it to you. So you have the ability to put way more money in, whether that's traditional or Roth.
But here's the deal. High income earners, remember what happened this year. If your income is high, defined as being over 145 this upcoming year, this correction this year, then you h are going to be auto walked into the Roth. Your, your catch up will be auto walked into the Roth. That's a number I don't have handy for today to see if that same threshold lasts for next year. What do you bet it goes up to 147 or something to Determine high income because everybody's getting step increases or many are. Not everybody. I know that the exclusion. So keep this in mind. You can put way more money in. Some people knew about this, some people don't. Usually it's the people that want to do the maximum that know about these numbers. Now you're saying, well, it's always like that. The rich just get richer. Not necessarily. I have seen people that have incredibly low incomes have an incredibly high savings. There's a mixture of dealing with what you got, making plans, being disciplined and being consistent. You can be disciplined for two months and then fall off the proverbial wagon and then not get back on. And then you're telling me, yeah, I didn't do what I needed to do.
Don't be that guy or gal. You want to be prepped. Learn about this stuff early. Find out what you can and can't do. Every year you get a raise. Don't take the raise into your bank. Redirect that raise into your tsp. I'm telling you, this is how TSB millionaires are made.
And okay, Irma, let's talk to Irma.
Just kidding. Irma's not a lady. In your world she might be, but in our world, she means mo. Money.
Oh, money to pay for Medicare Part B. Bravo. So if you're coming up and you're going to have Medicare part A and B, Medicare A no cost. Medicare Part B has a fee. B has a fee. There's how you remember it. And that fee this year today is 202.90. Next year, 2027, 209.50 is the projection.
And that cost could be higher.
Raina, why are they going to charge me more? I'm irritated that they're charging me in the first place. Yeah. Well, this year, if you were an individual, you're. If you. If two years prior. So from 2026, if, oh, four. If 2024 for an individual was 109 or more, then you had to be charged more in your Medicare. This year that threshold went up to 112. So if you made 112,000 or more as an individual single tax filer, then they're going to send you the letter. It's not a Dear John letter, it's a Dear Irma or a Dear you letter that says you gotta pay more money.
Same thing if you have a joint tax return. Used to be. Was it 218? I believe it went up pretty substantially to 224.
So if in 2025, you and your sweetheart, honey Bunches of love. Made more than 224 grand.
Modified adjusted gross. Then you're going to be charged a little bit more money in your Medicare Part B. However, all is not lost. Fear not.
There is still things to consider. Correction on that plural. There are still things to consider.
One of those things is the SSA 44. You heard it from me, folks. That is a form.
That is a reply to the IRMAA letter. So pretend you get a letter in the mail. It says, irmaa, hey yo, you, you made too much money a couple years ago and you're turned on part B. So happy that you got part B. Congratulations, you're in Medicare now. We're really happy. You need to call Randy because she's got some plans for you. But by the same token, you also owe more money for Medicare Part B because you did so well before. So we, you know, you know how we work to each according to their need, to each, from each according to their ability. And you had a big ability, so we're taking from you.
So, um, you say, but this is bull jive. I just retired.
I made this money then, but I'm not going to make this money in the Future. Ha. The SSA 44 is the letter that says exactly that. You can only use it when you receive the IRMAA letter. And your response to Social Security's Irma is to say, I'm not making this amount of money. Can you please reevaluate this? Thank you for letting me know that I'm going to be charged more. However, I would appeal this and say, no, no, no, I'm not making to 224 this year. Me and the me and the spouse are not doing that this year. We're only going to be making like 150 between the two of us.
You fill it out, you submit as much proof as you have, you submit it back in. Usually they say never mind. Like Rosanna, Rosanna Dana from Saturday Night Live. She does this whole story and then somebody corrects her. She's like, oh, well, that's different.
Never mind. And that's the response you get from Social Security when they're trying to charge you extra money and you send them back the SSA 44. Not 100%. But in general, if you have the proof and this life event happened, they say never mind. And they don't charge you the extra amount. But it's good to know what's up with irmaa in prep for this. In preparation for this.
So we need to talk.
You've got all kinds of thresholds to be prepared for. And remember, people say, raina, should I do Roth conversions in retirement? This is one of the biggest conversations I have. Should I do Roth? Should I Roth?
Well, there is no one answer to that question.
There's quite a few whys we say. But if we're going to do a Roth conversion post retirement, what do you think are some thresholds we might consider?
Number one, tax brackets.
Do I need to withdraw money so I put myself in another tax bracket? Negatory.
Is there a way I can maybe get these taxes paid for? That's a conversation we should have individually because there's no one answer to that one.
Or what about Irmaa? If I take too much money out, are they going to charge me more? Potentially, we should consider it in the decision to maybe do a conversion or not. So what should you do?
You should look at these numbers. You should look at your income. It is only end of the year here, 20, 26. For those of you watching way later every end of the year, you need to be looking at what next year's thresholds are. That's why I do this. That's why you're going to hear a lot of these kind of talks from a lot of different kinds of people.
Very few of them will be as cool as me. Very few of them will be as enjoyable as me. Very few of them will sing to you. So that's something to consider when choosing your specialist.
But. But all of them will be giving you very similar advice to, say, project your next year, especially for your TSP and 401k contributions. If you're trying to max out, it's way easier to divide by 26. And use that tabula rasa Latin for clean slate. Use that beginning to the end. So you stretch those payments out as far as they. As far as the eye can see to that whole year.
That's what this prep is for.
Take the moment, look at it, do the projection plan, the amount you're going to do that way come end of December. Shabam MyPay light blue postal is whatever your portal is to edit your contributions. You jump in there, you change the number, and then you go back to the party for New Year's and finish your toast. So these are things to consider. My biggest advice will be to get connected with somebody like myself and our team so we can go over it with you. Inevitably, we've seen something you may not have seen because we've retired hundreds and thousands of people where you may have retired yourself or you're about to retire and you've never done it. So let our hindsight be your foresight and let our planning experience help you plan as well. Happy end of 2026 and we'll see you coming around the bend.
[00:20:03] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Reyna works hard to find the right solution for each individual or family who reaches out for advice. To contact Rayna directly, call 850-450-6500. That's 850450 6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the Federal Government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents, consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
