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 smarter financial decisions. Reyna 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, Raina Reyes. Hello and welcome to another edition of Raina retirement. Matt McClure here with you alongside Raina, of course, and Raina, you know, this is the topic of the day, of the year, of the decade, probably all of the upheaval that's going on right now in the federal government, among federal workers, people are wanting to know, you know, all of these different offers are coming out and like, voluntary early retirement and all of these other types of exits that people can make from their federal jobs right now. Sort of get through the weeds here and help us kind of navigate all of this so that our listeners and viewers can, you know, make, make some educated decisions.
[00:01:22] Speaker B: You're exactly right, Matt. People are getting out of Dodge. Left, right, center, up, down, front, all around. And, um, we've seen things like this before, but we've not seen them with the fervor or vigor as they have been recently. And so a riff is not new. Avira is not new. A VSIP's not new. We've done these things over the course of decades past, but they're peppered in. They were just every once in a while, and now it is a true barrage and onslaught of, of, hey, guys, it's time to go. And so there's things that people are wondering, what can I do? How can I go? What does it mean? We've got different offers like VERA and vsip, and we don't want that to put you into vtac. So we want to make sure we understand what that means and some of the options for you. So all these government acronyms, they all mean something. And once you, once you kind of got an idea of what they mean, they're not so daunting when you hear them. So I want to go over three sort of concepts here. Well, really two, but they, they all, they all work with retirement. So as a retirement specialist, my goal is to get people out of there the right way the first time. And usually that goes with standard eligibility requirements, but now with these offers, they're Saying, hey, we're going to let you leave earlier, maybe without full eligibility, with some different versions of. Require different requirements to retire, to be eligible, to go sooner. So first of all, people say, well, let's just define some things. Glossary of terms. So we talk about a rif. Rif, that's a reduction in force. So we've got this big bucket of people working for the government and we look and we say, ooh, we're getting a little heavy. We need to reduce the force because we're spending money that's either unnecessary or redundant or something like that. And so that's what's happening right now. They haven't done RIFF riffs before. They'll do a riff. They will usually offer people to voluntarily kind of riff themselves. And that will come in the form of either a VERA or. Or a vsip. A VERA is a voluntary early retirement authority offer. So the A is an authority, but they will then generate the vro, which is a voluntary early retirement offer, and that says you can leave sooner and we'd like you to go ahead and do it. And if you don't have full eligibility to retire, we're going to give you some extra ability to go. And sometimes they'll dangle a little carrot in front of you with a V sip, which is a voluntary separation incentive payment. So there's your definitions. You've got vera, VSIP and riff. And in general, they will give you the option to leave earlier before they start forcing it upon the employees. So what we've seen recently here, this is a 2025 moment, and we're coming after what OPM called the fork in the road, which is, hey, everyone in the workforce, if you want to go ahead and resign or retire or be gone by the end of the year, you go ahead and tell us and we'll pay you through the end of the year, essentially, is what they said, politics aside, having just as a federal retirement specialist, that is the most benevolent offer I've ever seen ever in terms of full salary for originally was eight months, but then they. They allowed it to go through December. But I mean, that was. That's huge. That's way beyond the maximum for a VSIP, which is generally $25,000. So without further ado, let's get into the details on what a VERA is, because since some people took that fork in the road or the deferred resignation program, some of them accepted it, some did not. So the people who have not accepted that deferred resignation program, and they're still employees they're still on the rolls. They have the, the government is still looking at the workforce and saying, still too much, we still need to reduce it. So they're now offering people the incentive and the ability to retire early. So let me first show you what a vera is. So by definition, it's there. You know, they define it and they say, okay, we're, we got too much people, too many people. We want to reduce the size. It's huge, and we don't want it to be huge anymore.
So there's your definition. It allows you to leave. What does it mean? This is just whoever's covered under FERS or csrs and they're able to do it. Now you've got different age and service requirements, which is kind of cool.
All you need to be is 50 years of age with at least 20 years of credible service or whatever age with 25 years of service. So I could be 43 with 25 years of service and I can retire. What does that mean, though? People say, well, what's the calculation? What does it really do? Well, it means that you're at civil service. We don't want that. It means that you just get the amount of years that you had. There's not going to be a reduction. They prove, they prevent you from taking a reduction. Usually if you left with 25 years of service and you're not over the age of 60, you would have a reduction. And it's a hefty reduction to 5% for every year that you're not 62. So good grief. If you're 57, which is the oldest minimum retirement age that exists every year, 5%, 25% reduction forever and no supplement, the vera says I'm gonna wave my magic vera wand and protect you from a reduction. So let's pretend you had that 25 years of service and you retire. Raina, how much money am I going to make? Okay, you're going to make a quarter of your high three salary. What's my high three salary? An easy way to think of it is last year's income because it's an average of three years or 36 months because you had a couple of, you know, rate changes, probably three or four rate changes people can have in a three year period.
So 25% of last year's salary. So let's say you made a hundred grand last year. You're going to make $25,000 a year, obviously. Divide by 12, there's your monthly amount. From that you're going to deduct taxes, health insurance, Life insurance, dental, vision and a survivor benefit if you're married and want to leave them a benefit. So if you're doing the math you say where'd my money go? This is true, but it's a pension that many other people in the world don't get first of all. And it allows you to exit the potential drama you're dealing with. And fear not, you have a three legged stool. So the second leg is the what would be the supplement? You absolutely will get the supplement. But, but when is it going to start?
It starts at your minimum retirement age and of course that's depending on your year of birth. But the oldest one is age 57. So if you're over 57 we know you're going to have the supplement straight away. If you're under 57, no supplement until you age in to whatever your minimum retirement age is. So people say well that stinks. I don't get no supplement. That's a bunch of bull job. Well it could be, but the benefit is what are you probably going to do if you're not working at your current job anymore? Find another job. And the problem with the supplement is that it's subject to the Social Security earnings test and that right now is 23, 400. So how many jobs are you probably going to get if you just left a hundred thousand dollar job that are under $23,000. So the benefit to you is that you can make as much money as you want to until you start receiving the supplement and then you kind of make the decision would I rather make the supplement and get up a little part time job or keep my $100,000 a year job and you teeter the totter and you make your decision. So that's leg one, 25%, leg two, the supplement. It will start if you're immediately if you're over MRA but you will wait if you are under your minimum retirement age for leg two. Now leg three is tsp. So if you took this vera age matters for that also. So can I touch tsp? TSP has a rule that says if you are on. Let me just correct this. If you're retiring in the year that you are going to turn 55 or if you are already 55 or older now that you're separated, you are able to take a withdrawal from TSP directly to your bank or your purse and you will pay tax but they will protect you from the 10% slap on the wrist penalty that you would usually get for being under the age of 59 and a half. Now, if you're 12, just kidding. If you're 40, 43, 45, 52, you're nowhere near 55. No, you will wait until 59 and a half to touch tsp without a penalty. Clearly, special categories are exempt from that. So this is kind of non special categories. Special categories. I know your stuff too. You can leave any anytime after age 50 and touch tsp. No, I'm digressing a little bit, but special categories. If you retire regular, remember your supplement will start immediately if you've retired normally, like non Vera, but your, your earnings test doesn't start till mra. That's okay, I digress. That's a little bit of stream of consciousness. But hey, you were with me. So what happens with my health insurance technically still connected with leg one coming out of your pension? Well, the usual rule is if you've had it for five years or more, yeah. You get to keep it automatically. It just, it just happens. You just keep it. There's nothing changing. And whoever's still on your health insurance when you leave just stays on your health insurance as long as they're eligible to be on your health insurance. Now, some people made some changes and they didn't have their health insurance for the five years. There are waivers granted during a VERA to protect you as long as you meet some of these requirements. As long as you were covered under health insurance continuously the whole time during this, during this offer. If you retire during this time period, receive the vsip, which is a incentive program if you take the VERA or you take a discontinued service. So even if you hadn't had it for the five years, there's ways you can get waivers for that. Now someone asked me too. She said, well, I had breaks in service and I'm taking the Vera because I have 20 years. Like she had them. She had 20 years of service, but they were broken up in little pieces. So she worked like five years here, 10 years there and another five there. So, you know, all that added to 20. So she was eligible to take the Vieira, but she was super worried, what's going to happen with my health insurance? I've had it all the time, but I've only been, let's say the. It was these last couple of years that she'd worked were only the last three years. I had said 5 and 10 and 5, but hers was broken up to where she had only been hired for the past three years, that had not reached five yet.
So she was super concerned. Well, there's a. I don't have it ready to show you, but there's a page on OPM that were breaks in service. Do not break up your health insurance five years. So as long as you had it all of those years, you're golden. So that's a. That's a beautiful. That's a beautiful thing. So that's kind of avera in a nutshell. No, this is me in a nutshell. Okay, I'm kidding. But you see what, what that means if you're eligible to leave, like let's say you're 60 with 20 years of service, and they offer a Vera, they're just offering you to go. They're saying, go ahead. You could have retired without a Vera. So a lot of questions are, but I'm already eligible. What do I do? You just retire if you want to. You don't need anyone's permission or extra special benefit to just retire. Now, the V sip, what we're about to talk about now, that can be an. A true encourager for someone who is already eligible to retire to maybe take this next step and actually say sayonara. So that. That makes a big. That can make a big difference. So let's go over a V sip, which is the actual separation incentive, the true dangling carrot to leave.
So basically, they have the. The authority to. Is the buyout authority. It allows them downsizing or restructuring to give up to $25,000. Now, there's some agencies that are separate from these rules that can give a higher amount. For example, I just saw a $50,000 visa for the securities and Exchange Commission. And that's pretty cool.
Pretty doggone cool. In fact, I was just across the street from that office in Washington, D.C. i took my daughter up there for a little concert. And that was kind of cool. We ate at this little Irish place, and it was right across the street. And I was talking to somebody, and she's like, oh, yeah, we're right there on the intersection and blah, blah, blah. I said, oh, my goodness. I was just there. And they're getting offered 50 grand to get out of Dodge. So pretty good. Pretty good deal, some of this stuff. The government sometimes knows how to correctly dangle a carrot in front of you. So who's eligible? These are standard rules. You have to be, you know, employed a certain way. You have to be in the right group. Correction, right? You know, you have to be hired federal employee. All these things with the restrictions. And then you can't get a vsip. If you're a RE employee. You're already getting a pension. You're re employed. You're dis, you have a disability that you're going to be getting a disability retirement. So they're not going to be paying you that money if you have a disability.
Correction. Not just have the disability, but be eligible to apply for the federal Disability Retirement Program. And if you've already received a VSIP and you come back to get more, nah, they're not going to double pay you. Remember, the government is not into double dipping, so just no.
And rehiring and loan payments and all these things. So the way they compute it, it's based on, usually it depends on how they're doing it, but it's pre authorized. And then of course the maximum here is 25,000. So I've also seen some that are based on seniority. So they say, okay, we'll give you up to $25,000. But the most senior people get 25, the lower people get 15 and the lower, lower people get 10. So it's like a tiered, a tiered option that they're, that they're doing now. What if you get rehired back and these other things? There are scenarios where you have to repay it. I won't go into that. Just know that there are some scenarios where you may have to give the money back if you're coming back to the Fed. So the vsip, you see how short that is. They're just offering you money to do what you may have done anyway. So can you get both the VSIP and avira? Absolutely. That's usually how they do it. They're like, hey, carrot dangling. If you were going to leave Anyway, here's your $25,000 to go ahead and go sooner than maybe you planned on. And if you're not eligible to do a regular retirement but you, but you, you want to take this, Vera, go ahead and do that and we'll also give you the extra money. So remember, that's 50 and 20 or any age with 25 years of service. So what does it mean to be actually eligible? Well, anybody that's over 62 is eligible pretty much, period. Because they must all have five years of service. Why five years health insurance. You got to keep the health age 60 with 20 years or more or minimum retirement age with 30 years of service. And then a lot of people see MRA plus 10 and they get real excited. They're like, well, MRA and 10, why would I wait till 30 years? Yeah, but the MRI in 10 without Avera, remember their reduction? It's going to be reduced by 5% for every year that you're not 62, the Vera protects you from the reduction, which is massive, massive. We joke about sniffing at the pension and how little it is, but remember your, your brothers and sisters and friends that are not federal employees. Most mom and pop shops have no pension and they have no supplement. Most private entities have gone to an only 401k system. And that's not something you can touch before you're 59 and a half like at all, not to your bank. There are so many provisions made to make your life good after having worked for the federal government. And so even those of you who are nowhere near eligibility and are not eligible for a vera, people say, well, what's my recourse? I can't do any of these things. Number one, you can try to stay the course. Number two, you could quit, which is potentially a deferral. If you're leaving before you're at MRA and you have more than the five years of credible service, you can defer until one of these eligibility, ages and years of service. Click. So, for example, if you have seven years of service and you quit at the age of 52, fast forward, you turn 62, there's your five years of service and your age of 62. You can then submit documents to turn on income of that lifetime pension. You'll never see health insurance again, or life insurance, but you can get money for the rest of your life even in that scenario. So I, I can tell you, I've heard a lot of people say, oh, well, that's not, that's not great. Well, it's sure great in comparison to the zero that a lot of other people get if they get fired or the company closes or things like that. And I'm not here to say, oh, look at how great you got it. But I am, I do like to offer a bit of perspective because many times things look bleak and they're not anywhere near as bleak as you think they are. Remember Eeyore in Winnie the Pooh, Right? He's the only one that has the cloud over him all the time. And other people can see that the sun is shining and he maybe just can't see it because his emotions are blocking his ability to see that. So I'm not here to be a retirement therapist. Sometimes I do put that hat on. But remember, you have recourse. There's always something you can do. And it may be the action is to quit. Maybe not right now, it may be later, it may be take the vera, get out of Dodge and go do something else. But here's what's interesting. If you do quit, you can come back to the Fed and retire even later. There's a lot of benefits with what's happening right now for people and I'm not to say it's all, you know, bright eyed and bushy tailed. But I do, I do believe there's silver lining to all of this and the dust is going to settle and you're going to look around, periscope up and say okay, okay, it's not so bad. Many people will remain in their position. Many people will find a one that they like better. Many people will start a pension and realize that they have a quality of life like they never thought could be possible.
So reach out, let me know. My team and I are always ready and willing and able to help you navigate these waters. We do not charge to talk with you. There's no reason for that and we can help you do the math, do the planning, do the documents to retire the right way the first time, or if it's time to quit. We can help you understand what that means and what you want to do and not do after you separate. Either way, we look forward to talking with you soon and we'll retire you then.
[00:22:11] 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 Rena directly, call call 850-450-6500. That's 850-450-6500 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 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, fegli, and FEHB are all registered trademarks of the UL 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.
