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, Reyna Reyes.
[00:00:40] Speaker B: All right Dorothy, you're on the way to the Emerald City, but on the way you're going to have to make some stops. What are these stops? Well, you're going to have to pick up the Tin man, the scarecrow, the lion. You're going to have to see all these people and run away from some bat monkeys. All kinds of things are going to happen on the road to retirement. Let's call it Emerald City for you. So in this example there are some different things happening, right? Who am I? How many years of service do I have? How old am I? What's my 10 year level? You're asking yourselves all these questions along the road to retirement and you started off skipping down the yellow brick road and then maybe we had some encounters with some obstacles. So let's see where you are in this. I was given a magical little document by a federal employee and I wish I could take the credit for it, but that's not me. But it's beautiful and I love it and I'm using it. So here we go, let's see who you are, where you are. Maybe this will help you. There's some different scenarios so you can check where you are on the road to retirement. So first of all, age and years of service. Are you over 50, do you have over 20 years of service? Or however old you are, do you have more than 25 years of service? Either of those situations will make you eligible for one of these first two options, either a VERA or a dsr. Avera Optional dsr. Discontinued Service Retirement, not optional. So the eligibility same. But do you get an immediate pension? Does it start straight away? Yes, both of them. Do you get a supplement? Yes. Do you get health and life insurance with either one of them? Yes. Is there a penalty for retiring early? No. Which one do you get to pick? The vera. The DSR is used, as you can read, used primarily during a rif and they've got to have the written notice of the involuntary separation. And if they offer you Another job, and they consider it reasonable. And you say, no, you ain't gonna get it. And so that's some situations. Some people ask me, I think I'm gonna skip the VERA and wait for the dsr. You could, but what if some of these things don't allow you to accept it? So you have to really take a litmus test, look around and see what options could be available for you. Then you say, okay, well, I'm eligible for a Vera. I'm eligible for a DSR because I'm over 50 with 20 years. But how much over 50? How much over 20 years? Well, if you're past your minimum retirement age and you have 20 years of service, now you're on the next phase where you're eligible for an MRA plus 10 retirement. Well, what does that prevent you from? Severance. Because you're eligible to receive an immediate pension and immediate annuity. There will be no severance if you're eligible for a current open vera and. Or if you're eligible for an MRI plus 10 retirement. So I'm 57, which is the last MRA that exists. I have 20 years of service. Yay. I'm eligible for a Vera. Didn't take it. I get rift. Hey, Raina, what do I do? What can I do? Well, you can retire, but as you can see, you will have a reduction. That's where you see this second line. Yes. You get an immediate pension. It will be reduced. How much will it be reduced? Every year you're not 62.
That's each worth 5% off your pension. So let's pretend your 20 years would be 20% of your current high through salary. Let's say you make 100 grand high through salary because that's 20 grand a year. Well, you're 57. How many years under 62 are you? 58, 59, 60, 61, 62. Five times five. 25% reduction. For how long? Forever. But you do get to keep health insurance and life insurance forever, so that's good. I was just doing the math here. On a $20,000. So that's $5,000 a year reduction in that pension. But you do get to keep health insurance and life insurance and whatever family members are on your health insurance at the time remain until they're no longer eligible. But with an MRA plus 10, do you get a supplement? No.
No. But as you can see, you keep health and life insurance, but you see the penalty and it allows you to go. Some people say, I don't like this. It's not fair. That I don't get a severance. Well, the severance people are saying it's not fair. I got a lady yesterday we're talking to. How about she's 54 with like 35 years of service.
So she's, you know, eligible for severance.
She's probably also eligible for dsr. So if there's a dsr, is she going to get a severance? No, she's going to get the retirement. You see, so different things but, but steps have to happen. Different things have to happen in that situation. All right, what's our little yellow box over here? Well, you can defer. So I'm not MRA plus 10. I'm not eligible for a Vera. I'm not eligible for a dsr. Well, you can defer. What does that mean? Quit, resign, get out of dodge. When you leave your years of service freeze and they just wait on you to do something with them later. You could go back to fed service, pick up where you left off and then retire later. Or you don't go back to fed service and you wait till the years of service you had merit you eligibility at whatever age that is. For example, let's take my lady I gave you yesterday. So she's 54, 30 something years of service. Well, technically she's eligible for DSR. So she'll probably take that if it's made available to her. Let's take somebody else that, that it would need to be deferring. So let's say I'm 54 years old and I only have 19 years of service. Well, I quit, I resign, I'm done. Those 19 years, they wait for me to do something, get older. With 19 years of service, what's my first eligibility window age? 62. If I had left with 20 years of service, then I could turn it on at 60. If I had left with 30 years of service, I could turn it on at MRA. So you see the differences. Deferral. You leave, you never see health insurance again, you never see life insurance again. But you do see money again later. So there is a pension, but much later in your life. Now the purple one, postponed. Let's say you are MRA in 10, but you don't want it to go ahead and take the reduction. I don't want your money. I got another job. I don't need your health insurance right now. I have Tricare, I have VA benefits. I got another job with health benefits. My spouse has health benefits. Don't care. You can do the same quitting as you do if you defer but that same years of service waits on you to get old enough to turn it on. Same situation if you had 20 years or more, you turn it on at 60, less than 20 years, turn it on at 62 to prevent the reduction. The difference between deferred and postponed is that you left after your MRA to postpone with 10 or more years of service. With deferral, you Left under your MRA with at least 5 years of civilian credible service. And with a postponement, you turn on the health insurance whenever you turn on the money. So years later you turn it on at least what, two days before your 62nd birthday or something similar to that. And you turn it on and the health insurance follows and the life insurance follows again. So that's pretty great. A lot of people do that. Tons of military retired will do that because they don't want to deal with. Maybe there's drama. They want to get out of dodge and they don't need the money yet. They're willing to wait a year or two or three or four, depending on how far away from eligibility. Turn on the pension. Unreduced they are. But they don't care about health insurance because they got Tricare. So some of my other non military people need the health insurance again. But maybe they're okay with that time period between resigning and turning on the pension to have no health insurance for that time period because they have it somewhere else like I mentioned or something like that. Or they're saying, I'll just go to healthcare.gov and have the, you know, I'm not making so much money anymore. And some of y'all want to consider this. If you, if you're looking in the face of losing your federal health insurance, look first to what your salary is going to be.
Because if you have another job, maybe it's not the same salary you made now, maybe it'll be less. Maybe you're only receiving the pension and look and see what it is because it could be an income that could merit you some type of subsidy from the healthcare.gov Metallic plans. So that's something to consider. This is very All Things Considered. Who did that show? I can't remember his name. Anyway, all things considered. And then there's the rest of the story. But you want to think of all the different things. Life insurance, obviously people want that. If you're leaving. I already, I already, if you, if you watch any of my other stuff, I already did a, did a recommendation of if you're leaving and you have any level of fegli life insurance, please. At least at a minimum, keep basic at a 75% reduction. It is very inexpensive before you're 65. And after 65, how about free to keep 25% of your salary as a death benefit? So let's say you made 100 grand a year. That's $25,000 for free forever. Tax free at passing covers a funeral, 25 grand, that's two funerals at least. If your salary was 200 grand, that's a free 50,000 forever for which you pay peanuts before you're 65. I encourage you to maintain that. If nothing else, if you have a keep it, it's cheap, 13 bucks a month between 60 and 65 for another 10,000, and then free to keep $2,500 of life insurance forever. And then if you're married or have any children that are eligible for the family life insurance, it's also incredibly inexpensive to keep that on your spouse also forever. So basic A and C. I recommend to just keep part B. Bravo. Some people say B means bad or B means more bucks and can be true. The cost of optional life insurance, Part B increases every five years. And I think I'm funny and I call age 60 and 70 the Sanford and Son years because it's the big one. I'm coming, Elizabeth. So that's when the pain of the price comes upon you. And many people will reduce at that point or eliminate it. But if you currently have extra units of part B and it's not painful in cost, I would say keep a couple of units because you can always reduce or eliminate. So I wanted to do this little skip down the yellow brick road conversation because you need to know A where you stand, B where you're going, C, what might you pick up along the way? You may pick up eligibility for something that you didn't previously have. You may pick up some type of benefit, right? You may, you may find you may be offered, oh well, you're offered a, you know, discontinued service retirement and you miss the vera and you're like, oh my goodness, right? We've had quite a few sort of retirement therapy sessions where, and I get it, this is, this is your livelihood. This is the method by which you're putting children through college. You're starting small businesses, you're creating lives. Many are creating wealth for their families, generational wealth. Some people are sending money to their families that you know, are abroad.
All of these things are happening. And I understand this is coming to an abrupt decision making time. But you're not alone. And you have offers.
This is not silver lining talk. This is not Pollyanna. But I do want to remind you, hey, you do have options for lifetime income. You do have options for lifetime health insurance. You do have a TSP into which you've been contributing and getting a match. That is, that could potentially be a saving grace for you if and when this separation happens. And we need to sort of grab some cash in the interim or figure out some type of income plan from your TSP to make sure that the income situation for you is not catastrophic, that the bills continue getting paid. All of these things we take into consideration. And I understand that a lot of y'all are saying that you want to get into the weeds and the decimals and things like that, but life is also going to continue happening. And I want to first speak to that. The spirit of what you're looking at, the spirit of we've got to keep bills paid, food off the table, debt collectors off our back. All of that is paramount for you. And that's why you're saving, that's why you're planning, that's why you're reaching out to us. So I hope this helps. Consider where you are. Let's have a talk. Let's plan for where you currently are, where you're going, and let's get you to the Emerald City. Talk to you soon.
[00:14:19] Speaker A: Thank you. 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 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 1-800-872-885. 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 respect. 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 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.
