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September 25, 2020

Federal Employee Retirement and Benefits News

Category: Articles


All the latest articles covering the information that you will be craving to devour will be available via this category. From getting to know how indebted our company is to reading about the presidential elections; from knowing about new retirement plans to finding out how security breaches can affect your life; you can browse it all!

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Common Myths with Claiming Social Security, by Michael Sesler

When should you start to claim Social Security? For many, this is a big decision that causes confusing conversations with partners, friends, and colleagues. Get the decision wrong, and it could be a bad mistake; get it right, and you’ll get the retirement you always wanted. 

At the age of 65, Social Security can make up at least half of the average American’s income. As soon as you start claiming underneath the full retirement age, even at 67, benefits are reduced until death. Those in a tricky financial position may claim early, at 62, which has the steepest penalty of all. According to one study from the Bipartisan Policy Center, monthly benefits can fall from nearly $1,260 to $700 when claiming at 62 as opposed to 70; the study was based on an average worker expecting benefits of $1,000 at the age of 67. 

If you can wait, you’ll get rewarded with Social Security. Just because you can claim at 62, this doesn’t mean you should. The earlier you start claiming, the longer the fund has to last, and the smaller your monthly benefits. However, the sad problem with Social Security is that many myths and misconceptions affect older workers’ decisions. We’re going to explore some of these myths today!  

‘I need to claim when I stop working’ 

We understand the premise, but you don’t need to start claiming Social Security as soon as you stop working. At 62, you can continue working without claiming benefits. Likewise, you can stop work and still not take benefits. Before making a decision, it’s good to know all the options available to you while also considering your life position. 

For example, you should think about your health. If your life expectancy is shorter than the average, you might want to start claiming early. If you have a spouse, the situation changes again because waiting will increase benefits for those left behind. Don’t forget, Social Security is designed to help in retirement, and you may have increased healthcare costs in the future. Try not to take the monthly benefits until you need them. 

‘Older workers will receive benefit cuts soon’ 

With the COVID-19 pandemic, it’s natural to feel nervous about Social Security, working life, and finances. After this devastating year for the economy, it seems that predictions for Social Security’s demise are getting closer and closer. While some say 2032, others believe the program will be depleted by 2028. 

After hearing this news, you might panic and immediately start withdrawing in case this money disappears in the future. Again, we understand the concern, but you shouldn’t take action too early. If you’re close to retirement, there are all sorts of reform proposals for the Social Security program. At the moment, anybody nearing retirement are safest from potential cuts and losses. 

‘I should use my break-even date to decide when to claim’

When people talk about Social Security, you’ll often hear them mention break-even dates. Essentially, this is an estimation of the total amount you’ll receive if you either wait or take the benefits early. However, you won’t hear that field offices around the country have removed these calculations from their advice when helping near-retirees. 

Sadly, people were told that they would be ahead until a certain age. This sounds great, but it fails to mention being behind from that point forward. Instead, we recommend listening to our advice that waiting can boost the benefit amount significantly. 

Now you know these three myths, you’re in a better place to make a strong Social Security decision! 

Planning and Preparing for Retirement – 10 Things Retirees Wish They Knew, by Curt Hespe

With the events of 2020, it’s fair to say that the topic of retirement has fallen down the list of priorities in recent times. However, the problem is that, while the pandemic continues, so too does time. With this in mind, there’s no better time to bring retirement back into the conversation, and it starts with some tips here today. Here are some things that current retirees wish they knew! 

1. Try to Remove All Debt 

Who wants debt in retirement? For most people, debt isn’t included in ‘dream’ retirement plans. For those who retire with debt, they quickly realize why it’s a problem. Especially with credit cards and other high-interest debts, it’s always best to remove this from the picture before you finish working. Since interest rates on loans are currently low, we recommend refinancing wherever possible. Use a personal loan to pay off a credit card or refinance your mortgage – it’s time to pay off the actual loan rather than just interest. 

2. Visualize retirement 

This might sound obvious, but there’s a difference between planning retirement and actively imagining how life will be after work. How do you expect to develop a good plan if you don’t have a vision? Do you have grand plans for a safari trip to Africa? Will you finally take up an expensive hobby? If so, consider this in your financial planning. It’s better to think about this now while you’re young enough to save for all these things. 

3. Consider Social Security 

Thankfully, Social Security has been helping retirees to meet the financial demands of retirement for many years. But the amount you receive each month will depend on when you start claiming. Although you can effectively claim at 62, we recommend waiting if you’re expecting to live a long and healthy life. The longer you wait, the higher your monthly payments (because the money is spread over a shorter period until death!). 

4. Budget, Budget, Budget 

If you’ve set goals and thought about the life you want in retirement, the next step is to budget. How much will you need during retirement? You may not be paying for childcare any longer, but new expenses will arise like healthcare. Unless you have a health issue, plan until at least your early 90s and consider how much you’ll need each year. 

5. Consider healthcare 

Although most retirees lean on healthcare, it’s something that often goes under the radar when planning. You might say that you have Medicare, but the problem here is that it doesn’t cover everything. Instead, we recommend complementing Medicare with some form of health insurance. 

6. Be Healthy  

If you’re still young, put your health at the forefront of everything before it’s too late. Go out for that walk, change your diet for the better, and make healthy decisions. The more you do at a younger age, the healthier you should be in later life (and thus, the less you will pay for healthcare!).  

7. Save and Cut Expenses 

Everybody should make saving a habit. If a certain amount of your paycheck goes directly into a retirement account, it won’t be long before you completely forget about this missing money. The younger you are, the more time you have to save – we recommend using one a retirement calculator online to review your required saving habits.  

Of course, we would never recommend saving beyond your means. If you can’t meet your savings goal now, do as much as you can and try to meet your goal in the future. One way to do this is to cut unnecessary expenditures. Don’t give up things you enjoy or reduce your quality of life but assess your spending to see if there’s something you can do to cut back. For example, perhaps there’s a magazine subscription for a hobby you no longer enjoy. You’d be surprised at how much you can save after reviewing your finances and eliminating unnecessary expenditures. 

8. Review Your Retirement Account

Many employers will contribute to a retirement account – you may even have an employer that matches contributions. If so, this is fantastic. However, for those without a 401(k) or another retirement plan, we recommend opening an IRA. There are two main options to consider: 

•    Roth IRA – You will have to pay tax now, but withdrawals in the future are tax-free. 

•    Tax-Deferred IRA – Funds will build free from tax, but there is taxation with withdrawals in the future. 

If you think you’ll be in a high tax bracket during retirement, it might be better to pay the tax now, while in a lower bracket. If you need help, don’t be afraid to contact a financial advisor. 

9. Create a Withdrawal Strategy  

We know what you’re thinking, ‘why do I need to think about withdrawal strategies when I haven’t even finished saving yet?’. However, knowing your withdrawal strategy allows you to consider taxation and therefore saving requirements. As we’ve just seen, whether or not you’ll pay tax with withdrawals depends on whether you have a Roth IRA or a tax-deferred retirement account. 

One of the most common strategies is to withdraw 4% and then adjust for inflation every year after the first. Unfortunately, there are problems with this one-size-fits-all approach. Therefore, some retirees choose a tailored plan that allows them to spend more in the early years (to allow for a bucket list) and then less in the later years.  

10. Minimize Investment Fees 

Finally, another tip we’ve learned from existing retirees is to minimize investment fees as much as possible. If you aren’t sure what fees you’re paying, get in touch with the plan administrator, and they should offer a breakdown. Nobody should pay over 1% of total assets in annual fees. If you are, consider transferring your money to index funds and other low-cost investments. If it’s an employer-sponsored plan, talk to your employer to see if you can add more affordable investments.

With this, you have ten things retirees wish they knew about preparing for retirement and retirement itself. If you notice things wrong after reading this list, don’t panic. Ultimately, a retirement plan is an evolving strategy. Keep reviewing your position and make adjustments whenever required! 

Three Rules for 401(K) Withdrawal to Ensure Your Retirement Savings Last Longer

Saving during your retirement years is tough, and when you reach retirement age, there’s the relief that the most challenging part is over. However, you can never be more wrong. There’s one more challenge you’ll have to face – making sure that your retirement savings last as long as possible.

Regardless of how large your nest egg is, it won’t matter if you don’t manage it properly. If you withdraw too much, you could run out of money in a few years.

While everyone’s situation and withdrawal plans can’t be the same, there are some rules to keep in mind when determining how much you can safely withdraw from your retirement account.

1. Be flexible 

The 4% rule, which is one of the most popular retirement withdrawal guidelines, suggests that you should withdraw 4% of your total savings in your first year in retirement; you can then adjust your withdrawal in subsequent years to account for inflation. 

There’s also the issue of spending volatility. According to JPMorgan Chase, 56% of American households experience spending volatility in the first year in retirement. You may experience higher or lower waves of spending in your first year. For instance, you can spend more than average if you travel or engage in new or expensive hobbies.

Your expenses may also shoot up if you develop complicated health issues as you grow older. While it’s difficult to predict how much you will spend each year in retirement, it is essential to be flexible with your retirement withdrawal plans. If you develop a rigid plan, you may be thrown off balance and end up spending more.

2. Don’t miss Required Minimum Distributions (RMD)

At the age of 72, you’ll start taking RMD from your 401(k) account. The amount you can withdraw will be mostly dependent on your 401(k) balance, and the IRS usually calculates it.

If you don’t withdraw your RMD on time, you will be hit with a tax penalty (50% of the amount you are supposed to withdraw). For instance, if your RMD is $30,000 per year and you skip it, you’ll pay a $15,000 penalty.

The required minimum distribution can throw you off your retirement withdrawal plans if you plan to work at age 72, as you’ll still be required regardless to withdraw the RMD. However, you may qualify for an exemption if you have your 401(k) account through your current employer.

3. Don’t forget taxes on your withdrawals

The 401(k) account is a tax-deferred account, which means that you won’t need to pay taxes when making the contributions, but you will pay the taxes when you start taking withdrawals. So it’s essential to account for taxes as you calculate your withdrawals.

The amount of taxes you’ll pay depends on the state you live and the amount you wish to withdraw. If you live in the same state and withdraw the same amount as you are earning now, your taxes may not be too different. However, if you move to a new state or withdraw more or less than you do now, the taxes you’ll have to pay could change significantly.

Ensure that you consider how taxes will affect your withdrawals before you retire. If you are moving to a new state, find out the retirement income taxes in that state. There’s a possibility that you may get out of paying taxes altogether. However, if that isn’t the case, consider how the taxes will affect your spending and include taxes in your retirement budget.

Planning your retirement withdrawal is a vital step to ensure your money lasts as long as possible. And you can achieve just that following the tips above.

Three Ways to Prepare for an Early Retirement Sponsored By:Bill Hoff

It's been months since the pandemic started, and millions of Americans are still struggling with the financial impacts. Over a million people filed for unemployment over the last week, and data from the Labor Department showed the unemployment rate has risen to about 15 percent. 

You have a few options if you lose your job. You can try to survive on the unemployment benefits and savings until you find another job or retire. Early retirement comes with many challenges, mainly because you won't have time to save more. However, if you don't have any other options, there are ways you can make it work. Although it may not be easy, you can do a few things to ensure you live comfortably in retirement.

1. Look into Your Healthcare Options

Losing your job means losing the healthcare coverage that comes with it, and it's a significant risk to be without healthcare insurance, especially in a pandemic. If you are age 65 or above, then you are eligible for Medicare. However, if you are younger, you'll need another plan. If married, you may get healthcare coverage through your spouse's employer; otherwise, you should consider enrolling in COBRA insurance or buying healthcare insurance in the marketplace. 

Buying health insurance through the Affordable Care marketplace depends on where you live and what's available there. The cost varies, so shop around and research various options to find the one that fits your needs and budget. 

2. Consider Claiming Social Security Early

You can start claiming Social Security benefits once you are 62 years old, and in some cases, it's a smart thing to do. If you decide to retire early, claiming Social Security benefits will provide sufficient funds to go a long way in allowing you to make ends meet once you are eligible. Early Social Security withdrawal also means you'll withdraw less from your retirement savings. 

However, ensure you consider the benefits and disadvantages before filing for Social Security. Keep in mind that when you withdraw from Social Security before reaching the full retirement age (FRA) – which is 66½ years, depending on when you were born, your Social Security benefits will be reduced by up to 30%. And if you wait a few years after hitting FRA, your benefit amount might increase by 32%.

If your savings are sparse, consider leaving your Social Security for a few more years to take advantage of the bigger checks. If you can handle it, delaying your benefits can prove beneficial, but ensure it doesn't lead to draining your retirement savings.

3. Create and Follow a Budget

When you retire earlier than planned, there's a need to become creative with your spending to ensure your savings last as long as possible. Create a budget mapping out all your expenses. Once you discover where the money is going, divide your expenses into various categories and reduce each category's amount. The more you can cut down, the longer your retirement savings will last.

Conclusively, while retiring early comes with a significant risk, if you don't have a choice, the tips above can help you make the best out of your situation.

47% of Americans Think Paying Medical Bills is an Unavoidable Retirement Expense, by Todd Carmack

Healthcare is an unavoidable expense. But when it comes to covering this expense, many American retirees worry about covering their costs. According to the July 2020 Retirement Confidence Index, 47% of Americans worry about covering their medical expenses after retirement. If you fall under one of these statistics, you can look at these simple things to make your life easier. 

1. Estimate your costs

The money that you will spend on your medical care as a senior will largely depend on how well you manage yourself and take care of yourself both during work and your senior years. But did you know, according to cost projection software provider HealthView Services, the average spending of a healthy 65-year-old couple in retirement is expected to be $387,644 on healthcare? This number is just an estimated amount but can be used as a reference to come up with a retirement budget that can help you to cover the necessary expenses.

2. Learn more about your Medicare

Many American seniors were shocked when they realized that Medicare isn’t free and doesn’t cover dental care, eyeglasses, vision exams, and hearing aids. There are services under Medicare that are subject to deductibles, copays, and coinsurance.

Did you know that Medicare Part B charges a standard premium of $144.60 per month this year? And it may increase in the future, and this is in addition to the premium that you will pay for your Part D drug plan. Only part A is free for most seniors, and it covers hospital care. You need to learn about your program and check to find out what your Medicare will look like when you need it the most. 

3. Maximize your health savings account

If you have enrolled in a high-deductible health insurance plan – launched this year as a deductible of $1,400 – $2,800 or more for you and your family – you can contribute to a Health Savings Account. If you are healthy enough, it pays you to maximize. The money you put into this account can be used immediately, but you can also keep it aside, invest, and carry it to your retirement when you need it the most.

The contribution amount to an HSA varies from year to year, but it’s $3,550 if you’re putting money on your behalf or $7,100 if you’re contributing on your family’s behalf. And if you’re age 55 or older, you can add $1,000 as well. By maximizing your HSA balance, you’ll get a trustworthy income source to cover your healthcare expenses during your retirement years.

4. Contribute more to your IRA or 401(k)

The more money you contribute to your IRA or 401(k), the easier it will be to pay your medical expenses. You can contribute the maximum to any of these accounts to add more flexibility to your financial stability. If you’re under age 50, you can make annual contributions of up to $6,000 for an IRA and $19,500 for a 401(k). If you’re age 50 or more, this limit is $7,000 up to $26,000, respectively.

You may find an IRA or 401(k) better than an HSA because you get an option to use your funds as you like. But don’t forget, an HSA gives you added tax benefits. When you contribute to an HSA, your contributions are tax-free, investment gains are tax-free, and withdrawals are tax-free if you use that money for healthcare expenses. But with a traditional IRA or 401(k), contributions are tax-free, but investment gains are not, and withdrawals are not tax-free during retirement. Roth IRAs and 401(k)s are different: Contributions are made with after-tax dollars, while investment gains and withdrawals are tax-free. But when we look at these plans from a tax perspective, the HSA is the winner.

When you are retired, it’s natural to worry about paying for medical care, but rather than worrying, start contributing early and prepare yourself to cover it. Try to learn about the workings of Medicare so that you know how to maximize your benefits. 

Most retirees overlook a $16,728 Social Security bonus.

If you think that you are like most Americans who are just a few years behind retirement savings, a handful of little-known “Social Security secrets” can increase your retirement income. For example, we know a trick that can help you get $16,728 more each year! Once you learn the trick to maximize your Social Security benefits, we assure you that you can retire confidently and peacefully.

5 Important (and Not Fun) Facts about Federal Retirement, by Aaron Steele

Have you ever read the articles that offer ‘fun’ facts about retirement, saving money, and other financial topics? We have, and they barely scratch the surface. Although it’s not an excellent job, we’re going to uncover some of the less fun facts today.  

Social Security retirement benefits often come with federal income tax bills. 

Firstly, you will only avoid tax when your combined income falls below $25,000 as an individual or $32,000 as a couple. As soon as you’re over this amount, your benefit could be taxed 50% or even 85%. In case you didn’t know, you don’t need to add all Social Security to your ‘combined income’ calculation, only half (and non-taxable interest).  

We have better news because not all states will tax Social Security benefits. Also, when first applying, you might request withholding of federal taxes for benefit payments. For those receiving benefits, use Form W-4V (this form is also for those who want to stop or change withholding). 

Survivor elections are permanent. 

You may choose less than the maximum survivor benefit under the Federal Employees Retirement Systems and Civil Service Retirement System plans in retirement. However, you’ll need consent from your partner, if married, at the point of retirement. It’s possible to reduce or cancel the survivor benefit, but this needs to be done within 30 days of the first monthly payment. In the first 18 months of the annuity, you can only add a survivor benefit or increase the existing one (in a single life annuity).  

Under FERS, there’s a fairly hefty penalty when changing from no survivor benefit to either a full survivor benefit or a partial one; 24.5% or 12.25%, respectively. Let’s say your partner waived a survivor benefit at retirement, then a benefit of $50,000 per year would lead to a $12,250 penalty if introduced later. As mentioned, this is only available for the first 18 months of the annuity too. Under CSRS, there’s also a penalty. Once the initial 18 months have passed, whatever survivor options you have set up will be considered permanent (until divorce or death).  

Before filing an application for retirement, we always advise carefully considering the value and cost of this single benefit. If you die first, how will your spouse maintain their living standards? Even if your spouse is older and has a medical condition, you still need to consider the risk of dying first. If you and your partner will be reliant on your retirement income, it might be wise to elect a survivor benefit. Although your retirement will drop in value, you will also pay less in tax. If your spouse dies first, you can restore the unreduced annuity. 

Retirement estimates aren’t always accurate.  

When this happens, it’s natural to look for somebody to blame. In reality, it just tends to happen sometimes. For some inaccuracies it will be due to owed state income tax on a FERS or CSRS benefit. They can never be 100% accurate with estimates because they don’t consider Social Security retirement, part-time or full-time work, a spouse’s income, or withdrawals from a TSP or another retirement plan. 

If you want to calculate better estimates for federal tax withholding, we recommend the brilliant IRS estimator tool. What’s more, you can adjust tax withholding on the Office of Personnel Management website. 

Another problem with the estimate is that it can’t consider a service credit issue. For example, this includes changes in work schedules, service that isn’t creditable, unpaid redeposits or deposits, undocumented service, or retirement coverage adjustments.  

In our experience, we’ve seen estimates also missing former spouse entitlements, a FERS supplement, or survivor benefit election. Even with offset estimates from the CSRS, they can fail to explain the offset when qualifying for Social Security or retiring. 

Don’t get us wrong; it’s useful to use retirement estimates from agencies. However, seek clarification if you’re confused by your estimate or believe something to be wrong. The last thing you want is to retire and then find you have less money than expected. 

There’s a Social Security hit for those born before 1960.

According to some statistics, the number of people born before 1960 is four million; this means turning 60 and becoming eligible for Social Security in around two years. Before the first year of eligibility, Social Security will go back two years for an average wage level. Thanks to the Social Security Trustees Report, we know that the average wage index was around $53,850 in 2019. In 2020, this was originally expected to increase to $55,650. Now, the COVID-19 pandemic and high unemployment will push this figure right down. 

Compared to those born in 1959, the class of 1960 could get benefits as much as 6% lower. Although we could see a fix from Congress, this will still come at a cost. 

Coverage can change after retirement. 

Finally, some people entering retirement will want to keep their life insurance benefit coverage. However, there’s a cost that comes with continuing coverage after the age of 65. With this in mind, you need to think about whether or not you want and need life insurance after retiring. 

With Option A and Basic FEGLI, there’s an opportunity to extend coverage after age 65 and retirement. Yet, coverage is 2% less per month until it reaches one-quarter of its original value. We recommend using the OPM calculator to work out the estimated cost of continued coverage.  

Though not exactly fun, these facts about federal retirement are important. Make sure you consider them when planning for your retirement!

What Will Happen to Your Social Security Benefits if the Economic Crisis Forces You Back to Work?, by Michael Sesler

The coronavirus has had a massive impact on the United States’ economy, and retirees are not immune to the resulting consequences. The financial crisis has made many retirees consider working for a paycheck again.

Suppose you are a senior considering coming out of retirement to work again. It’s essential to realize that this decision will affect your finances in more ways than just providing an additional source of funds. Going back to work after retiring can affect your Social Security Benefits.

If you’ve already reached full retirement age (FRA), you don’t have to worry about your Social Security Benefits. You can work and earn as much as you can. FRA is within 66 to 67 years, depending on when you were born.

However, if you are below FRA, your Social Security benefits can be reduced if you earn specific amounts working after retirement.

  • If you are still below the full retirement age for the full year, you’ll lose $1 in Social Security benefits for every $2 you earn above $18,240 (limits as of 2020).
  • If you reach FRA sometime in the year, you’ll lose $1 in Social Security benefits for every $3 you earn above $48,600 (limits as of 2020).

The aforementioned earning limits aren’t prorated, so anything you earn after reaching FRA won’t count towards the total you are allowed to earn without affecting your benefits.

These income limits change annually, and the deduction stops once you reach FRA. At full retirement, the SSA will recalculate your monthly benefits to account for the amount of income you lost by earning more money in retirement.

So if you are counting on full Social Security benefits because you need more cash due to the impact of the COVID-19 market crash on your retirement account investment, working may not help you so much. 

Is it Advisable to go Back to Work while Withdrawing from Social Security?

If the coronavirus has dealt a massive blow to your finances, then returning to work wouldn’t be a bad idea – even though it will negatively affect your Social Security benefits. Coming out of retirement to work is more advisable than making massive withdrawals from your already struggling retirement accounts and putting yourself at risk of running out of money in a few years.

This is especially true because even when you lose part of your Social Security benefits for earning too much in retirement, you still get to make money back later. While it may take time to break even for the money you missed out on, you shouldn’t let fear about getting your full checks prevent you from making the best long-term move.

The Impact of a Recession on Retirement and Social Security, by RICK VIADER

At the start of 2020, nobody could have predicted the year we would have. With COVID-19 causing mayhem for economies all over the world, even the well-equipped Western world hasn’t been able to shake off a pandemic that doesn’t seem to be going away. According to a Country Financial survey, over 45% of Americans believe that recovery from the COVID-19 pandemic will take over two years. With the country now officially in a recession, and the pandemic only getting worse, how will this affect your retirement plans? 

1. The Downturn in the Stock Market 

Firstly, there has been an odd upturn in the stock market despite the pandemic, but more shutdowns are likely to lead to a deeper downturn. For those closest to retirement, you might be forced into some careful reconsideration. One option would be to keep working and keep saving, but there’s always a risk of the pandemic causing layoffs. In some cases, we’re seeing people forced into early retirement due to crumbling savings and work loss.  

In terms of immediate actions, we advise checking asset allocation – this is essentially how your portfolio is divided between investments. If you’re close to retirement, you should place your money’s largest chunk in conservative funds. Rather than risky stocks, your money should be in bonds and safer alternatives. 

Someone has probably suggested that it’s always good to keep a small percentage in stocks. Even in retirement, this can help to grow savings. However, the majority should be in safer investments to protect you from a potential downturn in the stock market. 

2. Social Security Benefit Reduction

In case you didn’t know, Social Security benefits are funded by payroll taxes. It was recently revealed that the Social Security Administration (SSA) had suffered a deficit in funding. In other words, the only reason that checks haven’t been reduced at this point is because of the SSA’s ability to dip into trust funds. Eventually, these funds will empty, and it could be as soon as 2034. In the future, benefits could be limited to around three-quarters of what they are now. 

The pandemic and recession come at a terrible time for those expecting Social Security benefits. The first wave of the virus caused plenty of job losses, and the second wave could wreak even more havoc. If the SSA is forced to take more from trust funds than initially anticipated, the 2034 date could significantly move forward. Of course, we also need to consider the likelihood of a permanent payroll tax reduction.  

Ultimately, the reductions will hit hard for those expecting to retire in the next 10, 20, 30 years, and beyond. 

3. Claiming Start Date 

For all Americans, deciding when to start claiming Social Security is a complicated and often confusing topic. As soon as you start claiming, this decides how much you receive per month for the rest of your life. As we’ve already seen, not everybody will be able to make this decision themselves during a recession. 

Let’s say you lose your job; you might need to retire instantly, and this means claiming benefits so that you don’t drain other savings too quickly. The good news is that you receive financial support when you don’t think other employment will come. The bad news is that the checks will be much smaller than anticipated. 

If you’re in the lucky position of working through the recession, you might decide to stay longer than you planned. By waiting to claim social security, your monthly check will be higher than expected. With the problems we’ve seen above, this increased benefit can make up for shortages with savings or other investments. 


Unfortunately, the biggest problem looming over American’s heads is that nobody knows when the country will be back to normal. This makes retirement planning problematic, but the first step is knowing how a recession will affect your finances. In these cases, it’s best to seek out professional advice. The more prepared, and the more knowledge you have, the better placed you’ll be to make the right financial decisions.

Introduction to Dynamic Spending Rules for Retirement, by Bill Grossman

How much money will you be able to spend every year during retirement? This is a difficult question to answer because you want financial flexibility but without draining your funds half-way through. If you’re having trouble planning retirement spending, know that this is a universal problem. Some unknowns and uncertainties make planning challenging. This includes: 

• Future inflation rates 

• Potential market returns 

• The sequence of market returns 

• Our length of life 

Financial advisors rely on historical data to gauge safe withdrawal rates. For example, you may have heard of the 4% Rule. Despite its popularity, there are problems with the method, and we’re going to review them today. We want to uncover the truths behind both static and dynamic spending rules. By the end, we’ll hopefully explain why the second option tends to have more support these days. 

Static spending and the 4% Rule 

In 1994, William Bengen released a paper with the idea behind what we now know as the 4% Rule. In the paper, Bengen assessed the impact of the sequence of market returns on a portfolio’s length. Ultimately, he found that dangerous results came when focusing on average inflation rates and market returns. Even when there were decades of data, results were troubling. As a result, he suggested a safe withdrawal rate of 4% after considering actual inflation rates and market returns going back to the 1920s. With a 4% rate, portfolios could last 30 years or more. 

In the analysis, there was an assumption that all first-year distributions use a portfolio value percentage. For example, the 4% Rule would generate $60,000 on a portfolio worth $1.5 million. In the second year of retirement, distributions would remain the same as the previous year (adjusted for inflation) as opposed to 4% of the new total. Therefore, the 4% withdrawal is applied to the first year and then set. The most significant advantage of static spending is that withdrawals are consistent from one year to the next. 

Drawbacks of Static Spending 

With the 4% Rule and other static plans, some drawbacks make dynamic spending the more attractive option.

No Consideration of Actual Inflation Rates or Market Returns 

Firstly, the 4% Rule and others are based on historical data, which means they have considered the worst inflation and market return combinations. As the supporters will tell you, this means that the rule will be safe even if the economy were to collapse again. However, the problem with this is that some participants will spend and withdraw much less than they’re able. 

Assumption of Consistent Spending  

Secondly, studies from the Bureau of Labor Statistics show that, on average, spending reduces for retirees as they get older. Despite this, static spending rules suggest that we want to spend the same amount each year.  

No Way of Knowing Under- or Over-Withdrawing 

Finally, there’s no way of highlighting over- or under-withdrawals when they occur. You might get the same amount every year, but is this too much or too little? You can’t correct withdrawals based on after-inflation market returns. 

Dynamic Spending – A Wiser Solution

As you’ve probably guessed, dynamic spending does the opposite. While most year-to-year adjustments consider actual market performance, they could also include inflation rates in calculations. To prevent over- or under-withdrawing, dynamic spending rules have ‘guardrails’ and adjust annual withdrawals. We’re going to cover three of the most popular approaches today. 

The Yale Spending Rule  

As well as retirement, university endowments have these challenges. On the one hand, they want to fund the university and withdraw as much as possible. On the other, they need to protect future generations. As a result, some endowments use the solution developed by Yale University. 

How does it work? Well, the rules have evolved over the years. However, there have always been two calculations to consider. For example, it might be 70% of the previous year’s distribution (inflation-adjusted) plus 30% of a moving average. Here, a set spending rate is multiplied by the past three years of endowment balance figures. 

With the 70% figure, this ensures that figures don’t drastically change from one year to another. Meanwhile, the 30% figure considers the value of the portfolio and makes adjustments to distributions.  

Example – As an example, we’re going to assume a $1.5 million portfolio with a 5% withdrawal rate. At the same time, the three-year moving average is $1.45 million, and inflation is 2%. The first year’s distribution is $75,000. In the second year, it would go as follows: 

• $75,000 x 70% = $52,500 + 2% = $53,550

• $1,450,000 x 30% x 5% = $21,750


Once added together, you should get a second-year distribution of $75,300 (a slight increase from the first year). Why choose this rule? Well, the benefit is that it can be adjusted. If you want more continuity year-on-year, adjust it from 70/30 to 80/20. Additionally, the guardrails help universities (and retirees) from spending too little or too much. For example, you might want to set the guardrails at 3.5% and 7% of your portfolio. If the calculation pushes your withdrawal above 7%, you only withdraw 7% to protect your portfolio.  

5% Fixed Rate 

If you prefer something simpler, you might like the flat percentage rule. Depending on the market, the distributions will naturally increase or decrease. It’s simple, but one of the biggest problems with this method is that distributions can dramatically change each year.  

Example – Let’s stick with the $1.5 million portfolio example and say that you want to withdraw 5% per year. In the first year, distributions would be $75,000. What if the portfolio were to lose 15% of its value? At years end, your portfolio is worth a little over $1.2 million. Suddenly, your 5% withdrawal is only worth just over $60,500. In the second year, you’re receiving nearly $15,000 less than the previous year. And what happens if the portfolio value drops the following year again? 

Guyton-Klinger Spending Decision Rules 

Brought to the market by William Klinger and Jonathan Guyton, distributions here are based on four rules. While one focuses on the investments themselves, the others are as follows: 

•    Prosperity Rule – If withdrawal rates drop below 20% of the first year, annual spending increases by 10%. 

•    Withdrawal Rule – If the current year’s withdrawal rate is higher than the first year, or if there was a negative return, spending is not increased with inflation. 

•    Capital Preservation Rule – If the withdrawal rate exceeds 20% of the first year, annual spending reduces by 10% (opposite of the Prosperity Rule). 

Of course, there are finer details that come with the rules, but this is the general plan. Although it depends on asset allocation and various other factors, the rules above could allow for an initial rate of 5.6% while maintaining a portfolio to the end of retirement (99% chance). To calculate this 99% success rate and initial withdrawal rates, the authors of the paper used Monte Carlo simulations. 

Not so long ago, a certified financial planner, Michael Kitces, revealed a simpler version of the Guyton-Klinger Spending Decision Rules. He said that the starting withdrawal rate could be set to 5% before introducing guardrails of 6% and 4%. If inflation pushes withdrawals to above 6%, the distribution drops to 6%. If it goes below 4%, distributions rise to the 4% guardrail.  

Why Choose Dynamic Spending Rules? 

We believe two main benefits come with choosing dynamic spending rules:  

• Peace of mind with guardrails 

• Ability to take an initial withdrawal of larger than 4% 

While spending more money in a strong market, retirees can spend less in weaker markets, and these mid-course corrections allow for more effective utilization of retirement funds! 


How to Retire Debt-Free with a Million-Dollar TSP, by Mark Heinrich

Everyone dreams of retiring with a substantial nest egg. Just visualize having a guaranteed lifetime annuity linked, in part or whole, to inflation! Now, that’s one way to have a dream retirement. It gets better when you top it off with a Thrift Savings Plan with a balance close to the million-dollar mark. Unfortunately, these will most likely only be realistic for feds. For many private employees whose 401(k) offers very little compared to the generous match obtainable for the Federal Employee Retirement System (FERS) investors, it will only be a dream.

That’s not saying you can’t achieve smooth financial sailing in retirement as a private employee. However, it won’t happen when you have a mountain of credit card debt or still owe banks for mortgages and, most importantly, spend your income on jewelry, electronics, and other extravagant shopping. You’ll find yourself paying more in taxes and holding very little while still neck-deep in debt.

Thankfully, there’s a way out. According to Abraham Grungold, who has had a successful financial career and currently acts as a financial coach for government workers, feds can retire debt-free and well-off. Grungold did exceptionally well with his Thrift Savings Plan investment. He says the concept of achieving a stable retirement is to pay yourself first. While this concept has been around, and you may have heard about it, the hard part is putting it to work. Grungold believes the current COVID-19 crisis provides an excellent opportunity to put this plan to action and start paying yourself first.

What he Tells His Clients

“The Thrift Savings Plan enables workers to make pre-tax contributions. So if you save 5% to your retirement account and the government also matches your 5%, not contributing the initial 5% is like giving up and actual 5% bonus or raise. “I know numerous federal workers are trying to pay off their mortgage alongside their credit card debt, but with due respect, this is a wrong approach. If you have bad spending habits, then the best option to curtail extravagant spending and help you save more for retirement is to pay yourself first.” 

“Hold on; I didn’t forget about your mortgage or credit card debt. To get rid of those, you’ll have to create and live on a budget to minimize your expenses. For instance, you can give up Starbucks coffee while going to work every morning or eating out every weekend. Hopefully, you’ll save a few bucks by not eating in a restaurant during this lockdown. Alternatively, you can get a part-time job or set up a side hustle to bring in more cash to clear your debts.” 

Grungold also explained how he achieved so much following the same strategy. During his career as a federal worker, he always ensured to pay himself first by contributing to his personal IRA, Thrift Savings Plan, and other long-term investments. But then he realized that was making him fall short of meeting his monthly expenses. So he had to get an additional part-time job outside the federal service.

In addition to that, he also created a budget and lived by it, never spending more than he had in his account, and never buying anything he couldn’t afford, including large, expensive homes and cars. Now he guides his clients, in the same way, to enable them to reach their goals.

Sticking to a budget and monitoring your expenses are essential aspects of retirement planning everyone needs to consider. Review every payment, whether it’s your phone, cable, or insurance, and ensure you are getting the best prices for them all.

Do I Have Too Much Saved for Retirement?, by Bill Hoff

When it comes to retirement, saving too much can be just as damaging as not saving enough. For the aggressive savers out there, you’re probably accustomed to putting a higher percentage of income away from an earlier age. If you’re comfortably in the seven figures with some time to go until retirement, are you saving too much? 

Of course, we cannot possibly address individual situations in one article, so if you’re concerned, speak with a financial advisor (they can provide tailored advice). Generally speaking, there is such a thing as saving too much. It’s an excellent problem to have, but it still requires careful management to meet your goals and enjoy life the way you want. 

What do we mean? Well, we shouldn’t sacrifice today to live comfortably in retirement. Saving is great, but you’ll never be as young as you are right now. Often, it’s about finding the balance between living now and living in retirement. Although we don’t like to think about it, many older workers are robbed of their retirement years; this is hard to take when they made sacrifices at a younger age to have more money in retirement. 

If you’re not a huge spender and you’re happy with life right now, there’s no reason why you shouldn’t continue aggressive saving strategies. If you’re living frugally, it sounds as though you should readdress the balance. 

Ultimately, the debate over whether you have saved too much comes down to how you’re living now. If you’re happy in life and have seven figures in a retirement account, and you’re financially comfortable, we don’t see any reason to change. The critical question is how you feel right now. 

• Are you focusing so much on tomorrow that you forget today?

• Are you foregoing experiences in your desire for financial security? 

• Do you find yourself continually making sacrifices or saying ‘no’ because of money?

We think the only reason to re-evaluate savings is if you lack joy in life right now. This being said, we appreciate that some will have concerns over large tax bills in later life. Two main factors affect a tax bill:  

• The amount you withdraw over a single year 

• The number of accounts from which you withdraw 

Many retirees make the mistake of withdrawing from accounts that are all pretax dollars; with every withdrawal, there will be an unwanted tax bill. The way to beat this is to have traditional accounts with pretax dollars, and Roth accounts with after-tax dollars; withdrawals from the latter are tax-free. 

These days, every account and system has benefits and drawbacks, so do your research and speak with experts before making big decisions. When it comes to saving money, numerous supplemental accounts and alternatives are available from life insurance to taxable investment portfolios. 

Even for those who are over-saving, you can never neglect retirement planning. Just because you’re saving heavily, this doesn’t mean you will have a well-rounded nest egg when the time comes. It would help if you also addressed the important questions like when to start claiming Social Security, how to deal with additional income, health issues in the family, and how to enjoy retirement so that you don’t waste all those years of aggressive saving.

Additionally, we shouldn’t forget estate planning if you want to leave some money for loved ones or charities. As well as saving for you, we’re sure you’re also saving for others. Without proper estate planning, there’s a risk your money won’t go where you want it to go. When you give money to charity, you’re subjected to less tax.  

In truth, the laws and regulations are always changing. With the Secure Act passing last year, the stretch IRA provision was removed for inherited accounts, leading to higher tax bills for those left behind. 


There’s nothing wrong with aggressive saving as long as you aren’t reducing your standard of living. We believe in finding a balance between the present and the future. It’s all well and good having financial resources in retirement, but this is wasted if you don’t have the health, experiences, memories, and motivation now. 

If you’re happy in life and are still managing to save well, you deserve congratulations; this isn’t something that everybody can do! 

How to Survive a Market Downturn as a Retiree, by Brad Furges

With the COVID-19 pandemic causing much fluctuation in the market, many retirees fear an extended downturn will have a nerve-racking effect on their portfolio and retirement accounts’ valuation. Here are some ideas retirees can implement to reduce costs and get through the market downturn. 

1. Eliminate Unnecessary Costs

Take a look at your current living expenses and make sure they match your monthly retirement income. Track all spending and think through every purchase. Your goal should be to identify areas where you can cut down on expenses. For instance, you can do without a cable subscription if you don’t watch cable or replace it with cheaper alternatives like Netflix. 

2. Adjust the Thermostat

Energy bills take a massive chunk of our monthly expenses. To save money, you must make conscious efforts to adjust your thermostat to conserve energy usage. You can even buy a smart thermostat so that you can control your energy usage anywhere you are. 

3. Save on Health Care

If you’re worried about needing medical attention during the pandemic and the resulting bills, you should review your current health policy. Check to see if what’s covered through Medicare supplements is the coverage you need. If you aren’t sure about what’s covered with Medicare, consider meeting with a Medicare expert to review your options.

4. Cancel Your Gym Membership

With gyms closed in most states in the country, you don’t need to pay for a gym membership or even invest in expensive exercise equipment. Many communities offer free or low-cost exercise sessions for seniors. If those are also closed, then consider taking walks, hiking, or biking. 

 5. Negotiate with Lenders

If you have an unpaid mortgage, you pay monthly, and you’re having a hard time paying, call your lender and ask for assistance. See if the lender allows you to pay only the loan interest until your portfolio recovers before you start paying off the principal amount. This should, however, only be a short-term fix. Plan to pay off your mortgage as soon as you can. 

If you owe on credit cards, you can ask the credit card company to offer you a lower monthly repayment amount. Alternatively, you can switch your debts to another credit card with lower interest rates. 

6. Put Projects on Hold

While you can’t postpone essential fixes like a leaky roof or broken sink, consider postponing any major project that will cost a significant amount of money. For instance, if you plan to redo your bathroom or kitchen, refresh your landscaping, or put in a new patio, it’s advisable to wait until the market recovers before taking such a large withdrawal from your retirement account. 

Also, ensure that you ask for a senior discount when shopping or paying for a service. Most companies offer discounts for seniors but may not advertise it – so you need to ask! 

7. Check Investment Fees

It’s essential to always check the amount you’re spending to have your retirement account managed. Most funds have an annual fee of 1% or more. While this may look small, it can convert into hundreds or thousands of dollars. If you feel what you are paying for investment fees are high, look for other options with lower management fees.

8. Relocate 

One way to save some living is to relocate. Not just relocating to another house, you can relocate to another state. Moving to another state with a low cost of living means you’ll spend less.

9. Spend Time with Family Members

Instead of buying gifts for your children and grandkids, setting out a special day and taking them out to the park will help you create memories. This is more impactful, particularly in a market downturn than material items.

The CARES Act Allows You to Withdraw up to $100,000 from a Retirement Plan – Here’s Why Most People Aren’t Considering It, by Michael Sesler

COVID-19 has brought chaos to the financial world, shattering the US economy, and driving millions into unemployment. Many are uncertain of what life would become even if the virus is finally defeated. 

Thankfully, the CARES Act, which was signed into law in March, has a key provision designed to bail Americans out of financial difficulty when exercised. It’s the option that allows you to take penalty-free withdrawals from your retirement accounts.

Typically, making withdrawals from your IRA or 410(k) before you reach the age of 59 ½ attracts a 10% early withdrawal penalty. Why? Since owners of retirement accounts enjoy tax breaks on their contribution and investment gains, they are asked to leave the money in the account until they retire. The penalties are put in place to dissuade people from withdrawing.

With the financial crisis that accompanied the pandemic and the CARES Act passing, individuals affected negatively by the COVID-19 can now withdraw from their accounts without being subject to the penalty. The option allows withdrawals of up to $100,000 from retirement savings.

Surprisingly, many people have not exercised this option, and the majority didn’t even take any COVID-19 related distributions.

Most Retirement Savings Accounts Are Still Intact

Despite the good intentions behind creating the CARES Act, most employees fear that taking withdrawals from their IRA and 401(k) accounts may deplete their retirement savings accounts prematurely, leaving them with insufficient funds later on. So it’s no surprise that there have been fewer coronavirus-related withdrawals across the country. 

According to a Vanguard report, only 1.9% of retirement savers made withdrawals from their retirement accounts through the CARES Act since May 31. The report places the median distribution amount for those who did at $10,413. It also showed that about 30% of the withdrawals made because of the coronavirus were under $5,000, while only 4% took the maximum withdrawal amount of $100,000.

All of this is good news, as it shows a high level of financial awareness amongst Americans. The more people withdraw from their retirement savings, the less they stand to retire. And more withdrawals equate to missed investment opportunities.

Let’s say a 35-year-old retirement saver makes withdrawals of $5,000 from their IRA account to cover household bills. The retirement account generates an average of 7% annually to his or her retirement account. If that person retires at the age of 65, they will have $38,000 less in savings because of that withdrawal. While these simple retirement savings and withdrawals may look small, it will be a huge sum when coupled with the force of compound interest in the long run. 

There’s a need to reduce withdrawals from your retirement savings for coronavirus-related expenses to the barest minimum, despite the $100,000 cap. Doing so will minimize the damages to your retirement savings in the long run.

Another reason to minimize withdrawals is the tax components of a traditional IRA or 401(k) account. Traditional retirement plans are subject to taxes, even with the CARES Act. Note that these are not penalties, as they still apply even if you withdraw in retirement.

Though the CARES Act allows for taxes on retirement withdrawals to be paid within three years, it’s still a major turnoff, and it’s one more reason to minimize withdrawals.


Retirement: How Many Years Should You Prepare For?, by Aaron Steele

The goal of every retiree or any individual planning retirement is to enjoy and do whatever they want without running out of money. Unfortunately, that’s the most challenging aspect of retirement planning, as you have no idea how long the money you have in your retirement account will last.

Since you can’t possibly determine how long you’ll live, it’s hard to ascertain the number of years to plan for retirement. But of course, some data gives the average life expectancy, which can help you get an idea of how large your retirement nest egg should be.

How Many Years of Retirement Should You Plan For?

As mentioned above, it’s quite challenging to estimate the number of years an individual will live after retirement. According to J.P. Morgan and data showing the probability of men or women aged 65 and above living to specific ages, people in these age ranges have the following probabilities.

  • A man who is 65 and above has a 79% chance of living until age 75, while a woman within the same age range has an 86% chance.
  • The chances of living up to age 80 are 63% for men and 73% for females.
  • There’s a 44% chance of a man to make it to age 85, compared to women at 58%.
  • Making it to age 90 is 23% likely for men, while women have a slightly higher chance of 34%.
  • Men have a 7% chance of reaching age 90, compared to 14% for women.
  • There’s a 1% chance of a man celebrating his 100-year birthday, and 3% for women.

Since there’s a 25% chance that you may live up to age 90 (both men and women), it would be ideal to plan for 25 years in retirement (25 years after you retire at age 65). 

This will affect your retirement planning for the following reasons.

  • You’ll need to plan far ahead if you live to age 95 or above 100 years old.
  • Consider the impact of inflation within the 25 years, as it might mean having to make higher withdrawals to meet your expenses.
  • Inflation has eroded one-third of the value of Social Security, thereby reducing the purchasing power. So you may be more reliant on the savings in your retirement account.

To address these factors and prepare for 25 years or more of retirement, you need to adopt a safe withdrawal strategy. With the right approach, your money will last you for your entire lifetime, even if you become a centenarian. 

There are several strategies you can adopt. You can withdraw 4% in your first year of retirement and increase the amount based on inflation annually. 

How to Ensure Your Money Lasts

Choosing a withdrawal method when in retirement will help you better manage your available cash. However, deciding on the ideal method beforehand will clarify the amount you need to save. For instance, if you opt for the 4% rule, you can determine how much you need to save monthly or annually to meet up to 25 years or more of expenses.

If your annual expenses total $40,000, you need to have $1 million in your retirement account before retirement. So whether you have 5 or 20 years before you retire, take some time and research your options. 

Picking a suitable withdrawal strategy is an essential part of your retirement planning. The best way to ensure you have enough for the rest of your life is to choose a withdrawal method and build your retirement account around that. 

Thrift Saving Plan Heading for a Summer Slump or Not?

The COVID-19 pandemic clobbered the stock market to a low point on 23 March, but now the market seems to have developed some resistance.

On 9 June, the stock market broke its continuing uptrend, and on Thursday, 11 June, the market saw the lowest point since March, with an S&P 500 dropping by nearly 6%. Researchers have produced a chart showing the S&P 500 (which the C Fund tracks) over the last years. 

The stock market uptrend broke, technical MACD had an unbearable technological breakdown, and the overall risk associated with the market appreciated. Though it has recovered a bit, the global technical indicators continue to scare everyone.

Mid-May data was no different. A similar consolidation period and an unbearable MACD breakdown, continuing in June, are more emphatic. It managed to recover strongly in May, but will the situation remain the same for June and July?

Understanding the Stock Market and the World Economy

This year began with a big crash, and the S&P 500 had a big crash followed by a long recovery, reaching the same level that it was when this year started.

More than 29 million people continue to file one of the other forms of continued jobless claims, which is less than 2 million claims at the beginning of the year.

This number includes 20 million formerly employed and another 9 million self-employed people-not covered by unemployment insurance, but working under the Pandemic Unemployment Assistance (PUA) program as part of the CARES Act.

Understanding the Stock Market and Federal Reserve

The clobbered stock market is supported by fiscal spending (over $2.7 trillion in fiscal pandemic-related spending passed by Congress), and our Federal Reserve’s monetary policy.

The Federal Reserve came up with the new dollars to buy the Treasury bonds that the Treasury issued to fund all programs. The Federal Reserve also came up with the new dollars to buy mortgage-backed securities, municipal bonds, and corporate bonds. They also rented dollars to international markets since the dollar is the global reserve currency used worldwide for international payments and settling foreign debts. Specifically, the Federal Reserve has appreciated its balance sheet by $3 trillion after March, and all those new dollars were used for various asset purchases.

Recently, we have seen that the Fed has slowed down their buying asset programs. Fiscal spending has also been reduced. Many investors expect to see another schedule of Congressional financial expenditures later this year, but till then, we don’t have many sources to push the market up.

No one knows what the stock market will look like in the coming months, but it has stood firmly in previous months due to support. The new fiscal and monetary support for the market is expected to fade in the future. 

It’s the best time for TSP investors to check their asset allocations and make sure they are prepared for coming unique situations, risk tolerance, and retirement goals rather than save and improve their market performance.

Time to Review TSP Investments, by Leslie “Kathy” Hollingsworth

We’re at the midpoint of the year. It is time for FERS employees to review their TSP investments to check whether they will lose government contributions to their TSP accounts (as they tend to hit the annual investment dollar limit of their reports early). This year’s cap is $19,500 (a combined limit including traditional pre-tax TSP investment and after-tax Roth investment, for those making investments in both types).

Every FERS investor must structure their investment to continue investing at least 5% of their salary, the amount producing maximum government contribution, throughout the pay period of the year.

Some employees start investing at high rates at the beginning of the year to save more money in the TSP and benefit from potential tax-advantaged growth for a longer duration, called “front-loading” investing. Those FERS employees are the ones more interested in reviewing their situation now.

Suppose a FERS investor manages to hit the dollar cap before the last pay period of the year. In that case, their investment will shut off for the next year and will be able to match the government-matching contributions of 4% of salary (their 1 % salary government contribution would continue). Once an employee loses this matching contribution, they cannot recoup up with it. To prevent this situation, an investor needs to come up with a new investment allocation.

There might be a situation where they may be looking up to their payroll offices to find out their distribution dates in the year by the time they make a change, to create a TSP payroll withholding to get maximum benefits.

The scenario is different for CSRS investors, with no government contributions.

Which American Workers Are Most Concerned About Their Retirement?, by Dennis Snoozy

Planning for retirement isn’t an easy task. But did you know that not all workers are equally concerned about their retirement? One group of American workers is more fearful about depleting their retirement savings than the whole population. Do you want to know which Americans are most concerned about their retirement savings?

You must be thinking it would be those near retirement, but you’re mistaken. The most concerned about preparing for retirement are the younger people. 

According to a survey from E-Trade (NASDAQ: ETFC), 51% of American workers under 34 years of age are more worried about their retirement savings. This is a comparatively higher percentage of people than the population. 32% of all respondents said that they are worried that they may not have enough savings for later years.

Most of the young workers aren’t severe about saving enough; it is their top-most worry above all others. The survey also cleared that young investors are more worried about their retirement preparation during the ongoing COVID-19 crisis.

All of us know that young workers are more scared of their future. This generation is more likely than their older one to list a high standard of housing, and education is a significant hindrance to retirement savings. 67% of young investors mentioned that their housing expenses were an obstacle to investing, compared with 44% of the population. Education is the second, with 64% of young investors listing this as the main reason for not saving for retirement. 

Many people under 34 are worried about paying student loans and unmanageable housing prices. They are also dealing with a recession that could affect their job prospects and make things worse.

Young workers prefer early withdrawal from their retirement account more likely than members of other generations. Early withdrawals can play a negative role in their lives and affect their retirement readiness, as that money will help them build a secure future. Though COVID-19 relief legislation has suspended penalties on coronavirus-related withdrawals, usually taking money out of retirement accounts before age 59 1/2 can force workers to pay a 10% penalty.


What can you do to overcome your worries?

The best way to overcome your worries about your financial security in retirement is to create a savings goal and adheres to it.

You can easily calculate the amount that you may need by calculating ten times the salary you expect to get before taking retirement. Many online calculators are readily available these days to help you break that big goal down into small ones so that you get an idea of your monthly savings. You can extend an automated contribution to a 401(k) or IRA.

We understand that taking extra cash to reach these goals can be challenging, especially when the housing prices are appreciating or when the student loans are at an all-time high. But don’t worry, there are solutions like refinancing at today’s low rates, staying with roommates, or applying for income-driven repayment in case of student loans.

You may find it challenging to take some extra cash, but these steps can help you save for retirement worry-free. You will gain confidence that you are saving enough, and your automated contributions will continue, so you don’t miss any month. Your sacrifice will be worth it as you will start seeing your account balance increasing, and your worries about your future retirement will fade away. 

Most retirees completely overlook the Social Security bonus of $16,728.  

If you don’t fall under this particular group of Americans, you may be a few years behind on your retirement savings. However, some “Social Security secrets” can help increase your retirement income. For example, a straightforward trick may give you $16,728 more each year! It would help if you learned to maximize your Social Security benefits so that you can retire confidently and with peace of mind. 

The Importance of the First Five Years in Retirement, by Todd Carmack

If you look at the first five years of retirement, the transition from working life is exciting. While half can maintain the same lifestyle, the other half cannot maintain similar spending levels. The CFPB (Consumer Financial Protection Bureau) recently assessed the spending of retirees over the course of 22 years. One key lesson was learned above all else: spending in the first five years was higher than during other retirement points. 


Why? When we first retire, it’s like a massive release. We can do all the things we dreamed of doing in younger years, from safari trips to buying a new vehicle. With this initial release, retirees also know that the early years of retirement will have the best health and most motivation. 


Over time, spending reduces (and not just on luxury trips). Retirees tend to spend less on home furnishings, clothing, and other general purchases. They can survive off Social Security, pensions, annuities, and other income sources for just over one-quarter of retirees. Elsewhere, another 25% sell investments and use savings. However, the more we dip into savings, the less money we’ll have later in retirement. 


With this in mind, the first five years are critical to how the rest of retirement will go. The decisions you make during this initial period will determine how comfortable you live later in life. 


Traditionally, the retirement analogy was a three-legged stool with Social Security, a pension, and personal savings. However, the removal of defined pension plans has forced workers into saving through an IRA, 401(k), and various other plans. According to a GOBankingRates, seven in ten have no more than $1,000 saved, and we could point to hundreds of additional studies with similar results. 


With pensions and personal savings falling, there’s tremendous pressure on Social Security. Although this wasn’t introduced to be the primary source of income for retirees, this is sadly the position we’re currently in. Recently, the Social Security Administration released some worrying statistics about this area: 


• Social Security provides over half of all income for 50% of married couples and 70% of individuals. 


• Social Security provides 90% of all income for 21% of married couples and 45% of individuals.


With the legs of the stool failing, more workers are having to work longer while also spending less and reducing their living standards. For those close to retirement, it seems to be Social Security or nothing. For the younger workers, we can glean some essential tips from the CFPB study that may strengthen your financial position. 


For example, those who had paid off their mortgages were in the best shape to continue their spending habits in retirement. After this, those who had bought a house were in a better position than those who rented. If you haven’t paid off a mortgage or are still renting, we highly advise considering a downsize. Is there something cheaper or smaller on the market that will allow you to live more comfortably in retirement? This is a difficult decision, but it’s an idea worth pursuing. 


Carrying a mortgage into retirement isn’t the worst problem in the world, but you should do all you can to remove all other debts before entering retirement. A mortgage is one thing, but trying to navigate retirement with credit cards, car loans, and other debts is incredibly tricky. If you have multiple sources of debt, see if you can consolidate them all into one. Failing that, lose those with higher interest rates first. 


Although the first five years of retirement may seem some time away, you should start planning now. Currently, the average retiree reduces spending by nearly 30% over the first five years. Even more surprisingly, around 17% of retirees have to cut spending by over HALF. Think about your finances now and start planning for a comfortable retirement, pay off debts, address the broken three-legged stool, and do all you can now to prevent stress later. 

Guide to the Paycheck Protection Program, by Salvatore Zambito

With the PPP (Paycheck Protection Program), loan forgiveness rules are one of the most significant benefits. Back towards the beginning of June 2020, the Flexibility Act was introduced. Among other things, it made loan forgiveness restrictions more generous. Now, small businesses have the support they need to survive (while helping employees) during this turbulent time. 


For those who are unaware, the PPP is a loan that can be converted into a grant. With 1% interest, forgiveness isn’t automatic but will occur when certain requirements are met. If the funds are spent following the rules, the business can send a forgiveness request document to the lender. Today, we’re going to explain more about the loan and how you can maximize the forgiven amount. 


Once the loan is received, you have until the end of 2020 (or 24 weeks, if this is sooner) to utilize the funds. If you don’t, the lender will request a repayment within the timeframe agreed; this can be anywhere between five and ten years. 


If you haven’t paid attention to the 2020 Flexibility Act, many forgiveness conditions have been adjusted. This includes loan usage percentages, applicable dates, and more. What’s more, there has also been the addition of safe harbors. 


Below, we’ve laid out some important considerations and tips. Besides guidance from the SBA (Small Business Administration), we have our own advice and information. If you don’t have time to read everything, save the article and know that the two most important steps are: 


• Document all expenses carefully 

• Follow the rules of the PPP 


1. Document Everything 


Just because you used the funds as requested doesn’t mean that the loan will be forgiven automatically. As lenders will tell you, there is no promise of the government forgiving any loan amounts. To stand the best chance of having any portion of the loan forgiven, you will need to prove appropriate spending, and this comes through documentation. 


2. Keep the 60/40 Rule in Mind 


Initially, the PPP was introduced by the CARES Act for small businesses. The aim was to help companies keep employees and cover payroll; for independent contractors and sole proprietors, it can even cover lost revenue. Based on average monthly payroll costs multiplied by 2.5, some businesses will get a 1% interest loan of up to $10 million. 


Although the main focus is on keeping workers employed during the COVID-19 pandemic, there is an allowance for vehicle payments, rent, utilities, and other operating expenses (hence the importance of documentation!). Either way, loan forgiveness eligibility comes when at least 60% of the money goes towards payroll. Meanwhile, less than 40% is available for overheads. If you stick to the 60/40 rule, you may be entitled to full loan forgiveness. 


If you fail to meet the 60/40 rule, this doesn’t mean that forgiveness is out of the question. Instead, you may be eligible for partial forgiveness. If less than 60% is used for payroll, partial loan forgiveness may be available, and we know this because a statement was released by Steven Mnuchin (Treasury Secretary) and Jovita Carranza (SBA Administrator). 


3. Work Out Your Headcount 


The PPP Loan Forgiveness Application Form lays out many important details. On page 7, you’ll see instructions for determining FTE (full-time equivalent) employees. The calculation is as follows: 


(Average hours paid per week/40) – round to the nearest tenth


This should be done for every employee, and no worker can surpass 1.0. If you choose the simplified method, you can assign all employees who work over 40 hours a 1.0 score and all those under 40 hours a 0.5 score. Whichever method you choose, keep your calculations so that you can explain if asked. 


If loan forgiveness is reduced, it will be based on the difference between two separate figures. The first is the total of FTEs who work during the loan window (24 weeks). The second is the total of FTEs working during a specific baseline period. The lowest of the following is chosen: 


• The eight weeks between January 1st and February 29th 

• The 19 weeks between February 15th and June 30th 

• A consecutive 12-week window between May 1st and September 15th 


Let’s say that, during the 24-week window, FTE employees reduced by 30%, loan forgiveness could then see the same 30% reduction. 


4. Check Numbers after Approval 


After approval, an email will come through from the SBA with a loan amount and loan number. At this stage, we urge you to calculate three numbers. Firstly, the number of FTE employees in your business. Secondly, the average monthly wage or salary of all workers. Thirdly, 60% of the loan amount.


As we’ve already seen, the third number is important because you will need to spend at least this on payroll over the 24 weeks. If you receive $75,000, your employees should receive $45,000 if you plan on being eligible for full loan forgiveness. 


On the other hand, the first two numbers are significant because forgiveness falls with reduced headcount and compensation. 


5. Think about Rehiring 


We understand you might not be able to open again yet, and the regulations surrounding stay-at-home orders and the like have been confusing some. Regarding headcount, people will ask how you can rehire when the business is closed, and when we’ve been told to stay at home. Even when your doors are closed indefinitely, SBA guidance says you should pay employees for maximum loan forgiveness. 


For Congress, the program was important to keep workers employed. With a loan to pay salaries and wages, small businesses don’t have to lay these workers off, they won’t go on unemployment, and there aren’t millions and millions fighting for jobs when everything calms down again. The government would rather pay your employees through you and keep them employed than have them on unemployment for an indefinite period. 


6. Stop Layoffs from Reducing Forgiveness 


Similarly, we understand that some will have furloughed employees or will have laid them off completely between February 15th and April 26th. If this is the case, and you’re worried about FTE headcount, a reduction penalty can be avoided by rehiring to the same number by the end of the year. This way, the rehired (or new) employees will still count towards your headcount for 24 weeks. 


What if your employees don’t want to come back? Firstly, know that headcount is more important than a list of names. Whether you rehire or get new employees, the most important aspect is paying at least 60% for staffing, so loan forgiveness isn’t reduced. 


When calculating headcount, you may claim ex-employees even after leaving the business in three different situations: 


• If the employee resigned 

• If the employee was fired for cause 

• If the employee formally requested a decrease in work hours 


However, bear in mind that this position cannot be filled; if they resigned, you can’t replace them and count two FTE employees. In these three situations, loan forgiveness is not affected by FTE reductions. 


You might speak to your employee, and they may not want to come back with the same pay and hours as before this situation. If so, you should make all communications formal and keep these records. When you send off a loan forgiveness application, include the recorded communication and your offer’s rejection. With this, the worker’s hours won’t be included with averages, but you may still be eligible for forgiveness. 


Unfortunately, there will be some companies who fail to recover from the difficult circumstances of 2020. If you find yourself in such a difficult position, the FTE headcount rule may not apply. If you didn’t reach the same performance levels as you experienced before February 15th, you would be exempt from the rule as long as you can document the lack of performance. 


To support this, there’s guidance available from the Occupational Safety and Health Administration, Secretary of Health and Human Services, and the Director of the Centers for Disease Control and Prevention (applicable between March 1st and December 31st). For example, a failure to reach prior performance may be due to having to comply with social distancing, sanitation, and other health and safety measures laid out by the three organizations. 


7. Keep Separate Bank Accounts 


This one isn’t a necessity, but we think it’s easier to track money from the PPP when it’s in a separate account. Upon approval, businesses need to get funds into an account within ten days. With a unique bank account, you can document exactly where the money went without any other figures getting in the way. While the SBA doesn’t make this a requirement, it can save lots of headaches with this process. 


8. Manage Wage Cuts Carefully 


With the aim of PPP to keep people in jobs, loan forgiveness is affected when average wages for an employee drop by over 25%. With no guidance from the SBA, we don’t know how large or small this penalty will be. However, the Loan Forgiveness Application has calculation instructions, and experts say it’s on a dollar-for-dollar basis. 


What does this mean? All employees need to receive at least 75% of the amount they earned in 2019 (or the first quarter of 2020 when 2019 data isn’t applicable). If an employee earned over $100,000 in 2019, this rule does not apply. 


For employees, there is also a restriction for earnings over the course of the 24 weeks. Therefore, cash compensation cannot exceed $100,000 (prorated over the forgiveness period). Some companies plan to maximize forgiveness with hazard pay and other bonuses, so keep this in mind. 


Amid all the applications and processes, we recommend having monthly payroll costs within reach; memorize this figure and have it ready. If you’re reading this and you’ve already made reductions, the only way to avoid the penalty is to increase the employee’s pay to 75% of what they earned on February 15th. Without this corrective measure, you will have a wage-reduction penalty. 


9. Check Progress 


The worst thing you can do is go through the forgiveness period blindly and realize you made mistakes at the very end. To prevent this, regularly check how the PPP funds have been spent. If you aren’t meeting the 60/40 rule, at least you have time to fix this. Alternatively, it might be that employee wages are below 75% or that the headcount isn’t right. Some will need to hire new workers, give hazard pay bonuses, or give raises/promotions to meet the forgiveness requirements. 


Remember that no employee can earn more than $100,000 over the forgiveness period (prorated) if you try the latter. For those who don’t have time to fix problems, remember that partial forgiveness is an option. 


10. Apply for Forgiveness 


As mentioned earlier, the forgiveness period will end at the end of 2020 or 24 weeks, whichever is sooner. At the end of the period, you’ll need to send a forgiveness request to the lender. Once the last covered day is passed, you have ten months to apply for interest-free forgiveness. With no application, you will be liable for not only the loan but also fees and interest. Payments will begin after the initial ten-month period. 


When pushing for full forgiveness, you need to document and show: 


• That headcount didn’t fall (note the considerations discussed previously). 

• That a minimum of 60% of the loan amount went towards paying employees (independent contractors can use funds to replace income, based on 2019 figures). 

• That each employee received at least 75% of their average wage (note the considerations discussed again). 

• That any remaining funds were used on the allowable overhead expenses. This includes utility bills, mortgage payments, and rent. If you want to use these funds for interest payments, they must come from a loan or mortgage used to operate the business. Unfortunately, you won’t get loan forgiveness for a debt incurred before February 15th. 


Instead of waiting until the end of the forgiveness period, we recommend preparing for the forgiveness application as soon as possible. Rather than guessing, feel free to speak with the lender and learn what documentation they require. For example, this will probably include benefit payment records, statements showing interest payments on debts, tax and insurance filings for IRS and state, receipts of approved expenses, and payroll reports. The latter should include pay rates and FTE employees for the forgiveness window compared to a previous baseline. 


When applying, you’ll need to confirm that all documents are true and accurate. It’s then a waiting game with the request submitted since the lender has sixty days to address the request. 


Qualifying for Full Loan Forgiveness 


For most businesses, complying with the forgiveness requirements is hard enough, and this is without documenting it all. If you don’t qualify for full forgiveness, the good news is that the loan has a 1% interest rate, and you have between five and ten years to pay the money back. Payments don’t start immediately because the SBA needs to send any forgivable amounts to the lender, and you even get a grace period. 


Anyone who doesn’t want to file a forgiveness request will accrue from the moment you take the loan. On the other hand, you won’t be expected to pay a single dollar until ten months have passed. 


As we come to an end, we urge you not to manipulate the program. If you offer false information or use any other technique, extra charges are added to the loan through the Interim Final Rule. Additionally, the PPP funds should never be used for unauthorized purposes. The SBA may take action against shareholders, partners, or members when this occurs. 




We hope this guide has been of help to you and your business during this strange and difficult time. Remember, there are resources to assist whether you’re applying for the first time or are planning your forgiveness request. Also, the lender isn’t the enemy; ask them what documents they require and how their system works. This way, you avoid missing important documents and failing with the request. 


When maximizing forgiveness, don’t reduce wages or headcount. For the SBA they want to keep businesses alive while also keeping workers in a job. Therefore, ensure that at least 60% of the loan amount is being used for payroll. For anything left after that, it should go towards the allowable overhead expenses. 


We’ll leave you with the following advice: 


• Document everything 

• Follow the guidance 

• Don’t try to manipulate the system 

• Run the business as normal as possible and follow the rules and requirements 


Good luck, and we wish your business the best as we continue to recover from the COVID-19 pandemic. 

Should You Keep Saving for Your Retirement When You are Clobbered by Unemployment, by Michael Sesler

If you are one of the millions of Americans who have been hit hard by the virus and left your job, you may have a lot of questions coming to your mind about how to handle your new financial circumstances and save for your retirement as well.

One of the most pressing concerns of those who went unemployed is whether they should keep saving for retirement when they are clobbered by unemployment. Saving funds for your future is smart, but is it the real one you should be concerned about when you no longer have a job?

Should you save for retirement when you’re unemployed?

When this question comes to your mind that you should save for retirement when you’re unemployed or not, you must ask yourself, Can I afford to do so? 

Suppose you are finding it hard to pay your bills or cover the cost of essentials like food, housing, utilities, insurance, home and car repairs, debt repayment, and transportation costs. You shouldn’t worry about saving for retirement. You must use your money to meet your daily needs.

If you don’t have an emergency fund, you can’t afford to save for retirement until you have it. There are circumstances when you find yourself stuck in making surprise expenses, and if you have no money to handle that situation, you need to save some for that as well. Otherwise, you would force yourself to borrow cash at a high-interest rate or sell investments and take withdrawals from your retirement account when something surprising occurs in your life—all of these aren’t good options.


When you are not employed, your emergency fund should be higher than average as you don’t know how you are going to bear your daily expenses and how long it will take you to get a new job. It would help if you had several months of living expenses to focus on something extra than the emergency fund.

If you’ve saved enough money for a rainy day, you must start investing in your retirement savings above any non-essential savings or spending. It may not look fun to move whatever is left of your entertainment, dining out, or travel budget to your retirement savings, but doing this is essential. There are so many free entertainment sources near you, but if you don’t save for your retirement, you can’t bring back the time you lost. You’ll miss an opportunity to save your money for your hard time and the compound interest you might earn- that can add up to a significant number. 

How to save money for retirement without a job?

Before unemployment, if you were saving for your retirement account using your 401(k) workplace, you may look for a different solution. Luckily, you can still score tax breaks for retirement savings if you invest in an IRA. This year, you can make deductible contributions of up to $6,000 in an IRA. If you have earned income from your job or are self-employed and earn a profit, you can make maximum contributions unless you’re married. Your spouse receives excess earned income to make spousal IRA contributions.

If you are eligible for deductible IRA contributions or not, depend on your income limits if you or your spouse has a workplace retirement plan. If you are unemployed, you may not have a workplace plan, so you don’t need to worry about this unless your spouse or household income is $196,000. If you are under the threshold, you can take a generous tax break. 

Don’t use your retirement account savings if you have other options

Using retirement account savings should be your last option. If you have funds to cover your daily expenses and some leftover income, you can continue contributing to your retirement account while you are unemployed. You can use an IRA if you’re eligible and save on your taxes this year and make contributions to ensure that your unemployment period won’t affect your future retirement. 

Not affiliated with The United States Office of Personnel Management or any government agency