July 16

Coffee with Mike- FERS Breakdown Series Part 2

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What do people think about Social Security for retirement? A lot of planners tell you to discount it, not count it at all. Some people that I know, federal employees that I know, they don't want to count it in their retirement. I think that's a problem because it makes your ability to have confidence in what you're building for the retirement future a lot harder to attain. It's a lot harder to think about being on the right track. To discount social securities is to discount the only retirement tool that 80% of the population are going to have when they retire. I'm going to tell you that the federal government cannot afford to have that many people not having income coming from somewhere. Now, whether that's a sufficient thing for them or not, that's something we can debate later, but whether it's something you can you can count on for your retirement, I think that we ought to do that. 

Here's the way I would think through it: when you get your Social Security statement on an annual basis, you download it from the ssa.gov website, take a look at that front page and see what the warning is on that front page. Typically, over the last few years, it's been saying 'Hey, be aware that Social Security is having some problems paying its bills, and it's projected to run out at a certain time.' What they're not saying on there is: 'However, that's something that we've known about since the 70s and this is actually been part of the plan all along. We're confident that we're going to be able to overcome this over time.' In reality it's become a political football for both parties, and therefore it seems like it's something that can't be fixed. From a financial standpoint, I believe it is something that can be fixed. The warning basically says that it may be that without a repair, that you're going to end up with 75%, or so, of what we're estimating for you to receive at a certain time in your retirement. 

So when you think about it that way, I do think it's reasonable for us to say, 'Alright, I can include Social Security. I'll use one of their estimates, but I'll knock it down to 75% of what I see on page 2.' If you agree with me, then I think that's something you should add into your thinking about, 'what do I need to do for retirement? Can I count on it? If I count on 75% of what I see, what does that mean to the rest of my investments? I personally believe that's a reasonable way to approach your plan. To erase the other 75% that Social Security is saying they can provide is just making that mountain much harder, much bigger, much larger for you to climb. It means that you got to do that much more investing, which, of course, makes investment advisors happy, because they're happy to take your money and have you invest with them. 

So while I want to encourage your investment, as much as you want to invest, I don't want you to feel like you got to be in a panic to do so and put other things at risk, and I want you to think about, 'Well, my Social Security is going to be around at some point, for some amount of money, and I'm willing to do it at X percentage. If you take the instruction from Social Security themselves, that's going to be right around 75%. Now, that fluctuates every year, and so your assessment of what you can expect from Social Security is going to fluctuate every year. But, that's OK, because it what also fluctuates every year is your earnings. Therefore, that affects your Social Security, and it affects your FERS Basic Annuity. It also affects what you're gonna put into TSP. so don't let fluctuation body It's just part of the game as part of how we deal with things. 

"Let's not worry about things we can't control, let's just put ourselves in the best position we can."

That's why we make 12 month decisions. That's why we have 12 month reviews. We see how everything is doing, we see what changes have occurred, or we see what warnings have been put, and then we adapt. As we adapt our thinking, and as we adapt our strategies, we, again, assure ourselves that we're actually doing everything we possibly can to get the result, the best result that's going to be possible in our lifetime, that's what we want. We have no idea what that's going to be, but we do know we're doing our best. If we're doing our best, what else is there to do except to worry about something that you have no control over? For me, that's not an option. Let's not worry about things we can't control, let's just put ourselves in the best position we can. So hearing this, listening to this, that's what I hope you're doing.

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