Too often, many believe that their retirement planning will just ‘work itself out’
by Richard ZeitzMr. Zeitz is the President of Bravias Financial, an independent financial advisory firm specializing in benefits and retirement planning of Federal employees. With 21 years of financial industry experience, Richards background in financial planning, insurance and asset protection, and income strategies to help Federal employees safely and effectively plan for retirement. You can visit Bravias Financial at www.braviasfinancial.com and can reach Richard at [email protected]
There is certainly no shortage of financial advisors in this great country. Consumers can find quality retirement planning advice from a vast pool of financial professionals, all of whom do a lot of things well.
However, for Federal employees, finding an advisor who not only has years of experience, but also focuses on the Federal market and has a specialized knowledge of your retirement benefits, can often prove to be a daunting task.
When it comes to planning for retirement and understanding the ins-and-outs of their benefits, Federal employees cannot leave their planning to chance.
A Two-Headed Beast
In my opinion, Federal employees have one of the most complex benefits programs around. To make matters even more confusing, based on when he or she began their service, there are two distinct retirement systems:
- Civil Service Retirement System (CSRS) and
- Federal Employee Retirement System (FERS)
Within both systems, there are many calculations, exceptions, special provisions, and exclusions that may apply and it can be very difficult to keep track of everything. Surely, Federal employees can find lots of information online about their CSRS or FERS retirement benefits, but finding a financial advisor to guide them and to help them understand these benefits, and how they fit into the rest of their financial picture, is an entirely different matter. And it is invaluable.
Most of the Federal employees I meet have never worked with a financial advisor before. They just sign up for many benefits when they start working for the Government and then assume that retirement will simply “work itself out.”
Unfortunately, with a limited understanding of the benefits and options available to them, many head into retirement ‘blindly’. They may not know at what point they can afford to start enjoying their retirement, or they may believe that they can’t afford to retire.
I believe Federal employees are one of the most under-served groups in the country with regards to being educated or trained on their benefits package. While today I find my work with Federal employees extremely fulfilling and personally rewarding, it has been a long journey, which required a big huge commitment.
My Journey to the Federal Market
Several years ago, a good friend of mine who worked for the Department of Veterans Affairs in New York City, asked me to meet for lunch. He wanted to discuss his upcoming retirement and wanted to make sure he was doing everything he could to maximize his Federal benefits.
As we went through his paystub, his Thrift Savings Plan (TSP) statement, his life and health benefits, he began to ask me various questions:
- What are the costs of my benefits going to be in retirement, and how do I calculate them?
- What are my withdrawal options with my TSP once I retire?
- What would delaying my retirement another year do for my annuity and survivor annuity payments?
- How can I better maximize my pension?
- How do my benefits affect my Social Security if I retire before age 62?”
After my head stopped spinning, I took a deep breath and humbly replied, “I have no idea.” My 20 years in financial services didn’t prepare me for this! The questions were confusing and I was afraid to open my mouth and give him wrong advice – I would’ve been guessing.
He then said, “Rich, everyone I know has the same questions about their retirement, and it is hard to find the knowledgeable advisor to turn to for financial advice with these questions.”
And there it was…my “a-ha” moment! The light bulb went on and the research started.
My first question was “where to go to get this comprehensive ‘knowledge?’” I knew that I wanted to educate myself and become an expert. How hard can it be, I thought. I knew that I had to fully understand how Federal benefits worked before I opened my mouth and disseminated any financial advice on this.
Also, I knew that a Federal employee would quickly be able to tell if someone really understood their benefits or not. And so my work began. I went online and started searching for a place to get trained on Federal benefits. Initially, my search came up empty but I didn’t give up. Then, I stumbled across a site where I could complete extensive training to become a Chartered Federal Employee Benefits Consultant (ChFEBC).
I received my study materials, went into lock-down for 30 days, studied hard and passed a rigorous exam. I was now ready to take on the world and advise Federal employees on their retirement. Well, at least that was the plan, but it wasn’t that easy. Like anything else, you can only learn so much from studying. The true knowledge comes from real-life situations in the field. I reached out to my friend at the VA again, and this time, our conversation was much different. We got together, I ran some calculations, and low-and-behold, I was advising my first Federal employee!
Federal Benefits Analysis
I realized in my further conversations with Federal employees I wanted to give them something of value, something that they can refer to that would simplify their benefits. So I set out and partnered with a company that had software, which allowed me to run a detailed Federal Benefits Analysis (FBA).
The FBA is a critical step in the process because it affords me the opportunity to sit down with the Federal employee and analyze their actual benefits straight from their paystub, the Federal Employee Group Life Insurance (FEGLI), Social Security, and their TSP, in order to project out their retirement.
The software is data-driven and behind the scenes runs formulas to show them exactly what their retirement will look like. It is easy to review, and easy to understand, and saves a lot of time during the appointment with a client. After I run the FBA, I take time to look at the results, and perform my own analysis while looking for areas of improvement or cost reduction. Afterwards, I sit with the Federal employees and educate them on what they have, how it works, and what they could possibly be doing better to optimize their retirement.
After performing the FBA, together we look at the facts and address retirement concerns or gaps. Often, it makes sense to replace their FEGLI insurance with a private insurance policy. FEGLI Option B is 5-year renewable term and every 5 years the cost of it practically doubles. So essentially as a Federal employee gets older, their FEGLI Option B usually becomes very expensive and many look to drop it due to the exorbitant cost. If they are in good health, I look at their age group and at how many multiples they have (1 to 5 times their salary) and what they are paying. I then compare it to the cost of a 20 or 30-year term insurance policy. More times than not, this strategy can save them money over the years, while continuing to give them the insurance coverage they need.
Obviously, having the specialized knowledge of the Federal space and having access to advanced software which calculates their retirement benefits, are both a huge plus when it comes to serving this unique population group and giving them the appropriate financial advice. In addition, you also need to understand the mechanics of advising in this market.
A Big Boomer Population
Like the public sector, many Federal employees are baby boomers and are now nearing their retirement years. They are at the point in their lives where they need to get their financial house in order. Also, Federal employees can retire with full benefits as early as 55 with 30 years of service, so that means that many of them have the ability to retire a decade before those in the private sector do.
Financial advisors entering the Federal market will often find it challenging for several reasons. First, there is the trust factor. As I alluded to earlier, Federal employees can easily discover whether or not you understand their benefits, and that’s not a bad thing. You can’t just jump into the Federal market and “wing it.” One false move and you could mess up their retirement forever. You need to earn their trust with demonstrating your knowledge of their benefits. Federal employees don’t have many places to turn to for their retirement questions and are in need of expert advice regarding their complex benefits system.
In my experience, most Federal employees can’t fully wrap their arms around their benefits. Some are better versed than others, but most do not understand the cost of the benefits in retirement, when they can retire, how much their pension will be at retirement, and how long their money will last.
Obviously, even with all of the knowledge, one of the biggest challenges is getting your foot in the door. You need to be proactive. You need to roll up your sleeves and dive in. My advice to anyone who is interested in servicing this market is to try to attend Federal employee events, meetings and gatherings. Become a sponsor. Network. I have been blessed by finding several advocates in this field who appreciate the knowledge I can bring to the table and support my mission to help Federal employees. Once you become a resource to this group, the word will spread, and you may be referred to friends and colleagues who are also in need of this type of advice for your guidance.
Right now, there are 4 million Federal employees in the United States, and 75% of them have never sat down with a financial advisor to discuss their benefits or retirement. This number is saddening to me because I fear many of these individuals will head straight into retirement without fully possessing all of the advice and options available to them. The Federal market is a special niche, but you need to know what you are doing. It is extremely rewarding because I have the pleasure of getting up everyday, and using my expertise to help amazing people get the attention they deserve to realize a better retirement. ◊