Federal Employee Retirement Planning Using TRAK

Transcript

Welcome to the short tutorial on using The Retirement Analysis Kit for working with Federal employees. My name is Ed Dressel, President and owner of Trust Builders, and I’m glad to make this presentation today. The Retirement Analysis Kit is a retirement readiness tool for working with various types of individuals, whether it be individuals in a 401(k) plan, 403(b) or 457, or general retail advise and as today, Federal employees. We are focused on engaging individuals in retirement readiness. Where are they, what do they need to do and what decisions do they need to make today.

Just before starting this video I created a new client file named Bobbie Smith. I did this under the File menu, under the New Client. You can also load and modify etc. here, and print is disabled, print will be enabled in the Gap Analysis Calculator once the Calculation tab has focused. I’m going to open up the Gap Analysis Calculator, and before getting started I’m going to close the ribbon bar and also hide a couple of the tools. I’m going to hide this clients name right here and the tab as well under the appearance. This will allow me to have more visible space, more real estate if you may, so we can focus on what we are working on. The Gap Analysis Calculator is made up of a set of tabs across the top; that we are going to work from left to right. And we can go right into the Calculations tab but there is no data here we’ve set up outside of the clients name and date of birth, so the calculations undoubtedly would not be prepared. Under the Setup tab we can chose if we’re going to have a spouse or not. In the Deluxe version we can choose the Retirement Income Model; the Tax Wise Strategy is quite complex and beyond the scope of this tutorial. And we have some default values for Cash Balance Accounts including retirement investments, TSP accounts that we can set for across the board, not having to configure them each time. But we’ll leave those they are. And then we have the Side Fund/Additional Savings. This is an account that if there’s excess income in retirement, TRAK will deposit money into the Side Fund. For example if they sell a piece of farm property. Also, if TRAK calculates there is a shortfall, this is the rates of return on any additional savings that the client would have to make.

Now we can go over and take a look at Bobbie’s tab, and look here, we’ve already entered Bobbie’s date of birth. We’ll configure it for a 26 pay, her income per paycheck, the raises that she anticipates, and federal employees typically get their raise on the first check of the year. Life Expectancy Method: this is going to calculate the life expectancy at their retirement for using the IRS Tables or IRS Tables plus Years. If you want a specific age you can enter it here, and you can enter a Percentile, such as I want to live to the 80th percentile we can set that up here. A new study was just released, we’ll be posting a blog post on it shortly, that showed that the longer somebody works the longer they live which is counter-intuitive to what has been taught in the industry for years. Down below we have Social Security. Had I prior to this session gone into TRAK‘s Strategic Social Security Calculator, I could present those illustrations here. I didn’t so I don’t have that as an option, but I can select start the payments here, enter in today’s value, we have a projection from social security here. If you select calculate, TRAK’s going to make a large number of assumptions from the client’s historic and future pay to estimate what their social security benefit would be. There is a lot more detail presented in the help file under the frequently asked questions. The help may be accessed by pressing F1. Or if you want to get into the tutorial under File, Help and Support, the User Manual right here, there’s a full page on the assumptions we make with the limited amount of data that we’ve been provided in this scenario. It’s best if you have the value from social security, and typically they provide it in today’s dollars.

We can go to Bobbie’s Retirement Plan. We can see that there is none selected. Under File, Config, we can set up a number of defaults. Both for the retirement plan right here. I have No Plan as the default, you can select your plan that you would like to have as the default right there for new clients. Also Default Values right here, let me set up default Rates of Return, if you’re working with TSP Rates of Return right here. If you want to clear date of birth so there is no default date of birth, you can set it up that way as well, hit ok and allow it to set up that way. Here I can select any number of retirement plans. We have some generic plans if you’re working with Defined Contribution plans, such as a 401(k) plan, you may want to choose 401(k) custom. You could also choose many of the state plans, we have California STRS built in, and you can select either of those tiers for that plan: and also as we are going to focus on today the Federal Employee Retirement System. I’ll select FERS, you’ll see that the screen updates right away with new data information. Service Computation Date I will adjust: you can see a warning message right down below it, it wants after 86 but for various reasons it may be prior to when FERS started, for example, being involved in the military. Sick leave can be calculated by clicking on the down area and entering the average hours they anticipate saving on a bi-weekly period, and how many hours they have today. And it will show you right away the number of additional years credited: hit close. Spouse’s date of birth: if you don’t enter the spouse’s date of birth you will not see any survivor benefit options. So if you go to the Calculations tab over here, we can see that there are no survivor benefits being displayed. Come back to Bobbie’s Retirement Plan, enter a spouses date of birth there and go back to Calculations and you can see that the survivor benefits do show up right here. I’m going to go back to Bobbie’s Retirement Plan and continue to walk our way through the prompts. The Employment Type, whether a Regular, ATC or Customs and Border Patrol: Retirement Type, whether it’s Regular one or if it’s an offer from the government to leave early or it was a personal election to get out early. Transfer Date: if they transferred from CSRS to FERS that information is entered here. For calculating the Federal Supplement for income prior to age 62, we can either calculate automatically or we can enter the age 62 income from social security, and that will provide the benefit. Now in limited situations, the Supplement has a COLA. And there are very specific situations there that’s beyond the scope of training on the Federal plan but you’ll want to know that if you’re eligible. We’re going to retire this person after 62, so it’s not relevant. Military Service, if it’s included, we need to enter it there and any Divorce Reduction.

I am now ready to move on to the Federal Savings Plan tab. We can look at this; we’ve got the FINRA method in working with the TSP. If you are not FINRA regulated and you want to drill down into the various TSP funds, the G, F, C, S, and I and the life cycle funds, under the File menu you can select Config, and under the Gap Analysis Calculator select Federal Plans and you now we can select the details. You’ll see a flashing message on the screen that tells you that this is not FINRA compliant and we can hit OK and now I’m going to close this menu, this calculator, it’s going to ask me to save it and change it, and now I can go back in under the home menu, open up the Gap Analysis Calculator and that screen will automatically update to TSP. Now we have access to the various life cycle funds, 2020 to 2050, and the custom G,F,C,S, and I funds if they’re allocating there, and sometimes some federal employees will contribute both a 2040, a 2030 and deposit money in the G fund: and we call that mixed. So we can set the mixed up there, and you can set up the percent allocated – if their contributing 3%, and then percent allocating of that 3% into the various funds and enter the values here. We can include the ability to have a Roth, but if you don’t want to include the Roth we can decrease what’s displayed on the screen, making it a little bit easier to enter the input and not so much noise. If you have FERS selected, it will note the match here and there’s some information about historic TSP rates of return, such that I can grab the historic TSP rates that goes out to the server, gets the data and comes back, and now if I want to view the historical data, I can take a look at historical TSP rates of returns, if you just want to see specifically the G fund and take a look at what’s it return, the F fund etc., so you can take a look at that. And some information here, an example, all years that are funded, etc. So you can take a look at a lot of detail about that. I’m going to close this and go back to the FINRA compliant method for working with the TSP fund.

Now on the Calculations page, there’s some additional calculations: if you’re looking at the TSP details that are available for that, such as current allocation, retirement allocation, but the annuities will also be available as well for both. If they want to select an annuity payout, you can come in here and select TSP Annuity, and you’ll see that various TSP annuity options are available for the client right there and there will also be some options on the calculations tab for comparing the various annuities. On cash payout options, typically you’re going to use the funds as needed. Now there’s a whole bunch of other distribution models, retain principal, amortize, equal payments with and without inflation adjustments, percent of account, RMD only, and specific dollar value with inflation and without inflationary adjustments. So those options are in there as well.

Now we’re ready to move on to the Other Accounts. These are going to be outside savings that the client may have or outside income, for example, maybe they have a 401(k) that they had prior to this employment: worth $50,000 dollars. Or if we come down, and they have a known income, they have a military pension or a rental house with $500 per month, 2% adjustments on that. You can also put a lump sum in here if you would like, you can add a lump sum, sale of rental, at age 70; let’s go back to the rental house and change the end of it, it ends at age 70, and there’s the sale of the rental right here. There’s also an annuity account, we can add an annuity income account right here, very similar to the known income, but adds more detail available. Now we are ready to move on to the Retirement Income tab.

The Retirement Income tab allows us in various ways to configure how we are going to define the retirement income for the client. We can set up as percent of income, values expressed in today’s dollars, and set up a retirement budget, if you’d like to set up specific ones such as the mortgage, $2000 a month, but it doesn’t have a COLA, so we can take the COLA out and if I scroll over here, it has an ending time of age 70, the mortgage will be paid off. So you can set up a lot of items like this, the frequency of the payment, if you want to get down to customized you can set up exact months it being paid out on. A lot of configuration options are available there. I’m going to simply select Percent of the account, there’s multiple methods here: we can select typical 80%, or you can use a model that selects 90% at retirement, 80% at age 70 and at age 80, 70%. So a decreasing need as they mature in retirement, you can also select a custom model. This is going to be more typical right here, a decreasing need, you can configure the percentages, if you want to configure the specific tables or models you can click on the editor button on the far right and it will open up the configuration tool for creating a new retirement income model, and you can name it accordingly, and it will be selectable here. Special Retirement Expenses, I’ll highlight in just a minute, after we get through and look at some of the calculation pages.

I’m going to jump into Calculations now. We’ve already seen this page really quickly, we can see some of the TSP information right here, unreduced annuity, and the option tables with the survivor benefit options. The TSP Account Summary tab is going to provide for me in this situation the annuity options. Had I selected the TSP account, we could look at some allocations between now and retirement, the movement of life cycle funds etc. And this is going to look at the balance at retirement; you can create a custom balance if you want. There’s a lot of options here. FEGLI is configurable here, and we can configure the insurance and show them how much insurance. If we’ve got a code from a leave or earnings statement, so we can come down here and select a code if we want or we can enter the code and take a look at the details of that, and then a chart showing the ongoing cost: so annual premiums over time, accumulated premiums and then life insurance coverage. There is some good charts here when working with the client, showing them where they’re at. I’m going to look at general values, we can show them this person is 100% funded, they look pretty good. Something that you’ll see, let me go to the Retirement Years, and highlight the information here, we can see the 90 percent of income, 80 percent of income, and 70 percent, we can also come under the display options and look at balances, and we’re going to see that they’re pretty well funded. They’re balance at life expectancy is $120,000. Now if I want to come in here and look at both balances and income, on the top we have income and at the bottom we have balances, and something that is in the Deluxe version of TRAK is the ability to quickly change some information. So if I want to highlight them retiring a little bit earlier, now all of a sudden we’ve created a shortfall, we can show them, with the shortfall right here, we could change their income percentage a little bit, increase it, and you can see that it dramatically changes. So we’ve moved the data around very quickly and created a shortfall. I want to go back to that General Values tab and showing the individual that they are 87% funded. Typically if you ask someone how do you feel about this, it looks like B+ grade, and they may feel ok, but what they’re feeling ok about and you might want to make clear to them, and I often ask them how do you feel about this? I feel pretty good; how do you feel about a 13% cut in pay today? And that’s based off of what we said they needed in retirement which is less than they’re making today. So that’s very engaging and taking action. We show them several steps down here, in taking action: additional monthly savings needed today, that’s monthly savings, need if they wait a year before they make more savings, a lump sum today and a lump sum at retirement. I’m going to highlight the Retirement Solutions tab; this will show us various methods for what we can compare. If they want to show the cost to wait, the monthly savings if they wait a year, what if they look at life expectancies, what happens if they outlive life expectancies, how much additional savings do they need? If they want to change the retirement age, if they push it off a year. Now this chart is interactive, so if I click on 65, 65 becomes the current data, and we can work with that. One other page I want to highlight right here is Option Values at Various Ages. What are they leaving in their defined benefit plan and their pension plan? If they retire when it says so they’re looking at 65, if they wait a year, what’s going to change? It’s almost a 5% increase in income. If they wait 2 years it’s more than a 10% increase in income etc. And you can see the impact of them retiring in their current illustration at 65. Now this isn’t a page you sell from but it’s additional information that they’ll be happy to have. And like many of the pages I’ve shown you there are some display options over here, you can hide and configure, this shows monthly and annual. If I just wanted to show the annual you can see the decrease in values, how many less there are, if I just wanted to show monthly. If you don’t want to show 5 years, maybe you just want to show 3, you can configure the way it’s displayed: which will also configure the way it’s printed out. And provides a really good tool for helping you work with your clients.

Jump into printing. Printing is available when the Calculations tab is available. You can see that it’s available right and now and I’m going to click print, and it will list the reports. I’ve got some reports preselected and it’s automatically going to generate those. I’m going to include the cover page, I could add FEGLI here, and I can come down here. Now under the Config. menu, I can say set current reports as default selection, I can also come down to custom report settings and select a previously selected one or create one. I’m going to save these settings as Federal Employee. And this allows me next time I’m in here, to come under here, open up the Config. Menu and select Federal Employees, and it’s going to select the reports I just had selected and generate a preview as soon as I select it. And that’s the report I know that I typically want with most of my Federal Employees. We can go through the various pages and just take a look really quick, showing them where they are at: the moving parts, there’s their FEGLI, with the charts and the retirement years chart as well. So we’ve got a lot of information there. There’s a whole lot more reports that you could select. The Federal Summary report probably should be selected. And you can walk through there. I suggest that you print them all out the first time, get an idea which ones work for you. You can actually reorder them under Re-Order Report and select the ones that you want to work with with your clients. So in a nutshell, I’ve covered a lot of information. We’ve talked about working with Federal Retirement Plans. And we are very focused at helping you help your Federal Employees retire successfully. We are the makers of The Retirement Analysis Kit, and we continue to improve the features here, mostly by feedback from Advisors such as yourself. So if you go there are some features I want, I’d love to see in TRAK, we don’t know what you want until you’ve come back and told us. And while we can’t guarantee it, I can guarantee that we do listen.

My name is Ed Dressel, with Trust Builders. I know it’s a very competitive market out there, we want you to do as good as you can, and we believe that TRAK is a great answer, a great tool for working with Federal Employees, 401(k) plans, and general retail advise for 403(b) and 457 and we believe we have a great tool for helping you succeed in your practice. I appreciate you taking time to watch this video and my best wishes in today’s marketplace.