Building A Retirement Bridge for Fire Fighters, Police Officers, Teachers, Government Workers, and any other Employee with a Pension.
I am frequently asked, “Mark, what strategy would you use and what specifically would you say to a Fire Fighter, Police Officer, Teacher, Government Employee, etc?” Honestly, there is a bridge between these careers that are very similar. No solution is a “one size fits all”, but in the case of different employer groups that provide pensions, their employees have common problems AND considerations when it comes to retirement planning. VanMark.Life can help with understanding the needs and opportunities of these clients.
First off, what may intimidate many professionals from even having this discussion, is perhaps little or no understanding of what retirement options these careers might offer. Let’s go to school for a minute; assisting you in having the relevant background to be a resource for these clients.
401(k): You probably have a good idea of a 401(k), right?
It is for employees in the corporate world. It is a tax-qualified retirement product, meaning favorable treatment from the Internal Revenue Service – typically deferred or reduced tax liability. You basically get to defer paying the taxes today on money you put into the plan. The money continues to grow tax-deferred, and when you access the money in retirement you then pay taxes on that money at your then current tax rate. The amount you can defer, or “put away” each year changes. The max you can put away currently is $18,000 with an additional “catch-up” contribution of $6,000 if your age 50 and over. (FYI – now you can put up to $18K into a Roth election inside your 401(k) with no income limits that Roth’s normally have outside in IRA’s. But remember a Roth you do not deduct savings off income each year. BUT… you get the future account value TAX FREE at retirement growth and all!)
Now that you understand the 401(k) plan we can relate the rest of them to this plan perhaps to help you better understand.
403(b): Also called a TSA (tax-sheltered annuity) plan.
Same as the 401(k) but structured for certain employees of public schools, certain tax-exempt organizations, ministries, etc. This plan works the same as the 401K. This plan is just named differently. It is named from the tax code that identifies these types of entities, that’s all. EASY RIGHT?
457: A tax-advantaged deferred-compensation retirement plan for governmental and certain non-governmental employees of the United States.
But here is the difference. You can save an additional $18,000 and $6,000 catch-up for a total of $24,000 PLUS maxing out the 401(k) at $18,000 or $24,000 for a potential $48,000 savings.
Another notable difference that I tend to forget, is a retired person with a 457 plan does not have a 10% penalty for withdrawals before age 55. (FYI, an organization could have all three plans mentioned so far, but can only max out two, either the 401(k) or 403(b) AND the 457 plans.) Now that your tracking along having tons of fun with me… it’s time for the TOTALLY Different one!
TSP: Thrift Savings Plan is a defined contribution plan for US civil service employees.
You may hear them called FERS: Federal Employees Retirement System, or perhaps CSRS: Civil Service Retirement System. Most of the time employees will just say, “My TSP”. Maximums again are $18,000 plus catch-up totaling $24,000. FERS are usually matched if the employee saves 5% by a 4% additional match. CSRS are not eligible for matching contributions.
I love an article I just read,“Thanks to constant, sustained investing, the TSP now has 16,475 self-made millionaires. The vast majority are career civil servants who have been investing in its stock-indexed funds for an average of 28 years.” (Federal News Radio)
In building a bridge in helping these workers drive toward retirement, we’ve poured you a foundation of knowledge that should get you started.
This knowledge also gives you the confidence in working with these unique fields in guiding them to better retirement decision-making. Now for the finishing work; strategies completing a bridging gap between you and success in helping these industries. (Ok… enough with the bridge analogies here is the sales strategy)
If you are a member of VanMark.Life and you have, at the very least, listened to the powerful launching webinar with Van Mueller, you know the power of having the right questions to ask…right?
Right off the bat, let me give you the most powerful question that will help start this new discussion with you and your client.
Will your pension (TSP) provide you with all the money you will ever need? Or, are you additionally contributing to a tax-deferred product like a 457, 403(b), 401(k) AND any outside investing? Many will say they are doing more or would like to be doing more than just relying on their pension.
Do you know you might have a tax diversification problem? I doubt anyone would say yes to that, but everyone surely would be intrigued. Do you plan on being successful in growing these assets? Do you realize by increasing alternate “taxable” retirement income you could potentially be hurting your pension?
In “today’s” tax climate, you would not be hurting your pension dollars as they stand.
However, it is possible you could be pushing the additional income into a higher “progressive” tax bracket. Sounds like a good problem to have right? Well… what if there was a strategy to grow wealth but not add more or higher potential taxes?
What about what has been discussed much in politics these days concerning a potential “non-progressive” tax structure, where every additional taxable dollar you earn could possibly hurt your pension income as in a flat tax? Would you rather have some non-taxable income to add to your pension income in retirement? Either way, considering tax diversification strategies would be smart, right?
Wouldn’t a better strategy be to try and pay the “least” amount of taxes to the Internal Revenue Service? Or is there someone at the Internal Revenue Service, that you love so much, you want to give them as much as you possibly can? Does your actual Uncle work there? (If I sound like Van Mueller, then I say, thank you!)
Would you be interested in a strategy that would protect against the 5 threats of TV-FIL, AND would not hurt the taxable consequences of your existing retirement savings regardless of the tax structure we end of having in the future?
Then you can go into the questions you’ve learned from VanMark.Life.
Wouldn’t you agree, that what you need more than anything Mr. Fireman, or Mrs. Police Officer, is to have a strategy that understands the tax diversification problem you have, and minimizes your taxable income at retirement?
(DISCLAIMER: This blog post is not intended to offer tax advice. It is merely to get you thinking about strategies the revolve around taxes, tax savings, tax deferral and tax-free ideas. These concepts anyone can find and read about by searching the internet. You should always consult a licensed tax professional to find out how taxes effect your personal situation. You should always consult a licensed insurance agent and/or retirement planning specialist to recommend the products that offer these tax advantaged strategies for your retirement.)
Contact us and learn more (even before information is released to the public).