Planning Your Retirement: A Guide for Washington State School District Employees
In this episode, Ethan Meikle offers detailed guidance on retirement planning for Washington State school district employees. The six-step process includes creating a financial plan, notifying your employer of your retirement, contacting the Department of Retirement Systems for your retirement application, sorting out your medical coverage through PEBB (Public Employee’s Benefits Board), deciding when to file for your social security benefits, and finally, deciding what to do with the accumulated pension. Tips on dealing with potential issues such as penalties for early collection and transitioning to private health insurance are also discussed. The episode emphasizes the importance of working with an independent financial advisor and being mindful of crucial deadlines.
00:14 Introduction to Washington State Retirement Planning
00:38 Six Key Steps to a Smooth Retirement Transition
00:47 The Importance of a Comprehensive Financial Plan
02:32 Choosing the Right Financial Advisor
03:52 Notifying Your Employer About Your Retirement
04:19 Applying for Retirement with the Department of Retirement Systems
07:07 Understanding Your Medical Coverage Options
08:37 Deciding When to File for Social Security Benefits
09:42 Managing Your Retirement Savings
11:24 Considering Annuities and Finding the Right Advisor
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Transcript
Welcome back to another episode of Washington State Retirement Planning. If you guys are new here, my name is Ethan Mikkel and I specialize in helping Washington State employees get more educated on retirement plans so that they can retire on their own terms. In today’s episode, we’re gonna be covering the steps that you need to take when you decide to retire from a Washington State school district.
So I have six key steps that you wanna take in order to make the transition from employee to retiree as smooth as possible.
The first step you’re gonna want to take when you’re thinking about retiring is getting yourself a financial plan in place. Now this is absolutely critical and the foundation to any success, retirement. In fact, I wouldn’t even consider retiring unless you have one of these in place. And when I say retirement plan, I mean something you can hold in your hand that’s written out.
And it’s gonna lay out your cash flow. So every single dollar you’re gonna be making from now until the day you pass away should be accounted for as well as the tax treatment of those dollars. You should also have a risk analysis to make sure you’re not taking on too much risk in your portfolios. So there are a couple of areas that I see people misstep on this first step, and that is waiting too long until you get your retirement plan in place.
Waiting until the year you retire to get a financial plan in place is a lot like asking someone to custom build you your dream house. In two months, it’s probably not gonna look the way you planned. There may have been some shortcuts taken and you may not find out about those shortcuts and how it may affect you in the long run until you’re way, way, way down the road.
Similarly, when you’re building a financial plan in, you retire, there’s not a lot of time up to get that thing together, and a lot of options may have already passed you by That could have made a big impact on your retirement plan. So getting a jumpstart on your potential plan as early as possible is very important.
The second problem that I see in this area is people not really having a comprehensive retirement plan. They may have an Excel sheet or some kind of document that some advisor gave ’em, but it’s not comprehensive and it doesn’t account for what if scenario. What if someone were to pass away early? What if someone needed long-term care help?
All these different issues can have a giant impact on your retirement plan, and if it’s not accounted for, it can leave you devastated in your retirement years. So making sure you have a financial plan in place, but also one that has a plan B in plan C. You know, make sure you have these contingencies in place so no matter what comes your way, you’re gonna be prepared for it.
The third misstep I see oftentimes in this plan is getting a financial plan built by someone that’s not an independent advisor. Now, this may seem a little strange, but believe it or not, not all advisors are the same. In fact, many advisors that work for institutions, so they work for banks, credit unions.
, insurance companies, any kind of financial institution. So if they’re not self-employed, independent advisors, they may not be putting your needs first. In fact, they’re often taught cookie cutter solutions, and it may seem great because you don’t know any better, but when you dig underneath the shell at all, those plans typically aren’t the most robust or the best thing for you.
So you wanna make sure when you’re getting a financial plan built, it’s built by someone who’s independent, who has no bias as far as how the plans are gonna be created and are really will custom tailored to you. If you really wanna get a good financial plan built for you, make sure you can consult an independent financial advisor.
If you already have one, but you’re working with someone that is employed somewhere else, it’s never gonna hurt to go and seek help with someone else. Cause you may be surprised by what that first planner missed or overlooked, or they was just hiding from you. I know that may be a tough thing to hear, especially if you’ve been working with that individual for a long, long time and you trust them with everything.
But in retirement, you can never be too sure. So always double check. Worst case scenario, everything checks out and you can move forward with your current person or your current plan. So step number two in this process is letting the school district or your employer know that you will not be coming back next year.
You wanna do this before the end of February, just to give ’em sufficient time to find a replacement for you. And you also may be in time some sort of incentive for letting them know no early. So oftentimes they’ll give you a cash payout of $500 to $1,500. Depending on the size of your employer or school district. So as soon as you know that you’re planning retiring, let them know asap, so you’re not gonna miss out on that cash incentive.
Now, step number three in the federal money process is contacting the Department of Retirement Systems and asking for your application for retirement. Now the step is only needed if you’ll be collecting your pension this year or the year do you plan on retiring on? So if you plan on holding off, Collecting your pension cuz you’re just gonna transition into a different industry or you’re not eligible for your pension yet and you have to wait a couple years until you hit a certain age.
And this step is not gonna apply to you. You’re gonna hold off on this step until the year you’re gonna want to collect that pension. But assuming that you are gonna collect your pension this year, you’re gonna wanna ask for that application. And when you get it, you’re gonna wanna fill it out as soon as possible and get it back to them so they can process it.
So what’s step number three? You’re gonna wanna do this? Typically in between March and April. So you wanna give the state sufficient time to give you the application because it does take them quite some time to actually get the application to you. So whether you’re doing it by mail or over the online portal, they still can take weeks to make available to you.
And there’s a couple of key dates that you’re gonna wanna know about, and some of ’em have changed because of this new SEBB plan and how it’ll affect your healthcare. So the first date is they’re gonna ask you for your separation of service date. Typically, it’s gonna be the last date that you’re working.
Most people will just use June 30th as as a catchall. Then we have the date of retirement. So depending on the date that you put, that’s the month that your pension’s gonna start up in. Now, up until this year, we’ve always recommended. Collecting on July 1st, just so you can start getting that pension as early as possible, or with this new SEBB plan in place, as soon as you elect your retirement date and start collecting your pension, you’re no longer eligible to be on your employer’s health insurance.
So you have to go private. So most people just go with the PEBB plan after retirement, and we’ll cover that in a little bit. But basically, if you were to collect in July 1st, now you now have to pay out-of-pocket starting in July for your medical. Now this will make sense if your pension is more than your medical needs.
For estimate on your pension, say 2000 a month, and for you and your spouse, the estimated medical cost is 1200 a month. You’re still gonna net about $800, and in that case, it probably makes sense to collect right now. However, if your pension is gonna be less than what your medical cost is, or maybe you just don’t wanna take the money early, then you’re gonna wanna wait till September 1st because if you wait till September 1st, you’re still gonna be on your employer’s insurance for July and August.
Once you start collecting your pension in September, then you’ll have to start paying out-of-pocket medical costs at that time. Also, it’s important to remember when your birthday is. So for example, if you don’t turn age 62 until October, but you file for for your pension to start in July, and you’re not 62 yet, you’re gonna get hit with some sort of penalty.
So it’s important to keep those dates in mind as well. All right, so step number three is just filing for your retirement benefit from the state as early as possible. Usually by March or April.
So seven four now is getting your medical squared away. So for most people, when they leave employment from the state, they’re gonna go on the P system. That’s the Public Employee’s Benefits Board. And it’s basically similar healthcare coverage that you’re currently on, just continued on after retirement.
Now, if you’re retiring before age 65, this is gonna be your primary healthcare system. If you’re gonna retire after age 65, peb is gonna be your second to pay your supplemental plan. So Medicare will pay first. These will pay second. Of course, you may feel free to shop around and choose what’s best for you.
But in my experience, all of my clients have always chosen to go with peb and they absolutely love it, and they almost pay nothing out of pocket when they have to get any kind of medical coverage. So I highly recommend you consider peb when you transition to retirement and consider the prices in advance.
And really wanna choose the plan that’s right for you. So there’s a number of different plans available in that peb system, and really it’s up to you cuz only you would know your own healthcare needs as far as what plan is gonna work best for you. When it comes to peb, you’re gonna wanna file for that benefit to start within three months.
So you wanna do this usually in, you know, April or May when you wanna start filing and letting Pam know that you’re gonna be going on coverage. If you’re gonna start collecting your pension in July. Now, if you’re gonna wait until September to take your pension, You have a couple more months. You don’t have to file for PEB until the summer.
Also, when it comes to peb, you actually can delay taking coverage until a later date. If you’re on plan three, you should have to fill out the right forms. If you’re on plan two, however, you have to start taking your PEB coverage. Right away.
Most people will just use June 30th as as a catchall. Then we have the date of retirement. So depending on the date that you put, that’s the month that your pension’s gonna start up in. Now, up until this year, we’ve always recommended. Collecting on July 1st, just so you can start getting that pension as early as possible, or with this new SEBB plan in place, as soon as you elect your retirement date and start collecting your pension, you’re no longer eligible to be on your employer’s health insurance.
So you have to go private. So most people just go with the PEBB plan after retirement, and we’ll cover that in a little bit. But basically, if you were to collect in July 1st, now you now have to pay out-of-pocket starting in July for your medical. Now this will make sense if your pension is more than your medical needs.
For estimate on your pension, say 2000 a month, and for you and your spouse, the estimated medical cost is 1200 a month. You’re still gonna net about $800, and in that case, it probably makes sense to collect right now. However, if your pension is gonna be less than what your medical cost is, or maybe you just don’t wanna take the money early, then you’re gonna wanna wait till September 1st because if you wait till September 1st, you’re still gonna be on your employer’s insurance for July and August.
Once you start collecting your pension in September, then you’ll have to start paying out-of-pocket medical costs at that time. Also, it’s important to remember when your birthday is. So for example, if you don’t turn age 62 until October, but you file for for your pension to start in July, and you’re not 62 yet, you’re gonna get hit with some sort of penalty.
So it’s important to keep those dates in mind as well. All right, so step number three is just filing for your retirement benefit from the state as early as possible. Usually by March or April.
So seven four now is getting your medical squared away. So for most people, when they leave employment from the state, they’re gonna go on the P system. That’s the Public Employee’s Benefits Board. And it’s basically similar healthcare coverage that you’re currently on, just continued on after retirement.
Now, if you’re retiring before age 65, this is gonna be your primary healthcare system. If you’re gonna retire after age 65, peb is gonna be your second to pay your supplemental plan. So Medicare will pay first. These will pay second. Of course, you may feel free to shop around and choose what’s best for you.
But in my experience, all of my clients have always chosen to go with peb and they absolutely love it, and they almost pay nothing out of pocket when they have to get any kind of medical coverage. So I highly recommend you consider peb when you transition to retirement and consider the prices in advance.
And really wanna choose the plan that’s right for you. So there’s a number of different plans available in that peb system, and really it’s up to you cuz only you would know your own healthcare needs as far as what plan is gonna work best for you. When it comes to peb, you’re gonna wanna file for that benefit to start within three months.
So you wanna do this usually in, you know, April or May when you wanna start filing and letting Pam know that you’re gonna be going on coverage. If you’re gonna start collecting your pension in July. Now, if you’re gonna wait until September to take your pension, You have a couple more months. You don’t have to file for PEB until the summer.
Also, when it comes to peb, you actually can delay taking coverage until a later date. If you’re on plan three, you should have to fill out the right forms. If you’re on plan two, however, you have to start taking your PEB coverage. Right away. If you want more information on the ped plan or wanna see the current prices, I have a link to them in my description below.
Step number five is making sure you know when you’re gonna file for your social security benefits. Whether you’re gonna file for this year or wait a couple more years, you wanna know exactly when you plan on taking it, and that question is gonna be answered originally in step number one, when you have your financial plan in place, when you lay out all the different alternatives of when to collect and what’s gonna be best for you.
And when you go to file for your social security benefits, you wanna give a whole three months notice at a time of when you’re gonna collect. Typically, it’s easiest if you wait until January 1st to collect, just so you get a fresh tax year start off bond. Because sometimes if you make more income than you’re allowed to, your social security benefits could be penalized.
Now, typically it’s not gonna be an issue if you don’t start taking your social security until after you’re done working. However, just to make things simple, typically just wait until January 1st is the easiest way to do it. So if that’s the plan, you really don’t have to file until October. Now, if you’re over 65 when you’re going through this process, this is also where you’ll register for Medicare.
And if you plan on working past this and we cover another employer, at least enroll in Medicare Part A. It’s free once you’re over age 65. So step number six, the final step in this process is deciding what to do with all this money you have accumulated. So this whole time you’ve been told or actually been forced, if you’re on plan three to save for your retirement, so you’ve been building up all this money, whether you’re doing on a pre-tax basis or a Roth basis, it’s all been building for this moment for your retirement.
Now, once you’re here, you have to decide what am I gonna do with it? Now again, that question is actually answered in step number one in your retirement plan. I would’ve laid out exactly wherever dollar goes, whether or not you’re gonna bere buying insurance or long-term care if you’re gonna do a Roth conversions or any kind of tax plan you need to do.
That’s all laid out on that plan. But the other part of number six is this is when you’re finally gonna be able to move your defined contribution side, assuming you’re on Plan three. So that money is gonna be locked up until you separate service, and when your last contribution clears, which would be in August of the, you retire on.
So the money in Plan three isn’t eligible to be moved usually until September. So once that timeframe comes, you’re then gonna be able to move it to wherever your plan told you to do so if you don’t already have a financial plan in place. That’s what we do here at Scenic Financial. Now, one question I get all the time is, do I have to take that money outta plan three or can I just leave it there?
Well, you could just leave it there, but why would you want to, I mean, once you retire, you have so many different investment options available to you. It would kind of be silly to leave it there because honestly, you have different investment options outside of the plan you can invest in that will help you be better prepared for the next market downturn, or as well as using something that would be safer and protected from any market losses on a guaranteed basis.
Or you can put it somewhere that will generate you a guaranteed income stream. So while you can leave it there, typically I recommend you should move it somewhere else, because more often than not, it’s gonna be in your best interest to do so. Now, I just mentioned guaranteed income, so probably the thing that comes to mind is an annuity, specifically the TAP or the State’s annuity.
Now these things are widely pushed by the state. However, there’s some precautions that you’re gonna wanna take if you’re considered using them. So again, it starts with step one, getting a plan in place to see even if you need an annuity and if that one’s actually gonna be the right one for you. Because there’s pros and cons with everything that you do,
now, however, your situation’s different, so you wanna make sure that you look at this thing really hard with a professional to make sure it is gonna be the right step for you if you’re considering using that kind of annuity. And if you’re not sure exactly where to start, where to find an independent advisor or where to get a plan built from, that’s something that we do here every day at Sceinc Financial. So me or one of my partners would be happy to do that for you. And to be honest, most of the financial plans that I see being built by people who don’t specialized market exclusion employees.
They have no idea at all how your school pension or system works. So they typically leave it out of the entire financial plan if they even have done for you to begin with. And your state specific retirement plan accounts for 30 to 80% of your entire retirement income. So it’s really important that you’re working with an advisor.
That specialize in the, knows your specific situation so they can build into the plan so nothing gets overlooked or missed. If you really wanna work with somebody that knows your specific situation and can give you tailored advice from years of experience with working with people just like you.
All right, so there you have it. Those are the six steps that you’re wanna take if you’re planning on retiring from a Washington school district. Now, if you found value in this, please share it with a friend to help us spread the word to more state employees. If you wanna go more in depth on these things, look at other topics.
We have a blog site that’s complete educational. Dedicated to Washington State employees, just go to Washington s pers.com to view it. That’s w a TRS p e r s.com.
Now actually just finished creating a little roadmap so you can visually see step by step what steps you need to take when you’re retiring. So this little roadmap, we outline steps you need to take 90 days for retirement, as well as 90 days after retirement so you don’t miss any key deadlines. If you want a copy of it, you can go ahead and get it on our website.
Watrspers.com. I’ll catch you guys all next time and remember that your future depends on what you do today.