Retirement can feel like a confusing maze—especially when the stakes are high, and the choices are permanent…
What if you could transform your retirement planning from overwhelming to effortless?
In this episode, April Schoen walks FRS members through the most important decisions and strategies for making retirement planning easy, secure, and tailored to your life.
You’ll discover…
The 4 freedoms you must consider before choosing your retirement date
A shocking pension option detail most retirees miss
How timing your DROP payout could save you thousands in taxes
The Social Security strategy that may boost your lifetime income
Two costly pitfalls that can trip up even the most prepared retirees
Mentioned in this episode:
Transcript:
April Schoen: Hello, welcome. My name is April Schoen. I'm glad you're here with me today, because today's topic, I think, is very important. It's going to be on retirement planning made easy for FRS members. Now, I think we all know that retirement planning isn't actually easy, right? Especially when you're navigating FRS pension choices, DROP, tax rules, there's a lot going on.
You know, I think about retirement as a one big, large puzzle, and all of these pieces that you have in your financial world. And the question is, when it comes to retirement is, how do you put that puzzle together in the best way possible? In fact, over the weekend, I was actually just working on a puzzle with my family, and it got me thinking about this analogy.
But I was thinking about, when it comes to retirement, it's like, hey, I have all the pieces, right? I have my pension, DROP. I might have deferred comp, an IRA, there's Social Security, there's tax rules, there's all these pieces that I have, but they forgot to give me the picture of the puzzle like, right? There's no picture on the front of the box to help show you how to put it all together.
So if that's you, if you're feeling that way, I'm glad you're here, because my job today is to make this easier for you by bringing clarity and structure. So I primarily work with people who are getting ready to retire. They're usually in that three to five years from retirement. Many of them work for the Florida Retirement System. Many of them are already in DROP. You know, what I find is that you may have spent your entire career working for the state, and now it's time to turn your attention to your future.
But if you're like a lot of the people I meet with, you might be feeling overwhelmed by all the choices, anxious, wondering, am I making the right decisions for me and my family? And I get it, right? You've spent your career focused on your work, your family. Retirement might be feeling like it's coming up fast, and these decisions feel big. They're high stakes. And you might be asking yourself, hey, what pension option did I choose, and was it the right one? What do I do, how do I handle my DROP payout? When should I take Social Security? And the most important one, which is, am I really ready to retire?
So just know again, if that's you, you're not alone in feeling this way, and you're not behind. The system's confusing. Of trying to figure out what is going to be the best thing to do through your maze of options. Our job, we really want to help simplify the process, give you clarity, give you confidence as you're moving forward.
So I want to get into this today and walk you through some of the biggest decisions you're going to face as you get ready to step off into retirement. And then we're going to show you how you build a plan that fits your life, your values, and your goals. So, you know, I recently met with a couple. They've always handled their finances themselves. They've been working; they're both gonna be retiring from the state, but now that they're preparing to retire, they wanted a second set of eyes.
They wanted a second opinion. I remember she, her name's Nancy. She said, April, I've been thinking through all this. I put some stuff together, but I want someone to dot my I's, to cross my T's, to look over our plan and make sure that I'm not missing anything. And she's like, you know, I know you've helped hundreds of people do this. This is my first and only time going through this myself, and I just want someone who's got that knowledge and experience to take a look at it. In our very first real planning meeting together, we helped them understand where they stood.
Hey, here's where you are, here's what your options are, here's what we should be working on between now as you're getting ready to retire. And you know, they walked out of that, meeting with a plan in place, and knowing that, hey, they're making the right decisions. And they had some things to do, some work, some tweaks that we needed to make, but they were on the right path. And so that's what we want for you, too, and I'm glad you're here today, because that's a great first step towards getting there.
So today, we're going to walk through those most important parts of how to build a secure retirement plan, and most importantly, you're going to know how does this apply to you? So we're going to cover three key areas, when's going to be the best time for you to retire? How do you get the most out of your FRS and Social Security benefits? That's going to be, how do you build your retirement paycheck?
And then common pitfalls. What are those common mistakes that we see, and how do we avoid those? We're going to cover a lot, but don't worry, the goal isn't for you to have to have everything memorized. It's just for you to know what's possible so that you can get the help that you need to move forward in your process.
So let's dive in today. One of the most common questions that I get is, hey, when should I retire? Am I ready to retire? Is this the right time? There are a lot of questions, even if that financially everything looks good on paper. Sometimes people still question it. I have clients who come in who really want to retire. They're done, they're over it. And maybe though the finances aren't there yet, right?
So when I want you to think about like, hey, when should I retire? Am I ready to retire? I want you to think about these four freedoms that we talk about with clients. Relationships, location, money, and time, because we don't want to just look at the numbers on paper, right? We want to look at the whole lifestyle, the whole picture. And for you to start thinking about, what do you want your retirement to look like?
We actually have to start there with what do you want your lifestyle to look like in retirement? Where do you want to live? You think about location, where do you want to live? Where are the places that you want to visit and travel to? When we think about relationships, who are those people that you want to spend time with?
Now that you have time freedom, what do you want to do with your time? Are there hobbies that you want to now focus on? Are there volunteer opportunities? Is it starting a business like, what is it that you want to do now that you have free time? I love asking the question of, if every day is a Saturday and a Sunday, how are you going to live your life? Meaning right now, you might be working Monday through Friday, and you have a lot of free time on Saturday and Sunday.
So what are you going to do when every day feels like a Saturday and a Sunday? And the goal of retirement is to have money freedom. It's to create money freedom so that you can actually use the time that you now have. You can now go where you want, do what you've dreamed of, and spend time with the people that matter most. Because when all of these things work together, this is really how a real plan, I'll say a real plan ties all those pieces together. It's going to give you those options and confidence.
So let me give you some examples. I just met with some clients recently. They retired a few years ago, and this couple, they actually have a big age difference between the two of them, and so their dream was to retire at the same time so that they could travel and enjoy life together. And they bought an RV, and they've been traveling all around the country. Not just in the country, but they go overseas. They take cruises. I love seeing all the pictures that they post. I love hearing about all their trips. So fun.
But when we were initially doing their planning, we had talked about what if something happened to Greg, what would Kim do? She'd always said, you know, hey, if something happens to Greg, or when something happens to Greg, I will probably just go back to work. And the other day, we were going through everything, and she mentioned this again. And the truth is, she doesn't have to do that if she doesn't want to.
And that's one of the things we talked about, because their plan is so strong that her going back to work is going to be a choice. It's not going to be a necessity. And that's part of doing the planning. And there's another client of mine, and this is again, a few years ago, and he, at the time we were talking, he was 90 years old, and he called me, and we were talking about a few things, and we were scheduling a time to get together.
And he's like, April, I have got to cancel, I've got to cancel some of my social obligations. I have no time to meet in the next three weeks. And I love that. I aspire to be 90 years old and have my social calendar so full that I can't schedule a meeting for three weeks out. That's living retirement on your terms, and that's having all four of these freedoms. Relationship, location, money, and time. That's really what puts retirement, means you're living life on your terms.
Now let's talk about the real reason that you're probably here, and that's to talk about what are your options under the FRS pension plan? You've worked hard, you might already be in DROP, nearing retirement, and you're wondering, hey, am I doing this right? And I want to start with one of the most foundational pieces to your retirement. It's really one of those foundational pieces to your retirement puzzle, which is your pension.
That FRS pension plan, I think this is actually, you could think of it like a cornerstone. Social Security and pension are going to really be the foundation for your retirement. And I want to walk through these four pension options, what they are, what they mean to you, how they work. And one of the first questions I ask people is, hey, which pension option did you choose? And you may not know the answer, because you had to make this choice when you went into DROP, so that might have been a few years ago.
So if you don't know the one of the first things I'm going to tell you is, go take a look at your paperwork, contact the division of retirement, and figure out which pension option you have. That is first and foremost. But let's get into these so you can know how they work. So option one pays the highest amount of income, but it dies when you die. So this means you get this income for life. It's never going to go away as long as you're living, that paycheck is going to keep coming in, but there's no survivor benefit. So it is going to die the day that you die.
Option two is going to be life to you with a 10-year guarantee. This means you get this income, that same income, for the rest of your life, just like option one, doesn't matter when you pass away or how long you live, you're going to get this income under option two, but there is a 10 year guarantee that's going to continue to your beneficiaries if you pass away within the first 10 years of retirement.
So let's say you retired, and you lived five years into retirement and passed away, and you had option two, then that pension is going to continue to your beneficiary for another five years, the remaining part of that 10 years. One important thing to note about option two is that when you go into DROP, you start the clock on the 10 years. Because the state considers you retired when you go into DROP.
So if you think about right now, you can be in DROP for up to eight years. So if you choose option two and you're in DROP for eight years, then you're only going to have two years left for that guarantee period of going to your beneficiaries. So one thing we want to look at here is, what sort of survivor benefits do you need, and how are you going to satisfy those. Is it going to be through a pension choice? Is it going to be through assets? So, really understanding, if you have any survivor needs. Children, spouse, things along those lines.
Option three is joint with 100% to the survivor. This means you and your spouse continue to get the same income for the rest of your lives, no matter who lives, no matter who dies, that same income is going to come into either one of you for as long as you're living. There's no reduction in the pension. So if you're the employee, you're going to get that pension for life. The day you die, if your spouse is still living, they're going to continue to get that same amount for the rest of their life.
Now, option four is where people get tripped up, because this actually has a reduction. So it's a joint pension option with two-thirds to the survivor, but that reduction kicks in when either spouse dies, not just the employee. So it could be your pension benefit, your spouse passes away, and now your pension is reduced to two-thirds of what it was. Most people don't realize that. They think it's only if I pass away, this is like two-thirds to my spouse.
I actually met with a client a few years ago who thought she understood her pension choice, and then when we reviewed it, she had selected option four, thinking that her spouse's benefit would only reduce after she passed away. That's not how it works. And once she saw the full picture, she was like, why didn't anyone ever explain this to me? But that's the power of having a second set of eyes, because we were able to do some other planning to help both her and her husband upon either one of their passings.
So when you choose your pension, it's an irrevocable decision. You cannot change it. So it's very important that we understand which pension option did you choose, if you've already made that election, how is that going to impact your plan? And then are there any sort of planning opportunities that we need to work on to work with that pension choice? So now let's talk about DROP, and let's talk about how it works and what your options are going to be.
So let's walk through the program first, because it gets a little confusing sometimes. So when you enter into DROP, the state is going to consider you retired. This means you stop earning service credits towards your pension, but the state is going to start paying that monthly pension into a separate retirement account in your name, and that account is going to earn 4% annually while you're still working.
And then when you officially retire, when you exit DROP, you're going to receive that accumulated lump sum. That's what people call their DROP amount, or their drop account. You're going to receive that lump sum. And here's the important part, you cannot leave the money in DROP. You have to make a decision, and your decisions are to take it as a lump sum, but be prepared that the entire amount is taxable in the year that you take it.
You can roll it over to another retirement account, like a traditional IRA or a deferred comp account. This is tax-deferred. So rolling it from DROP to, say, an IRA, that's a non-taxable event. Or you can do some sort of combination of the two, but this is when planning makes a huge difference. So one of my clients, she retired last year, she wasn't sure what to do with DROP, and we helped her put a plan in place to make the most of her DROP account, but also to pay attention to taxes.
So we rolled it over to an IRA. We actually she retired in October. We actually waited until the new year, she took some money out to pay off debt, and then we structured the rest of it to give her monthly income. So this combination of things not only gave her the lifestyle that she needed and wanted in retirement by creating cash flow in retirement, creating an income stream, by freeing up cash flow, by paying off debt, but it saved her 1000s in taxes by just waiting from October to January. That's really where planning comes into play.
Same thing yesterday. I met with a client. She's retiring on December 31st, and we talked about doing some things this calendar year versus next calendar year, and it makes a big difference from a tax standpoint. So how do you avoid making mistakes like that, or having this feeling like you're missing something important? Well, here's how we help our clients do exactly that every step of the way.
Step one would be, you would schedule, you would book a retirement focus session with our team. It's a one-on-one conversation where we review your pension, your DROP payout, and your retirement timeline. And then step two, we're going to start building a personalized retirement roadmap. This isn't a generic plan. This is one that's designed around your exact situation. And then step three is you walk away with clarity, right? You know exactly what to do next. You feel confident. You feel in control.
This is, sometimes I call it a strategy session. We're going to take a look at helping you understand your numbers, see your options, and then we can decide, hey, does it make sense for us to work together in some capacity? But these initial calls. There's no cost for those. Now we do charge for planning. We charge fees for putting together a financial plan, a retirement plan for you, because this is real work.
It's several meetings, working together, putting your plan together, but it delivers real results. And this first session is where it all begins, and there's no cost for that initial meeting. It just is going to help bring you clarity and confidence. So we're going to we're going to talk more about that later, later on.
So let's talk about Social Security and making the most of your Social Security benefits. Because Social Security timing, when you're going to actually tap into your benefits, this is not a one-size-fits-all all. It's going to depend on your pension, your spouse's benefit, your tax situation, your goals. So, a few things to note about Social Security is you can start your benefit as early as 62, but that is going to be a reduced benefit from your full benefit.
So you can start as early as 62, but you'll have a reduced benefit. You're going to reach your full retirement age sometime between 66 and 67. That's going to be all dependent on the year you were born. Or, you can wait until age 70, and that's going to give you the highest amount. So waiting between, let's say your full retirement age was 67, if you delay until 70, your benefit is going to increase by 8% per year.
So remember that the Social Security benefits are mostly taxable. It won't be all considered taxable income, but mostly taxable. And we've helped clients increase their lifetime Social Security income by making smart decisions. So let me give you some quick examples. One of my clients, her husband, passed away a few years ago, and he was already taking his Social Security, but she had not started hers yet.
So what she did was she started her survivor benefit first, that her own benefit could delay and could grow to age 70. And that single change significantly increased her lifetime income because their Social Security benefits at their full retirement age were about the same. So she's getting his under the survivor benefit. And then hers grew by 8% per year until she turned 70, and then she switched over to hers. It made a big difference for her.
Another couple, Mark and Laura, had a different challenge. Laura had started hers early, at 66, and then Mark thought that his benefit was going to be permanently reduced if he started it early. We actually showed them how they could have Laura start hers. We could wait on his until he hit his full retirement age. That was going to allow him to maximize his own benefit, and it's also going to maximize what they would each receive later as a survivor benefit.
Because it's not always just about what do I get now, it is what is this lifetime impact going to be to the two of us. And that made a big change for the two of them as well. And so if any of this already feels like a lot, just know it's normal. I walk through these exact decisions every day with clients, so I'm used to going through it. And like I said, we're going to talk about at the end, I'm gonna share with you how you can schedule a retirement focus session if you'd like some one one-on-one help figuring out your best strategy, especially when it comes to Social Security.
Now that we've talked about income, let's talk about, how do you keep more of it in your pocket? Because even the best retirement plan can fall apart if taxes aren't managed strategically. Taxes are different for everyone, based on all of your income sources, but we are big believers in tax diversification, and that means that you're going to have your money in different types of accounts, so they're taxed differently, and there are really only three different types of buckets, taxable buckets.
There's tax-deferred, tax-favored, and taxable. So tax deferred, these would be things like your DROP account, 457 plans, 403Bs, traditional IRAs. These are all accounts that haven't been taxed yet. So when you go to take money out in retirement, it's all going to be taxable to you at your highest marginal rate. Now you have tax-favored favored where these are accounts that you put money in today, you've already paid tax on, but it grows tax-free, and you can take it out tax-free in retirement. So that really helps from the tax standpoint.
And then you have taxable. These are partially taxable, so you put money in today that you paid tax on, and then when you start to take money out in the future, you may have to pay some tax on earnings, interest, dividends, things along those lines. But it's important to keep this in mind when deciding which buckets are you going to take income from in retirement. I call it this order of operations.
So, which bucket are we going to take income from first, and then which ones are better to let grow for the future? One of the biggest planning mistakes I see is retirees getting hit with these tax surprises, especially if they take a lump sum out of their DROP, out of IRAs, deferred comp. I had a client I talked to earlier this year. She wanted to take a big lump sum out of her DROP to pay her mortgage off, but she was going to have to take out $100,000 from her DROP to pay the tax and then have the money to pay the mortgage off.
It really significantly increased her taxable income. But with the right tax strategy, we can help clients reduce not just taxes now, but help them reduce them over your retirement to save 1000s on taxes. And we help our clients create that retirement income plan so they can have diversity, they can get the income that they need, get the income that they want.
But we take into consideration all these tax rules, and we ask the question, you know, can we increase your after-tax income by making some tweaks about which accounts you pull money from and when? And this does involve some tax planning. You know, I was talking with a new client yesterday. She's retiring in two years.
She's gonna have DROP and deferred comp, but we can't do anything with those accounts until she actually retires. So we can't put a tax plan, we can't start doing a tax plan for those until 2027. However, there are things that we can start doing today, so that's what we're starting to work on with her, is, what are these tweaks? What are these changes she should make over the next two years to put herself in a better position from a tax standpoint?
There are a few common pitfalls we see. Things like choosing the wrong pension, taking income from the wrong account at the wrong time, and missing key deadlines. But there are two that I want to focus on today, and that is Medicare and required minimum distributions, because there's a lot of confusion about these, and they can trip you up. So I want to go through both of these, because they can have such a big impact on your retirement income and on your taxes.
So let's start with Medicare, because there's a lot of confusion around Medicare. I'm going to give a brief overview here. There are two main ways to get Medicare. The first is Original Medicare, which includes Parts A and B, and then you're going to add on a supplement plan. You're going to add on a drug plan to fill in the coverage gaps, to cover those things that Medicare doesn't pay for.
The second option is a Medicare Advantage plan. This is also called Part C, which combines everything into one plan. So I'm here in Tallahassee. You know a local example of a Medicare Advantage plan would be CHP, Capital Health Plan. The main key with Medicare is to make sure that you enroll on time so you avoid any lifetime penalties. I'm going to say that again. The key is to make sure you enroll on time to avoid any lifetime penalties.
That's right, Medicare has lifetime penalties if you enroll late, so make sure you enroll on time. And then for most people, the average cost for Medicare in retirement is going to be around $500 a month per person. That includes all parts, supplements, out-of-pocket costs. Of course, it's going to vary, but it averages out to be about $500 a month per person. One thing to keep in mind are IRMAA thresholds. So, IRMAA, this is I, R, M, A, A, this is a surcharge that's added to your Medicare premium if your income in retirement is above certain thresholds.
So basically, the higher your income is, the higher your Medicare premiums are going to be. And we often see people trigger IRMAA by mistake, right? They might be doing some of those Roth conversions, maybe taking money out for required minimum distributions. Maybe they take a withdrawal to go on a big trip, and they don't realize that it pushes them over the brackets to have an IRMAA surcharge. And so these can affect both your costs, it can affect your coverage.
And so you don't really want to wait to the last minute to do those things. And so we help clients plan early, avoid penalties, and coordinate Medicare with the rest of their retirement income and tax strategy. One thing I'm going to mention here is I do not sell Medicare plans. I've chosen not to sell them. I really want to just help educate my clients on what their options are.
I do have people I can refer you out to for that, but that is not something that we offer, is specific Medicare plans. Now we just talked about Medicare and how some timing mistakes can cost you for years. Well, the other big pitfall we see is around required minimum distributions, or we call those RMDs for short. So, RMDs, required minimum distributions, they apply to all of your pre-tax retirement accounts. These are IRAs, 401Ks, 403Bs, 457 plans, and it's essentially the government's way of saying, hey, it's time to start paying taxes on this money.
Now, currently, under today's tax law, you can defer taking money out of these accounts until you're age 73, and then beginning in 2033, that's going to increase to age 75. And once you start, you're required to withdraw a certain amount each month. Sorry, a certain amount each year. It doesn't matter how you do it. You could do it monthly, annually, quarterly, but they have a certain amount you have to take out each year. That's why it's called a minimum distribution.
You can always take out more, but if you take out less, that's when you're going to have penalties from the IRS. And the IRS has a schedule that we have to follow. It's based on your age. So how old you're going to be that year, and your account balance. And essentially, as you get older, every year, the IRS is making you take out a bigger piece of the pie, and every dollar you withdraw is taxable at your highest marginal rate. So this means by the time you add on your pension, Social Security RMDs, your income can easily be in that 24% bracket or higher, and then this can be the thing that triggers those IRMAA surcharges on your Medicare premiums.
That's why this isn't just a box to check, it should be a key part of your tax and income strategy. And we help clients not just manage RMDs, but actually plan around it. Coordinating withdrawals, looking at Roth conversions, income timing, so that we can make sure that we have a good plan in place for these to help avoid not just mistakes, but also the taxes. So one of my clients, when we first met her, she thought she was taking her RMDs, but she was actually just transferring money between IRAs, which does not count.
And this could have triggered a steep penalty for her, but we were able to help her catch it in time and get it fixed. And this is really where that proactive tax strategy comes in place. And when you take a step back, RMDs are just one piece of a much bigger puzzle, right? Your income taxes, timing, how everything all fits together, and that's really what this is all about. Is about having a plan that's proactive, not reactive.
I want you to imagine for a second that you're sitting down six months from now, and you have a clear plan in place. That means you know how much income you're going to have in retirement. You're going to know exactly when you can retire. You've got a strategy for what to do with your DROP payout. You're managing taxes intentionally, and you're not reacting. You're actually leading your plan. Think about the difference that would make.
That's what we want for you, and that's exactly how we help our clients. What we help our clients create through that retirement focus session. So if what we've talked about today has you thinking, I'd really like to see where I stand, the next best step is to schedule your retirement focus session. This is a 30-minute conversation where we're going to look at your pension, DROP, income timeline, and we're going to help you identify what are your next best steps.
Think of this as your first roadmap meeting. We're going to get clear on first, where do you stand today? Your pension, DROP, what does your savings look like? Second, we're gonna talk about what's possible. What key decisions should you be focusing on right now, like on timing your retirement or planning for taxes? And third is, what is your next best step?
So whether that's building a full retirement plan with us, whether that's taking some key insights back to your own advisor, but the goal of this meeting is simple. It's to walk away with clarity, not confusion, and that's the power of having a guide on your side, even just for that first step. So if you're ready to schedule your retirement focus session, you can scan the QR code on your screen, or you can go directly to our website at curryschoenfinancial.com.
This is going to allow you to choose a time on my calendar that works best for you. I do want to give a quick heads up that my calendar is nearly full for the rest of the year. I only have room to take on a few more clients before year end, and that's really to get us started as we go into the new year. We make this first step super simple and relaxed. You don't have to bring anything to the meeting. It's focused entirely on you, so you can start feeling confident about that next chapter in retirement. You've worked too hard to reach this stage to feel uncertain about it.
So this retirement focus session can help you get some of that clarity and know, hey, what's the best next things for me to work on? I just want to say thanks for joining me today. I hope if you took away a few key ideas, some things to think about, that it's well worth your time spent today. And again, you can visit our website, at curryschoenfinancial.com to schedule your 30-minute focus session. Or, hey, if you've got questions, you want to talk through something specific, feel free to send me an email. My team and I, we read every message. I hope that today you see that with a few smart moves, you can really take control of your income, your taxes, and your future. Thanks for being here. I look forward to connecting with you all soon. Bye now.
Voiceover: This promotional information is not approved or endorsed by the Florida Retirement System or the Division of Retirement. Neither Guardian nor its affiliates are associated with the Florida Retirement System or the Division of Retirement. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Tax laws are always subject to change.
This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com, or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial, and opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address 1700 Summit Lake Drive, Suite 200. Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, a member of FINRA and SIPC. April is a financial representative of the Guardian Life Insurance Company of America, New York, New York. Park Avenue Securities is a wholly-owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
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