Lots of federal employees like to pin their retirements to the end of the year. It makes for nice closure on a career. But if you mean this year, there’s no time to lose. Retirement is all about the planning you do ahead of time. The Federal Drive with Tom Temin got the lowdown from one of the top retirement planning experts, Tammy Flanagan.

Interview transcript:

Tammy Flanagan Thanks for having me, Tom. I’m really glad to be here because we did get through that hurricane down here in Florida. But everything is good and fine here.

Tom Temin All right. Good. I can see your pictures are still on the wall in the background as we tape here by video. So terrific. Well, it is that time of year when those planning to retire at the end of the year really ought to be in full bore planning and operational mode, shouldn’t they?

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Tammy Flanagan Yeah, they sure should. This is the time of year you don’t want to wait until the last minute to put your application in. So I think now is the time. If you haven’t already done so, if you’re leaving the end of this year, trying to maximize that lump sum annual leave payment, I would hope that you have your retirement application at least filled out, if not turned in by now. You’ve made all those important decisions about survivor elections and how much life insurance you want to keep. And now’s the time to get the ball rolling, because that way you’ll be on the top of the heap in your HR office as they start receiving sometimes dozens of applications for the end of the year. And it’s not that your application is going to get to [the Office of Personnel Management] any sooner, but within your agency, your HR office has some work to do. Your payroll system has work to do to get you off the payroll and into that transition to retirement. So the early bird does catch the worm here.

Tom Temin It’s almost like getting your requisition into your contracting officer sooner because they’ve got a stack of work to do and they start from the top of the stack and I guess work down to the bottom or something like that.

Tammy Flanagan Exactly.

Tom Temin And you mentioned designating the survivor benefit idea, which means you got to assess, am I going to stay with this spouse?

Tammy Flanagan Well, I don’t know. Is that how you assess it, Tom?

Tom Temin Well, not personally.

Tammy Flanagan That’s funny and makes me laugh. My own way of telling people about the survivor benefit election is to think about it while there’s two of you, you and your spouse living. And usually life is good because you might have two sources of retirement income. You might have two Social Security checks. Both of you perhaps have saved money, put away for retirement, but then try to think in terms of what if it’s one of us, whether it’s me or my spouse who survives, because usually we don’t both go down in a plane crash. Usually one spouse outlives the other. How is that going to look? So keep in mind, one of those Social Security checks is going to disappear. You’re going to keep the higher of the two, but not both. If you’re both federal retirees or you both have a pension – I know in the private sector, it’s rare to have a pension – but you might have two pensions. One of those could disappear. Your savings could be depleted by the time one of you dies. Because what if one of you needs long term care? Now, I was talking to someone the other day that’s paying $11,000 a month for their father to be in a nursing home right now. And that depletes assets really quickly, especially if you don’t have long term care insurance.

Tom Temin Yeah, in this day and age, $11,000 a month is actually a bargain, crazily.

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Tammy Flanagan Exactly. Yeah. That’s like the national average. But I know in the D.C. area it could push upwards of $15,000 a month.

Tom Temin And getting back to the idea of end of year retirement and getting your paperwork in, you also have to get employer certification somehow. Paperwork for Medicare Part B. And talk about the timing of that, because that’s going to replace maybe some of the coverage you have elsewhere. And as you pick a different plan, it gets a little bit of friction there.

Tammy Flanagan That’s a big decision. I hear this from your listeners and I hear it, of course, in the area of benefits. So many of our retirees do retire in their 60s, some well over age 65. So while you’re working and you have employer health insurance, you don’t really need Medicare Part B yet. And Part B is really the part of Medicare we all stress out over because it has that monthly premium which right now is over $170 a month per person. So if it’s you and a spouse, it’s double that. And you don’t use just Medicare by itself because Medicare Part A and B does not have catastrophic protection. It’s never meant to stand alone. So what do you use once you retire to supplement Medicare? Well, the best supplement for Medicare is one of your federal health benefit plans because those will generally fill in the gaps. So what happens is Medicare will pay first for your hospitalization, for your doctor visits, for your lab work, for all those expenses that are medically necessary. Then some of your federal plans – not every one of them, but you want to look for the ones that do this – they’ll cover the rest. So Medicare might pay 80%. Your federal health plan picks up the other 20% and you have zero out of pocket for your health care. But you’ve got to be really strategic in picking the best health plan to do that because you don’t want the most expensive one because you really don’t need the most expensive one, but you need the one that caters to the needs of people over 65. You might need a good hearing aid benefit, you might need – you’re worried about skilled care if I have a stroke or if I fall – I might need some extended rehab. So find plans that have those extra benefits for the elderly. I hate to call myself elderly, but I guess I’m getting there. I won’t mention you, Tom.

Tom Temin Well, I don’t like that term, but I guess I fit the definition.

Tammy Flanagan No, me neither. Now I know why my mother was offended when somebody called her “that elderly woman” one time.

Tom Temin When people start to call you “Hey, old man,” it’s like, “Well, yeah, you’re right. Nothing I can do about it.” But I think it’s important to stress that point, that Part B is not supposed to be comprehensive. But when you look at the other plans to supplement all of that, the advantages by many names, that’s when they interact with Part D, and you have to figure out making sure the drug coverage is there. Whether you take Part D itself or Part D is incorporated into the plan that you choose.

Tammy Flanagan That’s right. Yeah. And nowadays, some federal employees, probably a lot of people remember the fact that federal health plans never even promoted Part D. They said your health plan and drug benefit is good or better than part D, so you don’t need part D. Well, the tide is turning because as a result of the inflation Reduction Act that passed a couple of years ago, believe it or not, that act of Congress had some provisions in it to expand the benefits of Part D, setting a cap on your out-of-pocket medications to no more than $2000 a year. So no matter what medication you need, no matter how many thousands of dollars it costs per month, you won’t spend more than $2000 a year if you have Part D incorporated with your federal health plan. Many of the plans, if not most of them next year, will include that Part D benefit for retirees or people 65 and older who have Medicare A and/or Medicare B. So even if you chose not to enroll in Part B, you can still have coverage under Part D. But even despite that, a lot of our retirees don’t want Part D. And that’s one basic reason why they say that is because if you have Medicare Part D and the doctor says, “hey, here’s that manufacturer coupon, that $10,000 medication is only going to cost you ten bucks.” You can’t use that if you have Part D, because part of that Inflation Reduction Act was to keep prices lower for drugs. And so if you get that $10 coupon for six months worth of that medication, you’re less likely to try the generic brand that might do the same thing for much less cost all year long. So there are some things you’ve got to learn about Part D because this is new to federal retirees.

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Tom Temin So you should probably have Part D, and also, if your plan has drug coverage, you want to kind of double insure yourself, it sounds like.

Tammy Flanagan Well, if you if you have a federal health plan that offers the Part D as another benefit, it’s either/or. You’ll either be under the Part D plan. And if you’re under [the Federal Employee Health Benefits program], it’s optional, so you can opt out of it. If you think, well, I don’t really spend that much on medications, I like to use those coupons. If I have a need for it, then you can just go back under your regular federal health plan drug benefit. But the Part D is not going to cost you any extra other than if you’re higher income because we have those income-related monthly adjustment surcharges that you pay on Part B and Part D. And that’s another thing that complicates this for a lot of retirees.

Tom Temin And in any case, you should always shop for drugs because you can get a 10-1 or 100-1 cost difference between the drugstore chain that’s really owned by a giant conglomerate of drug beneficiary pharmaco distribution complex and Costco, for example. Literally, I’ve seen it myself, 100-1 for the same little bottle medication.

Tammy Flanagan Yeah, you’ve got to really be careful because that is one of our biggest expenses as we get older. I just got off the phone with a friend of mine who is my age and she goes, “I need a bigger pillbox because I’m taking eight pills a day.” So I went on Amazon and sent her one. When we were younger, we sent them our latest CD of the the rock star. Now we’re sending them pillboxes.

Tom Temin Yeah, well, here we go again, elderly. That’s what you’re doing.

Tammy Flanagan That’s right, I’m just proving the point.

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