Episode 45 – First month of retirement; what to avoid
Episode transcript:
[music intro]
Jenny
Welcome back to Fund Your Future with DRS. And today’s episode is for those who are maybe within five years of retiring or just kind of thinking about retirement soon down the road. And we’re really focusing on some of those challenges that can come up the month or two after you retire.
Today we have Jon, who is a DRS team member who talks a lot with folks who end up having these issues right after they retire. Maybe they want to go on vacation or take out a home loan, and they didn’t quite get all their paperwork… there’s all kinds of issues that come up. So welcome, Jon.
Jon
Yeah, absolutely. Thanks for having me. As much as I like being the hero that comes in and saves the day, it’s also nice if we don’t get ourselves in those situations.
Jenny
Exactly. So that’s what we’re trying to prevent. Here are some things to think about when you’re making those plans for right after you retire. So, what’s kind of the most common situation you see?
Jon
Yeah, I have gotten to work with a lot of people recently that are buying houses, so exciting. Love to hear what people are doing after they retire. Sometimes it’s big goals, sometimes it’s little ones. But, we’ve run into a few times now where someone’s trying to close on their house and they’re hitting that final stretch and they think, I’m going to do this three days after I retire.
With DRS and we need a little bit more time than that. That first month is a lot of us behind the scenes working on communicating with employers, getting that final calculation all set up. And so it’s not normally until the end of that month when you actually get that paycheck, that we’re able to tell a lender how much you’re going to get paid.
So, I went through the house buying experience last year, and it’s very “we need every form three times. And we’re going to ask how much you make every step of the way.” And so doing that the first month can be a challenge.
Jenny
Right. So, the suggestion is wait until you’ve been retired at least one month or two.
Jon
Yeah, absolutely.
Jenny
Before you decide to buy a new house.
Jon
Exactly. Some of my colleagues are known for saying ‘we can’t verify how much we pay you, until we’ve actually paid you.’ And since that doesn’t happen until the end of the month you retire, it’s a good benchmark of saying, okay, I’ve gotten money from them. They’ll now work with my lender a little.
Seth
That’s a good example because oftentimes people don’t go through the house buying process very often and you forget how painful it is or how much documentation and paperwork you have. And if a person is thinking about buying a house, downsizing or moving right before they retire, they might not be able to use their current income to prove what their credit worthiness is, because they’ve mentioned that they’re going to retire that that payment is going to stop.
And, Jon, as you said, most lenders will not take information from DRS where we say we’re estimating what someone’s retirement benefit is. They want confirmation that we have paid it, that that’s going to be it is going to be a lifetime ongoing amount that that person is going to receive. But oftentimes a lender won’t rely on just that estimation of benefits.
Even though that estimation is usually pretty close. It’s not enough. And I remember very similarly when I went through the home buying process, that it felt like every time they asked for one more document, like it was every three days, it was like, oh, we need one more piece of information. And I think it’s really challenging when you’re going through this transition of income streams to be able to provide up to date information.
So yeah, I think that’s a great example. Jon, I know one of the other examples that we run into is when people are in the process of retiring. The first thing they want to do is they want to go travel the world. And they maybe haven’t quite finished all of their retirement paperwork yet. Do you want to talk a little bit about what that experience can look like, and some pain points associated with that?
Jon
Yeah, I actually had this come up about two weeks ago and so very relevant, very recent. But they left traveling thinking they had done everything. And they didn’t realize they actually had to physically sign a form and give it back to us saying, “yes, I want my money.” And so, they had to scramble. I forget which country, but somewhere in South America, [they were] trying to find a notary.
And depending on the country that you’re in, [finding a notary] can be as easy as going to your bank and getting it done — very similar to here — or, it can be finding the nearest US embassy and completely adjusting your entire trip in order to accommodate having this one form filled out and then sent in. And so again, less headache. It’s not necessarily that we can’t do these things. I am a big fan on the phone of like, “we can make anything work.” It’s just a matter of how difficult we want it to be along the way.
And so, if you are wanting to leave the country right when you’re also trying to retire, be aware that if paperwork gets in the way, it might be a month before you get paid, which is acceptable for some. Or just really make sure that you have all the dominoes in a line so that they can fall correctly and that we get you taken care of during that first month.
Seth
Jon, I know one of the other things that people are nervous about in that month that they’re retiring or in that transition of retirement is going from their employer, provided insurance coverage to whatever their retiree insurance coverage is. Could you talk a little bit about some of the challenges that people run into when they’re making that transition?
Jon
Absolutely. The first thing is, I want to actually just give a shout out: the Health Care Authority, is great in getting that transition handled. I regularly have to tell people that’s not what I do, but we will still get you taken care of, it’s just a different phone number.
But oftentimes I see where someone says, “oh, if I work the first day of the month, then I get insurance for that entire month and so I can work and then retire, and it’ll be great. I’ll get paid. It’ll be a smooth transition.”
But the way the retirement is laid out for Washington state, you cannot be on the books or work and be retired in the same calendar month. And so, people end up causing a gap in their income because they worked on the first, and they won’t get paid now until the end of the following month from DRS. But their income from their employer is now cut off because they only worked the first. And so, they’re going to have a little span in there. It’s a rough phone call to have to explain that to someone, but unfortunately it does happen sometimes.
Jenny
So, kind of that last retirement date, do you generally suggest to people that it’s at least the fifth of the month or something?
Jon
It’s completely up to each person when they want to do it. But yeah, you could do the fifth of the month. You would get five days of pay that month and then a full retirement the month after. A lot of people just go with the 30th or 31st. You know, there doesn’t have to be a break between when you are done working and done with your employer and when you are officially retired with us.
So, it could be the last day of one month and the first of the following one. It just has to be two different calendar months.
Jenny
That makes sense. So, you’d have your last working day be whatever the last weekday of the month is. Yeah.
Jon
Yeah, absolutely. Or for our people that work those weekend shifts, it can be the weekend too, get those too.
Jenny
Yeah.
Seth
We’ve definitely run into situations where those people who are working 24 hour shifts or things like that don’t realize that it carries over into the next month. and that can be that can definitely be a challenge as, as Jon was describing, if you work at all in a month, you’re not going be able to retire. And for some employers, that might be okay depending on what their pay cycles are.
But as Jon was describing, that can be a real challenge for people who work just one day. And so that last paycheck they get is really small. And then and then there’s still another month until DRS is going to pay them. So, thinking about the timing of when your employer is paying you and what size those checks are going to be based on how many days you work, and then always remembering that DRS only pays benefits on the last day of the month and so it might cause a gap.
There is a really important piece of information to think about when you’re thinking about your overall cash flow into retirement. That’s a big transition of getting your normal regular check and then getting your normal retirement check or Social Security check, or all of these different payments. And thinking about the cash flow of how all of those line up.
Jon
Yeah. The other piece of that that I heard you hit on there is the idea of: we care about when you earn the money, not necessarily when you get paid. So, let’s say you get paid on the 10th and 25th, like a lot of state agencies and you work until the 30th, you can still get paid that month.
You retire on the 10th. You just can’t earn any money from them that month. I’ve had that conversation quite a few times of trying to lay out the wording to get that one, the dominoes lined up. One of my favorite phrases there.
Jenny
Yeah. This is a lot of good information for those of our listeners who are getting ready to retire and just things to be aware of when you’re making those big plans for the next stage of life.
Jon
Yeah. Plug for my unit as we talk on the phones, one of our favorite questions to get is, “what do you think I should know?” Oftentimes we have a lot more knowledge or we’re kind of seeing things, but we don’t want to be overwhelming. We don’t want to share too much. But also, we’re ready to help.
That’s what we enjoy in the job is being able to help people in this transition. So, feel free to reach out and we will guide you through whatever we can see and predict, we’ll make you aware of.
Jenny
Yeah, that’s a great suggestion that you if you do call DRS with some retirement questions you can ask your retirement specialist: “What do you think I should know?”
Jon
Yeah, absolutely.
Jenny
Perfect.
Seth
Jenny, it’s probably also a good reminder for our listeners that if they have questions for us that they want us to talk about on the podcast, that they can email us at drs.podcasts@drs.wa.gov.
Jenny
Yeah, perfect. Send us your questions. And additionally, you can also send a message to DRS through your online account without having to wait on the phone.
Jon
There we go.
Seth
All right. Perfect. Thanks, Jon.
Jenny
Thank you Jon.
Jon
Yeah, thanks for having me.
[music outro]
Disclaimer
Thanks for listening. And now we’d love to hear from you. What topics would you like to hear about? What questions do you have for us? Send an email to drs.podcasts@drs.wa.gov that’s drs.podcasts@drs.wa.gov. The Department of Retirement Systems provides this podcast as a public service, but it’s neither a legal interpretation nor a statement of DRS policy.
References to any specific product or entity do not constitute an endorsement or recommendation. The views expressed by guests are their own, and their appearance on the program does not imply an endorsement of them or any entity they represent. Views and opinions expressed by DRS employees are those of the employees and do not necessarily reflect the view of DRS or any of its officials.
