Financial Planning Overview

  1. Retirement planning is complicated

  2. For public sector employees, it is harder because of earlier retirement and the need to bridge early retirement and medicare benefits

  3. Too few plan for the $280,000 or more needed for retiree health care

  4. VEBA is the leading Tax-Efficient investment program for these expenses 


Retirement planning is a critical yet confusing endeavor.  There is no single answer for what you should do, how much you need for a secure and enjoyable retirement, how you should allocate your investments or certainly what the markets are going to do.

As you do plan for retirement, you focus on maximizing your pension, investments, and Social Security payments.  Generally, your goal is to maintain your lifestyle after your transition out of the workforce. 

Your expenses will change after you retire.  The general consensus of financial planners is that you will want to have ongoing income of about 80% of your income during your last years of work.

Don’t Ignore Retirement Health Care Expenses!

While the 80% Rule is a good strategy, too often we neglect the ever-increasing costs related to retiree health care expenses.

Financial service company studies show that American couples will spend from $280,000 to $400,000 on out-of-pocket health care expenses during their retirement years!  Since most public sector employees are able to retire earlier than their private sector peers, their needs can be even greater. 

The expenses includes ongoing insurance premiums and out-of-pocket expenses including co-pays, co-insurance, deductibles, as well as uncovered expenses.  This amounts to about one-third of your retirement expenditures:

Statistical Average of Retirement Income Spending

 

Obviously retirement healthcare expenses will represent a significant component of your income.  Failure to plan for these expenses can significantly diminish your golden years. 

To solve this, BAA has established the VEBA Trust to empower you with a very efficient program dedicated to covering health care expenditures using an extraordinary savings program.

This VEBA program is a multi-employer trust enabled by IRC §501(c)9.  Through this law, the IRS provides you with triple tax-advantaged growth:

  1. Pre-Tax Contributions

  2. Tax-Free Investment Growth

  3. Tax-Free Disbursements

As noted, too many people fail to include the rising costs of retiree health care in their retirement plan.  By participating in the VEBA, you confront the issue head-on.  The VEBA provides you with an extraordinary savings vehicle dedicated specifically to this segment of your retirement expenses.

Bridge to Retirement Coverage / Medicare:

Many public sector employees are able to retire in their 50’s with full pension.  While this is a great benefit from your years of public service, many agencies have limited or no retiree health insurance.  At age 65 you will qualify for Medicare and the reduced premiums of the program, but you have to bridge the gap to that date.  Therefore you will be responsible not only for your out-of-pocket expenses, but 100% of your premiums too.

Most recent retirees are shocked that the monthly premiums for a couple can reach $1,500 to $2,000.  There are too many instances where an employee simply cannot afford to retire because of these hefty expenses.

The CALGOVEBA enables you to build a tax-advantaged savings account dedicated to pay these premiums as well as the other expenses you will face even after you qualify for Medicare (including dental and vision).

  

See Tax Strategies section for more details