How Comfortable Are You With Losing Money.mp3: Audio automatically transcribed by Sonix

How Comfortable Are You With Losing Money.mp3: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Well, welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And over the course of this show, if you've realized we've been going over topics that are very pertinent to your benefits and retirement situation, information that we believe you need to know, information that we know is important to federal employees just because of our experience in working with folks like you from start to finish in their working career. And recently we've been getting a lot of questions about TSP. Now there's a couple of things that TSP has done recently. If you've been on the website, you know that you have to re-log in or re-register an account because they revamped their website. But once you're in there, if you're checking out performance of how the funds are doing year to date or over the past year, you're noticing they're not as attractive as they once were. You know, over the past several years. And the rates of return that you may see in your annual statement come next January are not going to look as attractive as they once did. So what are we going to be talking about today? A concern that I've been getting from federal employees is losing money and especially those that are nearing retirement. Now, I'm going to preface all of this by saying what we're going to talk about today is just general in nature. Questions that I've been getting from federal employees, concerns that I've been seeing information that's readily available and posted on TSP.

Val Majewski:
Dot gov. I am by no means trying to give you financial advice, trying to give you investment advice, by no means trying to make a recommendation of how you should set up your TSP. I'm just giving you some guidance on what options are available and in my opinion, some of the things that I think could be beneficial. But it's by no means saying You have to do this. This is my absolute recommendation. Go do this now. This is your account, this is your retirement. These are your choices. These are just the trends that I'm seeing as a federal benefits expert, as somebody that works with federal employees on a daily, weekly, monthly basis, gives presentations to federal employees and gets a lot of questions and feedback from those presentations. We attend a lot of events, federal unions and associations, and these are concerns and questions that we get asked. So I just want to reiterate and say that this is by no means advice telling you to go out and do this. These are commentaries that I'm giving based upon questions that we've gotten in opinions and other things that other federal employees have done over the past several years, months, days, what have you, because they're concerned about this as well. That's kind of my general statement. Before we get started, I just want to make sure we put that out there.

Val Majewski:
But we're going to talk about today. Right. The title is How Comfortable Are You with losing money? Why all the funds except the G Fund are losing money? You can see on the chart here showing that the funds not only year to date, but over the past 12 months, how they're currently performing. Now, the only one that's not losing money is the G Fund. Because if you know this, the G Fund is the only one that is guaranteed never to lose. It does not pay you out a whole lot of interest either. I mean, inflation is up, what, 6%, maybe even higher now, depending on when you're watching this recording. But. 1% return in the G fund, maybe 2% return is is what you could get not really keeping up with inflation. And number two, most people want to say, hey, I want to I want to earn some money, too. I just don't want to bury it in the backyard or hide it under my mattress. It's great that it's protected. I can't lose anything, but I still want to earn money. We'll talk about things in some options, solutions and stuff down the road, but just want to give you a baseline because everything is fine and dandy, right? You're comfortable taking risk. You're comfortable with your investment choices, you're comfortable with everything the way it's set up when things are going well. But what I'm seeing from federal employees and you may be in the same boat, is that when the market takes a turn, they're realizing real quick that, yeah, my money in TSP is not safe, my money in TSP is not risk free.

Val Majewski:
Just because it's a government 401 k. It is not protected against losses. Just because it's in the government does not mean that it's actively managed to mitigate losses, to maximize growth. It's just an administered account, as we've talked to you before. And it's you know, it can be pretty risky. So all those gains that you've enjoyed, all of those things that you've seen over the past several years can be taken back from you. And I say taken back. It's not that they actually take it. It's just the value can lose money over time because if the market can go down and your investments, most of them within TSP, including the WL funds which are not shown here, are directly invested in the market. Right. In those funds, which can earn a lot, which you've seen but can also lose. So let's look at some of these. The G Fund year to date, up just over 1%. The fund is down 10%. Fund is generally a conservative account. It's only lost three times in its history. It looks like it's going to end up a loser this year. So that's that's interesting. It's tied to a bond index. You can look all of this up again on TSP dot gov and see what all of these funds are tied to the C fund.

Val Majewski:
That's like the S&P 500. It attempts to mimic the performance of the S&P 500 down almost 20%. So let's look at an example, right, of 20% return. Let's say you had 100,000 in your TSP and last year you gained 20%. You're like, this is awesome. I gained 20%. I'm up to 120,000. Great. If you were to lose 20% this year, now you're going to be below 100,000, right? So you're you've you're not back to zero in this. You're going to be below where you started. So just just because it seems like it's an even trade when we're talking about losing and having to gain all that money back, it doesn't work out in simple math form, right? There's a simple equation that I have generally thrown up is when does. A plus or -30 plus 43 equals zero, and that's in investing. So if you were to have 100,000 and lose 30%, you'd have to gain 43% just to get back to even, you know, and you have to play a lot of catch up when you've lost money. So just again, the question we're going back to today, how comfortable are you with losing money? If you're not comfortable with these results, then maybe you're taking too much risk. Now, you may have a different risk tolerance than the person that sits next to you, the person that sits next to them, the person that's your counterpart.

Val Majewski:
Across the country, everybody's situation is different and overall desires and risk tolerances are different. However, this is not a. When I say it's not 100%, but the consensus is the majority is most of the federal employees that I talk to most are not comfortable with losing money. The closer they get to retirement, and that's within five years, three years, two years, definitely within the last year. What if somebody said, hey, I'm going to retire at the end of 2022? And they said that at the end of 2021, they have one year left to retire, one year left, and the market's been doing great, everything's been awesome. And they left everything as is. I just got one more year. Let's get one more year of of some growth in my TSP and I'm out of here and now they lose 20%. How can that affect their retirement? It can have a drastic effect. Losing 20% at the last minute. That is why most federal employees I talk to are concerned about risk. And they don't want to lose any money. They are not comfortable with losing money as they get closer to retirement. Now, you say I'm okay with losing money. I'm okay. You know what? I'm okay with losing money. Well, how much are you okay with losing is 10%. Is 15% is 20%. What's going to make it not? Okay. So again, we're looking at how much are you comfortable with losing money? Most are saying not at all.

Val Majewski:
I don't want to lose any money. But if some say, hey, I am comfortable, well, what's that threshold? How much are you okay with losing again? That's that's up to you in your situation. If you have questions about that, please, you've got to reach out to us. We can analyze your situation with you and make sure you understand exactly what your overall risk tolerance is. We can go over the numbers and see the performance of TSP and kind of ask you some further questions so you can determine how risky you're being. The second question that we have to ask you not only is how comfortable are you with losing money and hopefully you don't want to lose anything, is what do you need that money for? Now, if you're a FERS employee, you know that you have a three part plan when it comes to your retirement income. You have your first pension, your first annuity. So that's going to be one. Social Security should be number two, and I say should be because if you've watched Social Security recently and seen everything that comes out, they're telling us in plain English, in plain sight, that they may not have enough money to pay full benefits down the road. They may only be able to pay 75 or $0.77 on the dollar. So our benefit may not be as much as we think it's going to be.

Val Majewski:
Even if you go do a Social Security estimate today, that may be different down the road. So just not trying to freak you out or put you in a panic mode, but just understand that it may not be there in the same quantity that we think it's going to be. And the third source of income for a first employee is TSP. So I've got to ask people, what have you saved your TSP for? What function do you want it to serve? What goal do you have with your TSP? Now. I usually ask it this way. Do you need money for living or do you need money for dying? Now let me explain. Living. I need this money to live on. I need my TSP to be a another income source for me in retirement. I need my TSP to provide the third lifetime income stream. I have pension, Social Security and TSP. Those are the three income sources I need all three. That means you need to turn your TSP into an income source. You can do that in several different ways. The most common way that people do it is they want to turn it into another pension check. They want to say, I need TSP to be a lifetime income. I need to guarantee that it's going to pay me an income for the rest of my life. No matter how long I live, I want to guarantee it because they can certainly pull money from TSP over time.

Val Majewski:
But there's a risk of running out of money if you live too long or you pull too much, or then there's a market decline and your value goes down. Now your money is not going to last as long. So most that I talk to that want income, want a guaranteed lifetime income stream, just like your pension or Social Security payment. The other one income for or money for dying means I just don't I don't need to touch it. You know, I've saved this money in my TSP, and I hope that I never have to use it. I hope that it just sits and grows and I can pick at it if I choose to. And worst case scenario, I'm going to pass it on to my beneficiaries when something happens to me. That's what I consider the money for dying, right? That's money that is going to sit there and grow. Maybe you'll use it, maybe it won't. And whatever's left over will pass on to your beneficiaries. It's not serving that primary function of being an income stream. Your situation. It could be a hybrid of that. Hey, I need my TSP for some some income, but I don't need all of it because maybe you've done a great job of saving and you're thinking, I've got way too much in there. I can't turn this all into income. I just want a portion of it to be a lifetime income.

Val Majewski:
You can certainly do a hybrid of income and protection and growth or money for living and money for dying at the same time. So let's look at these options here, because, again, the questions that I'm getting from federal employees is what can I do with my TSP? What are my options? So not only are they concerned and they've had a lot of clients call and say, hey, what's going on with TSP? What do you what do you know what's going on? Unfortunately, nobody has a crystal ball to know what's going to happen in the future. We can just look at what's going on now. That's why I put up those numbers of the performance public knowledge. You can go check it out. You can verify those those numbers as of today. But it's important to know what your goals are, too. So if you've told me, if you said an answer to the first question, I don't want to lose any money. I'm not comfortable losing any money. And I need my money for a lifetime income. How can I do that? How can I guarantee or ensure that my TSP money is going to be safe and it's going to provide me a lifetime income and I can count on that no matter what goes on. Well, there's two things that we can look at within TSP itself. You have one lifetime income, option one, and it's known as the MetLife annuity.

Val Majewski:
Now, this is something that TSP promotes. If you look at your annual statement, you'll see a big, bold number there on the front page of your annual statement, and that is the amount, monthly amount that TSP would pay you at that exact moment based on your current balance for the rest of your life. However, there's a couple of things that they don't tell you that come along with, that they're showing you the maximum lifetime payment based on your life, and in order to get that payment, you have to cash in your balance. You have to give up all ownership control, liquidity, access to your TSP funds, but in return they will send you a lifetime check. And if you live to be 120 years old, that check will continue to come. But what they don't tell you is that if you die too soon and you chose the maximum payment, which is what they advertised, then no money goes to anybody else. They keep the rest of the money. That might be shocking to hear, but that's exactly how it works. It's done through MetLife, who's a separate insurance company. You may know them from Snoopy and the MetLife blimp. They're also the company that administers your program. Metlife will administer or be the vendor for the TSP lifetime annuity. The good news is that annuity check or that lifetime income will be there for the rest of your life. Bad news is you give up all ownership, control, access, and if you die too soon before all of your money was technically paid out, they keep the rest.

Val Majewski:
It's an irrevocable choice, too. It's not something that when you choose it, you can make changes to it. Once you choose it, it is set in stone. So that's one of the options for lifetime income. But when we look at a better version, a better option for people and when it comes to federal employees that are looking for safe. It's the insecurity, right? You've answered the first question in saying, Val, I don't want to lose any money. And then two, you said I need money for for living. I need this to be a lifetime income. But now you're saying, well, I don't want to take the MetLife annuity with TSP because I'm going to be locked into it and cash in my balance. What other options do I have? You're telling me TSP only has one lifetime income option? That is correct. But you have options outside of TSP and outside TSP. There are numerous ways in which you can turn your balance into a lifetime income stream. Now I say a better option. Why? Because we're going to try and check off all the boxes. Make them better, sorry, than they were when we just checked off all the negative boxes on the TSP side. So what if what if you had the ability to take your TSP balance number one and turn it into a lifetime income stream without having to cash in your balance, without having to give up ownership, control, liquidity, access to your money.

Val Majewski:
There is a way you can do that. Now, what if there was a way that you could do it today and not have to wait till retirement? Because with the TSP annuity, the MetLife annuity, you're basically you're going to do that at retirement. And who knows what your balance is going to be at that time? We can't guarantee what that's going to be. You can take your balance as of today. And you can lock that in and say, I'm going to turn this money into this income stream when I retire. If if you're going to retire at the end of the year, one year from now, two years from now, five years from now, you can guarantee what a plan is going to pay you at that time. Now, this may not make sense just without seeing it on paper or without seeing a scenario, but you can take your balance today and you can turn that into a lifetime income stream in the future, and you'll know exactly what that number is going to be. It's not going to be contingent upon what the market is doing, whether it goes up or it goes down. Your money, that money will be safe and sound. You'll have a guarantee written notice of what that plan is going to pay you in lifetime income.

Val Majewski:
Now, in order to do this, you either have to be separated from service or be at least 59 and a half or older. We've had a previous federal retirement show of recording talking about TSP for lifetime income. You can check that episode out to go into more detail about this. But the good news is, look, the money that's in that type of plan is guaranteed against loss due to market conditions. You cannot lose money if the market goes down. In that scenario, the income is guaranteed in the future, whether it's one year, two years, five years down the road, even longer. You can guarantee today what that income is going to be. I dare try to call TSP and say, Hey, what can you guarantee me? My lifetime income is going to be five years from now. They can't do it because, number one, they don't know what your lifetime or what your sorry TSP balance is going to be five years from now because there's a lot of factors in there. Number two, maybe the factors for lifetime income change down the road. You cannot lock that in and guarantee it today. Now, as I said, you don't have the cash in your balance. You remain in control. So we're checking that box off. And if you die too soon before all your money's paid out, whatever's left over goes to your named beneficiary or beneficiaries.

Val Majewski:
So something will go to somebody. You're getting protection on both sides. So this is a better way, in my opinion, again, to get lifetime income from TSP without having to cash in your balance and take that MetLife annuity. Now again, how comfortable are you with losing money? Go back to the original question in that plan. You cannot lose money due to market conditions. Safety and security guarantees. That's what the plan would provide and guarantee of lifetime income without having to cash in your balance. Now, what if you're on the other side of the second question, you still said, well, I do not want to lose any money. I'm not comfortable losing any money. So, you know, you're you're pretty conservative, you're risk adverse. But you're saying, well, I don't need the money for income. And I'm not saying I need it for dying. I'm not I don't want to pass it all to my beneficiaries. I'll maybe want to pick at it over time, but I want it to remain safe and secure. And I want it to still grow, though. So you may know that you can put your money in the fund, you can put it in the G fund, and that is the only fund within TSP that is guaranteed never to lose. It won't lose any money. It doesn't say it can't go down to zero, but it will not see a negative and it has not seen a negative since its inception back in 1988.

Val Majewski:
You can look up the performance history online and verify that, but the problem is it's not paying out a whole lot. Right. We just saw it's a little over 1% year to date, less than 2% over the past year. You can look at the three year average. Here is 1.45%. The ten year average is just under 2%. That's going back ten years, 2%. Again, good news is it's not losing any money. The bad news is it's not earning anything. So if you're saying, again, Val, what are the options? What can I do? Because I'm at a point where I don't want to lose any money and the market, who knows what's going to happen. Right. We've seen a big decline so far and experts say we may be in for more. I'm not I'm not that person to tell you yes or no. I advise you to do your own research there. But if you want guarantees to say, hey, I don't want to lose any money, you have two options. Put it on the G fund or find another plan that can give you the same protection of the G fund but maybe have the better interest rate potential. So from the previous slide, our last thing said what if what if you can get the same protection of the G fund guaranteed never to lose any money but get a chance for a much better interest in the G Fund? Is that something you'd be interested in now? Most people would say, Yes, I'd be interested in that.

Val Majewski:
At least I want to know what that option is, because the G Fund, again, great for protection, not great for growth potential. So what if there was a plan that was designed for growth? Now there is. Now that the plans we're talking about, we already talked about the MetLife annuity. Now that was there's different types of annuities. Not all annuities are bad, but the MetLife annuity is called a single premium immediate annuity. And maybe I'm not the biggest fan of those, but it will provide lifetime income. But in order to do that, you have to give up your balance, right? You have to cash in your money. This type of annuity is called a fixed indexed annuity. What does it provide? It provides that JE like protection guarantee that you can never lose any money but has the opportunity, not the guarantee of but the opportunity for much better growth than the G Fund. Oc now which. What's the growth potential? Really just depends on the plan. There are numerous plans out there, numerous ways in which you can utilize these plans to get that protection and growth potential. It varies by state, it varies by area, it varies by duration. How long you want to wait until you're accessing the money, things like that. So in order to know which plan and which direction to go is right, which one is right for you, we've got to sit down and go over your situation.

Val Majewski:
Right? We have to sit down and analyze it. That's where I'd say go to our website. Federal Retirement Shows, request some information, reach out to us. We'll schedule time to go over your personal benefits and just make sure, especially your TSP, and make sure you're set up properly going forward to hit your goals. And maybe you just saying, I don't want to lose any money, but I've never really looked at my TSP. Well, you've got to make sure you get log in, check that out, and that your investments that you're in are in line with your risk tolerance, the amount of risk you want to take, or maybe you've never even known what investments you're in. Because I have talked to and hopefully you're not in this boat, several federal employees who have worked for the government for 20 plus years and at the time that I talked to them, did not one time log in to their tsp dot gov account. So I highly recommend checking that out, making sure that what you want to do is actually what you are doing. So are you comfortable losing money? How comfortable are you with losing money? If the answer is not much at all. Then we need to talk and then we got to answer. The second question is What do you want your TSP to do for you? Do you want it for living or do you want it for dying or do you want it to pass on to beneficiaries? Maybe you're undecided.

Val Majewski:
Maybe it's a combination of both. But we can walk through that and answer a bunch of other questions so we can see exactly where you want to go and what your goal is with your TSP funds. Again, the whole focus is based upon just making sure you're set up properly, you're protected the way you want to. As you're nearing the end of your working career, you're eligible to do something while you're working if you're at least 59 and a half or older. But any time you're separated from service, you can also do something with your TSP. I appreciate you taking the time to join us for this episode. Please go back and check out our other ones. I referenced TSP for guaranteed lifetime income. There's another one called TSP for protection and growth. There's TSP ins and outs. If you're not familiar with the plan at all, just check out our previous episodes. A lot of great information. You can subscribe to our podcast on wherever you register or listen to podcasts, Spotify, Apple Music, SoundCloud, check us out on YouTube. Visit our website as well. A lot of information there for you to digest. Again, my name is Val Majewski, host of the Federal Retirement Show. We appreciate you joining us and we look forward to seeing you on a future episode. And.

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