11.11.22: Audio automatically transcribed by Sonix

11.11.22: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Welcome back to The Federal Retirement Show. I am your host, Val Majewski, with American Benefits Exchange. Excited to talk to you today about a new topic that is a big concern with some of the federal employees that we've been chatting with, especially recently with everything going on outside of their control and really with interest rates on the rise, markets being very volatile. This is has been a big concern. So we've talked before about just the tax side, but today we're going to start at the beginning and talk about debt elimination, getting on the right side of interest, as well as building some tax free wealth. So as federal employees, listen up, have your notepads ready as we dive in to the content. So eliminating debt, building tax free wealth, well, what are we normally talk to you about? Typically, when we're just talking about benefits and retirement, you know this through our previous episodes, we're federal benefits and retirement experts. That's our bread and butter. That is what we do on a daily basis is help federal employees first understand their benefits and help them maximize what the government gives them, as well as set themselves up properly for the future for retirement. You know, our goal during that process is to help you, the federal employee, reduce costs over the course of your working career, help you save more when it comes to your future retirement, making sure that you have the retirement income and the retirement lifestyle that you want to have when that time is right for you to leave federal service.

Val Majewski:
Just making sure that all of the pieces are adding up so you can have the retirement that you desire. Now, along with that process we have touched on. Eliminating debt. But I'm going to flip the script a little bit, and I want to talk about eliminating debt sooner than later. So in a lot of our conversations when we talk to federal employees and we're going over the whole benefits picture, generally speaking, we're saying that the ideal situation and what you'd want to plan to do is to make sure that you're as close to debt free, if not completely debt free by the time you retire. Why is that? Well, you don't want to have any additional payments. You want to make sure that you're all your take home. Money is still the same because in a lot of cases your take home is going to be less just based on the situations that I've run with federal employees in the past or take home is going to be less so not to have these big burdens, these big debts, these additional payments that are still weighing on you in retirement. So a lot of folks that I talk to and you may be in the same boat want to get as close to or completely debt free when they get to retirement.

Val Majewski:
But it's not an immediate concern most of the time. Why is it now an immediate concern? Why do we want to flip the script and talk about it first? Well, because interest rates are on the rise. People are seeing if you're in the housing market or you're in the market for some kind of real estate, you've seen that interest rates on mortgages have been going up. Interest rates on loans for different things cars, boats, personal loans have been going up as well. So we want to make sure that you're not going to be paying too much in interest over time if you're taking on a new loan. And if you've got kids at home, maybe you're thinking of future student loans that you may have, future debts that you may incur a new payment, that that may crop up. We want to make sure that you are not paying as much in interest. Compared to the amount that you should pay. So we want to look at a debt elimination. Eliminating as much of your debt as possible on the front end so you can be free and clear to build your wealth. Continue to build your nest egg. And what do I mean by this as far as the typical way of thinking? Because usually at the same time, you're going to think about paying off your debt and you're going to be building your retirement, right? You'll put money into your 41k, your TSP.

Val Majewski:
Maybe you have some outside retirement savings, maybe a spouse has outside retirement savings and you're. Be getting a match building interest or earning interest based on whatever funds you've decided to participate in. But we're not really comparing that side by side to the amount of interest owed. So if you're earning 5% interest, but you're paying 7% interest, well what would be more beneficial for you to put money towards? And there's an example. There's a story out there about somebody asking Warren Buffett about their portfolio. And Warren Buffett, most people know them as a most people know him as a famous investor. How would you handle a certain situation? Say, well, first, what about your debts? I've got credit card debt. Well, how much credit card debt? Well, you can name your number, but say 40,000, 50,000. What's the interest rate on that credit card? 18%. Name your percent. It could be higher than that. There's not really a product or a plan out there or money manager out there that's going to tell you that they can over promise on that interest. So most would say, I can't promise you, I can't guarantee you 18%. So in this story, this Warren Buffett story, it would say, I want you to eliminate the debt first. Get rid of that 18% interest that you're paying first, so then we can focus on building up your wealth. And the moral of the story is you can't outrun that.

Val Majewski:
You can't outrun that interest and try to make a positive difference if you're at such a high interest rate. Now, not every interest rate that you may have on any loans or debts is going to be that high as, say, a credit card. But it could be higher than any interest that you might earn otherwise. Another story and just another analogy. And I heard this from somebody who is on their weight loss journey and they hired a trainer and in that process to lose weight right away, the trainer said, hey, I can exercise you all you want. I can run you through workouts, I can put you through the wringer, and we can try an exercise and get your body moving as much as possible. But you can't outrun your fork. The real weight loss, the real journey is going to start in the kitchen. What you're putting in, I can I can figure out what we're going to be taking out as far as, say, calories out with working out. But you can't outrun the amount that you're putting in. And it's the same with the interest story. We can try and get out of our investments as much as we want and get on the positive side of interest. But that negative side of interest can continually weigh us down so we can't outrun that bad side of interest. Now, hopefully this makes sense up to this point.

Val Majewski:
If we look at eliminating your debt, eliminating the high interest, even though some of the low interest and getting you completely independent debt free, and whether that takes five years, ten years, 15 years, whatever. If that's the focus, what's going to happen as a result, we can improve your cash flow. Those payments that were normally going to a financial institution, a bank that interest that you're paying them will stay in your pocket. Now, those payments, those dollars can be put towards. Building your future wealth building for retirement. We can help reduce taxes. Well, how can we do that? Because now that new money can go towards a tax free retirement strategy. And in today's day and age, if if I were to ask you, like I've asked a ton of federal employees that have come across in the past couple of years, which direction do you believe taxes are going in? Most. And it's not unanimous, but it's a consensus. The majority is telling me or believing that taxes will be going up in the future based on the current conditions. If you agree with that, well, how would you rather pay your taxes? Would you rather pay taxes today in a lower interest or lowest lower tax rate environment? If you believe taxes are going to be going up that way, your money in the future can come out or be utilized in retirement on a tax free basis. I'd want to do that.

Val Majewski:
I'd want to be making sure that I'm eliminating as much of my future tax liability as possible. Minimizing risk. Look at the market, Look at the way things are going. Just turn on the TV. Go to any website. Go to your TSP website, see how those funds are doing. Every single fund. Every single fund. As of the recording of this episode. Is down except for the G Fund. The G Fund is the only one that's positive, and it's staying right about its average of two, a little over 2%. So understand we're we're at a point where there's a lot of risk out there. Nothing is safe when it comes to TSP. Other than the G Fund. But. Nothing is completely safe that you can rely on like you have in the past. So what if you want to reduce or eliminate any risk that you have? We can show you how to do that, as well as building the tax free wealth. So why very important, why do it? Let's get on the positive side of interest. Let's put more money back in your pocket. Let's save as much interest as possible. I'm going to show you an example of how we can do this. So how do we normally do this? And when we're talking to you, the federal employee, what are we looking to do? Well, we still want to educate and train you on your benefits in retirement. And it's important for you to learn all that so that way you can maximize that's a word we use a lot.

Val Majewski:
Maximize or optimize your benefits and retirement situation. Make sure that you have that confidence, that peace of mind knowing that you're on the right track. And when you retire at that point in time, that is right for you. You're confident in the amount of money you're going to be receiving. You're confident that you can continue to live the lifestyle that you want to live in retirement, and you're confident in the way you set yourself up because you prepared properly. How did you get to do that? Because you learned, you educated yourself. You talk to somebody like us to give you the facts, give you the information that you can utilize, putting yourself in the best situation. Now, if we're going to talk about debt, though, along with that conversation about benefits and retirement, we're also going to look at your debts. We're going to take a look at what it is you owe certain financial institutions. And how much you're paying in interest. What's your rates? Are we just going to lay it all out? Then we're going to create what's called the debt free roadmap for you. We're going to show you what all of that is. I'll go over an example, like I said. In the end, it's up to you. If you want to implement a comprehensive plan that will help you tackle and eliminate that debt in a fraction of the time.

Val Majewski:
But it's up to you to decide if you want to do it. Now, the question I would ask is and this is. Probably a fairly simple answer, but let's ask if we can eliminate or help you eliminate your debt in a fraction of the time, let's say in ten years or less, including your mortgage. So all of your debt, not just credit cards, student loans, car payments, if we can eliminate all of your debt. Including your mortgage and ten years or less, without you having to spend any additional money or having to come out of pocket for anything additional. Is that something you'd be interested in? I'm hoping the answer would be yes. I know it is for me. I know I've already set this kind of plan up for myself. And just because I've done this for me and my family, it doesn't mean that it's right for you. However, when you look at the big picture and you look at the whole situation, the whole thing, and you're saying, well, I don't want to owe anybody any money, number one, and I certainly don't want to pay them more than I have to because of the interest that they're getting. The bank, the financial institution is more than happy to have you make your normal payment and pay it for the duration of the term because they can guarantee what they're going to be getting out of you in additional money on top of the principal balance that you originally loaned from them.

Val Majewski:
And we'll show you an example here in just a second. So what does this look like? Right. If you're looking at this chart with me, let's go over a real life example. Now, I'm not saying that every one of you have all of these debts. This is just an example based on cases that we've run in the past. But let's look at a 45 year old federal employee. And let's look at the debts that this person has. Credit cards. Now, this is a. A pretty low interest rate compared to some higher interest rate credit cards that are out there at 12% know a little under $5,000 in credit card debt, car payment, a little under 30,000. The two car household, 50,000 on a truck. Happen to have a boat? A little over 30,000 on that. And then their home. Home is the greatest of the debts. Almost 350,000 left on the principal balance. All the interest rates, relatively speaking, compared to what we've seen with raising or rising rates relatively low. Total debt. And now this formatting issue, you can't see the entire thing, but total debt on here is 461,000 and just principal balance. 461,000. They're paying almost $3,600 a month to pay off these minimum payments. Interest paid though, over that same amount of time. If they were just to make the regular payments for the regular terms.

Val Majewski:
And you can see that on the right hand side of this chart, the number of payments and the years. The total interest paid over $200,000 in interest. So principal balance as of the time of this example, 460 plus thousand. Oc. Total interest paid over what's almost 25 years is an extra 200,000 200,000 that came out of this person's pocket to make all of the payments. So the real debt in this example is over $660,000. Okay. Total debt over 660,000 when you add up balance plus the interest that's going to be paid over time. What if we can eliminate the bulk of that interest paid and have them pay off this debt in a fraction of the time? What do we mean by a fraction of the time? Well, I'd say ten years or less. What if it were 15 years or less? Without paying anything additional. Now, how do we do that? Well, that would go into each individual situation and have to run through that with you. But the idea is, again, we're going to help you save more for your retirement. Perhaps you can even retire earlier than expected because you've eliminated a debt you've got on the right side of interest. And now all the interest that you earn goes to you instead of to a financial institution. Right. You're not playing the net game of, hey, I'm paying an average of 6% a year in interest to my creditors or to the banks and earning 6% a year over here and kind of netting out as far as interest earned.

Val Majewski:
Now, once you pay off your debt, all the interest that you earn is on the positive side. There's no net difference. So how would we solve this person's problem? We would go through a debt free roadmap. We would look at their situation, map it out. We've got software, we've got ways in which we can run this. And the same way in which we have softwares to run your benefits and retirement evaluation. As a federal employee. We've got software, we plug in all of your data, we analyze it, we take a look at it, and we find the best path possible and the best way for you to eliminate your debt in a fraction of the time. Going back to the previous slide, it took almost 25 years making regular payments. For this person to be completely debt free without using anything extra. Now, I can't go back into the details and I'm not going to show all of the the the data that we implemented in order to do this. But in this actual real life example, this person utilizing all of that data and analyzing it, like I said, could be debt free in 11.6 years. So it was almost 25 years making regular payments. We cut that in half, less than half. And got them completely debt free.

Val Majewski:
What would that do? I said it was about 30 $600 a month. That's going towards payments. What else could they do now with that 3600 a month that was going towards payments that can be going towards building their tax free wealth? That is paid no more interest going out of their pocket to outside institutions. There's actually 200,000. Paying off that interest in a fraction of the time. Saving saving over $100,000 in interest during that time frame. And in the process of that savings are building up that savings. At the same time, at age 65, just 20 years down the road, have over $600,000 in savings, tax free retirement savings or things that can be used, savings that could be used for anything, not just retirement. So this person did two things at the same time. They decided to tackle their debt and not just wait till the last minute. And I will. Emphasize that I see a lot of folks that I talk to do not prioritize debt. They try to eliminate at the last minute before retirement. Now, there are a lot of federal employees I talked to that that agree they need to eliminate debt before they retire. But when I talk about eliminating debt and they say do it before retirement, a lot of times that comes down to the wire. That's not a priority. The priority is reduced costs, as we said earlier, save money for retirement, maybe even.

Val Majewski:
You know, uptick that a little bit put more towards their TSP or more towards retirement. And the focus is not on the front end on eliminating debt. It goes to the back end. I'm going to end up doing it down the road as I get closer to retirement. What if we prioritize that at the beginning and said, let's eliminate debt now? Let's take a look at things. Let's rearrange the priorities and let's eliminate the debt first, and then we can be free and clear of that. Handcuffs are off, and now we're building our additional retirement on top of money you're still putting towards TSP. So I said, this is not spending additional money. This is just utilizing money you're already spending. To go towards debt elimination and doing it in a fraction of a time. And as I said, 20 years down the road, the debt's been eliminated. Now there's 600,000 plus at the time where most people look at retiring between 60 and 65 that can be utilized for retirement or for anything else on a tax free basis. Pretty awesome. If you're on the same page as I am, but I can share with you more when we talk individually. But we wanted to talk about this because this has come up a lot in our recent discussions with federal employees, because we're looking at situations we're seeing they're looking to purchase new vehicles. They may have kids that are going into college and they're going to have to start borrowing money.

Val Majewski:
They do have high interest credit card debt and maybe the interest rates on those are going up, whatever the situation may be. We want to help people eliminate debt again, get on the proper side of interest where all that interest that you earn is just going to be interest that is going towards your retirement. It's not getting taken back from you because of the interest that you are paying. So we have to look at it both ways. I go back to that Warren Buffett story at the beginning where if I have a high rate of interest that I'm paying on debt and I'm trying to earn a high rate of interest on my retirement savings. They're kind of counterbalancing each other. Now we're in a down market. So we're seeing on both ends, people are still paying a high rate of interest on loans and they're losing money when they thought they were really supposed to be earning money and their retirement savings. I mean, I've seen TSP accounts that are down ten, 20, 30% in the past 12 months because of what we're seeing. So if you're in that boat and you're saying, well, should instead of trying to put more money into a market that's extremely volatile right now, let me focus on eliminating this debt that's going to cost me more money in the long run so we can flip the script, as we said earlier, and really focus on eliminating the debt, building tax free wealth, mitigating some of that risk through the plan that we put in place.

Val Majewski:
So this is again, eliminating debt, reducing interest, building tax free wealth, mitigating some of your risk along the way. So if you can tell I get pretty fired up about this because I'm excited to help federal employees just like you. Our team is excited to help federal employees just like you eliminate their debts, build Tax-Free Wealth, put yourself in a better position as you're moving towards retirement, be more in control of your own finances. And you can you can utilize this money down the road for whatever it is that you need. I'd love to have that conversation with you. Our team is waiting to assist you. So if you do go to our website Federal Retirement show dot com, you can fill out a form. You can request some more information. One of our team members will be happy to reach out to you. Go over not only your benefits and retirement, but also look to perform a debt free analysis for you so you can see what that plan would look like. Thank you for joining me on this episode of the Federal Retirement Show, where we talked about debt elimination and building tax free wealth. My name is Val Majewski. Look forward to seeing you on a future show. And.

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