Reviewing TSP L-Funds Properly

Reviewing TSP L-Funds Properly.mp3: Audio automatically transcribed by Sonix

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

Speaker 1:
Welcome back to the Federal Retirement Show. I'm your host, Val Majewski, with American Benefits Exchange. And as always, I really appreciate you taking the time out of your busy schedule to join us to view our content, because that's what it's for. It's for you, the federal employee, that's looking for accurate information when it comes to your benefits and retirement situation. And as we typically do, uh, episodes and topics, they revolve from questions or they come from or stem from questions and comments that you, the federal employees have made. And a lot of times they come from benefits and retirement reviews that I've been doing and questions that I've been getting during those. And this episode is no different because we're going to be talking today and revisiting the TSPL funds and some maybe misconceptions when it comes to the L funds and the different things that are there. But I just want to revamp this episode. We did one a long time ago, uh, talking about the L funds. And I want to bring this back up so you understand what they're all about the history, the performance, and things like that. So let's dive into today's content. I'm sharing my screen. I'm right on t sp.gov. Okay. So you can find this information yourself, that website so you can see exactly what I'm talking about. But this is the part. How did I get there? I went to fund options life cycle funds.

Speaker 1:
So you can see this drop down here, life cycle funds. Uh, and why am I doing this? And what are we talking about? Because people get this mixed up. And what do I mean by that? There are the main funds within TSB. And you can look at it here. So if I'm dropping this down again um your investment options life cycle funds, individual funds. If I went to individual funds, you're going to see information on the G, C, S and I funds. Those are the main funds within TSB the GFCS and I funds. And in the early 2000, the L funds, the lifecycle funds came out and what these are. And they get, uh, you know, misconstrued as to what they are because people think, and this is maybe not everybody and hopefully not you, that they are different than the normal funds. So there's the G, F, C, S and I, those are the main funds. And then the, the misconception is that the L funds, the lifecycle funds are different than those five previous ones that I mentioned, and they're not. The L fund is a way to take some of the guesswork out of your investment strategy, because I could ask this a lot, and you may have these kind of questions at what percentages should I put where and, and how should I break down my investment strategy within TSP? And everybody's different. There's no one size fits all.

Speaker 1:
There's no blanket statement to say, oh, you should put 20% here and in 30% there and all of this, it's it's individualized. It's based on preference. It's based on risk tolerance. It's based on goals. It's based on whatever. There's a lot of opinions out there and there's a lot of places you can go to get those opinions. But in the end, it all comes down to you and what your investment choices are based upon your your risk tolerances or your goals or whatever. But the L funds are ways to take the guesswork out of it. And what do I mean by that? So there's a number of different L funds and we can see them all listed here, right? Starts with the L income. That's going to be the most conservative L fund all the way up to the L 2075. And in five year increments starting at L 20, 35 year increments all the way up to L 2075. Now, why do I say take the guesswork out of it? Because these are like target date funds, target date funds. And before I even go into that, every L fund is made up of parts of the other five funds that I mentioned. So this was the first misconception is that there's the G, F, C, S, and I, and that the L funds are different than that, and that's not the case. Each. I'm going to read this first sentence here.

Speaker 1:
Each of the 11 L funds is diversified mix of the five individual funds the G, F, C, S, and I. So every L fund is made up of those other five funds, every single one and different percentages for each one. I'm going to go over that and it says every quarter or every three months the target allocations of the L funds, except the L income, are automatically adjusted, gradually shifting from higher risk to lower risk, meaning the closer you get to the target date, which is 2030, 20, 35, 2040, etc., all the way up to 2075. The closer you get to that date, the more conservative your L fund is going to turn until it eventually turns into the L Income fund. Now, what do I mean by that? Because recently we had the L 2025, and when we went past the year 2025, people just got absorbed. If you're in the 2025, you got absorbed into the L Income fund. And that's the most conservative version of the L funds, the L 2075, since we're so far away from that date, or that's the furthest date away from today, that's on the L list, then it's going to be the most risky. And I'll show you what that looks like. But let's go into the L income. Right. I'm going to go down here and I'm in the L income just clicking on that. And you can check this out. You can see what the performance has been of these funds.

Speaker 1:
And you can see what the current breakdown is the allocation target. So right now the L income let's say is at 66 plus almost 67%. G fund, 5%, F 14, C 3.61 S and just under 10%. I so you have a percentage of all five of those and this is in the L income. This is the most conservative. Now most conservative doesn't mean risk free because there's still there's only 67% approximately in the G fund, which is the only fund that's guaranteed not to lose the rest. The other 33% is in funds that can lose money, that have some sort of risk. Okay. The two biggest ones are going to be the C and the I fund. And I've met a lot of people that have told me this is another thing that over the years, because they've seen the history and you've maybe you've seen our episodes where we've talked about, uh, performance based on what tsp.gov says. But historically the I fund has performed at half as well as what the C fund has done. That's not a guarantee that it's going to happen going forward, but it's just showing history. What's happened is that the iPhone is performed at about half as well as the C fund. And some people have told me, well, I. Because of that I dislike the iPhone. I don't like the iPhone. I'm not a fan of the iPhone.

Speaker 1:
I don't want to have the iPhone. But then I look and they've got a percentage in the in the L funds. And I have to tell this person, I'd say, look, I know you're saying you don't like the iPhone, but I'm sorry to be the bearer of bad news, but you do have some of the I fund because you have a L fund. Every L fund is made up of a percentage of all the other five funds, including the iPhone. So. And you can't change those percentages. It's it's automatically taken care of for you. So this is just showing, um, what the fund looks like on April 2026. Now, as it said, the, the I fund or sorry, sorry, what am I saying? The, the l income I was using the I and income, the L income. Um, it really doesn't change. Okay. It does not really change. Uh, this has been the L income, how it's, how it's been composed or what the composition has been. But let's go to a different one. Okay. We're going to go now. We're going to go kind of in the middle of the road, right? Or let's go to the extreme. Sorry, let's do that. We're going to go over to the L 2075. So you just saw what the most conservative L fund looked like. Let's go see what the breakdown is of the 2075. Now the current composition of it okay is very little G fund.

Speaker 1:
You can see there's 0.36% G fund. So we just went from the L income. The most conservative had almost 67% G fund. Now to the most risky only has 0.36% G fund 0.64 F fund. So 1% total in the ultra conservative and kind of conservative fund, the G and the F, the bulk is going to be in or all of it basically is going to be in the stock funds. Now, how is that broken down? Uh, 51.5. C See almost 13 s and 35 approximately, I. Now we can see how that composition can change over time. So here's the cool thing again about the way the tsp.gov website works. You can see how this is going to change. So if I went over to we're about July 2026. So let's go here. And that's where we're at right now. You can see this breakdown and you can see how it's going to change if we slide this bar over time. Now for a while it stays the same. Okay. Stays the same, stays the same, or staying basically the same. And then eventually you see the percentages start to gradually and drastically change a little bit more until eventually the closer you get to the year 2075, the more orange you see in this, which is the G fund, you're going to see this thing go to more conservative. Now, it takes a while. It really starts seeing a significant percentage.

Speaker 1:
And I say 20 plus percent, you know, in 2062. So we're within 13 years of that 2075 number. And you start to see it get really conservative until at the end, it's basically matching what or very similar to the L income is going to look like. And then eventually it gets absorbed into the L income. Once we get past the year 2075. So you can go into tsp.gov and you can see exactly not only the performance and how these things have performed each L fund, what the performance is, but how it's going to change over time, how that composition of the L fund, because it's constantly changing, as it says, every quarter, it's reevaluated, reallocated and changed. Now, it may not change drastically, especially in this 2075, because we're so far away from that number. But let's say we went to something closer. Let's go to 2045, 2045. We're going to go down and we're going to look at the composition of this. And you can see now we're going to see a change more rapidly because we're going to be hitting or getting closer to 2045 than we are 2075 in the near future. So you can see these these percentages as I'm scrolling along here and kind of gradually moving the needle are changing constantly until again, we're going to get super conservative as we get closer and closer to 2045. So if you ever wanted to see what your breakdown of your funds are going to be or what percentages you currently have in there, you can do that.

Speaker 1:
Go to tsp.gov. And if you only had if you had 100% of your money in an L fund in one particular L fund, you know exactly how that is going to change, how the composition is going to change over time based on what it's showing here on tsp.gov. So the big misconception number one was that, uh, the L fund is different than the the other five funds. And that is incorrect because Each L fund is made up of the other five funds, the percentages just change. Another misconception was that once those percentages are there, they're locked in. Right. That's why they would choose, say, today they would choose a 2045, which is kind of middle of the road rather than going all the way to 2075, which is the most risky. They will change over time. Even the 2075 we just showed that is the most risky. Today, 99% in the stock funds will eventually get itself down to a more conservative level as we get close and then eventually obtain the year 2075. So understand that these funds are dynamic. They change over time, and the allocations are predetermined to change based on what it's showing you here on the website. So that is a that's a big thing. You can check out performance. You can see the composition, you can see how that composition is going to change.

Speaker 1:
But just understand the big misconception of what started this whole conversation was that a federal employee that I talked to thought the L funds were different than the other five funds. No, I don't have my money in the G. It's all in the L. I don't know, I don't have my money in the I. It's all in the L. Well, I had to be the bearer of bad news again and say that your L fund is made up of the other five funds. So when you think you don't have the G. Yes, you have the G fund. You think you don't have the I fund? Yes, you have the iPhone because it's a part of the L. What percentage? Well, it just depends on the L fund that you chose. And then also those percentages are not locked in when you first sign up. They will dynamically change over time as a result of the composition changes indicated on the website. Now you can do interfund transfers, you can change money. You can have multiple L funds at the same time. That's it. You can you can make changes. You can make updates, all of those things. So if you're one of those that did have this misconception, then you have the ability to go in and change that on your tsp.gov if you choose, you want to change up your allocations or put put your funds somewhere else.

Speaker 1:
You can make interfund transfers. You can change the way new money goes in and where it gets divvied up to. That's completely up to you. But just understand that what you think you had or what you thought you had may be may be different. So this is a great resource for you. Tsp.gov. I'm scrolling through now. I'm going to go back to just the the life cycle funds in general, but you can compare and contrast performance. So if I were going to do those three that we just mentioned, let's go in there. I'm going to do 2045 and 2075. Let's just do the comparison. It gives you an idea here for participants who were born before 1965, right? So I said these are target date funds. It's trying to take some of the guesswork out of it. You know, me based on my age and when I'm planning on retiring, the 2045 would probably be the target date that somebody would throw me into because of my age and the target date for my retirement. And it says, here's the year to date, here's the one year, the Obviously, the 2075 has not been around long enough to have a a long history of what that looks like as far as its overall return. But you can see, um, the L income has had, you know, more conservative returns than the other L funds. So in years when the market really goes up, um, the 2075 is going to see the greatest return.

Speaker 1:
The L income is going to have the least amount of return out of all the, the L funds in years. When the market goes down, the 2075 is probably going to experience the greatest losses of all the L funds. And then the L income is going to have the least amount of loss in years when the market goes down. So just understand how that works. Um, you can go through again, compare, you can see the expense ratio, all of these things. So when it comes to the, uh, the L funds and everything that's there, just, just understand what it is you're your choosing from what funds you're invested in and what it all means. You can go to tsp.gov. I'll mention it again. Very great resource for you to do some history and some digging. What are the funds all about? What are their history? Uh, what are the returns? Uh, what's my investment risk and what should I be doing? You can do all your research on tsp.gov so you know exactly what you're investing in when it comes to TSP. But like I said, this conversation, maybe you knew all this stuff and it was just like, okay, Val, you know, I already know all this. Duh, I get it. But based on my conversations, not everybody was told this or shared this. And this is what this show is all about, is providing insight and information that you're just not taught during your time as a federal employee.

Speaker 1:
You get hired, you fill out some paperwork, they give you a little bit of basic information, you hit the ground running, you're doing your job and benefits and retirement information, especially when it comes to your pension system, Social security, TSP, uh, survivor benefit choices, health insurance. Everything may not be properly explained to you and you're left to figure this all out. So that's why I'm saying you can reach out to to us. You can go to tsp.gov for your answers, but you can also, like I said, come to us. You can use our website, federal retirement show.com, fill out the form. One of our experts across the country. If it's not me personally, we'll be reaching out to review your whole situation, not just TSP, but your whole situation gets you all the information that you need that you desire. Answer any of the questions that you may have, and that just gives you a peace of mind so you know where you stand and how you're trending as you get closer to retirement and you ensure that you're on the right track. That's, that's the biggest thing that we do here at the Federal Retirement Show and American Benefits Exchange, just making sure that federal employees are on the right track for retirement. They're in the best place they are today, and they're on the right track as they move closer to retirement.

Speaker 1:
So I thought that we would address another question that a federal employee had. If you have additional questions and topics that were not answering during these federal retirement show episodes, reach out to us. You can fill out the same form. And when we reach out to you, you can share your comments, you can share your questions. You can say, hey, why don't you do an episode on this? Be happy to. That's where a lot of our episodes have actually come from. So thank you to those who have suggested topics for future episodes. What I thought, or I hope that you found this information helpful and it benefits you in some way, shape or form because that's what I want to have happen. I want our information to be beneficial and impactful. So hopefully you found this information about the L funds within TSP helpful and eye opening. Again, I really appreciate you taking the time out of your schedule to join us. Thank you. As I mentioned, we have a lot of other episodes over 180 of them. For your benefit, you can go view them wherever you listen to podcasts. I know they're on Apple Podcasts, Spotify, I YouTube, you can go to our website again, federal retirement show.com to view all the content. My name is Val Majewski. I'm the host of the Federal Retirement Show, and I look forward to seeing you on a future episode.

Speaker 2:
Every July 1st, baseball fans are reminded of one of the most famous contracts in sports history. It's known simply as Bobby Bonilla Day. At first glance, it sounds like a punchline a retired player collecting a paycheck long after leaving the field. But behind the headlines lies a powerful lesson about money, time, and long term financial planning. I'm Jim Teraoka for the Retirement Radio Network powered by Amora Life. More than two decades after playing his final game for the New York Mets, Bobby Bonilla still receives a check from the team more than $1 million every year. Those payments began in 2011 and will continue through 35. Back in 2000, the Mets owed Bonilla nearly $6 million. Instead of paying him immediately, the team agreed to defer the payments for more than a decade in exchange for Bonilla would receive annual installments, with interest ultimately collecting far more than the original amount owed. Front office sports writer Eric Fisher explains further.

Speaker 3:
This was a very unique deal at the time. He still had 5.9 million left on his contract, and there was a mutual desire to not pay that all out in one lump sum.

Speaker 2:
Whether the Mets made the right decision or not is still being debated, but the arrangement highlights a principle that financial professionals discuss every day the value of future cash flow. Many investors focus on growing assets, but successful retirement income planning is really about creating dependable streams of future income. Annuities, for example, provide income in the form of regular payments and as a theme. Chief Operating Officer Michael Downing explains finding the right annuity could be a game changer.

Speaker 4:
They should generally be an anchor of almost any portfolio in terms of the preservation of wealth. And so the things that customers should look at is the type of protection they need.

Speaker 2:
As retirement approaches, investors face a critical question should they prioritize maximizing today's wealth or building sustainable income for the future? The answer often requires balancing both. So whether those payments come from Social Security, pensions or annuities, the goal is similar turning today's assets into tomorrow's paycheck. Bobby Bonilla's contract is an extreme example, but it illustrates an important point. Sometimes the most valuable financial asset isn't a lump sum. It's a predictable stream of income that arrives year after year. Because in the end, smart portfolio management isn't just about accumulating money. It's about designing a strategy that supports the life you want to live. And that's something Bobby Bonilla reminds us of every July 1st for the Retirement Radio Network powered by marine life. I'm Jim Teraoka.

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