On this week’s episode, Val delves into the exciting yet challenging phase of retirement planning, focusing on the Thrift Savings Plan (TSP) and the various options available as you approach your golden years. Val covers how to make the most of your TSP and navigate the retirement phase correctly while shedding light on the key considerations when choosing between staying with the TSP during retirement or rolling it over into an IRA.

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7.28.23: Audio automatically transcribed by Sonix

7.28.23: 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'm your host, Val Majewski, vice president with American Benefits Exchange. And as you know, these episodes don't just come out of thin air, right? They come from conversations that I've had with federal employees just like you, and questions that have been asked over time. And a lot of times it's very common questions. These episodes can be a little a one off, like, Hey, I came across this unique situation with a particular federal employee, or I find it very interesting that a lot of you are asking similar questions. And, you know, as times change or as you get further along in your career, a lot of federal employees that I talk to as they're nearing or entering retirement have been asking similar questions when it comes to TSP. And that's what today's episode is all about. Just recently, even this morning, got off a phone call with a federal employee who was planning on retiring by the end of the year. And one of the questions that she had was about TSP and what are the right options or what are her options when it comes to what to do with her TSP in retirement. And we're going to go over two of the answers today. And I'm going to tell you very general in nature what I normally see, because I can't go into all the specifics, we'd be here for hours going over individual scenarios and talking about why people were making certain choices and why they went in this direction when it came to their TSP as they were nearing or entering retirement.

Val Majewski:
So what I talk about in these episodes are generally the answers that federal employees are coming to when it comes to these different situations. And today, specifically about TSP, I'm going to go over two typical answers that I see federal employees come to a conclusion of when it comes to TSP and their options as they neared into retirement. So hope that makes sense. Number two, I just want to let you know ahead of time that I am not giving any investment advice. I am not telling you what to do, what you should do. That is up to you, your situation, your family's needs, etcetera, etcetera, etcetera. So what I am providing to you today are answers that I have come to a conclusion of with federal employees, just like you, conversations that we've had and the gist of those conversations, the material that we've talked and talked about so that you can make the best decision for you. Right. Just because everybody's doing it doesn't mean that that's what you should do. But a lot of times when we're talking about this is where federal employees lead, this is the direction that they go in, it doesn't mean that they're necessarily wrong and that a version of these two answers could or couldn't be right for you. So, again, I just want to reiterate that what we're talking about today is very general in nature.

Val Majewski:
What we're talking about today should not be misconstrued as investment advice or anything of that nature. These are just scenarios or this is built on a culmination of or a collaboration of conversations that I've had over time. And a lot more of them have come up recently with better employees just like you. So without further ado, let's dive into today's material and talk about the options you have with your TSP as you near and enter retirement. So first of all, I'm sure you're aware this is your thrift savings plan. It's generally one of the three main parts of a federal employees retirement strategy. We have your first pension, Social Security and TSP. Tsp I've mentioned before in other episodes is the wild card. At least that's what I call it when it comes to your pension and retirement, because this relies mostly on you. You decide how much comes out of your paycheck. You decide where you're going to invest that money within TSP because you have to manage your own money. It is not a managed account, it is an administered account. So as you near an end of retirement, they're not going to be giving you guidance as to what you should or shouldn't do or what your options are when it comes to your TSP. So we're going to review some of those today. And I'm going to tell you again, this is not a comprehensive list, but based on conversations I've had with federal employees, here's the conclusions that we've come to.

Val Majewski:
Now, here's my opinion. When it comes to TSB, you may have seen this before. You may have heard this before, You may have heard other people talk about it. But think TSB is a great vehicle for accumulation, great vehicle for you to build up a retirement nest egg, save money for your future. Whether that's on the pre-tax side or the post-tax side, you get 5% matching. If you're a Fers employee, it's free money. Most of the times we're recommending that, hey, at least put in 5% take advantage of the free money. There's a number of investment choices within TSB, a number of different fund options depending upon your risk tolerance. If you need assistance with the different fund options, the risks associated with it, you can reach out to us. You can view our previous episodes on TSB, You can certainly go to TSB Gov and see how risky or risk free or risk reduced. Some of the different funds are based on their past performance. It's a long term investment strategy, so great for accumulation because you have a while until you can retire, generally speaking, and you have a lot of time to accumulate funds in this plan. Now as junior enter retirement. It is not so awesome when it comes to preservation, conservation or distribution.

Val Majewski:
Now what do I mean by preservation or conservation? This is a common theme that I see a lot of federal employees as they near or enter retirement have a desire to not take as much risk. They don't want to lose any money. So not so awesome when it comes to conserving or preserving your money. I'll get into that here in just a second. And then when it comes to distribution, if you want to utilize TSP as an income source, as it was designed, as it is one of those three retirement income sources, if you're a Fers employee, there's a few options you can choose from, but not so awesome when it comes to creating another lifetime income source for you, just like your pension or Social Security payments. When it comes to preservation or conservation. This is just in general, volatility is not ideal for those nearing or entering retirement. What do I mean by that? Well, volatility means taking too much risk. Volatility means the money is subject to losses or is vulnerable to potentially losing money as you're nearing or entering retirement. So let's say, you know, somebody was going to retire and I'm going to use a drastic example. Let's say somebody was going to retire at the end of 2008 and at the end of 2007, there's thinking, okay, great, my timeline is coming to a close. I've got one year left. The market or my TSP has been doing great since the early 2000.

Val Majewski:
It's been rebounding. I'm seeing great returns in my my account. I'm going to let it ride for this last year, capitalize on these great returns and then I'm out of here a year later. Mid 2008 happens and if you didn't catch it in time, or maybe they caught it a little bit in time and they only lost 10 or 15%, but perhaps they lost 20, 25, 30% thinking it was going to rebound by the end of the year. How is that going to affect their retirement? How would that affect their retirement income if they needed for income? So just understand as you near or enter retirement your timeline. Is shorter and your time that you have to recoup losses if there is a downturn on your shorter. So most that I talk to you do not want to put themselves in that situation. They'd rather say, I'm happy with the gains I've made. I want to preserve my money, conserve my money, make sure I'm not subject to any last minute losses as I'm exiting my career as a federal employee. So that's what I mean by not volatility is not ideal for those that are nearing or entering retirement. These are, again, in my opinion and based on the conversations that I've had with federal employees, just like you, you may be in a different boat because I've certainly seen federal employees that are a couple of years from retirement that want to let it ride.

Val Majewski:
They want to roll the dice and gamble and shoot for the moon and go for huge returns. That could be you. You may have a high risk tolerance, but in general, in general, federal employees as they're nearing or entering retirement. I'm a very low risk tolerance and want to protect their money from any unnecessary losses. I think all losses are unnecessary, but any unnecessary losses as they're leaving or planning to leave their. Career as a federal employee. Now, this was based on conversations I've had recently with people that are thinking of retiring, especially the one that I just had this morning, to reiterate why we're doing this episode. But. When it comes to what am I going to do with my in retirement? You may be asking yourself that question. You may have thought it. You may have asked somebody else, Hey, what are my options? This is what I normally see. Okay. With federal employees, when I ask what is it that you want to do with your TSP when you retire? Typically I get one of two answers. You may fall into one or both of these categories. Even I can explain why that, but you may have something different. But I'm saying in general, these are the most common answers that I get. Number one, TSP use it as it was designed to generate a lifetime income source just like your pension or social security. Hey, get a pension.

Val Majewski:
That's a lifetime payment. You get Social Security, that's a lifetime payment. You want to turn your TSP into another lifetime payment, make sure that it maximizing your income so you can take home as much as possible in retirement. Good news that all three of those payments will last for the rest of your life. You've set it up properly to get the most amount of income you possibly could from your TSP. Maybe you don't need all of the income that TSP can generate, so you just want to use a portion of it. And that's why I said you might have a hybrid, you might have a little bit of both of these, but let's say you wanted to utilize TSP as an income source, a lifetime income source for retirement. That's normally the first thing that I hear. Number two. Maybe you're in a position where you're going to be making good money in retirement and you do not have an intention of withdrawing any funds. I see this often as well, where federal employees say, you know what, I don't believe I'm going to need TSB for a lifetime income. I don't think I'm going to need it at all. I just want to let it sit, be protected and grow. And that way it can be my rainy day money. Worst case scenario, I'm going to pass it on to my loved ones, but I want to let it sit and grow.

Val Majewski:
I can pick at it as needed, use it as rainy day money, looking to keep it safe. Safe. Back to that. I don't want to lose any money. I want to preserve and conserve my money as I'm near or entering retirement. You may fall into either one of these categories or you might be something different. But these are typically the most common answers that I see when I ask better employees What are your goals? What is it that you want to do with your when you enter retirement? Let's look at the lifetime income side. Lifetime income side, you said. I want to utilize my TSP and I want to turn TSP or at least a portion of it or all of it into a lifetime income stream I needed in addition to my pension and my Social Security payment. What are your two main options? Well, here are the two main options that I see. You can utilize the lifetime payment option. There is only one with NTSB. If you want to turn your balance or portion of it into a lifetime income source within TSP, you're going to choose what's known as the the life annuity option, MetLife annuity. Now, you may be like, why MetLife? I recognize that name. Well, yeah, MetLife is an insurance company. They're the same company that administers your Fegli program. But if you want to take a lifetime payment from your TSP, you have to choose the MetLife annuity.

Val Majewski:
Now, how does that work? Tsp will take your money. They will go to MetLife, an insurance company, and they will buy for you what's known as a sPIa, a single premium immediate annuity. And that will pay you a lifetime income check and it will continue until you pass away. Now, depending upon what option you choose, it can be the maximum payment, a life only self-only payment. There can be a your self plus spouse. There's other options you can choose from. But in all cases, no matter which options you choose in order to get this and set it up and have it work, you have to cash in a portion or all of your balance. So whatever you're utilizing within the MetLife annuity, that money is cashed in. What do I mean by that? You go to MetLife or TSP with your bag of money and you say, Pay me an income for the rest of my life. They say thank you for your bag of money. You no longer have any access, ownership, control, liquidity to those dollars, but in return they will send you a check for the rest of your life. Now, here's where this hits home. Let's say that down the road you gave a lot of money and you said, Well, they haven't paid me all that back yet. I need to go in and get some of that. I need to have a big bill. I had a medical expense.

Val Majewski:
I need to pay off a car, truck, a boat, whatever it is. You need to get some of that money. You cannot. I said you no longer have any access, ownership or control of that money. Let's say another worst case scenario with this option. Let's say you took the maximum payment. You said you. I need the maximum. Give me the maximum that you can pay me. And that's what I want to take. And let's say something happened to you. Passed away too soon before technically all that money was given back to you that you gave them. There's technically any money left over. And I say that with some air quotes. Right. Any money left over? Adlai doesn't go to anybody that life keeps it. So you want to make sure you're making the right deal. Right. You want to make sure you're setting yourself up to. Well, you're not giving up ownership and control of your money. You do not want to set yourself up where your family, your loved ones can get shortchanged if something happens to you too soon. You want to know that you're making the right decision. So that's the first way to get a lifetime income with TSP is using the life annuity that they have available. The other option that we're going to talk about, taking control of your money here in a little bit, but you can utilize a TSP rollover to create your own lifetime income without having to cash in your tsp balance.

Val Majewski:
How do you do that? Will you roll it out into a certain type of account? So the money is now taken out of TSP, put into a certain type of account. I'll go over this here in just a second. But when you do this, it can give you the best of both worlds. It's not just the MetLife annuity where you lose ownership control of your money. What if I said you can get a lifetime check without having to give up ownership and control of your money? You can get a lifetime check also without having the risk of dying prematurely and your family getting nothing in the event you passed away too soon, whatever's left over would go to your named beneficiary or beneficiaries. So this is a way to create a lifetime check, just like the MetLife annuity, but remain in control of your money and make sure there's a death benefit provided in the event you passed away too soon. In both cases, in both cases, if you live too long, that money, that check will continue for the rest of your life. So that's a great news. Both of them will pay you a lifetime check no matter how long you live. You live to 120. That money is going to continue to come. Awesome. But you want to make sure you've got the most flexibility within that plan. And the MetLife annuity, in my opinion, is probably not the best option for you if you want lifetime income from your account.

Val Majewski:
Okay. The second scenario, right. So typically, there are two scenarios that employees want to turn it into a lifetime income or federal employees want to keep their money safe and see it grow as much as possible. You can certainly now the only way to keep it 100% safe, 100% safe, meaning you cannot lose a single penny is by putting all of your money into the G Fund. It's the only way to do that, right? Every other option within TSP, all the fund options come with some sort of risk. It could be low risk, but there is still some sort of risk of losing money. The only way to 100% protect your money and know that you cannot lose anything is by putting all of your funds into the G Fund. Now, if you haven't paid attention to what the G has been doing over the past decade, it's only been averaging a little over 2% per year. So if you look back to the history, you can go onto TSP gov and see what the G Fund has done since its inception. You can see what it's done over the past ten years, three years, one year. You can see how TSP and the G Fund have done and that's the only way you can protect your money. Again, 100%, but it's not going to pay you out a whole lot either.

Val Majewski:
So that's option number one if you want safety, security and growth. Number two is you can utilize that same TSP rollover but put it into a plan that's not designed for income, that is designed for 100% protection, just like the G. You cannot lose any money due to market volatility, but you can have the opportunity for much better growth than the G Fund. I can't guarantee what that's going to be. But let's say it was 4 or 6 up to 8% growth. So you can look at two, three, four times as much as the G Fund has done historically over the past ten years. Get the same protection with the opportunity for better growth. Maybe that's something that you want to look into. But if you want safety, security and growth within TSP, the only way to guarantee your money is put all of it in the G fund. What if you can get the same protections of the G? The opportunity for much better growth than the G? Is that something you'd be interested in? If you fall into this category, answer is probably yes. So how do we do either one of these things? I keep mentioning the term TSP rollover. It's a TSP rollover or a TSP transfer. But as you get older, as you get going on through your career, you have two ways in which you can do or perform a TSP rollover. Number one is when you're still working.

Val Majewski:
So if you're not familiar with the provisions that TSP gives you, you have the ability once you're age 59.5. Do an age based in service withdrawal and you're allowed up to four of these per calendar year. You can do a rollover with that provision. You can certainly do a transfer or rollover once you're separated from service at any age, at any age, once you're separated from service, you can do a separated from service transfer or rollover of those funds. It allows you to take ownership and control of the money. It's no longer in TSB and you can put them put the funds into whatever kind of vehicle that you deem appropriate based on your goals and your risk tolerance. It's important to note that there are no withdrawal fees. No transfer fees. No tax implications. If this is done properly. Right. If it goes to an IRA of your choice, whether it's the Roth bucket in your Roth TSP, it's got to go into a Roth IRA, the traditional bucket, but it needs to go into the traditional IRA. You need to make sure that the qualification is the same. If you were to just withdraw the money and put it into your checking or savings account. Whew. Big tax implication. But if you're putting it into a appropriate account like an IRA or a Roth IRA, there's not going to be any penalties, no withdrawal fees, no transfer fees, and definitely no taxes due upon that move, which is awesome.

Val Majewski:
Now said it can be moved into an IRA of your choice. What types of IRAs are out there? What types of plans can you choose from? Now, this is by all means not an encompassing every single type of plan that's available. But let's just look at the underlying vehicles behind the IRAs right now. I'm talking about folks that are nearing or entering retirement that want to eliminate risk. So maybe the left side of the teeter totter is not what you're looking at. But let's talk about it anyway. If you want to take some risk, you can certainly put your money into a vehicle that's in an IRA or a traditional or Roth that is backed or the investment behind it is stocks and mutual funds. That's similar to what you have with TSP. You have stock funds, you have the L funds, which act kind of like mutual funds. You can. Utilize some sort of risk depending upon your overall tolerance. But understand that if you're in that vehicle, there could be additional fees and also a lot of risks involved because your money is directly invested in the market. We're talking about safety and security, though. So we're going to go a little bit more towards the right side. Now you get a little bit more safe. A little bit more maybe if you're looking at a variable annuity, maybe if you're looking at bonds.

Val Majewski:
But there's still some downside potential. You can see there's arrows below my teeter totter here on the left hand side. Let's say you wanted to keep the money, though, 100% safe. You don't want to lose anything. What are your options there? You can put something into cash or a money market, but if it ends up being like cash, obviously that means go into checking your savings and there's big tax implications. So we're we're not going to do an IRA based in cash. You can have CDs can be a vehicle to utilize. You can utilize fixed annuities. There are plans out there that have very solid interest rates based on the high interest rate environment we're in, where you can lock in a certain interest rate for one, two, three, five, ten years and, you know, guaranteed what you're going to get. You're locked in for that period. You can anticipate it. You can count your blessings on that amount that you know what it's going to return. But in my opinion, this is just my opinion here. The best vehicle I've seen for guaranteed protection, meaning you cannot lose any money guaranteed, no matter due to market volatility. Okay. You can't lose a penny due to the risks of the market, but still have the opportunity for solid growth over time. It's called a fixed indexed annuity, fixed indexed annuity. I'll highlight that. That's in my opinion. That doesn't mean that's right for you.

Val Majewski:
It just means, in my opinion, if you want to protect your money, keep it safe and sound, have the opportunity for solid growth. At the same time, that type of vehicle for your transfer rollover could be right for you. Now, within that plan, you can do the both of the things that we talked about earlier that I typically see. You can keep your money safe and sound and just let it grow. Or you can turn that fixed indexed annuity into a lifetime income plan without having to cash in. For funds without having to lose ownership and control of your monies. And that's done a number of different ways. If that's what you want to do. I'd go over the specifics with you individually, but the fixed indexed annuity is a way in which you can protect your money, keep it safe and sound. And if you choose that you want to turn it into a lifetime income stream, be able to create a lifetime income stream without having to cash in or give up all ownership and control of your money. Pretty awesome stuff. If you're following here, I just want to show you how a fixed indexed annuity works, because let's say the spread that you have or just general investment risk is the the gray area, Right? And you can have huge returns, but you can also suffer huge losses. We've seen that over the years, different years with the returns have been up and down because those most of the investment behind TSP is directly in the market.

Val Majewski:
It's subject to all that volatility that's out there. You can see great returns as we've seen, but you can also suffer losses. What if we didn't operate in the gray corridor? What if we operated in the red corridor? Meaning you knew that you couldn't lose anything. You never see that red go below the zero line. The return opportunity may not be as high as the gray area, but it's still pretty good. And, you know, 100% that you cannot lose a penny due to volatility in the market. Pretty awesome stuff if you ask me. Now, what is important to people? Why are they looking? For these types of plans, right? Why Why would you do or perform a rollover? Well, we mentioned some of the reasons, right? Those two typical reasons at the beginning. And for those that are looking to do this, whether you're in the safety and growth realm or if you're in the I want lifetime income realm, you want to make sure, number one, you're protecting against risk, you're providing guarantees, you're preserving, conserving or preserving your principal, and you want to ensure or ensure your financial security. But what does this all come down to? You can see it says the desire to not lose any money. Most federal employees that I talk to as you near or enter retirement, they would tell me, I do not want to lose any money.

Val Majewski:
I don't want to lose anything. Want to make sure our money is safe and sound. Done a great job of accumulating these funds over my long career. Don't want to lose anything at the last minute. There have been some that have said I'm okay with it, but generally speaking, employees do not want to lose money as they're nearing or entering retirement. But they still want to be flexible and have control of their money. Right. With that lifetime income I mentioned earlier, you cash in, you lose flexibility and control, you lose accessibility to your money. But if you want to create that lifetime income, you cannot outlive that third retirement Jack. But still have flexibility, still have ownership and control, still have access to that money. You can do that outside of. What if you wanted to lock in interest? So now you're in the safe and secure and you just want to let your money be safe and you want to have it grow? But what if I told you every time you earn interest, it's locked in? What if I told you that if you had 100,000 and you knew ahead of time that you can't lose any money? So your bottom line is 100,000. You knew your account would never contractually guaranteed to never go below 100,000. But when you earned interest, say, you earned 5%, now you're at 105,000. Now your new bottom line, you are guaranteed never to go below 105,000.

Val Majewski:
As long as you don't take out any money, you're never going to be below a 105,000. That's awesome. So when you earn interest, it's locked in. It can never be taken away from you. That's a guaranteed part of the contract that you have. So pretty awesome stuff. If you're looking to do a rollover or separate your funds from the control there and utilize either one of those two options that we talked about earlier, safety, security and growth or lifetime income using this type of plan could be beneficial for you. It may not be in every situation, but it could be beneficial for you. It might be worth looking at. So what's option? Which option? Which way to go is right for you? Well, we certainly we have to have a conversation. We need to look at your situation and we need to see what it is you want to do. The conversation I had this morning, I simply asked those questions, you know, what function do you want your TSP to serve for you in retirement? What are your goals for this money? What are you looking to do with this money when it's all said and done? The federal employee that I talked to, she had an answer. You may not, and I'd love to discuss that with you if you don't if you don't have an idea of which direction you want to go in.

Val Majewski:
And if you do, if you do know laser focus, this is what I want to do. This is what I want to accomplish. We can certainly go over that as well. But to know which is right for you, this is not a cookie cutter setup. It's not a one size fits all. There's not only one plan out there that everybody falls into. There are hundreds of plans out there, just like the all the concepts I've just mentioned. But they are different nuances and different things that were right for certain people and have to get to know your situation so that we can pick the plan that's right for you, or we can at least show you what's available. So if that's you, go to our website. Federal retirement. Show.com fill out the form. Not only would you get a copy of the book that I wrote on federal benefits and retirement called there's no excuse. After we're done with the scenario going over your personal benefit situation, you can get a complimentary copy of our book. Not only will you get that, but you'll get peace of mind knowing all the options that are there and what could be right for you when it comes to your TSP funds. So really, thank you for taking the time out of your busy schedule to join us on the Federal Retirement show. Again, my name is Val Majewski, Vice President with American Benefits Exchange, and I look forward to seeing you on a future episode.

Producer:
Registered Investment Advisors and Investment Advisor Representatives act as fiduciaries for all of our investment management clients, we have an obligation to act in the best interests of our clients and to make full disclosures of any conflicts of interest. If any exist. Refer to our firm brochure the ADV to a page four for additional information. Any comments regarding safe and secure products and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company and are not offered by BWR.

Producer:
New rules across Major League Baseball have shown their effects both on and off the field. I'm Jim Tarabukin. With the retirement radio network Powered by Amara Life in 2022, the MLB Players Association agreed to a handful of new on field rules, with the goal to increase the pace of play. A pitch clock was introduced prior to the season, eliminating downtime between pitches. The numbers are in in game times across baseball are down an average of 31 minutes this season, but the new on field legislation has led to necessary changes off the field. President of Life Flip Media Eric Mitchell, explains the controversy.

Eric Mitchell:
Further, it's controversial because everybody is so used to the seventh inning. That was it, right? Beer sales are shut off, so games are shorter. Beer sales are you know, it's important. They're also major sponsors of the teams.

Producer:
Mlb teams aren't governed to a league wide alcohol sales policy On how long into the game beer can be sold, but the seventh inning has traditionally served as that cutoff point. But according to the Associated Press, the Milwaukee Brewers and the Texas Rangers are two of five teams that will now sell alcohol through the eighth inning of their home games. Milwaukee President of operations Rick Schlesinger talked to MLB.com about his team's revised policy, saying, quote, If it turns out that this is causing an issue or we feel that it might cause an issue, then we'll revert to what we've done previously per the same report, the Miami Marlins and the New York Mets will halt their sales after the conventional seventh inning timestamp, but aren't ruling out potential changes in the future for the retirement radio network Powered By a Life. I'm Jim Tarabukin.

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