Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make smarter financial decisions. Raina Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Well, we've all heard the expression that you don't want to rob Peter to pay Paul, but what if your name is Peter and what if you owe a guy named Paul? So who knows, right? But in this example, we want to talk a little bit about debt. Paying it off, having it in the first place and whether I want to eradicate it for retirement or whether I'm okay with having some debt. What kind of debt makes a lot of sense to have? And what debt is garbage? What do we hate? And if I'm going to incur debt, what kind could be good, Right? So first let's talk about what is the kind of debt you may want to incur. Many people don't think about the TSP loans as an option for them when they really can be a great choice. For example, the TSP loan interest rate right now in early 2026, it's under 4 1/2 percent.
Compare that to pick an alone place anywhere and most of them are going to be significantly higher. So if you're going to loan the money for many stores, some people consider, hey, let me loan it for myself and pay a very low interest rate, put it right back in and it's not a taxable event. So that's kind of cool. What are the downsides? Yes, it comes out of your balance. So let's say I had 100 grand and I took out 20 for a loan. Only $80,000 is now earning interest in the market. So that was what they call opportunity cost. But if life is happening and it's something I have to do, would I rather have a lower guaranteed interest rate than double that amount elsewhere and not pay myself back and be using money that's already been taxed? So things to consider.
Another thing, should I use TSP to pay loans off and pay things down? Well, that's kind of part what our, what our conversation will be if we get together and have an individual meeting. That's a big part of some of my talks. For example, what type of debt is it? What's the interest rate? How many of them do we have? How can we chisel away at them? And what have you already been doing? Sometimes if you don't have a habit of budgeting and you say I just want to pay it off and like one foul swoop and grab a chunk from tsb, could it happen? Sure. But are our habits in such a manner that we may just turn right back around in the next two years and have the same situation?
So you want to first take inventory of what you do on the right on the regular. And am I spending like in my spending maybe more than I should? Am I incurring debt for things that are absolutely necessary or are they kind of what I want rather than what I need?
So those are some things to consider.
But for example, is it a year to use TSP to pay something off? It depends. If you have tsp, that's only traditional. Whenever you take money out, it is going to be taxed and it counts as income. So If I make 80,000 at my, my job and I take a withdrawal, not a loan, but a withdrawal from TSB of say 20,000, now my income is a hundred thousand dollars. So with that hundred thousand dollar income, you now potentially are at a higher tax tier. In fact, you're absolutely at a higher tax tier. You're going to pay more tax on that money because you added it to your income. Now that's pretty much that single or married. So you're still going to have some higher tax tiers. Is it worth it to do it in that year? A lot of times I'm talking to people when they're retiring the next year and people have heard other, you know, online people say you're going to retire and you're going to be in the same tax bracket. It can happen.
It's not always that case. And remember, you may be netting a similar amount, but you're grossing a lower dollar amount. So are you going to be in a lower tax bracket? Commonly with what your standard income is that pension and Social Security.
But your extra money is up to you. TSP withdrawals is usually what makes you stand day in the same tax bracket. And it's only this TSP withdrawal that may be something to consider for in retirement because of that lower income that you're going to be in. In most cases, especially if you have a whole year, like if you retire in December, which is the most common year, that next year is going to be all pension, all Social Security, no actual salary. So that's the kind of thing you want to consider. When should I do it? How should I do it? Another thing people don't consider is using different tax years. If it's the end of the year and you need to grab 50 grand, but you don't want to take 50 in one moment, you can take 25 this year, 25 in January. You see what I mean? So there's a lot of ways to approach this whole withdrawal taxes thing in a very applicable way. I try to speak and I tend to think in terms of real life, real application, what makes the most sense. I don't want to get all lofty and talk about par rates and returns and all these things that are too much.
We've got to still live life right. We've got to still manage things and handle them. And we want to make plans for the future. But we also don't want to sacrifice overly what we just have to do in order to potentially have something 10 years from now that we may not be around to see. So we want to speak in candid terms. I hope that's okay. Permission. Permission for that, please. And if not, forgiveness.
So knowing that, number one, do I need to have debt when I retire? Most commonly, people will maintain a mortgage. It's a very low interest rate, usually one of the lowest ones. But we don't necessarily want to still have student debt. We don't necessarily want to have high credit card debt because, number one, those interest rates are stupid high and we're paying so much just to have the loan. So those are the kinds we might try to get rid of.
The next one is a question of should I have a car? Note, sometimes we. Again, always we look at this as an individual basis. Some people have very high interest rates on their cars. Some people have very low interest rates on their cars. Some people have a visceral aversion to having any kind of debt like that. And it's up to you. We can definitely have this conversation when we get together. But these are some things you just want to start thinking about. And remember it's okay to have a mortgage in retirement because that also has what they call opportunity cost. If I take all my money out of my bucket to put it in the house to get rid of my 3% interest rate, now I can never earn 5%, 10% or any percent again over here. So that's some of the things that we want to consider. And I would say get scheduled, reach out. We can go over this. And I like to have multiple meetings if that's okay. I like to have meeting number one. Let's talk a little bit about all these bullet points and then see what makes the most sense to get deeper. Dive into meeting number two. What we start dialing down into some of the, into some of the minutia, into the details. So my number here, 850-450-6500. And it's not just me. We got a whole team of specialists that are almost as amazing as me. No, I'm just kidding. They are really incredible. We have the creme de la creme on our on in our organization and they're ready to chat with you and help you make the right choices, the right way so you can retire one time and stay that way.
[00:07:35] Speaker A: Thanks for listening to Reina Retirement. With a strong commitment to ethical standards, Rayna works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 854-50-6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to American Festival federal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents, consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
