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. Reyna 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, many of you know that I was raised right. So one of the best shows out there starts off with Rollin, Rollin, Rollin, Keep those Doggies Going, Keep Thug, Something something, Rawhide. So if you were watching that show, you were probably not thinking of rolling over money. You were thinking of rolling down the fields and keeping all the cows going and all the good stuff. So, classic show and some of y' all still watch it. There's some pretty good reruns going on.
But that's not the kind of rolling we want to talk about today. Many of y' all have already rolled your money over into something else. Many of y' all have wondered what it means. How do I do it? Should I do it? Should I not do it? What do my friends say? Who do I listen to? Who's going to give me advice? In fact, funny, Jonah Hill's making a, a show or a movie about his experience with his therapist.
And it was in one of the trailers they were talking about how therapists are taught not to give advice.
But you get all this advice from your friends and they don't even know what they're talking about. So it's like you get all this advice from people who don't know what they're talking about. But the guy that you want advice from is told not to give you advice.
So it's kind of true. In the world of retirement and finance, a lot of people get their advice at the water cooler or at the coffee pot or from people maybe who have retired.
Who. I mean, that seems like it could be a good example.
But what is great for one may not be great for everyone.
It is very common that I come behind people who say, oh, well, Joe said that he, blah, blah, blah, blah, blah, and he's doing great. Okay, good. Well, you know, let's see what all that means. And how similar is your life to Joe's? Maybe Joe doesn't need extra income. Maybe Joe is, you know, single and has no obligations.
Maybe Joe has so Many obligations, and he had to do it a certain way. So you understand what I mean. There is no one size fits all. There is no everyone should do this. If that were the case, we wouldn't need doctors, plural. We would just need a medical board to tell everyone what to do.
Because you would need height and weight and blood pressure and family history.
But that is not the case. It does operate that way. Every individual is different. There is no one blanket financial advice that anyone can give, nor is there any one blanket medical advice or any advice for that matter.
So why do I bring this up? Because there is money in your tsp for 1k, whatever, and you're questioning what action you should take. You're saying, okay, so I have this money in the tsp.
My fees are pretty low over there. It's kind of nice.
But I'm concerned about the CS and I fund in my retirement because, you know, they can earn good, but they're risky. It's got a lot of risk.
So what's my option with ntsb? Okay, well, I've got the G Fund in the F Fund, and the G Fund doesn't lose me money, but its earnings are incredibly limited, incredibly capped, incredibly hindered by, just by the virtue of how they're created. And even the TSP documents are very clear, like, the G Fund might not even keep up with inflation in many years.
So you're saying, my gosh, this TSP is incredibly extreme.
It's two extremes. It's safety with super limited growth or growth potential with the risk potential as well. Now, this is clearly incredibly boiled down. But that's what a lot of people want. It's what a lot of people need.
Some people are not trying to say, I want to know the exact participation rate and the cap rate and the exact fees and the cost ratio of these everything. They're not trying to get into the dang Wall Street Journal. They're trying to understand what makes sense for them, what is good about tsp. Where does it have benefits and then where does it have shortcomings? What are the problems?
One of the biggest problems families run into with the TSP is the way they manage inheritance. We've talked about this before. There are certain situations where depending on the order of passing away, the TSP rules, which happen before the IRS rules because it's in the TSP itself. So you're subject to the TSP rules first, depending on the order of passing away. Like if it is spouse, sorry, employee or retiree, to the spouse, and then to the kids in that example, this taxable money goes to the kids, but they get no choice in that example, in that order. They get it all lump sum, all taxable, all at one time. And a lot of people didn't realize that, didn't know it. What does that mean? If my balance is 400 grand and I got two kids, they just got a $200,000 increase to their income tax that year.
And that is brutal.
Brutal. Now that doesn't count to earnings tests for like Social Security.
Doesn't count to.
Well, no, that's all it doesn't count to because it counts toward Medicare IRMAA costs, it counts toward taxes and it can raise their tax rate as well. So maybe they were paying 22% in their normal job, like what you maybe are 22, 24.
And then all of a sudden they go from their 80 grand job or their 150 grand job to plus 2 hundo.
And that is a significant wake up call. Wake up call, what is that? Maroon 5? Anyway, so that is what happens. And that's not the wake up call that you want to get.
Now. It's not every case with tsb that inheritance issue doesn't happen all the time. If it goes directly to the kids and there's no spouse in the middle, I'm saying kids, anybody who's not a spouse, they get 90 days. It's got to get out of GSB within the 90 day period. But they've got a, they've only got 90 days to make a decision.
So if they call me or somebody like me, but mainly me because I'm amazing, within 90 days we can get them into an inherited IRA where they can take the money slowly over 10 years.
So imagine 200 grand, 20 grand a year rather than 200 grand in one year.
Sure you pay more tax, but you didn't shove yourself into some ungodly tax rate by making that much money in one year. So that's one of the big reasons we like to really look TSP dead in the face and say what's good about you? And where do you have some major shortcomings with like interview tsp? What would you say your strengths are and what are your weaknesses? And in the past, you know, why did this person let you go?
Why did they roll over from you? Why did what? Tell me about this scenario here. I've got this PDF here that says that if a non spouse beneficiary receives the money, they've got 90 days. Tell me about that.
That would be a very funny little cartoon. We should set that up. But this is why we have meetings, this is why we get together to see what's great and what's not great. This is not to say TSP is garbage. TSP has a lot of redeeming factors. Well, it has two main redeeming factors. Redeeming factor number one, it's a very inexpensive place to be in the market. CS&I fund super cheap fees and it does great good, good growth.
When it tanks, it tanks. But so does your outside plans that are market driven. They go up and they go down. And ideally whoever's managing it for you is doing a good job in trying to keep the downs as minimum as possible. But what comes with that is usually a trade where your ups are not so up either.
So a lot of people want that crazy high up because they just, you know, they experience the benefit of it.
Now that's what a lot of people say to me right now. I'm retiring.
I'm okay if I'm not knocking it out of the park, but I don't want to lose any money.
And it's that portion that usually we would section off.
Remember me and my team, we're IRA specials. We manage IRAs all day, every day.
But everybody has a different need for a different type of plan.
Some people need income, some people, some people need to stash that cash, baby. Some people need to plan for distribution. Some people want to offset RMDs. That is the required minimum distribution that starts at age 73, 75ish, depending on what year it is and how young you were and all that kind of stuff. But basically it's Uncle Sam saying you have to start taking money out of this bucket that I've never got taxed on. I never pay, I never got my tax money. What is this? I've waited, I've waited long enough. I've been so nice. I waited. But now you're 73. And now you're 75. You have to take out a certain percentage and people start realizing what that percentage is and they, the, the eyes get all big, they're like, what I'm gonna have to take out? What?
Like, yeah, but I'm 73. It doesn't matter. 75, it doesn't matter. I talked to some pretty dang healthy 75 year olds who have a lot of life before them and are gonna have to keep taking this money out for quite some time.
And it can be a slap. These are things we have to plan for. I, I, I like to talk normal. I've, I'VE watched a lot of people online that get super, super detailed and super, you know, Monte Carlo and all these things. And that's cool, and some people love that.
But we first want to know the practical application to. To what this money is going to do, what you're trying to do for yourself and for your family.
Notice the order I put that in. We put our own oxygen mask on first, and the family love them, but they come second. You got to manage yourself, because if you can't help yourself, what are you going to do for that?
Blood from a turnip? So we manage oursel so we can then manage others.
And that's part of what our meetings are for.
So let me not digress. TSP has good things, and it has some limitations. The biggest benefit is its aggression. And it's a cheap place to do it. I hate the word cheap. Low cost, very low fees. And then they're super liquid, like any managed money account in general, super duper liquid.
But who cares? If you don't want to pay the dang tax, you don't care about the liquidity because you're not trying to rip big funds out of there.
So it was okay, well, Raina, I. Somebody says to me, raina, I would say, what do you. What are you trying to do? What is it? If you had a perfect world, perfect bucket of money, what would it look like? Okay, I don't want to lose any money. I want safety. I am not interested in losses.
Do you have anything that maybe doesn't have any fees at all? Yeah, we do some. Yeah. A lot of plans actually don't have fees at all. No maintenance fees. And a lot of people don't believe me when I say it. There are plans that charge no maintenance fees where you're not being charged to show up. There's no cover charge.
And a lot of them say, listen, this inheritance problem with TSP where, you know, if I go first and then my spouse gets it and then the kids get it. Golly, I didn't work like a dog for 40 years for Uncle Sam to rip 34% tax off of this thing. 36, like, who knows what the tax rate is going to be. Heaven forbid we go to Reagan years again. And the highest tax bracket then was, what, 94 or 92%? I can't even imagine.
So that's an issue. I don't want that to happen. Okay, so on your list, you don't want the kids to ever be forced into a lump sum. Got it. Most times out. Most of the outside IRAs, that doesn't happen anyway. The ones we use, they get a year. They get a year to decide what they want to do. 112 month period compared to either 0 or 90 days with tsp, for example.
Okay, what else is on my list?
I am going to be short in income, Raina. I need some extra cash. Okay, great. Let's make it happen. We can. We have plans that manage lifetime income while still being able to pay your family the remainder if you pass away. Now that is a, a a concept that is difficult for many to accept because of how they've been spoon fed the word annuitization or the concept of annuitization. And there's many people online that would say don't do annuities. But they're only talking about annuitization, which is the act of trading your bucket, poking a hole in the bucket and getting rid of the bucket and having that lifetime income.
In annuitization, you say, hey, give me the monthly payments. Don't keep a bucket for me.
Meaning you can never grab out of your bucket again. If you need 10 grand, 20 grand, 30 grand, no grand because you took the monthly payment and because there's no monthly payment, there's no bucket anymore for you. What do you think is going to happen if you pass away?
What does my family get?
Angry. That's what they get.
They get angry because there is no benefit from that bucket. And that's even if someone said, oh no, I only lived six months and I had a $500,000 balance. No, you didn't. When you took that lifetime income from an annuitization, you traded the balance, you got your 3,000amonth or something, but nobody gets the MetLife is the man is the managing company of the TSP annuitization choice and your money went to a new blimp or something, which MetLife is great. They have a lot of good plans, good products.
That's why the government uses them as the benefit for your life insurance. Your fegli and they manage the annuitization from the tsp because only life insurance companies can manage annuities.
But there's annuities that don't have annuitization or don't require annuitization, where you could have a lifetime income as a rider and take lifetime income. Is it always an annuity? No, nothing's ever, always anything. That's like if a doctor says, hey, if you take Lisinopril, it's this. But does that mean he's only ever prescribing lisinopril? No, he may Be amlodipine for some other guy or a hydrochlorothiazide for another person. Those are all blood pressure medicines. So you get the point.
So different issues, different people get treated with different plans or different programs or different medicines that suit them better.
Depending.
Some states don't allow certain plans. Some, some. Some families need lifetime income for two people.
Sometimes we're setting up income not just for me, but if I die. But my spouse keeps getting paid the same dollar amount for the rest of their life.
So people say, Reina, what do, what do you mean you can do that? Yeah.
How does that benefit me? Get a, take a, take a seat and get a list out. Because number one survivor benefit has a cost to leave them half of your. Sorry, half.
Half of your pension. I went so high pitched you could even hear me. To give them half of your pension where this is no cost and you just use money that you've already saved to distribute to yourself and then to your spouse.
Now there is no one place for all the money. I don't think I love peeling things off for different purposes.
So what does this even look like? What does it mean? What does this mean? You've seen, you've seen the idea of a rollover. I started off singing about rolling, rolling, rolling and rawhide and all these things.
What does it mean? What does it look like? If I've got my TSP bucket and I want to do a rollover, that's you in the middle. You say, what do I do with all this money?
Because the more money we come across, the more problems we see. But we don't want that to happen for you. We want to use the money you saved to your benefit and to your family's benefit. So a rollover, this image of it goes over your head.
It's not taxable because it just went to another place that still has not been taxed.
You would only pay tax when you take it out to your purse, where. And that's from either TSP or an ira. An IRA cannot stop your taxes.
Nothing can stop your taxes. You can manage them to prepare for tax.
You can be taxed, advantaged.
The only thing that's tax free is a Roth or life insurance proceeds.
But a Roth you already paid tax on the basis anyway. You pay tax on the money you put in.
So why am I showing you this? Because you can take money and put it in other places and you don't have to empty your thrift.
A lot of times we leave money in TSP to get the benefits of tsp, which are what again?
In low cost, aggression and liquidity. TSP likes when you take money out so they can tax you.
And what are these other things we use? It just depends what we're trying to do. Remember the list. I want safety. I want growth. I don't want to be in a mattress or my kids to be able to have choices. I don't ever want them to be forced into a lump sum of tax.
Like, I was trying to save them. I mean, I was working. I'm trying to teach them.
I'm trying to be sure that, you know, my family does better than me. That's like the biggest wish of most a lot of parents. I want my kids to do better than me. I want to watch them enjoy their hard work, their success, and if I can give them a leg up, I would love that. That's another thing some of my people talk to me about. Hey, Raina, I've got this money. What now?
Like, I don't want to be the guy who.
You've seen the picture of the cartoon where the guy's young and he's chasing after money, and then he's older and he's chasing after money, and then by the time he's got all the money, he's really old and he's at the end of the cliff and he's like, well, what now?
And that's a bummer. Sorry. I'm just telling you.
We realize sometimes, okay, I fought the good fight, I ran the good race. What now?
Some people want to start dispersing this to their kids that are in their 30s and 40s or 20s, giving the maturity level, obviously, but to give them the leg up in life, down payments on houses, starting them their own Roth. I have a lot of people call me to start the Roth for their kids or grandkids.
I had somebody the other day, we started the grandkids in iul, a life insurance policy that builds cash accumulation as time goes by. And then when the kids in college, they may rip money from the life insurance plan to pay for college, or they keep going and they use it to buy a house later. Thanks, Grandpa. There's a lot of things we can do, and there's a lot of financial vehicles that are underused.
Underused. Don't let me sound like I am digressing. This is all connected because I'll start talking to somebody and they say, I just want my kids and grandkids to be good and I want to watch them do it. Should I just give them money?
Well, you Could.
But are they going to make the right decision? Yeah, I think so. Well, let's just. Let's see what they're doing with it. What are they proposing?
You know, if they're just saying, give me money, I mean, that's one thing. But if it's a down payment on a house, if it's a, you know, capital to start a business, they're buying a car, you know, kids, college.
You can give up to $19,000 this year per person to each person, and it's not taxable to them. So some people say, I'm gonna take a withdrawal. I'll pay the tax, and I give it to my kid, and they don't pay the tax on it.
It's like a Roth. I mean, you're giving them to this, and then they can accrue the interest and the earnings and the growth, and they'll pay capital gains on it. But they have zero cost in the basis. The basis is the beginning. The beginning dollar amount that you started with. They have no.
They have no tax on that. They're not. They're not paying to get it.
But sometimes you run a problem with that. You want to be sure these kids are putting in themselves. What does the Aesop's Fable say? The gods help those who help themselves. The one guy's like, hey, God, help me. God help me, y'. All, Help me, help me, help me. And then the other guy says, you know, it'd be good if you guys help me out. I'm going to go ahead and do this, this, this, this, this. And he started doing all these things. Which one is the. Did the Greek gods help? Well, obviously, God's help those who help themselves, like the ones that are trying and getting it started and using the stick in their hand and using what skills they already have, so we can get a whole talk about talents and gifts and what have you been benefited with already?
But you have been given correction. You have taken advantage of the benefit of this job.
You are contributing into this tsp, which you should be, whether it's traditional Roth, both.
You are putting money in. You are giving of yourself into this for your later self, for your older self.
We want to simulate what you want this money to do.
We want to simulate it a few times.
As I said before, it's very common that I have multiple meetings with my people. Once you have meeting with me, you're my people, so welcome. But multiple meetings make sense because you. Did you take one day to one meeting, one hour meeting to get here?
No. You were 30, 40 years in the making.
It's not going to take one hour to just decide what makes sense for you.
Sometimes I can very quickly see what does make sense. And a lot of times I'll say, listen, based on everything I've heard, this looks like the best course of action.
Let's talk about it, and I want to show you what it is, and then let's talk about it again. Week or two, whatever, recap it.
Let's shoot holes in it. Tell me what's the problem and I'll tell you why that makes sense. It is a problem, or no, no, we already handled this problem or we already accounted for this problem.
Because I'm telling you, I've watched many people's financial lives be saved by taking action like this and setting things up.
And if it's not saving the financial life, it may be setting things up to prevent a catastrophe later. Maybe even prevent the catastrophe for your kids or grandkids, because an ounce of prevention is worth a pound of cure. And if that's the case, then let's spend some time on the ounces so we don't have to deal with the pounds.
Let's prep it.
Proper planning, prior preparation prevents poor performance.
So we want to prep many of y'.
[00:24:23] Speaker A: All.
[00:24:23] Speaker B: By the time you talk to me, you've already done significant planning, major prep. And that is really, really good. We love that. I love it.
Sometimes it's just lack of knowledge. We don't know what we don't know and when. Then when I show you stuff you don't never heard of, you're like, oh, my goodness, where's this been?
Okay, let's talk about it. There are plans to who to which you can roll money over. That could solve the income problem.
It could solve the problem of safety. The G Fund is safe, but its earnings are kind of limited. A lot of times we use plans that have a higher earning potential with the same level of safety. And many of them don't charge a maintenance fee, which is huge. So we definitely want to consider that.
So please understand.
This talk sounds like it hit on a lot of points, but follow the thread. Oh, my goodness. Zoolander, pull the thread on the sweater and it'll take you to the place. Oh my goodness, I love David Duchovny. Anyway, there was a common thread through this, and you know, it. It's all planning. I put my money somewhere. The current plan has limitations. The current plan has some good as well.
There are places elsewhere that could benefit you to fix some of those limitations.
But we also like the best of both worlds, and that's the kind of plan we want to make Reach Out, Get Scheduled my direct number, 850-450-6500. I have myself and I have an entire team of specialists that can help you. Some of them local. Some of us are doing workshops in your backyard and you may not even know it.
Reach out. Let's get scheduled and see if there's a workshop coming near you or if we'll just be at a computer near you with a virtual meeting. We'll see you soon.
[00:26:12] Speaker A: Thanks for listening to Reyna Retirement With a strong commitment to ethical standards, Reyna 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 850.
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 americanfederal.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 US Office of Personality, 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.
