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: TSPL funds, you know they're there, you've seen them, you've checked them out a little bit. Maybe, maybe not to the full extent, but it's kind of interesting what they could potentially do for you. So it's interesting. I had the opportunity a couple weeks back to watch a tribute, to go to a tribute of Celine Dion and this, this performer, she did amazing. She could do that same sort of sound as Celine Dion, which was amazing. So she's like, you're here. It was really good. Well, subsequent to that, a couple of days later, one of the friends of mine who went with me to that sent me this meme or it's like a, like a video. And it was the kid where the mom says to the kid, like, hey, why can't you just clean your room and do the things of the kitchen? And then they just went straight to the clip of Celine Dion going, you're here.
And so it's so interesting because we don't want to do stuff for ourselves when we have other people there to do it for us. And it's interesting because the L funds are a little bit Celine for you because they can do a lot of things for you that maybe you don't want to be bothered with. You don't want to be, you know, checking the pulse of the market every every 20 minutes. And actually TSP doesn't let you do that anymore. People used to be, what do they call it, day trading in tsp.
And so they limited now the amount of times throughout the month that you're able to actually make interfund transfers or changes between the different funds. So like right now, for example, a lot of people are telling me it was crazy in the market, I moved to G. And you can, but you can't immediately the next day go back to C, right, where people used to be able to do that. TSP says, oh no, oh no, you want your fees to stay low. We're going to restrict that because now the amount of times you're trading is potentially going to raise the rates of costs for people. So TSP does have fees right now. They're like 55 cents per thousand.
So very inexpensive. But again, there's some, you know, limitations and things like that within it. So you want to kind of understand that. So how do the L funds work? Well, first of all, what does L stand for? Life Cycle. It's designed to cycle you through your life automatically based on the way you've chosen your L fund.
So back in the day, there only used to be a few L funds and they went in 10 year increments. Now they've opened it up and they go in five year increments. So you can choose a. Basically you choose an L fund that is dated mostly, or you choose an L fund that's closest to your proposed year of retirement. So for example, if I'm going to retire in the year 2040, I would pick an L2040. Or if I'm going to retire in the year 2043, I might pick an L2040 or an L2045.
So that's kind of the example of it. But it's designed to cycle through your life for you. And this is an interesting year.
The, the L25.
Right. It's going to soon become an L income. So this happened back in 2020 where people got a letter that said, hey, your 2020 fund is going to become an L income. And you, if you're in an L2025, you absolutely are getting that letter already. I've already heard from people that are saying, hey, I got a letter about my L fund. Something's going to change. What do I need to do? Do I need to move out of it? Not necessarily. It was designed to help you out. So right now, if you're in an L 2025, this is what it looks like as of April, right? This is not April 2025 fund. This is the L 2025 as of April of 2025, what you're looking at. So when you pick an L fund, any L fund, you are enrolling or using all five of the core funds, I.e. gFCs and I. And so as you see the percentages here, if I've chosen an L 2025, well, I was going to retire in 2025. And what year do we happen to be in 2025? So you can see it's predominantly in the G fund. G equals not going to lose money, but not going to earn much either. Somebody says, does G mean good?
Necessarily it just means safe. It's good to not lose money. But do we have opportunity cost? Yeah, a little bit.
So the rest of the funds are the CS and I. As you can see, the green, blue, and purple, and then the red. Is the F fund still relatively safe? It can lose, but it loses at a significantly lower rate than the CSR I. So people in the L 2025 are getting a letter that says, hey, your L fund is about to switch into an L income. Well, when that happens, it looks like this. You're probably thinking, what changed? Well, because the L 2025, it's about to become an L income. It's so close in proximity to that, it is almost looking exactly the same. As you can see, by the time the end of 2025 happens, the L 2025 fund will be in L income, and it will never change again. What do you mean by change, Raina? Every L fund, it's in all five funds, and it automatically changes every quarter to get a little safer and a little safer. So every quarter you go and it inches toward more and more orange until it reaches this point, and it will then never change again. Why? Because when we get in much closer proximity to retirement or when we have already retired, we do not want to take losses. Most of my retirees or people in that close proximity to retirement, they don't want to lose their money. They say, I didn't put no money in here for 20, 30 years to turn around and lose my shirt, mind everything. Don't want to lose it because you're no longer contributing. They're no longer matching. All of that stuff stops. It comes to a screeching hall, and there's no more money going in other than the interest that you could potentially earn based on the funds that you're in.
And so, for example, though, if I'm going to retire in the year 2050, this is what my fund would look like. Look at this. You can barely see the orange, right? And if I was going 2070, you know, it would be like nothing. You don't even see orange at all. So this person, because I have much longer to work, I have more time on my side, more.
More ability and comfort to ride the storms of the market.
I can afford to be much more aggressive. I can be in the very heavy in the C, potentially very heavy in the S and the I.
So for those of you who don't want to be bothered with, you know, checking the pulse of the market every day, these L funds couldn't be. Can be a great Answer where you can look to mom and say, you're here. There's nothing I fear. You didn't expect that. And I went the whole way and I hit that note, but I brought it down like 18 octaves. So the beauty is that some people say to me, raina, what do I do? What do I do? Should I be this? Should I be this? Should I be this? Hey, listen, sometimes it's really easy. You go in, you pick an L fund, you find the pie chart you like.
You just go a hundred percent there. Because when you're 100% in any L fund, you're in all five funds. You just can visually look at the ratio and decide what you're cool with. Because let's say I'm. I had chosen a 2050. Fast forward, time goes by, doo to do do, do, do. And then I wake up and it's 2050.
It will automatically in that year 2050, look like an L income again.
And we will look at it and it'll be, look at all the orange again. Now all this time happened and it got oranger and oranger and oranger and oranger and oranger. And then I wake up in 2050 and I get the letter that says, your L. 2050 is about to be an L income. And it will never change again unless you take action. But why would I take action? Because that's what I was going to do. Unless I'm looking at outside IRAs that achieve the same safety of the G fund with the potential of higher returns, which obviously you would call Raina for, because that's my speciality. But while you're working, some of these funds are there to make it a little bit easier for you. They created this life cycle fund idea to make it to where you don't have to be bothered with it. Now, obviously you can make changes inside. You know, outside of the L funds, I've had people that have 4% in every fund, which means that effectively you still have some percent in each fund, right? So that's why I say, well, rather than you not really knowing what you have, just pick the L fund that you like, visually, that's comfortable to you. And some of these, when you like. Right now, if you were to go to like a 2040, 40, 45, you'd be almost half and half, right? So you can go and look and you can tsp.gov the l funds and just look at them and compare them all. Now, this is not to say everyone should be in an L fund. It's just a nice way to look at them and say, oh, I'm very comfortable there and it's automatically going to get safer as time goes by, especially if I'm too young, as in not 59 and a half yet while working and I've got to keep working for a while. It's a nice way to visually know exactly what you have, and all you have to do is check the TSP website to see what that L Fund looks like at that time. And they keep them updated per quarter because they change every quarter. So it's definitely worth looking at. If you want details on this or you want to really look at what you've got going on, reach out to me.
You can text me, call me, email me, carrier pigeon, send up a flare because if you need me, I'll be there. I'll be around. Okay, I'm going to stop. But you want to definitely check in on that and see what your stuff is doing because no two people are the same, no two preferences are the same. And we always want to make the right plan for you to make sure that you're aggressive when you need to be, but safe when the time comes. We'll talk to you soon.
[00:10:19] Speaker A: Thanks for listening to Reyna Retirement With a strong commitment to ethical standards, Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Reina directly, call 850-4450 6500. That's 850-456-500. 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 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, FEGLI 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.
