Latest / Federal Retirement Advisors | FedLegacy / Debt, Cash Flow, and Retirement Timing: What To Clean Up Before You File
Transcript
- William Smith: here's the thing. As a federal employee your retirement is gonna be solid, especially better than most. The thing that makes the difference between whether you're gonna be re able to retire on time and with confidence is how you structure your income against your debts. Right. And so this is a topic that oftentimes doesn't get talked about. So people oftentimes are saying they're talking to coworkers and their coworkers are like, Well, it was very hard for me to retire and retirement is tough. And then they come to me and they're like, Well, I hear retirement can sometimes be tough. And when I go through the and they're like, and if this person makes more than me, well, this person has more in their TSP than I have. Now, here's the thing. Most times when I hear people say that, oftentimes a person that they're they're they're referring to, their retirement is nothing like theirs. And so the thing that the things that you as federal employees all have in common. Are you gonna have your pension? You're gonna have your social security, you're gonna have your TSP. Now that varies though, but based on how much you put in there versus how much you don't, or how you invest your TSP, if you have it in traditional TSP, Roth TSP, what funds you have yet in that can vary. But the pension, the social security, that pretty much, you know, is gonna be around this, not not the same amount, but it's you know, is is is within the same hemisphere, so to speak, because it all is all controlled by the same thing. How much money you make. how long you work, social security is about how much you put in there. Now, the big, big difference to all of this is how you manage your personal finances. How you manage your personal finances will make a huge difference. And this is the reason why when we do our TSP finish line process, after we do our second call, we have our we have our discovery call, which is with our team and we're making sure we fit you with the right advisor. We understand where you are with taxes, income. healthcare, legacy, and to how you invest in your TSP. Right. We go we take you through that. But then the next thing we do is we do a we do a retirement readiness. And on that call, we really dig into the details of where you are. But after that call, our team always sends you a link to fill out an expense sheet. The reason why we do that is because we've no what we found over the years, and we don't been doing this now 18 plus years, is that when we understand the debt that you have, It makes a big difference in your retirement planning. And so we wanna we make sure we capture that. We send you a link, we take you through our retirement and retirement analyzer, and we analyze the debt because the debt makes a big difference. I can give you your income all day, I can give you a social security all day. But if that debt is high, it's gonna be an issue. And there's certain things that you wanna make sure that you have paid off before you retire. And I'm gonna and I'm gonna go through a sample with y'all because I don't want to just talk at y'all. I'm gonna go through a sample with you all. So you can see why that is in a sec. But one of the questions that we get a lot is oftentimes going when you're going into retirement is how much money should I have saved when it when when I'm first retiring? And what I and what the the way I want to answer that is based on when you leave, you're not going to get a check right away. Now you're going to get an estimated check, and oftentimes that's around 50 to 60%. of what it will be eventually. But there is a there is a gap there. And if you don't have a lot of annual leave, You're going to take money out of your TSP or you're going to have money set aside for emergency savings. So if you're, if you, if you have less than a year before you're retiring, or you're retired at the end of this year, you want to start putting money aside so that you can cover yourself in that gap. Because the one thing you don't want to do is start taking out of your TSP just all haphazardly without a plan. Because sometimes that could even be a delay if you're before, if you're retired before 59 and a half on when on having the retirement. put on your account like the that you're retired so they don't hit you with a 10% penalty. And so just just little things like that, right? You want to make sure you have money saved. Okay. And so here is our retirement analyzer tool. We use this tool to take everyone through their retirement. So we make sure we get your we make sure we get your your income in here. We make sure we get you your proper social security in here. We make sure we get your right proper FERS pension in here. And so here, here we have all of this like this is a sample, but we have we have we have it was a real, but we changed, we changed the names and stuff. But this is the real retirement setup for a person, right? And so here we have everything, social security pension, everything. Then we go to assets, we have our TSP here, we have that in here. And so then we have the expenses. And the purpose of this webinar is we want to talk about expenses. And the impact that expenses have on people, right? And so here we have our mortgage. We have our mortgage, and we have our mortgage being paid off in 19 years. Okay. This makes a difference. What I'm gonna show you is how when we change numbers, how it makes a big difference. We have her homeowner insurance, her utilities, everything in here. We have her living expenses, food, personal care, health insurance costs, life insurance costs, all those different things. Car notes. Credit cards and vacation money. And so this is this is how it was originally when we first met. And so then we go here and we look at, okay, how how long can your money last? And if you see here, you see her money will run out at 84 based on the way in which she has her bill set up. And so you want to make sure you run through this with someone because When you when you look at your retirement, retirement, her retirement's not bad. I mean, when we look at it, it's what? It's 42 is about $6,000 a month. Let me see what it is after taxes. After taxes, she's at about $6,000 a month. That's that doesn't seem like it's a little bit of money, but her expenses are around $7,000. Okay. And so you really want to look through this stuff. And so one of the things we looked at. as we were planning for this is okay, she has twenty years on the house, that's not bad. But what would happen if, in her scenario, we paid off the credit card debt, right? So they shared five hundred dollars a month in credit card debt. Let's say we paid that down Not even not right away, but let's say we paid it down in two years. So we strategize that, okay? And then we look at how much is gonna come out of the TSP and things like that. Then she has this car note and she was like, I'm always gonna have a car, I'm always gonna have a new car. I told her you can't. Let's say she paid this car note off in three years. And then the next car she bought, she buys it with cash, right? Let's see what else we can chop down. So you cut the credit card down. One thing we always do is we look at vacation and we're like, okay, over time we can scale the vacation down, right? So we look at these, it's like, okay, instead of traveling twice a year for a long time, let's start making it once a year once you turn 80. And so we did that. Oops. And then what else can we cut down here? Most of this stuff is gonna be fixed and continue to go. But one thing we could do is say, okay, instead of paying the house off in twenty, we could pay the house off in fifteen. Little things like this matter, right? And we always strategize this stuff out. But it's good to have the conversation around what your bills are gonna look like the closer you get to retirement, because it makes a big deal. So before her her the it showed her money running out at eighty one. Now that money stretches out for the rest of her life. Small changes when it comes to debt make a really big difference in retirement. And so one of the things that we always and so yeah, again, it was r running out of 81, but changing those small things, like making sure credit card debt's paid off, making sure when you buy a car, you buy cash. And like for example, even if we we took the cash out of here, and this is something we do. Let's just say car paint car payoff, right? Well car purchase. Let's say let's say at one point she went out and bought a fifty thousand dollar car ten years from now. One time. Taken out of TSP. So you see here. So like we paid the car off originally here, but then let's say, all right, then she gets to a point where she's I just want a new car. Boom. The $50,000 car purchase comes out. You see, it gets reduced here. But because she's not taking on any more interest debt, her money still doesn't run out. And oftentimes, people, what I've noticed is when I'm meeting with people they're so afraid of taking money out of their TSP for. When they retire for purchases and things like that, don't be. Just have a plan. When you come in, you know, have us if you meet with us, we'll take you through this retirement analyzer. We'll always have it for you so you can come back in and make decisions like this. But if you don't have this, have a plan to you know exactly the impact of the withdrawals that you t that you make on your TSP. That way you have a plan. So in this case Instead of having a car note that lasts for a long time, you know, you pay your car off, and then the next car you get, you just buy it cash and you plan it out instead of having this consistent car note, right? Which also raises your insurance and things like that. Just pot of car cash. Same thing with credit cards, right? Let's say let's go back in here, right? We paid the credit card off, but let's say let's let's actually pay it off, right? So we got the credit card. Let's say that credit card was fifteen thousand dollars. And she wanted to pay it off in 2008, 2028. Right? Okay, we got the credit card. We paid the credit card off. We got the car. We got the credit card paid off. Both big debts. But Absolutely. It's gonna be on the pre-retirement screen because she's retiring in 2031. But let me I'll I'll take you there. So when we go to pre-retirement, this is the credit card being paid off while she's still working. Credit card being paid off, 15,000 coming out. You see it reduces down, the taxes also come out of that. And It cleared up this debt and this debt, which stopped it from running out of money at age eight at age it's age 81 in the last screen. And so when it comes to your retirement, you want to make sure you want to make sure that you have a debt strategy in place. The things that are gonna impact your retirement the most are gonna be credit cards. How much your house payment is, super important. Student loans, I mean, I'm seeing so many, many, more and more people are retiring with student loans from their kids or themselves. That's not something we saw five years ago. We're seeing more and more of it now. And so student loans, unfortunately, and and and car notes. One of the big things I always tell folks, if you could buy, if you could if you if you have a decent amount of money in your TSP, buy your next car cash. it's just not an expense worth carrying in retirement plus the you know your your your insurance is higher and things like that and so just if you have a decent amount of money in your TSP pay it off cash because again you see how these numbers impacted the retirement because you're not carrying all that interest going into retirement