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Transcript
- Raphael Jones: Your money in the G Fund is safe, but it's falling behind every year and the prices keep going up. Meaning your balance can go up, but your buying power is still less. It won't always keep up with inflation. And that's why we're walking through how to get your TSP out of park and then put it in drive. So that the money you save keeps growing while you're still working and more of it stays when you retire. I'm Raphael Jones. And tonight we're going to be covering a couple of things. I'm going to show you if your TSP is still stuck in park, how to get it working as hard as you have over the last 15 to 20 years. Tonight, some of the things that we're going to cover, and this is what I want you to do. Each thing that we're going to cover, each topic is going to have a number in front of it. So when we hit on that number, when we talk about that number and the topic, I want you to put that number in the chat if it applies to you. Number one, we're going to talk about protection versus growth funds. So if that applies to you, drop a one in the chat. Number two, we're going to speak about the G fund trap. Number three, we're gonna be talking about changing your mix, changing your investment mix for those of you who do or do not know how to do that. Number four, we're gonna be talking about the traditional portion of the TSP versus the Roth portion. Number five, we're gonna speak about how withdrawals are taxed for those of you who've never taken any money out, and I know a lot of you already have. Number six, we're going to talk about post-retirement taking lump sum payments versus distribution. Number seven, we're going to be talking about RMDs for those of you who are familiar or not familiar with it. And number eight, we're going to have talk about your and talk about. I want to talk about something in particular, something that I'm familiar with. One of the things... One of the things that I thought about before I joined, before we spoke tonight is I have elderly parents. How many of you out here have elderly parents? How many of you have had to take care of your parents over the last couple of years and had to like find services or deal with just come out of your pocket? It's been a little bit expensive trying to take care of parents. While I'm happy that both of my parents had the opportunity to make it to 80. It still has caused a couple of issues as far as finances. And that's what I'm going to get into tonight. The first thing I want to cover is number one. Number one is protection funds versus growth funds. Protection funds, let's start with that. The G and the F. So most of us, we like to keep our money in the G and the F funds just for, you know. Kind of the sake of like I want to keep my money safe. I don't want anything going wrong with my money I want to keep it in the G and the F until I figure out how to really grow my money until I talk to somebody who knows about it While that works for you and why that's good for now. It doesn't work for you in the long run The F fund is currently in the negative The F fund is not going to give you more than 3 % and it's not moving fast enough and growing fast enough to outpace inflation The G Fund has done about 2.7 % over the last 10 years, and two, it's also not moving fast enough to outpace inflation. How many of you have had, still have your money in the G and the F? Let me know in the chat how many of y'all have still keep your money in the G and the F fund. Okay. Well, the C, as we know, let's talk about growth. The C fund matches the S &P 500. The C fund has done 15 % over the last 10 years. The C fund has performed exceptionally well over the last 10 years. The C fund matches the S &P 500. If you want to grow your money, the C is a great fund to have your money in because it's also medium risk. The S-Fund, I know a lot of you have your money in the S-Fund. The S-Fund matches the Dow Jones. And the same thing goes for the Dow Jones. The Dow Jones has been, it's a little bit more risky. It's medium high risk, but over the last 10 years, it's done more than 10%. So you're not gonna lose out having your money in the S-Fund. Now the I-Fund. Many of you already have your money in the I-Fund. And the I-Fund, ever since Trump took over with the tariffs, has done exceptionally well and almost did 30 % last year. And the I-Fund, if you don't know, is the International Fund. I see a couple of you did put number two. Number two is key. And I'm going show you why number two is key. Number two is the G fund trap, if you remember. So number two is the G fund trap. Why do so many people all end up in the G fund? The G fund does feel safe. And moving your money there after you've lost a lump sum, after you've lost $7,000, $8,000, $9,000, it feels like it makes sense. But what you're doing by putting your money in the G once you've lost is you're locking in the loss. And by locking in a loss, mean, if you put your money in the G to keep it safe, you accept it. I've lost $8,000 and that's just what it is. Instead of keeping your money in the aggressive funds and when the market jumps back up, you'll probably get your money back plus some, but you won't benefit from that. If you're stuck in a G fund, you're going to watch the C fund, the S fund, the I fund. You're going to watch it shoot up and you're going to be stuck in that G and then you're probably going to try to move it to the G, back to the aggressive funds after you've already had energy. But by that time it's too late. It's already took its major jump. The money is safe there, but it barely grows and prices keep going up and your buying power is just going to be struggling later on down the line. How many people's money has just been struggling because they can't move it? Like they keep, they keep it in the G because it feels safe for them, but you know, deep down inside your money's not growing fast enough. How many of y'all have had your money in the CS and I for a long period of time? Put it in the chat, drop that in the chat. So you understand about the power of growth and you've taken the bumps and kept on taking it. Brenda, see you in there. Brenda is one of the most intelligent people I've ever spoken to. So I'm gonna move on a little bit. So now I'm gonna go to number three for those of you who put number three in the chat and three is changing your investment mix. So number three is changing your mix. So when you go into investments like, hey, I'm gonna change my fund. If you're still working, you have two options. You have the option to change your current mix, which is where your money's already in, moves you've already saved. You can do that in tsp.gov or you can change your future investments. And I know many of you have seen that option. where it's like, hey, do I change my current mix or do I change my future investments? Let me explain to you the difference. If I change my current mix, I'm changing where all the money's already is. So if I have 80,000 in the C, 20,000 in the G, I got 10,000 in the F. If I decide to change that, that's changing my current mix. When they ask you to change your future investments only, that means the money that's coming in from your paycheck, you're changing that money that's coming in from your paycheck. And now all the future payments, so every two weeks when you get paid, If you want it all going to the sea, it's all going to the sea. Drop it in the chat if you understood that. And you can all, don't have to, when you change it, remember you don't have to change both. You can change one or the other. Your old money will stay put. You can keep your old money where it is and keep it in it safe if that's what you want it to do. And you could have the money that's coming in for future investments. You can change that to a more aggressive situation. Before I move on to the next topic, does everybody understand exactly what I meant by that? As far as changing the investment mix. There's two options if you're still working. Now, if you're no longer working, you only have one option and that's change your current mix. And that's why you have to, once you're retired, you have to make definitive smart decisions once you're retired. because once you're retired, that's it. There is no future investment mix and current mix. There's only current mix. So let's move on a little bit further. So let's talk about the don't leave the free money on the table. And that's gonna, we're gonna talk about the 5%. If you are still contributing to the TSP, the minimum you should be putting in is 5 % of your income because the government matches 5%. So the government will match up to 5 % of that income. And for those of you who are not contributing to the traditional anymore and putting it all into the Roth, they are not going to match your 5 % if you put it into the Roth. They won't match it in the Roth, but they'll take that 5 % and they'll put it into the traditional. So if I'm putting $500 into the Roth every two weeks, they'll match that $500, but they'll match it in the traditional. They're not going to match it in the Roth after tax money. Does anybody have any questions on that? If they don't understand what I just said, if you're only contributing to the Roth, they don't match the 5 % in the Roth. They'll still match you 5%, but they'll match that 5 % in the traditional side. Brenda, I'm not a big fan of the G just in general. I just don't because it's just not growing fast enough. The only time that the G makes the most sense to me is if like, hey, I have plans for this money already and does play it and I'm taking out this money as soon as I get the chance to and I can't afford to lose anything in there. So I want to keep it stable over the next six months until I take it all out. That would be the only reason why you would leave everything in the G. At retirement, The most important thing to focus on is growth. So the most important thing to focus on in retirement is growth, move it. So now that we spoke about that, we talked about the traditional versus the Roth, the traditional versus the Roth. So we know in retirement, when you pull money out of that traditional, if you have it in the traditional, once you retire or you've already turned 59 and a half and you're past the penalty phase, you are going to be taxed 20 % for withdrawing money from the traditional side of your TSP. I'm going to repeat that again. You're going to be charged 20 % for withdrawing from the traditional side of your TSP upfront. So before you get the money, for example, if I take $20,000 out of my TSP, I will get 16,000 because 4,000 goes to taxes. And out of that 16,000 that I received, I have to put a little bit aside for state tax, depending on what state you're in. If you're in a state that has state tax. We are on number four. For somebody in the chat to just ask, we're on number four. Now the Roth, obviously the Roth, reason why I encourage people to start putting a little, if you got five, 10 years left, you want to start putting a little bit into the Roth because that's important. Because once you retire, your FERS pension doesn't always start coming in right away. And it just picks up where you left off. Like you continue to get paid. Sometimes, oftentimes right now it is delayed. So your first pension, will probably be delayed a little bit. And you're gonna need a nugget that you can pull from to be able to cover your expenses into that first pension or social security or both start coming in. And it's easier to take that money out of the Roth because that money taken out of the Roth will be tax free. You could take money out to traditional to cover those expenses, but you're gonna have to pay taxes on it. So if you have 25, 30,000 built up in the Roth, and you start taking some money out that raw to cover your expenses, it's not gonna hurt as much. And that's what you built it up in the first place for. Is everybody understanding? Everybody kind of understanding where I'm coming from? Okay. All right. Well, we're moving on for those who you were number five. We just talked about that. The how the TSP withdraws a tax. Every dollar you take out counts as income. So any money that you take out of the TSP counts as income. So if you're making when your retirement or why you're still working, if you're making a hundred thousand dollars a year total and you decide, Hey, something came up and you have to take $60,000 out of the traditional side of your TSP. that money is now considered income to the IRS. So now instead of 100,000, you made 160,000. So you're gonna get taxed like somebody who made 160,000. Any money that you pull out the traditional side of your TSP is looked at as income. There's no way around it. Now the Roth side is tax free. If you're 59 and a half and it's been five years. So if you've had it for five years and you're over 59 and a half, any money you pull out that Roth is now tax free. Now any money you pull out the TSP before 59 and a half, as you know, is a 10 % penalty. So if you decide to do anything with your TSP before, unless you're taking a loan out or hardship, anything before that, if you just take the money out as a withdrawal, it's a 10 % penalty. Now, if you're retired and if you retired before 59 and a half and you decide to withdraw, you can do that as long as you retire at 55 or later. So if you retired at 55, 56, 57, 58, and you're not 59 and a half yet, yes, you can withdraw money from your TSP without penalty. Are y'all following me on what I just said? That's a key. That rule of 55 is very, very important because people may retire. You may retire at 52, especially for some of y'all who are in law enforcement. You may have retired at 52 and said, wow, well, I need to take some money on my TSP now. You're not 59 and half yet. You don't qualify for the rule of 55 because you didn't retire at 55. So you're still subject to the 10 % penalty for withdrawing money. out of your TSP before 59 and a half. You gotta follow me on this one. These rules are very important. I hope some of y'all are writing this down, but I know we have smart people on here, so I know they are. Thank you Dorian for following me. Now we're on number six. Number six. Whether when you retire, should I take distributions like a payout, like get them to pay me $1,000, $1,500, $2,000 a month, or should I take lump sums? It depends. Remember, on the lump sums, before you take a lump sum, you probably should talk to your accountant. Because any lump sum you take out of your TSP, like we just talked about, is going to be counted as income. And the last thing you wanted to do is for it to push you into a higher tax bracket. And now not only did you pay taxes upfront for taking that lump sum, now you owe money at the end of the year because it pushed you into a higher tax bracket. And you gotta average it out. Now, if I wanna do distributions, if I decide to take $1,000 a month, that $1,000 a month only equals to $12,000 a year. But I may need to take $1,500 a month. because maybe Kaiser, maybe Aetna said, remember going back to my parents story, my parents are both in their eighties. Maybe that's in Kaiser sometimes will say, my mom is going through Parkinson's right now. And they'll say, they'll bring the OT, they'll bring the PT in and let the OT and the PT and they'll work. And my mom will start getting better as soon as she gets a little bit better, just a tiny bit better, they cut the services off. And it may be, you may need to pay 15, 16, 1700 extra dollars yourself out of pocket to make sure you have somebody there to cover those days when they're not there. So that's the reason for a distribution, be like, hey, I need an extra 1500. I need an extra $1,800 a month to cover for my mom, my grandma, my granddad, my dad, whatever the situation may be. But you got to make sure that you stay in the same tax bracket. You got to, if I'm taking $2,000 a month, know that that's going to be $24,000 for the year. Will that push me into a higher tax bracket? Let me talk to my accountant or whoever handles my taxes. Let me talk to them about that. Now we're getting close to the end here. We're getting very close to the end. And one of things I want to talk about is I want to talk about RMDs. Drop it in the chat. How many of you are familiar with RMDs and exactly how they work? Required minimum distributions. How many of you are familiar with those required minimum distributions? This is how it works. So don't let anybody fool you. If you were born between 1951 and 1959, your RMDs are going to start at 73. Now, if you were born 1960 or later, your RMDs start at 75 years old. Your RMDs are the required minimum distributions. If there's no movement and you don't start taking money out of your TSP account before 73 or 75, depending on when you were born, the government will, well, the TSP will start sending checks to your house so that the IRS can take their taxes out. And what happens is you have no idea what those checks are going to be. And the last thing you will want is a check to be sent to your house that you didn't ask for, that now pushes you into a higher tax bracket. And it's not like you can say, it back. Once it's there, it's there. It's nothing you can do about it. And we see this all the time. We get calls about this all the time. And if you need to know more about it, you need to book a retirement readiness call. moving your money into the Roth under the TSP is not going to change anything. That does not count. That does not count. So let's see here where we're at now. Now I'm gonna take it. So like kind of go over those questions. the last part I was gonna do is do a TSP checkup for all of you, the TSP. How many years until you retire? Write that number, figure out that number. How much do you have in the protection right now? What percentage do you have in the G and the F? So write that down. How much am I putting into the TSP and total? If you don't know that, you need to find that out. need to at least, we're at least doing 5%. So figure out how much you're putting into the TSP, whether it be a dollar amount or percentage, but you need to know what percentage it is. Cause you need to know if you've reached that 5 % yet, but I know most of you on here are doing 5%. You also need to know how much do I have in the traditional and how much do I have in the raw? Now to the very bright people on here. I know that you say, of course I know how much I have in a traditional Neuroth. Everybody doesn't know how to find it. Everybody, when they log on to their TSP, no idea. Some people have no idea how much they have in a Neuroth. I had a client a couple of months ago who we were going through the whole thing, going through the spill. And then we get up and I'm like, wait a minute, you have $275,000 in a Neuroth? She's like, what does that mean? So you need to know how much is in the traditional and how much is in the Neuroth. Based on that age that I said, do you know when your RMD start? Does your start at 73 or 75? Remember what I said before, if you were born between 51 and 59, your RMD start at 73. If you were born 1960 or later, your RMD start at 70. If you need more help and you need more assistance with figuring out what your RMDs are gonna look like or what they're gonna be, That's why you need to book a retirement readiness code. So. Now I'm just going to go into more of a, just to see if any of y'all out there have any questions that y'all need me to answer. I see somebody has there, how much the TSP should be in the G fund when I retire? Like I said, that depends. I'm not a big fan of the G fund at all. So if the only time I feel like you should start putting money in that G fund is if you plan on taking all the money out. Cause we're trying to grow the money as long as we have the, as long as we, you can't contribute to the TSP once you retire. So as long as I have access to the C fund, S fund, I fund, some of the higher lifecycle funds, I'm gonna use it. So I don't wanna put my money in a G fund where it's not growing fast enough to outpace inflation, where I have money in this money market growing way faster. I have a colleague who has the money in a high yield savings that's growing faster than my TSP because I have it stuck in the G. Can I choose which TSP my withdrawals come from? Yes, you can. Yes, you can choose which TSP funds your withdrawals are gonna come from. I know there's some other questions out here. Who else has questions tonight? Is it? What happens to my TSP withdrawals if the market drops when you retire? That's a very good question. So if the market drops right when you're getting ready to retire, no need to panic because guess what? You weren't planning on taking every dime out your TSP once you retired anyway. So if the market drops soon as you retire, you just wait for the market to go back up just like you would when you were working. That would only affect you if your plans were to take every dime of the TSP money out once you retire. And if you're not going to do that, then there's no reason, there is no reason to panic if the market drops. The mark is the market is going to go up and down. Yes, Brenda, you can keep your money in the lifestyle funds when you retire. If you want to keep aggressive, you want to keep it in. Some people like to keep it in that L income. I know that's a very popular one here every day. I'm bigger on go a little bit higher. If you want to keep growing that money and you don't plan on draining it anytime soon. L 2040, L 2045, L 2050. It won't Go on tsp.co. DSTSP.gov and you should study some of the funds and what these different funds do and how they work and why you should use them. On TSP.gov, go to individual funds and then you could go to life cycle funds. It won't take you more than 20, 30 minutes. I know we got some more questions out there, questions that you want to answer for quite some time. It's never too late. There's never too late to move that money back out of the G fund. I just literally had somebody move their money out of G fund today, but like it hasn't done anything for me. I've only been getting 2%. I've had it in there for a year and a half. They moved it back today. So that's done. It's not, it's never too late. If you're retiring in three years, that three, like this is three years that we can get aggressive when we can make back some of that money that we lost. Okay, is there any more questions before I wrap up and get out of here for tonight? Is there any more questions? Has everybody gone and booked their readiness call? All right, well with that said, then I believe that we can wrap this up. For those of you who know me, you can reach out to me personally on my direct line. Everybody else, book a retirement readiness call. Thank you very much. Good night.