TSP stands for “Thrift Savings Plan” is an essential component of federal employee retirement savings efforts for federal employees. The Thrift Savings Plan is similar to a 401(k) plan, allowing participants to make contributions on a pre-tax basis. The TSP also has several competitive advantages, such as automatic contributions for certain federal employees, lower costs (compared to most private-market investments) and employer matching contributions.

FERS Three-Legged Stool, by Todd Carmack

January 31, 2022 /by todd carmack

FERS Three-Legged Stool

Have you ever heard of the FERS Three-Legged Stool? Maybe you have heard the term flying around in office chit-chat or from some fellow employee trying to share his wisdom with you. If you don’t know what it is, don’t worry, as we are here to explain everything there is to know about it.

The “three legs” of the “FERS stool” are the foundation of the generic FERS retirement plan. You can think of each of the three legs as one of the three streams of the FERS retirement income. To be more specific, think of the first leg as the FERS pension, the second leg as the Social Security, and the third leg representing the Thrift Saving Plan (TSP).

Let’s try to understand this stool as your seat on which you will rest after retirement. Your goal is to build this stool as high as possible so that you can have a tension-free life after you retire.

Finding the Right Seat

Some people think that they will be able to spend their lives without many problems by entirely relying on Social Security benefits after retirement. That is a gross misconception. In reality, you can say that such people are doomed to live their days in borderline poverty. In other words, they have a very thin blanket protecting them from the harsh chilly storms of poverty.

As we have stated, Social Security is one of the legs of our stool. But can you imagine sitting comfortably on a stool with just one leg? It would be quite impossible to do so.

You can have a comfortable life after retirement only if you act as an active participant in planning your retirement. As a FERS employee, it is of utmost importance that you adequately fund your TSP. Those who ignore nourishing their TSP often find themselves in a situation that’s akin to balancing on a bike with two wheels that is not moving at all.

During the post-war era, people thought of retiring as late as possible. This trend has now changed. Nowadays, people want to retire earlier. This trend is expected to compound on itself in the upcoming years. Given that there have been significant improvements in the eldercare field and the life expectancy has also increased, there is no reason why this trend won’t move forward.

Design Improvements

Now let’s focus on improving the design of our three-legged stool. What can we do to make our seats even more comfortable after retirement? This first design improvement would include adding a tax-free bucket to our design. You can also think of this tax-free bucket as the fourth leg of our retirement stool, making it even more stable. We can agree that economic scenarios can change drastically within a short time frame. No one can predict the tax regime 15 years from now. For this reason, you should make sure that all your investments are well protected from such unpleasant changes in tax policies.

The fourth leg of our stool represents collaborative strategies adopted for benefiting from tax-free returns on our investments. In building this fourth leg, we can also say that we used a composite wood that includes Roth TSP, Roth IRA, and cash value Life Insurance.

Because our national debt crisis is compounding and the politics might take a complete U-turn on tax policies, it is highly recommended that you add this fourth leg to the stool.

Adding the Chair Back

Till now, we have understood the concept of the three-legged stool, and we have also added a fourth leg to provide more stability. What if we can further improve the design by adding a chair back? In this section, we will do precisely that.

The chair back represents a comprehensive insurance cover for you and your family to safeguard against any mishaps or unfortunate incidents. The primary purpose of buying insurance products is to create a flow of high-level emergency funds in case of an emergency. It is a known fact that the lack of proper health insurance causes most bankruptcies in the United States. For this reason, it is in your best interest to stay covered.

There are different types of policies available in the market, and mainly, they are designed to safeguard you against a particular kind of situation. For example, Federal Long Term Care Insurance Program (FLTCIP) provides you the benefits of providing coverage for long-term nursing care, Federal Employees’ Group Life Insurance (FEGLI) safeguards your family in case of your death, and Short Term Disability Programs provide coverage against work-related injuries. In most cases, these policies can be utilized only for the specific purpose for which they were designed.

There are also life insurance policies that utilize living benefits. Such policies are also called flexible policies as they can be used for other purposes.

Adding Comfort

So now we have added stability and a chair back to our stool. Next, we will add some comfort to it. Let’s say we add a nice cushion to make it a more comfortable seat.

The best way to add comfort to our retirement stool is with investments. You must always make sure that your TSP contributions match that of the government. Failing to do so will mean that you let go of easy money.

With TSP Catch Up contributions, an employee becomes eligible after 50 years of age, and you can add even more cushioning. You can even add IRA and make your FERS retirement stool the best and most comfortable retirement stool.

It might sound like it’s pretty simple, and this is something that you can easily do. But the fact is that it’s easier said than done. To actually stick to this design, we need to be emotionally invested in it. We need to empower ourselves with actual financial knowledge to make our investments work in our favor and towards the fulfillment of our dreams. It would help if you understood that delayed gratification is better than instant fun. For example, if you think that it’s in your best interest to have an extended vacation, then you are wrong. You must understand that a comfortable retirement will be the best vacation you can ever have.

Many people think that retirement means sitting duck for the rest of their lives — that is wrong. Even if you have the most comfortable stool with the best possible stability, you won’t be happy if you keep sitting in it till you cannot move. Retirement is not like a nursing home. It is more like a vacation to pursue your passions and work towards your dreams. There is no point in clocking out after retirement. Instead, you should keep yourself up by getting indulged in all the pleasures of life that you missed out on while working so hard.

Understand that retirement fulfillment will not come from a bank account — it will come from your own heart. The point of financial independence is not to become inactive but to have the freedom to do as you desire.

Contact Information:
Email: [email protected]
Phone: 6232511574

Bio:
I grew up in Dubuque, Iowa, where I learned the concepts of hard work and the value of a dollar. I spent years in Boy Scouts and achieved the honor of Eagle Scout. I graduated from Iowa State University and moved to Chicago and spent a few years managing restaurants. I then started working in financial services and insurance helping families prepare for the high cost of college for their children. After spending years in the insurance industry, I moved to Arizona and started working with Federal Employees offing education and options on their benefits. I became a Financial Advisor / Fiduciary to further help people properly plan for the future. I enjoy cooking and traveling in my free time.

Disclosure:
Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice filed, or is excluded from notice filing requirements. BWM does not accept or take responsibility for acting on time-sensitive instructions sent by email or other electronic means. Content shared or published through this medium is only intended for an audience in the States the Advisor is licensed in. If you are not the intended recipient, you are hereby notified that any dissemination, distribution, or copy of this transmission is strictly prohibited. If you receive this communication in error, please immediately notify the sender. The information included should not be considered investment advice. There are risks involved with investing which may include market fluctuation and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making an investment decision.

How Much Will FEHB Premiums for Federal Employees Rise in 2022?

January 25, 2022 /by joe carreno

FEHB Premiums for 2022

The Office of Personnel Management has revealed the prices for the Federal Employees Health Benefits (FEHB) insurance plans for 2022. In 2022, the average percentage of FEHB premiums paid by federal workers and retirees will rise by 3.8%.

According to the Office of Personnel Management, the overall price increase for non-Postal federal workers and retirees under FEHB will be 2.4% in 2022. According to the Office of Personnel Management, this is the second-lowest premium rise in the recent 24 years, which may be pleasant news after premiums increased by 3.6% in 2021 and 4% in 2020. Premiums increased by 1.3% on average in 2019, which was a lesser rise than previous years.

With the cost-of-living adjustment (COLA) predicted to be about 6% in 2022 due to increasing inflation, this news may come as a comfort to federal retirees in particular. When the main CPI numbers are revealed in October, the COLA for 2022 will be announced. At that time, FedSmith will publish a post informing our readers of the final COLA for 2022.

As of the most recent action on the yearly pay rise process, existing federal workers are on schedule to get a 2.7% average pay boost. For 2022, FEHB offers 275 health plan options. In response to the opioid crisis, the Office of Personnel Management (OPM) encouraged FEHB carriers to concentrate on COVID-19, mental health, and drug use disorder services. On OPM’s website, you may get complete sets of rate charts for all health insurance plans describing the FEHB rates for 2022.

FEDVIP Premiums for 2022

Premiums for dental and vision plans in the Federal Employees Dental and Vision Insurance Program (FEDVIP) will rise by 0.81% on average in 2022 and 0.95% for vision plans. In 2022, FEDVIP will provide 23 dental plan choices and ten vision plan options.

“Quality health insurance has never been more essential, and the Office of Personnel Management is ensuring that all eligible enrollees have the information they need to make educated choices about their coverage,” said Kiran Ahuja, Director of the United States Office of Personnel Management. “The worldwide pandemic highlights an employer’s obligation to offer excellent, cheap, and trustworthy healthcare alternatives to its employees.” The federal government, as the country’s biggest employer, is happy to set an example by offering a diverse range of health insurance plans via the FEHB and FEDVIP that provide the high-quality coverage that every employee deserves.”

The 2022 FEDVIP premiums are based on the weighted average of all plan costs across all carriers, with assigned weights assigned to each carrier, so there may be some variation among plans. Plans with an initial or final projected loss have higher weight given to their costs. Premiums are adjusted according to the national medical trend rate for health care services and the annual trend rate for dental services. The average increase in FEDVIP premiums for dental plans is 0.81%, while vision premiums will rise by an average of 0.95%. For federal employees, the share of FEDVIP premiums paid by enrollees falls between 14-18%, depending on which plan they select. The government pays the remaining portion 85-86% of premiums. According to OPM, federal employees pay an average of 16% of premiums for their FEHB plans, while the government pays 84%.

The 6-month open season begins on November 12, 2019, and ends on January 10, 2020. The open season period allows enrollees to review their coverage options before changing to current benefit elections during the Open Season or an opportunity period. OPM said that high turnover among enrollees and the new information available on healthcare plans presented challenges for designing a benefit-selection survey. “While we attempted to stay as close as possible to our previous open season design, we made some changes to reflect current enrollment practices and the availability of data about FEHB plan benefits,” said the notice.

In addition to federal employees and retirees, a person covered by FEHB must be a current spouse of a federal employee, retiree or annuitant, former spouse who hasn’t remarried, a child under age 26 for whom an eligible adult is entitled to enroll as a family member under the plan rules, or an individual who was previously eligible for FEHB, but whose eligibility terminated due to a break in service. The number of people covered by FEDVIP is not broken out.

The one-year increase in Maximum Allowable Insurance (MAI) and the 10% threshold for employer-sponsored insurance (ESI) remain unchanged from the 2019 FEHB premiums. MAI limits the total employee and agency premium contributions to a formula based on plan offerings and geographic location. Still, it only applies if employees seek coverage above the statutory FEHB program benefit entitlement.

Contact Information:
Email: [email protected]
Phone: 8139269909

Bio:
For over 30-years Flavio “Joe” Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.

Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.

Inflation: How Dangerous Is It for Your Retirement?

January 25, 2022 /by joe carreno

If you aren’t careful, inflation can eat into your retirement savings. As the American economy reopens, we’re witnessing increased inflation rates, which should cause retirees to think about the threat this poses to their financial stability.

The consumer price index increased by 5.4 percent last year, the highest level in over 13 years. You may be concerned now if you recall the 1970s’ skyrocketing double-digit inflation rates. Even if inflation never returns to those levels, you must consider the long-term effects on your savings.

In ten or twenty years, what will your money be worth?

Even minor increases in inflation can have a significant impact on a retiree’s savings. The Federal Reserve’s target inflation rate is 2%, but it has stated that it will allow inflation to grow above this level for some time. Consider how a 3% annual inflation rate would affect your money over the next 20 years.

To replicate today’s purchasing power of $60,000, you’d need $108,366.67 in 20 years. Another way to look at it is that $60,000 today would be worth only $33,220.55 after 20 years if inflation is 3% per year.

Because you may expect the cost of everyday things, travel, and other expenses to continue to climb, you should consider inflation in your retirement planning. Inflation eats away at the value of your investments and will do so even after you retire. Since savings accounts pay near-zero returns, retirees who rely solely on their assets are exposed to excessive inflation. As a result, it’s critical to evaluate your long-term investing strategy and retirement saving plan to see if you’re shielded from inflation.

The Social Security System Isn’t Up to Date

Because Social Security benefit increases have not kept up with the rising cost of prescription drugs, food, and housing, the Senior Citizens League estimates that the typical Social Security payment has lost approximately a third of its purchasing power since 2000.

This happened despite annual cost-of-living adjustments (COLAs) for Social Security benefits, which should keep benefit levels up to date with inflation.

In 2018, the cost-of-living adjustment (COLA) for Social Security recipients was 2.8%, which was quite high (for the 2019 benefit year). A 1.3% gain was the COLA rate in 2020 (for the 2021 benefit year). COLA has been absent or nearly absent for several years. In 2016, it was 0.3%, whereas in 2015, it was 0%. Changes to the way COLAs are computed have been proposed by lawmakers to better represent price increases experienced by older Americans.

Consider what would happen if you lost a third of your retirement income in 20 years. Is it more likely that you’ll run out of money?

What Options Are Available To You?

So, how can you figure out how much money you’ll need in retirement when inflation keeps adding to the mix? Here are a few pointers to remember:

To begin, think about any retirement income sources that are unlikely to keep up with inflation.

Consider how much money you have in a savings account or a CD is making in interest during this time. In the coming years, it’s unlikely that we’ll see a significant increase in interest rates, so plan on earning very little. It’s critical to evaluate your long-term investing strategy and retirement income plan to see if you’re shielded from inflation.

Next, figure out how much money you have in your savings account at the moment.

Consider inflation over the next 10, 20, and 30 years as you do so. Consider that, while overall inflation rates may reduce from their current levels, this may not be the case for some of the individual commodities and services that could consume a significant portion of your income, such as energy, food, or healthcare and long-term care expenditures.

Consider whether you’ll need to change your existing investment strategy once you’ve retired.

You might want to consider a retirement strategy that allows you to continue to grow your money so that you’re protected from unforeseen events like inflation. A good plan ensures that your purchasing power requirements are met consistently. As you approach and attain retirement, you may need to take on less investing risk. Having the correct risk asset allocations for your scenario could help you counteract the eroding impacts of inflation on your retirement savings.

Contact Information:
Email: [email protected]
Phone: 8139269909

Bio:
For over 30-years Flavio “Joe” Carreno of The Retirement Advantage has been a Federal Employee Retirement System specialist (FERS) as well as a Florida Retirement System specialist (FRS) independent advocate. An affiliate of PSRE (Public Sector Retirement Educators), a Federal Contractor & Registered Vendor to the Federal Government, also an affiliate of TSP Withdrawal Consultants. We will help you understand your FERS & FRS Benefits, TSP & Florida D.R.O.P. withdrawal options in detail while recognizing & maximizing all concurrent alternatives available.Our primary goal is to guide you into retirement with no regrets; safe, predictable, stable, for life. We look forward to visiting with you.

Disclosure:
Not affiliated with the U.S. Federal Government, the State of Florida, or any government agency. The firm is not engaged in the practice of law or accounting. Always consult an attorney or tax professional regarding your specific legal or tax situation. Although we make great efforts to ensure the accuracy of the information contained herein we cannot guarantee all information is correct. Any comments regarding guarantees, safe and secure investments & guaranteed income streams or similar refer only to fixed insurance and annuity products. Fixed insurance and annuity product guarantees are subject to the claimsâ€paying ability of the issuing company. Annuities are long-term products of the insurance industry designed for retirement income. They contain some limitations, including possible withdrawal charges and a market value adjustment that could affect contract values. Annuities are not FDIC insured.

Coming in 2022! A Mobile App for Federal Employees

December 16, 2021 /by todd carmack

Mobile App to Track Federal Employees’ Retirement Transactions To Be Launched In 2022

On Tuesday, officials from the federal government’s 401(k)-style retirement savings program highlighted several new features that the Thrift Savings Plan (TSP) would offer when it completes its transfer to a new recordkeeper next year.

Officials announced during a meeting on October 26 that a mobile app for the TSP would be available in mid-2022. The app is part of the Converge Program of the Federal Retirement Thrift Investment Board, which aims to improve the TSP’s retirement services under the agency’s unified recordkeeping contract.

Program manager Tanner Nohe stated at the Federal Retirement Thrift Investment Board’s monthly meeting, which manages the TSP that by the middle of 2022, the TSP will provide participants new options that would make it easier to manage and secure their funds.

According to Nohe, the program will launch with an app that will allow consumers fast access to account features. “It will enable us to offer retirement services on the go, as well as provide a new avenue for two-way communication with our participants,” he added.

Members will be able to effectively manage their accounts via their smartphones. In addition to the existing customer service alternatives, there will be a range of different ways for participants to receive help.

“For all participants, we’re also adding a virtual assistant and a virtual chat,” Nohe stated. “The AI-powered assistant will be available 24 hours a day, seven days a week…” A virtual chat with a live representative will also be available.”

The TSP will enhance the number of services and transactions available “on the move” with the launch of the mobile app, according to Nohe. Electronic signatures, additional online forms, and a new “concierge” service to help consumers move money from any other retirement accounts into the TSP are all part of the plan.

“Once people are enrolled in the Thrift Savings Plan, it will be easier for them to manage their money, and when it comes to rollovers, we’ll provide a concierge service to assist those who wish to roll funds into the plan throughout the process,” Nohe added. “Along with that, they’ll be able to scan their checks instead of mailing them in.” We’ll also offer an address locator tool for withdrawals to make the procedure go more smoothly.”

According to Nohe, the new structure will also provide more flexibility in terms of TSP loans. Participants can currently have two loans open with the agency: one general purpose and one principal residence loan. Beginning next year, both outstanding loans will be able to be used for general purposes, and there will be more alternatives for repaying loans if a participant has already left government service.

Tee Ramos, Federal Retirement Thrift Investment Board’s (FRTIB) director of participant services, said the program is on pace to launch in mid-2022.

Contact Information:
Email: [email protected]
Phone: 6232511574

Can Bad Debt Affect Your Social Security?- Flavio Joe Carreno

October 27, 2021 /by joe carreno

Many circumstances can leave workers unable to pay their debts until they retire. For some people, it may be an illness. For others, it may be a sudden job loss. These circumstances can send retirees into dire financial situations. If this applies to you and you want to know how the debts will affect your Social Security benefits, please read the article till the end.

Debt Garnishment and Social Security

The first question we must ask is if Social Security can be garnished for debt? The answer is yes, but not in all situations can this occur. Recipients that owe money to the government and those ordered by the courts to pay money to family members or fines to the courts can expect their Social Security to be garnished by the Social Security Administration (SSA).

Here are some other situations where the SSA can garnish your benefits to fulfill a debt obligation:

â€¢ You have defaulted in the repayment of your federal student loans: Social Security can reduce up to 15% of your benefits if you have defaulted on federal student loans. However, the 15% can only come from everything you receive above $750. This means that if your total monthly benefit is $750 or less, there would be no garnishment. Therefore you don’t need to worry.

â€¢ You owe the Internal Revenue Service (IRS): It is allowed to come for your benefits if you owe the IRS. Likewise, for student loans, the agency can deduct up to 15% of your benefits. This time, nothing is protected. All of your benefits are fair game.

â€¢ You flouted a court order for alimony or child support: Pending payments on court-ordered alimony and child support can also lead to the garnishment of your benefits. This time, the deduction can go as high as 50% if you are catering for another child or spouse or 60% if you are not catering for another child or spouse. In addition, if the payment deadline has been over twelve weeks, an extra 5% of your benefits can be garnished.

â€¢ You owe court-ordered restitution in a criminal case: In this situation, you stand to lose up to 25% of your benefits.

Note: garnishment of debt only comes when you miss payments and not just for owing the debts. If you owe debts and you pay at the appropriate time, there will be no garnishments. Also, garnishments do not affect whatever you have received from Social Security, but only your present and future benefits will be affected.

Debts that are Free from Garnishment

Debts owed to private establishments cannot be deducted from your Social Security. Credit card debts, mortgages, private student loans, auto loans, and other similar loans do not affect Social Security benefits. However, there are other serious effects of owing these debts. Not only will the debts affect your credit score and stop your future loans, but you could also lose your car or home, which will ultimately affect you after your retirement.

Suppose you are still employed and cannot fulfill your debt obligations to private establishments. Then such establishments or private debt collectors can sue you to court and get an order to garnish part of your salary. However, your federal retirement benefits are completely protected by law.

Retired and Unable to Pay Debts?

Some lucky people are able to pay off their debts completely before retirement. However, this is not the story for all. Some retirees take debts into their retirement years, and the loss of their paychecks makes it difficult to pay them off. This makes debt repayment challenging and remains for a long time.

Whether you are still working or retired, there are a few options open to those having difficulties paying off their debts, especially when the debts are federal debts. If your debts are taxes, the IRS has an online payment plan form. You can apply and get approved within a few minutes. If your debts are federal student loans, even Parent PLUS loans, you can opt for an income-driven payment plan. The plan uses your income to ascertain what you pay. You can also turn to the courts to adjust the amount of money you have to pay.

The most crucial step to protecting your Social Security from garnishment is prompt action. As soon as you know you will miss a payment, contact the right authorities for help.

Contact Information:
Email: [email protected]
Phone: 8139269909

Terrified of Running Out of Money When You Retire? Here’s What You Can Do…, by Flavio J. “Joe” Carreno

October 2, 2021 /by joe carreno

When it comes to retirement, most people think it’s just about saving up a considerable chunk of money during their working days. But spending that money safely and appropriately in retirement is just as much of a concern.

To put this in perspective, reports from the Transamerica Center for Retirement Studies and Aegon Center for Longevity found that Americans worry more about running out of retirement funds than declining health. In a survey of CPA financial planners, 30% of financial planners say their clients’ top fear in retirement is running out of money.

The general advice for retirement is to save, save, save, and invest, invest, and invest. But times have changed. People need to understand that saving successfully for retirement isn’t the end of the job. Experts now recommend spending time on withdrawal strategies. You need to learn how to spend safely and know your actions if the financial market eats into your assets. Here are some ways to preserve your retirement savings.

Draw-Down ‘Rule’?

The popular 4% rule suggests that you should withdraw 4% of your retirement holdings annually while keeping pace with inflation. To get your retirement holdings, you’ll have to add up all your assets in various accounts, including your 401(k), brokerage, and individual retirement accounts. This 4% includes all the dividends from your stocks.

By withdrawing 4% every year, you’ll have a balance large enough to last you for 25 years in retirement. This 4% also includes all the dividends from your stocks. The rule is, however, not entirely rigid. The 4% withdrawal is just the starting point. When the financial market experiences a downturn, you may have to reduce your retirement to 3% or even 2%.

Spikes and Valleys

Research over the years has shown that people’s budgets aren’t identical all through retirement. Retirees tend to spend more on leisure and travel during the early years. This, however, seems to trend down as they approach mid-retirement. At that point, the spending goes up for healthcare costs.

This is why rigid withdrawal strategies can be ineffective. Instead of following a rigid formula, see your retirement withdrawals as distinct financial decisions and work out the best strategy for you. Take less when the market is down, and if the financial market goes up, you can take more. For instance, 4% of $2 million would be $80,000. You can take all of that in a good year, and take less in a market downturn to safeguard yourself.

Consider using a minimum distribution approach. The RMD tables tell you how much you can withdraw, depending on your age. As you grow older, the withdrawal amount goes up because your life expectancy is dropping.

Mix it Up

Diversification is key to safeguard your investment. Your asset allocation should include bonds and cash. This way, if the equity market hits a brick, these assets can hold your portfolio pretty well, and there’ll be no need to invade your stocks.

Also, your withdrawal strategy should be sensitive to happenings in the financial market. There’s the risk that the market can dip in your first few years in retirement. If you make withdrawals at that time, you’re selling at a loss, which may affect the value of your portfolio.

For instance, let say you have $1,000,000, then the market stumbles, and you’re left with $800,000. Selling at this point will affect your portfolio. Hence, it’s essential to withdraw less in a market downturn.

A Safety Net

Life expenses aren’t the same every month, so you need guardrails in your spending. One year you might spend so much on travel and the next, health or a vacation.

So if you earn $3,000 every month, there’s no guarantee that you’ll only need $3,000 in future months. That amount should be the upper limit. Consider saving any difference between your monthly spending plan and upper limit for months of higher spending.

Social Security

Another critical decision you’ll make in retirement is when to claim Social Security. There’s a need to give it a lot of thought because it can be very impactful. It’s advisable to delay Social Security so that you can claim maximum benefits. But you also need to consider how much you have and whether you’re at risk of running out of money.

Contact Information:
Email: [email protected]
Phone: 8139269909

Is TSP 2020 the Scariest Roller-Coaster Ride or a Merry-go-Round? By: Marvin Dutton

September 24, 2021 /by marvin dutton

The ongoing world economic crisis due to the coronavirus outbreak reminds everyone of the recession that clobbered the economy in 2008-2009. During that period, hundreds of thousands of federal employees and near-retirees extracted money from their dropping stock-market funds, such as C, S, and I funds. They transferred them to their Treasury securities G fund. Many of them never thought of returning to stocks even if they became expensive during the historic 11 years of the bull market. Many who left the stock fund for the Treasury securities believe that they did the best thing. Many who were still investing in the stock-indexed funds while the stock market was plunging thought they did the right job when they refused to sell their shares when they were dropping and continued to invest when they were available on sale.

According to you, who did the right thing then? Let us ask this question of Abraham Grungold. Abraham Grungold is a long-term federal employee and a successful investor who now is a financial coach. We asked him why he’s sticking with the stock market. He replied and said it is like riding on a very steep roller-coaster. Here’s how he analyzes the situation as a deferral employee and a financial coach:

TSP 2020 is like a very steep roller-coaster ride that is the scariest ride of all

During his 34 years of service, he tried and tested Thrift Savings Plan roller-coasters. The TSP roller coaster is a ride for TSP participants who are investing their money in the C, S and I funds. The TSP participants who are investing in Treasury securities, or the G fund, are riding a merry-go-round. They are at no risk and merely enjoying their investments.

During his service, he took many federal furloughs but had never seen any long-term effect on the financial markets. Though new, it lasted for a short-duration and was overrated. After that ride, the TSP funds returned with a more substantial investment. The financial crisis of 2008 lasted longer, and he had to ride on that TSP roller coaster ride for a long time. While on that ride, it seemed like it would never end. The journey continued for years, with many ups and downs along the way. After that ride ended, the TSP returned and became more reliable than ever.

Now, this TSP 2020 roller-coaster ride is the scariest ride of all uncertainties, and the biggest fear is in the first drop of this ride. The first drop resulted in the TSP’s depreciation by 35% within a short few weeks. By depreciation, we mean a decrease in value, not any loss. The financial crisis of 2008 dropped the TSP account to 40%, but that was a progressive one that stayed for the 2008 to 2009 period. This year’s TSP roller coaster brought an immediate significant drop that is not acceptable. It is a steep and very volatile ride. Each hill and valley of this ride comes with a 5% inclination and 10% drops in my TSP, says Abraham Grungold.

He gave us some survival tips for this ride. Let’s have a look:

He applies a simple approach to each ride he takes. He takes a deep, calming breath and stays there with both hands in the first drop. Sometimes, he prefers closing his eyes. That means closing his eyes to the financial news because watching the financial news during a financial crisis can only increase stress and anxiety and worsen the situation. During all of his rides, he continues his contributions into the C fund and avoids watching the financial markets. He always focused on his federal career and enjoyed time with his family. His TSP account has increased by 20% already and he expects that this ride will last longer than other rides, but yes, the market will return stronger than before again.

So, what does he advise participants to do who only invest in the G fund during their fed career and in retirement? His reply is simple: Some people like to go on merry-go-rounds, and some love steep roller-coasters. People who love taking risks like Abraham Grungold will always ride on a TSP roller-coaster during their career and into retirement. No matter which type of ride you take, the most important thing is that you should feel comfortable with whatever you are doing, and it should be enjoyable. The money is yours, so the decision to invest it should rest in your hands only.

Do You Actually Understand Thrift Saving Plan (TSP) Investments? By: Aaron Steele

September 23, 2021 /by aaron steele

How well do you understand the TSP fund options? Here’s a quick rundown.

As the world’s largest employer-sponsored savings plan, the Thrift Savings Plan (TSP) plays a role in the retirement plans of every FERS federal employee.

Every year, many people become millionaires simply by making good use of their TSP account.

However, without at least a basic understanding of the TSP funds, it’s extremely difficult to be successful in the TSP over the long term.

This article will quickly bring you up to speed on the essentials of the TSP fund options.

The Fundamentals

The TSP offers only five core fund options. Here they are, along with a brief description of what they invest in:

- G Fund: Investments in U.S. Treasury Bonds.
- F Fund: Investments in several types of U.S.-based bonds.
- C Fund: Investments in 500 of some of the biggest U.S. companies (Follows the S&P 500).
- S Fund: Investments in most other major U.S. companies (aside from the S&P 500).
- I Fund: Investments in the major companies in Europe, Australasia, and the Far East.

Note: There’re also L Funds in the TSP, but these are simply a mix of the core five funds.

The Conservative TSP Funds

The G and F Funds are the most conservative of the five funds because they are less volatile than the others. However, as a trade-off for being more stable, they lack the potential to grow as much as the other funds.

Although the G Fund guarantees that any money invested in it won’t lose value, it has only averaged about a 2% annual return over the last ten years.

The F Fund’s value can fall, but it remains very stable compared to the other funds. Over the last ten years, it has averaged a 3.6% annual return.

The Issue with the G and F Funds

As they near retirement, many people will invest the majority of their TSP assets in a combination of the G and F Funds. While investing a part of your money in conservative funds might be a wise decision, many individuals overdo it.

The G and F Funds are unlikely to lose value, but they’re also unlikely to grow much. This lack of significant growth, as well as inflation, can have a substantial impact on your money over time.

For example, if the prices of goods and services rise every year (inflation) and your investments don’t increase quickly enough to compensate, you may deplete your TSP far faster than you had planned.

This does not suggest that the G and F Funds are bad investments. They are excellent funds that do exactly what they’re supposed to do. However, you’ll want to ensure that you also have investments to help you maintain your usual lifestyle during retirement.

The Aggressive TSP Funds

The C, S, and I Funds are the aggressive TSP funds.

They are dubbed “aggressive” because they have a far higher probability of sustaining significant growth over time. However, as a result, they can be significantly more volatile than the G and F Funds.

For instance, the C Fund lost more than 35% in 2008 but recovered it all and more in the next several years.

It is advised you not put any money into these funds that you’ll require in the coming years. These funds will perform better in the long run but are less predictable in the short term.

The L Funds

The most crucial thing to remember about the L Funds is that they’re not independent funds. They’re essentially various combinations of the main five funds that we have discussed.

What distinguishes them is that each L Fund is designed to gradually grow more conservative over time. In principle, one might invest in a single L Fund and never have to modify their investment allocation for the remainder of their career.

Final Thoughts

We hope you have a better knowledge of the various TSP funds and what they’re meant to accomplish. Now, you’ll be much more prepared to understand when you read about investing strategies.

Will COVID-19 Impact Options for TSP Investors? By: Brad Furges

September 23, 2021 /by brad furges

In recent months, the federal government has introduced many changes in its Thrift Savings Plan (TSP). Most of the newly introduced modifications have nothing to do with the novel COVID-19 coronavirus pandemic, but some unexpected events can inevitably impact the investors. In this case, it is advised to expand the I fund and include more companies, and lay emphasis on emerging markets like China.

The CARES Act that came into effect to fight the pandemic may also impact the TSP investors who want to withdraw money from their TSP account but do not want to pay any penalty.

What changes can change the impact and inclusions of the I fund?

One change is increasing the investment in international stocks, or we call them I funds in the TSP’s lifecycle funds. The amount in the lifecycle funds for foreign funds was increased from 30% to 35%. (This percentage increase is in terms of the I fund ratio to the C+ S + me ratio.) This new change came into effect on January 4, 2019.

With this, a higher allocation of equity funds in the lifecycle income fund was also increased from the previous 20% to 30%. The change came into effect in January 2019 and will stay until July 2028. According to January 2020 reports, the L income fund has a target of equity allocation of 21.50%.

Changing contents of the I fund

The government is planning to change the I fund (International Stock Fund). The I fund’s current plan is to measure the stock market performance of developed markets working outside the U.S. and Canada.

As of now, the I fund has stocks from 21 developed markets representing more than 600 companies from large and mid-sized markets.

Things creating controversy over the I Fund Index

A group of senators is requesting the chairman of the Federal Retirement Thrift Investment Board (FRTIB), an agency responsible for the smooth working of the Thrift Savings Plan, to take back its decision to transfer the index tracked by the TSP’s I fund.

According to the new law, the new index will be completely different and represent more than 6,000 companies in the index containing 22 developed markets and 26 emerging markets. It will include large, medium, and small companies.

Many people who read the new changes commented that the I fund should include emerging markets or separate funds for the emerging market. The new changes will consider these things.

$50 billion in federal employee retirement assets are easily accessible to Chinese companies

This provision to change the I fund index has seen many controversies. Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) commented and said that changing the I fund to set a new benchmark index would expose more than $50 billion in federal retirement assets, including federal employees. Members of the U.S. Armed Forces would give birth to undisclosed material risks associated with many of the Chinese companies already listed on this MSCI index.

This controversy was the result of the ongoing market crisis due to the coronavirus pandemic and China’s pivotal role in the spread of this virus. Nobody knows the impact of this new change and the controversy on the world and the TSP investors.

When can we expect to see the changed new I fund index?

Several people reading the news have asked multiple times when they can see the new I fund index coming into effect. To answer this question of the new index’s date, Kim Weaver, the director of the Office of External Affairs for the Federal Retirement Thrift Investment Board (FRTIB), said that the board is working on this and will announce the date soon.

It seems that the board is still working on the new index and has not come up with any specific date for implementation.

The new provision allows withdrawing from retirement accounts without paying any penalty.

The latest provision in the CARES Act will enable participants of any age to withdraw up to $100,000 from a retirement account early without paying the 10% early withdrawal penalty in case he or she is impacted by the coronavirus or was exposed to it.

That means TSP investors can withdraw up to $100,000 from their account without paying any penalty.

Is this is allowed? What is the process of taking this step? No specific information on this question has been received so far. FedSmith asked the TSP what this rule means for the TSP investors. Ms. Weaver replied and said under the CARES Act, participants have this authority, and they have a project team to determine whether and how to implement the process.

Though this provision looks attractive, withdrawing up to $100,000 from the TSP without paying a 10% penalty may be difficult for TSP investors to pay the amount. It seems that this option will be open for TSP investors, but we don’t know if this will be available to TSP investors, and when it will happen.

The coronavirus is expected to impact our society in ways that we never expected a short time ago. Many TSP investors seeing the rapid drop in the stock market are riding on an emotional ride while they are watching their investment dropping. The number of millionaires in the TSP club has dropped by more than 45% in a short while.

While the percentage of the lifecycle’s I funds has increased, we have no idea of the date when the new I fund will come into effect. The CARES Act to fight the COVID-19 crisis is expected to open up new withdrawal options for some TSP investors. It might be too early to guess how this situation will help TSP investors. More surprises are expected to come before the pandemic ends.

TSP Participants Want Changes in the Program, but Majority Are Satisfied with the Savings Scheme. By: Ricardo Viader

September 21, 2021 /by rick viader

The Federal Retirement Thrift Investment Board, in conjunction with Gallup, recently conducted a survey with 36,000 participants. The board aims to evaluate consumer satisfaction with the surveys, which help the agency make suitable changes to its plans and tools. 89% of participants said they liked the savings plan. This figure is slightly higher than the 87% of participants who said they liked the TSP in last year’s survey.

The increase in the satisfaction rate can be attributed to the service members participating in the Blended Retirement System (BRS). Last year, the satisfaction rate amongst service members had been 77%. That figure rose to 88% in this year’s survey. In addition, 33% of service members who liked the BRS said they were “extremely satisfied” with the system. In last year’s survey, only 22% of service members had chosen this option.

The FRTIB said its biennial and triennial surveys will now be conducted annually.

In January 2021, the Employee Benefit Research Institute (EBRI) had also conducted a survey that revealed that 84% of workers said they liked the TSP. That survey and the more recent one shows that the retirement saving scheme continues to outshine similar plans of the private sector.

Another notable thing about the survey is that TSP participants who save less money show lower satisfaction with the program, unlike those who save more. 50% of the participants said they contribute over 5% to the TSP. 94% of these participants said they were satisfied with the system. On the other hand, 29% of the participants said their contribution to the plan was 5%. 90% of these participants said they were satisfied with the system. Of the last group, participants who contribute less than 5%, only 86% said they were satisfied.

For members of the last group, 43% said they didn’t have enough money to contribute above 5%, 31% said they didn’t increase their savings amounts, and 26% said they didn’t see the need to change their savings amounts. The TSP noted that fewer people cited affordability as a reason for low contribution in 2021 — the percentage had been 53% in 2017 and 47% in 2020.

Participants Requested More Changes to the Plan

In a 2017 survey, the FRTIB found that 62% of participants wanted more flexible withdrawal options. The agency had made a few changes in 2019. Many participants said they liked the changes, but others had clamored for even more flexible options.

In this year’s survey, 67% of the participants said they were satisfied with the withdrawal options. The percentage is an improvement on the rate of previous years, but withdrawal options remain the weakest point of the TSP. According to the survey, participants preferred recurring payments, partial payments, and life expectancy installments over other TSP withdrawal options.

The FRTIB also conducted another survey to discover factors that participants consider when buying an annuity or making a withdrawal. The board has not released the survey results but promised to do so in a few months.

About 40% of the respondents also plan to take money out of the TSP after retirement. These workers said they would get more and better investment choices outside the TSP. They also hope to get higher returns on their investments and strengthen other investments with the funds from the TSP. About 58% of BRS participants, more compared to other participants, said they would transfer funds from their TSP accounts.

90% of the respondents want to be able to choose the investment funds they use for withdrawals. The board stated that it would consider adding this option when it completes its modernization projects. The projects will allow the agency to enhance its customer services and internal IT mechanisms and offer participants new tools, such as a mobile app.

Respondents’ Reactions to TSP Fees

The vast majority of participants, some 60%, said they knew about the TSP’s fees or had an opinion of them.

Not many respondents were satisfied with TSP fees. 46% of the respondents want to take money out of the TSP in search of better fees. About 60% of the respondents said they didn’t have much knowledge about the TSP fees. The other 40% who claimed they knew actually believed that the scheme has some of the lowest fees compared to similar plans. Three quarters said the TSP fees are low, 22% said the fees are similar to other defined savings plans, and 4% said the TSP fees are high.

The board said the agency’s expense ratio is between 0.49% to 0.6%. Steve Huber, the board’s enterprise portfolio management chief, said a majority of similarly defined contribution plans have an expense ratio of less than 2.5%. Huber explained that the board was surprised that most of the respondents didn’t know about the TSP fees and that those that knew felt the fees were higher or at the same level with similar plans. The board said it would seek ways to educate participants about the TSP’s lower fees.

TSP Approves Budget for 2022 Fiscal Year. By: Aaron Steele

September 18, 2021 /by aaron steele

On Tuesday, August 24, 2021, the Federal Thrift Investment Board approved its 2022 budget. The new budget is $496.8 million, a slight decrease from the $498.4 million that the board approved for the 2021 fiscal year. The board oversees the Thrift Savings Plan (TSP), a retirement savings plan scheme for federal employees.

The board made the decision during its monthly meeting on August 24. Ravindra Deo, the board’s executive director, explained that the 2022 budget is the second-highest spending plan since 2020. The board has been spending more on projects since 2020, but the 2021 budget has been the highest spending period so far.

Deo explained that the board aims to focus more on the TSP and its participants over the next five years. The executive director added that the board had been more focused on technology and cybersecurity over the past five years. However, it has more confidence in the progress it has made in those areas over the years. The board members will now prefer to focus more on the agency and the participants of the scheme. Deo added that TSP participants should expect better services from the board.

The TSP has had a three-year spending uptick period. A part of the focus is the agency’s project — Converge. The project is geared towards helping the agency change its recordkeeping method. Converge is expected to take effect in 2022 and will allow for better services, including services that participants have been clamoring for, such as a mobile application and access to mutual funds.

Apart from Converge, the board is also looking at initiating other upgrades with the increased budget. Such initiatives will include an upgrade to the agency’s information technology (IT) and financial services management. In about two years, the executives of the board predict that the agency’s funding will fall to about $445 million.

More people are expected to join the savings scheme, and this, Deo said, will reduce the budget’s cost to each participant from $79 to $57. Deo said this change is expected to take place in 2026. According to the executive director, next year’s budget is 6.8 points, but that of 2026 will be around 4.5 basis points. The basis points, measured in ratio or percentage, compare the agency’s budgets to its assets.

Deo also explained that the board would determine the success of each project by examining how fast employees learn the new systems. The executive director added that the new model would pose a new challenge for employees, who need to evolve and adapt to it. Deo also maintained that the participants remain the priority even as the agency adjusts to the new changes.

Things Not to do While Managing Your TSP During a Pandemic. By: Ricardo Viader

September 16, 2021 /by rick viader

We aren’t surprised by the changing activities in the Thrift Savings Plan. After all, the TSP after the coronavirus pandemic clobbered the performance of the stock market.

Kim Weaver, the director of external affairs of the TSP, while giving an interview on the TV show Government Matters this week, said the government saw a hit in the inter-fund transfers. But that spike has been reported only from the 5% of our participants, said Kim. Ninety-five percent of the TSP participants are sitting idle and doing nothing. But she advised people to stick to their old plans.

It is natural to worry about the volatility of the stock market amid the coronavirus pandemic and worry about retirement in general. Kim received an email from a client this week, and we will discuss the email and solutions suggested by Kim.

One client working under the Federal Employees Retirement System (FERS) had already submitted her retirement paperwork in December 2019. She worked for the federal government for 22 years and will retire on March 31, 2020. This decision was made long ago, so she applied for her Social Security benefits and will be receiving her benefits starting in May 2020.

But all of us know about the third leg of our FERS retirement, the TSP. The client took her TSP last September and gave it to a very reliable financial adviser to manage for her. She also has some of the remaining TSP funds which have matured since September 2019. She had been actively saving in her TSP since she started her job with the government and actively contributed to the catch-up contribution. Now she can see her retirement savings declining day by day, and she doesn’t have any time to make it up for her, like the time she had when the market plunged the last time.

According to her understanding of the documents, her paperwork has been reviewed and approved by the government. Still, she has not received the estimate of her annuity due to the agency’s software problems that the agency uses to calculate the annuity. So, she has no idea about the money she will receive monthly. She is in the middle of the checkout process that is expected to complete electronically only if things go as per plans. It’s too late for her to stop or delay her retirement at this point, so what should she do? It looks like she needs to look for a part-time job after retirement—she never planned anything like that!

Kim replied to her email and said, “If you think you are not ready to retire at this time, you still have time to hold your retirement application. Taking retirement is a voluntary action, and you haven’t left your job yet. This guidance comes from the Office of Personnel Management that says an agency must allow a federal employee to hold or withdraw his or her retirement application before the effective date of retirement, giving a valid reason and explaining the reason in writing to the employer.

Though the retirement process will go slowly during this ongoing period of world crisis, if this situation worries you or if you think that you don’t have a three- to six-month month emergency fund, you can delay your retirement until you feel financially strong enough to bring your life to normal.

In the mail, the client mentioned that she withdrew most of her money out of her TSP and put it in the safe hands of a very reliable financial adviser. Kim said that when any financial professional asks you to do so, he or she should give an apparent reason for his or her activity.

Kim said that the client’s financial adviser must have recommended some options to rebalance investments corresponding to retirement plans of this year. That doesn’t mean you would stay safe from the declining markets, but you should have some savings in your account to keep you stable while you withdraw savings from your retirement account without being impacted by the ups and downs of the changing market.

“It’s common for professional financial advisers to contact their clients in situations like this and give them some certainty. I hope your financial advisor contacted you,” said Kim. Those who plan to retire or have recently retired from government services must check these tips from the below-mentioned resources:

Janet Novack has written an article on ways that the coronavirus will impact Boomer retirements. She has written in her report that in times like this, a “bucket strategy,” or allocating retirement savings, always works well. Taking an example, an individual nearing or already retired should save money for at least three to five years of essential expenses in cash or equivalent to cash like laddered CDs or Treasury bonds.
Josh Sacndlen of Heritage Wealth Planning said this bucket strategy helps you to segregate your current income needs into their emergency account. In this way, you don’t need to worry about times like this when the market is getting crushed and making ends meet is difficult.
Mark Keen has talked about many TSP issues that federal employees and retirees face in a webinar at the NARFE Federal Benefits Institute on February 27. Its saved copy is available for free to members of NARFE.
Micah Shilanski said that TSP account holders who reserve a long-term plan for their savings and investments are not scared of the current market volatility. He further added that such employees in this condition consider this time as a buying opportunity because the stock market is low. He and Kim will be coming up with videos on March 27 and March 31, addressing issues of retirement planning during the current situation.

Last but not least, the reminder from the TSP looks relaxing during this time of market uncertainty. By the time you understand the situation and plan to react to it, the entire market situation might have changed. If you skip one or two small ups in a decade, your TSP investments may give the average market return for the entire term. It is advised to stick to your plan and don’t attend these bouncers.

TSP Accounts: After the coronavirus has hit the world economy hard, how long is the road to recovery? By: Kathy Hollingsworth

September 15, 2021 /by leslie "kathy" hollingsworth

The coronavirus has clobbered the world economy and the people depending on it. Some of the geniuses are working hard to find the vaccine and possible solutions for fighting this deadly virus, but until a controllable solution is available, the stock markets around the globe can fall at historical speeds. TSP account holders are amongst those hit worst by this virus and are now looking forward to recovering their losses due to the current market decline.

Many investors already know that this type of stock market decline is inevitable. The two main questions that bother our minds when such decline begins are: (1) How harsh will this decline be? (2) How long will it stay?

We can never predict when the stock market decline will happen, or why it happens. Sometimes, the U.S. or world equities never see a declining market, and sometimes they experience multiple declines. For example, in the year 1990, the decade started with a minor drop of over 10% that ended in January 1991, after a small period of recession and just after the collaboration of military operations in Iraq as part of Operation Desert Storm. The subsequent downturns were not seen until 1997 and 1998, and they were too short-lived and not very noticeable. Before that era, in 1987, the U.S. market saw the sharpest one-day drop of 22%. This was just three months before the C Fund came into operations. Soon a $250,000 portfolio was invested in the S&P 500 stock index fund (tracked by C Fund) after that; the day dropped to about $193,000 overnight. During that time, the stock markets declined by almost 1/3rd in totality.

Many investors experienced multiple downturns in 2020. Initially, it was seen in 2000 and continued for three years. Historically, this was the longest downturn followed by a historic bubble in stock market values – the S&P 500 and the C Fund returned at least 20% in each of the five prior years in the late 1990s in addition to the 9/11 terrorist attacks and a recession during that period. The next downturn was observed in 2008-9, and it was one of the worst drops in the U.S. and global stock markets since the Great Depression that started in 1929 and continued until the late 1930s.

From the stock market data of those years, we can analyze how an average investor would have dealt with stocks during those major declines and after the drop. Smart investors not only dealt with that traumatic period but also emerged as successful investors after surviving those downturns.

A recently released book titled, “TSP Investing Strategies: Building Wealth While Working for Uncle Sam, Second Edition” is a good one to analyze every 20-, 30-, 35-, and the 40-year period between 1900 and 2019, to find how average investors survived despite a variety of market declines during those timeframes. Each period has its own characteristics, but it is very important to check that investments in broad U.S. stock indexes (just like C and S Funds) dropped considerably at a certain point during every period that was analyzed, and they were also able to recover and raise enough after that decline. It was examined that in every 30-year period examined since 1900, an all-U.S. stock index portfolio (especially C Fund) outperformed the all-government bond portfolio (especially G Fund), by a noticeable margin. One exception was seen in the period from 1903 to 1932 when the market dropped evenly during the depths of the Depression (the stock fund was able to recover in the next couple of years).

If we know this in advance and analyze how an average investor deals with the market decline, and how they emerge as winners, then a person needs to be mentally prepared, if not emotionally, for the stock market drops as they happen.

Let’s understand this process. Start examining the 35-year period from January 1983 to December 2017. This period includes the sharp drop in 1987, the bubble years of the late 1990s, the longest drop in the U.S. stock market over three consecutive years in the early 2000s, and finally, the biggest decline in the U.S. equities of over 50% in 2008 and early 2009.

Let’s analyze this timeframe as a period for a new employee who contributes 5% of an entry-level salary of $30,000. According to government rules, this would make $250 in monthly contributions in the first year. Let’s assume that the annual salary and the regular contributions of this employee increase by 5% a year. Over 35 years, this employee would have a total contribution of about $271,000, and if we assume that half of this contribution matches the government’s, then that means a federal employee with a TSP account would have invested less than $136,000 of his or her money over the 35-year period.

To understand this clearly, four portfolios were tested. The first one is investing all contributions monthly in the S&P 500, representing the C Fund. The second one is investing all contributions monthly in an account that returns the 10-year U.S. Government Bond interest rate (closely equivalent to G Fund). A third one is investing about 65% in the S&P 500 and 35% in the 10-year bond, without any rebalancing. The fourth one is investing in the same percentage but rebalancing at the end of each year back to the same percentage (65-35) to account for portfolio drift over time.

Here, are the results of the four portfolios of investors who invested monthly from January 1983 to December 2017:

The highest value after investing for the 35-period is seen in the case of the C Fund; during each market drop, the fund also suffered a sharp drop in account value as compared to other funds. As compared to the balanced funds, it took a long time to recover after each decline, depending on our definition of “recover.”

If we define “recover” as the time starting from the month of peak value before the drop took place to the month when the value surpassed that same value, then we can say that all-C Fund account portfolios took five years to recover their losses after the 3-year decline of the early 2000s, and the 65-35 C-G Fund took just four years while the 65-35 annually rebalanced account took 3½ years to recover losses.

During 2008-9, the market decline was for a short duration, but it was sharper where all-C Fund account portfolio took three years to recover, the 65-35 account took three years, and the annually rebalanced 65-35 account took only 29 months to recover.

This thing may not be visible in the chart, but we can clearly see that the fastest recovery during this period came after the major market declines in the late-1987 period. All-C Fund account portfolios recovered to their original value in a year, and the other funds recovered faster than C Funds. The main reason was U.S. equities that recovered relatively quickly despite the market drop of about one-third.

Well, we must say that the 10-Year Government Bond account never declined despite the coronavirus market decline. The G Fund is the only fund in the TSP funds that have never dropped. In terms of total returns, the G Fund was the last one to end the 35-year period.

These were just a few examples from the previous 100+ years of the history of U.S. stock and government bond index. Overall speaking, the total value of a portfolio consisting entirely of U.S. stock indexes (such as the C Fund), can recover losses within a year or even three after experiencing a significant decline. The most severe and lengthiest drops may take another year or a maximum of two years to recover. Accounts recover comparatively quicker after short-term drops. This means that an active TSP participant does not need to sell his or her stock funds and continue investing despite the market decline. There are many planned strategies that investors can suggest during downturns. But we must mention here that the buy-and-hold strategy is the best one to stay in the market over long periods of time.

Over a period of time, we will find a solution to recover from the coronavirus, and the U.S. and world markets will recover after ongoing downturns too. By continuous investment in funds during these difficult times, TSP account holders will be able to recover from the losses as well. No doubt, we are going through challenging times, but there is a way to reduce anxiety — at least when it comes to investing — to focus on the long-term goals. We hope and pray for all to stay safe and healthy as the world fights on the coronavirus and struggles to recover globally.

What Next to Manage Your TSP: Buy, Sell, or Sit Tight? By: Brad Furges

September 14, 2021 /by brad furges

Some time back, hundreds of Thrift Savings Plan account participants were dreaming of their entry into the Millionaires Club. Some believed that by mid-year, their accounts would have more than $2 million. Now, this seems like only a dream. So the question for all federal employees who are managing their finances during their retirement is what to do next to manage their TSP? During the last time, the Great Recession of 2008-2009, tens of hundreds of active and retired feds moved out of their stock indexed C, S, and I funds. Most switched to the Treasury securities G fund. Many never invested in stocks despite the 11-year bull market. So who can be done next? And what could have been done correctly at that time, and now? In this article, we will try to put some light on this question:

To get an answer to this question, we contacted Abraham Grungold. He is a successful TSP investor and a financial coach who is known for his thoughts and a fantastic sense of words of wisdom. He answered this question and said that, for employees under the Federal Employees Retirement System (FERS), it is the best time to buy.

The ongoing COVID-19 pandemic is scary. People are losing their lives, and they should not be treated lightly. Everyone needs to stay cautious with his or her personal and financial health. This may end in the coming weeks or in months. The economic health has certainly taken everyone on the chin. Everyone feels knocked down, but we will return and become sharper after the outbreak is over. As far as employees under the FERS system are concerned, employees who have a Thrift Savings Plan will buy in a downward market. Doesn’t matter, if you are one year away from retirement or more from retirement, this time is a perfect buying opportunity.

He said he has transferred his cash balances to the C fund and changed his future contributions to buying C funds. For his personal IRA, he is purchasing every time the DOW dropped another 10%, buying when the market is low 10%, 20%, and then at 30%.

At his financial coaching site, he has both clients who are federal employees and non-federal employees. His advice is not to sell anything to all clients because you don’t lose anything when you don’t do anything. If you are watching the game, you will not be at a loss. But there are clients he is told that when the Dow dropped to 30% is the time to buy something. The financial expert’s advice is to buy when the market is low. One of his federal employee clients transferred 50% of his account into the C fund. That person retired, so 50% was good enough for him. There is one more fed client who has both C and F funds. Grungold advised him to increase his contributions to the maximum since he was good enough and could afford to do so.

Grungold said, “I also have two non-FERS clients—one purchased a considerable amount in an S&P 500 Fund with Vanguard, and the other is waiting to see a drop in the S&P fund. It is advised to invest in small quantities, and when the market is low, that is 20-30% of any purchase is a good option. For many non-fed clients who had small cash, I suggested high-quality value stocks going down 25-30% but which will come up quickly after the virus has left us.”

“No matter what type of decision you take on, the most important thing is that you feel good and comfortable with whatever you are doing. The money is yours, so the decision to invest it should rest in your hands only. Please do not hesitate to contact me on LinkedIn or my Facebook page for more queries.”

Picking Smarter Investments in Your TSP. Sponsored By: Todd Carmack

August 22, 2021 /by Todd Carmack

Picking Smarter Investments in Your TSP: Todd Carmack

If done carefully, it’s possible to use the government’s plan for retirement to your benefit. Almost five million people keep some or all of their savings for retirement in the United States government’s Thrift Savings Plan (TSP). However, many people may not be managing their TSP to its full potential.

The U.S. Government Thrift Saving Plan is similar to a 401 (k) plan. Every pay period, money is automatically contributed and invested into one or more of the three basic options for investment.

The TSP is easy, unlike many 401 (k) and similar plans, and has a very wide range of choices for investment. This avoids several chances of errors. Nevertheless, it also eliminates some significant asset classes which can increase value in the long term for those who save for their retirement.

If you are part of the TSP and desire to get the most out of your return, in the long run, feel free to continue reading.

Target-retirement date funds are offered for those who wish to have choices made easy for them and also evolve automatically towards a conservative stance as investors grow older.

Those who would rather make their own choices are provided with five options by the TSP. They include:

“S” Fund: This is an index of all stocks in the U.S. that are not found in the S&P 500 index. This implies a small-cap and midcap stock.
“C” Fund: This is a duplicate of the S&P 500 index SPX, -0.11%.
“F” Fund: This is a record of bonds worldwide, both corporate and government.
“I” Fund: This is a duplicate of an MSCI EAFE Index EFA, 0.07% of the stocks internationally in twenty-one different markets not including those in Canada and the U.S.
The “G” Fund: This is a short-term investment in the U.S Treasury securities which aren’t exposed to the risk of the stock market or bond.

The above five choices provide exposure to international stocks, small-cap and large-cap U.S stocks, a large bond market, and a cash-like option (which is risk-free).

The lack of any value option is one of the most visible weaknesses of these choices. Over the years, the value stocks provided superior returns in the long run to the growth stocks which have proven to dominate the “S” and “C” funds under the TSP.

TSP Solutions to Consider

These concepts are divided into the 3 categories:

Aggressive – Calls for 100% equities
Moderate – Calls for 60% equities
Conservative – Calls for 40% equities

For every investor category, it is recommended to divide the portfolio’s equity the same way (i.e. 25% in “I” and 25% in “C” as well as 50% in “S”).

The differences between these 3 groups have to do with how much (if any) of the portfolio should be in the “F” and “G” funds. In other words, not exposed to the stock market risks.

HIGHER POTENTIAL RETURNS (WITHIN THE TSP)

Emphasizing the “S” fund may result in higher returns in the long run, so keep this in mind when making a decision between the 5 options of the TSP. Doing this can tilt the portfolio in the direction of midcap and small-cap stocks, which have been known to outperform large-cap stocks (such as those of the “I” and “C” funds) in the long term.

For instance, aggressive investors (which may include many people in their 20’s and 30’s) might place 70%/80% (or maybe up to 100%) of their “S” fund portfolios.

An easy way to increase the returns expected for both moderate and conservative investors is to own more equity funds. For instance, the combined equity stake could be increased by the moderate investor ranging from 60% to 70% or higher.

Your expected return in the long-term increases by 0.5% per year for every additional 10% held up in equities. That seems a little small but can make an enormous difference after a few years, increasing the money you will have when you are retired.

Consider keeping 10% to 40% of your usual contribution in the “S” fund if you are included in a TSP target-date fund.

HIGHER POTENTIAL RETURNS (OUTSIDE OF THE TSP)

Having read this article, you have learned that a moderate value stock allocation, specifically the value stocks of the small-cap, can potentially boost your return in the long run significantly.

Even though these value options are not offered by the TSP, it’s possible to increase your government retirement plan with a different account. A good option is the Roth IRA, through which you can give up to an amount of $5,500 annually ($6,500 for those over 50).

One of the best ways to use an account such as this to supplement your TSP account is by investing the whole of your IRA into emerging market small-cap value and large-cap value stocks.

If only a small amount is available for this, then the way to get the most out of it is to just add small-cap value in either an ETD or a low-cost index fund.

For any questions you may have regarding your TSP or other retirement options, please contact a financial advisor for a consultation.

Seven Steps You Should Take if You Want to Retire Early, by Todd Carmack

August 19, 2021 /by todd carmack

Many Americans have the ambition to retire early. Still, this ambition can only be met when they plan correctly. Your aim to retire early may be a fulfilled dream or a mere nightmare. These seven steps will assist you in fulfilling your dream of early retirement. It will also inform you about the requirements for early retirement.

Evaluate the total amount of income you will need during retirement.

The major mistake many people make when they are planning for their retirement is coming up with a certain number. You’ll hear people mention things like, “I can retire once I have $1 million in my investment account.” People often experience difficulty because what they need during retirement is the amount of income that they can generate from their present savings, and not the money they have in their bank account.

For instance, someone with the assurance that he will receive $5,000 from reliable fixed income sources per month does not need to save as much as someone who will receive just $2,000 from fixed income sources.

The point is that when you retire, you will need about 80% of your income before retirement to live a comfortable life. This means that if you earn $200,000 as your present salary, you will need approximately $160,000 in income per year when you retire, although this amount can vary depending on your circumstances after retirement. Suppose you plan to live an expensive lifestyleâ€¦you should know that this amount will be above 80% of what you earn. But if you plan to live a cheaper life during retirement, you can cope with any amount less than 80% of your pre-retirement income.

Determine the amount of money that your reliable fixed sources of income will generate.

When you have a target income in mind, your priority should now be how much of that target goal will come from Social Security and other fixed sources of income that are reliable. Suppose you want to retire before you are eligible for Social Security. If that’s the case, you need to leave your Social Security payment out of your budget. But suppose you have other fixed sources of income such as annuities and pensions. You can count on that money because those sources will bring in some amount of money immediately.

For example, you determine that you will need $72,000 yearly after retirement ($6,000 monthly). If you’re confident that you will receive a $3,000 pension every month, you only need $3,000 from your savings to meet your target.

Evaluate your number.

Evaluation of risk helps you to know the total income that you must generate from your savings. When you know the income you need to make your goal feasible, it will be easier to know the exact amount of savings you need to target.

The majority use a variant of the 4% Rule to plan for their retirement. The rule states that during the first year of retirement, you can make a withdrawal of 4% from your savings with the guarantee that you will not be out of funds even if your cost of living rises in the following years. This rule serves as a good idea when planning for your retirement, and you can calculate your 4% by subtracting your yearly income needs during retirement from your total savings. You will multiply that amount by 25.

Assess the feasibility of early retirement to know where you stand.

Be honest with yourself if you want to know your savings’ current worth because this will eventually determine if you will retire early or not. If you are 47 years old now and plan to retire at 55, but your current retirement savings are $20,000, you’re probably not ready. Conversely, suppose you have $500,000 in your savings, and you still have ten more years to fund the account. In that case, you can retire because you will meet your target savings before you retire.

Build a good retirement plan.

You’ll need the guidance of a financial advisor if you want to make a good retirement plan. The advisor will guide you on how much money you need to save or invest so that you can achieve your target income. The financial advisor will also tell you the status of your investment strategy and how far your current savings will take you during your retirement. You may not need the service of a financial advisor if you have attained your target savings.

Consider your healthcare costs and related concerns in your retirement plan.

Many people want to retire early, but they don’t consider what may happen to their health after retirement. Also, they don’t consider how well they use their time after retirement, whether they will be working on a part-time job or exploring the world. Failure to put these factors into consideration is the leading cause of financial instability after retirement.

It might be best if you planned for your healthcare costs because you are only eligible for Medicare when you are 65 years old. This age is independent of when you retire or when you claim your Social Security benefits. Public sector jobs will cater to your healthcare after retirement. Still, if you don’t work in the public sector, you need to consider how you will pay for your health insurance.

Maintain your retirement plan.

When you’re planning for retirement, you shouldn’t just make your retirement plan and abandon it. You need to maintain the plan. You can maintain your retirement plan by funding your investments and savings automatically.

Retiring earlier is a lifetime ambition, but you can achieve it by making the right plan now. The above steps will help you in achieving financial independence earlier than the average retirement age for Americans.

Contact Information:
Email: [email protected]
Phone: 6232511574

How Much Life Insurance Do You Actually Need? Sponsored By:Todd Carmack

August 15, 2021 /by todd carmack

The question of whether Americans have enough life insurance is one that many financial consumers may have asked before the Covid-19 pandemic that shook the world. But it’s possibly one of the questions most heads of households are presently asking. Data from the Global Atlantic Financial Group shows that 83% of Americans said making sure their loved ones are financially protected is a priority for them now. But it’s all about showing it and not just saying it. 43% of respondents said they don’t have a life insurance policy, while 33% believe they have sufficient life insurance coverage and other assets to provide financial protection for their families and dependents upon their death.

That been said, it’s always important when purchasing a life insurance policy to shop around and find the ideal policy that suits you best. Here’s what to keep in mind when buying a life insurance policy.

Figure out the Amount of Payout You Need

To understand your life insurance requirements, you’ll need to determine how much your dependents need to cover specific scenarios. To do this, you have to do a life insurance computation to help you determine the best amount of coverage you need for your beneficiaries. Below are the steps to follow in figuring it out:

Evaluate risk

Determine your human life value

How to calculate your human life value

Choose either term life or whole life insurance

Evaluate Risk

The first step in determining your life insurance needs is to consider the risks your dependents face if you pass on. How would they deal with the following issues?

Income replacement: Is there anyone dependent on your income? If there is, how long would they continue to rely on your income? For instance, if you have a 7-year-old child, there’s a need for an income replacement of 11 years to provide for them until they reach 18. If your dependents are more than one, you have to calculate the income replacement for each of them.

Education: Everyone wants their kids to have the best education. If you want to reserve college funds for your kids, you can calculate it into your life insurance needs. You also have to calculate for individual dependents to get an accurate figure.

Debt: Do you have any outstanding debt like a mortgage, personal loans, student loans, or other large debts? There’s a need to calculate these debts into your life insurance so your dependents aren’t burdened with debts when you pass on.

Final expenses: You may also include cash to cover the cost of your funeral in your life insurance.

Other expenses: If you have any specific interest you want your beneficiaries to cover in the event of your demise, then you must include it in your computations. For instance, you may want to provide money to cover household bills, support charity, or take care of your dog.

Determine Your Human Life Value

The human life value is the amount of coverage an insurer can offer you after evaluation. It has to do with your income potential during your lifetime. The evaluation is based on a formula that takes into account your current earnings. If you have significant wealth or a large amount of savings, it may offset the amount of life insurance coverage you need.

Other considerations are your monthly expenses. How much of your income would be needed to offset bills and maintain the household if you passed on? Once the human life value is calculated, you can head to the insurance company to know what they can offer.

How to Calculate Your Human Life Value

Computing your human life value is easy. Typically, it is attained as a multiple of your earnings. For instance, if you are 30, use a multiple of 20; if you are 40, use a multiple of 15, and so on.

For example, let’s say you are 40 years old and earn $80,000 annually. To compute your human life value, you have to multiply $80,000 by 15 to get a human life value of $1,200,000. That’s the total amount you would earn for your family if you live and work until retirement (which is age 65). To calculate your human life value, minus your current age from 65 and multiply it with your annual income.

Choose Between A Term And Whole Life Insurance

Deciding whether to go with a term or whole life insurance policy is another decision you have to make based on your life insurance needs. For most people who just need coverage for a specific period, a term life insurance policy is both suitable and affordable. Term life insurance offers a fixed premium over a specified time. It could be 5, 10, 15, 20, 25, or 30-year terms increments, depending on the policyholder’s specific needs. This way, the policyholder can stop the coverage whenever they stop needing it.

Permanent life insurance is ideal for people that need coverage for the rest of their life. It’s suitable for high net-worth individuals that anticipate needing life insurance coverage for a lifetime. Usually, they need life insurance coverage to fulfill a business or estate planning need that will linger for a long time.

Permanent life insurance comes with a much higher annual premium than a term life insurance policy. However, it can build cash value that you can tap into by surrendering the policy or borrow for specific needs along the way.

Conclusion

Knowing the amount of life insurance you need is a crucial part of financial planning, given the stakes involved. You don’t want the payout to fall short of the needs of your dependents, but you don’t also want to be burdened by an excessive life insurance premium amount. So it’s essential to put in the effort to get the ideal life insurance coverage that’ll ensure your loved ones are fully protected.

Contact Information:
Email: [email protected]
Phone: 6232511574

19 Things You Should Give Up Now for a Comfortable Retirement Sponsored By:Flavio J. “Joe” Carreno

August 2, 2021 /by joe carreno

What are you ready to sacrifice right now to save for retirement? Principal posed this question to its retirement plan members who are “super savers,” defined as those who saved 90% to 100% of the 402(g) IRS maximum contributions or had a deferral percentage of 15% or above in 2018.

Keep reading to learn what these savers have given up for the sake of a secure financial future, and find out what experts believe makes a difference in reaching your long-term savings objectives, such as early retirement.

Cars, houses, and travel are the three areas where supersavers make the most sacrifices.

According to the Principal poll, 43% of super savers drive older automobiles, 41% own modest houses, and 41% travel less than they would like. Another frequent sacrifice made by savers is a DIY attitude to renovations and repairs, with 40% preferring to handle things themselves rather than paying outside help.

Supersavers also overspend

Just because you’re dedicated to saving for retirement doesn’t mean you have to forego small indulgences. Forty-six percent of super savers are subscribed to Netflix, Hulu, and other subscription entertainment services; 46% still splurge on vacations, and 39% go out to eat more than once or twice a week. When it comes to a daily Starbucks or Dunkin’ Donuts run, only 20% of super savers indicated they splurged on coffee on the fly.

What should you give up to save for a comfortable retirement?

To figure out what you should actually give up – and what you may splurge on – GOBankingRates asked financial experts to find out what sacrifices individuals should be prepared to make to save for the future. Here are some of the expenses they recommend you cut out immediately.

Your daily cup of coffee

Although financial experts are divided on whether giving up your daily coffee to save for future expenditures is a good idea, others feel that every little bit helps.

“You should be prepared to forego drinking coffee at a coffee shop rather than at home,” said Ed Snyder, president and co-founder of Oaktree Financial Advisors, Inc., who considers this cost an “extra.” You simply need what you need. People nowadays have a tough time distinguishing between needs and wants.

Snyder elaborated why he feels that giving up minor things like coffee shop lattes, dining out frequently, and buying items you don’t need is worthwhile in the long term.

“A dollar saved now will increase to $7.60 in 30 years at a 7% return rate,” he says. Every dollar you spend today will cost you about $8 in retirement. In other words, if you spend $100 each week on these extras, you’ll spend $5,200 every year. At retirement, the amount would grow to more than $38,000.

Massages and other extravagances

It’s okay to indulge yourself once in a while, but you shouldn’t regularly spend on needless luxuries.

“Some of my clients have two to three massages each month,” says Delano Saporu, founder and financial advisor of New Street Advisors Group. For someone who is still in the process of building wealth, forgoing certain pricey indulgences and complementing with other things such as a low-cost gym membership with a spa may be a better option.

New cars

Forty-three percent of super savers stated they drove older automobiles to save for retirement; this is the most common sacrifice made by great savers to save. Craig Kirsner, author, speaker, and president of Stuart Estate Planning Wealth Advisors, believes that making this sacrifice is a wise decision.

Depreciation might cause you to lose more than 20% of the car’s worth after the first year of ownership. “If you purchase a two-year-old car with an extended warranty, you save 30% to 40%; over a lifetime, that may add up to having much greater retirement assets at age 65,” Kirsner explained.

Upgrading your vehicle regularly

“Not only should you buy used vehicles, but you should also keep them longer,” according to Mark Wilson, founder and president of MILE Wealth Management.

“Extending car ownership from five to seven years would free up a significant amount of income for retirement savings,” he added. Assume your average monthly car payment is $400. If you can spend two years without the car payment and save the money for those two years, you’ll have $9,600 to put towards your nest egg.

Getting a second car

Holly Andrews, managing director of KIS Finance, suggests selling one to slash auto expenses in half if your family owns two cars.

“When you include gas, insurance, tax, and maintenance, the expense of driving a car is extremely high,” she added. “Determine how much the second car would have cost you over the course of a year and set aside that amount for retirement.”

Andrews admits that this sacrifice may require some adjustment, but the long-term return may be worth it.

You will need to sit down and figure out who has to use the car when and for which purposes, and you might need to consider public transport or carpools, but if this is a sacrifice you are willing to make, it will save you a lot of money.

A bigger house than you actually need

According to the Principal poll, owning a modest home was the most common sacrifice of super savers to save for retirement, followed by driving an older car.

“Buying a cheaper property is the simplest way to reduce costs and save more for retirement,” said David Ruedi, financial advisor, and Ruedi Wealth Management’s vice president. If you buy the largest house you can afford, the mortgage will consume the majority of your earnings. Frugal house purchases are one-time decisions that can considerably enhance your cash flow for the rest of your life, freeing up funds for retirement savings and other discretionary expenses.

Ruedi also says that the joy of owning a big home wears off fast.

Research indicates that individuals take their materialistic purchases for granted after a while, so cutting down doesn’t mean you’re giving up on current happiness, he added. If anything, a low-cost house purchase will boost your present happiness since you’ll have the peace of mind that comes with knowing you’re in a good financial position.

Cashing in a bonus

When you receive an unexpected bonus, your first impulse is probably to spend it on some luxury that you wouldn’t usually be able to pay for. However, Jamie Hopkins, Carson Group’s retirement research director, believes that changing this mindset is critical in order to save for retirement. He says that automating your contributions is the key to retirement planning.

“This includes strategies such as transferring bonus funds directly to retirement and establishing automatic 401(k) contributions on your job,” Hopkins explained. The more automated our savings are, the better off we’ll be since we won’t experience the pain of missing out on today’s short-term consumption. It will be much harder if every time I consider saving for retirement, I have to make a conscious decision to give up a present necessity.

International travel

According to Nickolas R. Strain, senior wealth adviser and wealth advisory committee chair of Halbert Hargrove, you don’t have to go cold turkey and renounce all splurges. Still, you should cut down on these costs whenever possible.

Look for little ways to save a bit of extra money, he suggested. Take a vacation, but don’t go abroad; instead, stay in the United States to save money on flights.

If you save $200 on travel per month, you’ll save $2,400 a year, which adds up to $60,000 over 25 years (before interest).

“Most individuals can make these types of sacrifices,” Strain added.

The second-most frequent sacrifice made by super savers was “not traveling as much as I want,” which was tied with having a modest house.

Allowing FOMO to take over

According to Leslie H. Tayne, founder and lead attorney at debt solutions law company Tayne Law Group, buying or doing anything out of “fear of missing out” might derail your retirement savings goals.

“Whether you’re over your entertainment budget, you notice yourself succumbing to the latest fashion craze, or you’re feeling the urge to go out and spend all weekend, learn when to shut yourself off and simply say no,” she added. Sometimes you just can’t do everything and saying no could be the best thing you can do.

Fifteen percent of super savers said they told their friends or family “no” to regular expenses to save for retirement.

Subscription services

Although almost half of the super savers polled by Principal stated they splurged on entertainment subscriptions, Thanasi Panagiotakopoulos, founder and principal at LifeManaged, advises being selective about the number of subscriptions you’re signed up for and cancel any that you can live without.

“In this day and age, it’s really simple to sign up for multiple subscriptions since they’re ‘only’ $14.99 a month – Netflix, Amazon, Spotify, fitness memberships, food delivery services, applications on Apple devices, iCloud storage, and so on,” he added.

Panagiotakopoulos says you should carefully consider every subscription and whether or not you actually use it.

“As an example, ask yourself how frequently you go to the gym. Is it something you do regularly, or do you only walk with your partner and go hiking?” he said. That is an excellent example of a subscription that may be dropped while still enjoying today.

Getting lunch at a restaurant every day

“An excellent way to save money is to avoid spending money whenever possible,” according to Ryan Guina, founder of The Military Wallet and Cash Money Life.

“Bringing your lunch to work rather than dining out is one of the simplest ways to avoid spending,” he explained. Finding such opportunities to save money and invest it in your future will make you a champion in the retirement game.

Monthly get-togethers at the bar

Having a social life is essential, but going out and drinking can be a costly habit.

“If you grab a drink with friends once per month, it can be as much as $100 a night, totaling $1,200 in a year,” says Crediful’s CEO, Chane Steiner. You may considerably increase your retirement savings by quitting this habit and placing that money in a savings account. It doesn’t have to mean that you never do these things, but they should be splurges rather than frequent occurrences.

Outsourcing all tasks

According to the Principal poll, 40% of super savers prefer to perform DIY tasks themselves rather than hire outside help, and 37% don’t use a cleaning service. Andrews believes that this is a wise decision to increase retirement savings.

“A housecleaner or having your car valeted are luxuries in life that you should give up if you truly want to make a difference in your retirement funds,” she explained. Don’t hire someone else to do anything you can do yourself. Consider bartering and doing things for free with friends or relatives who have particular skills.

Purchasing premium brands while grocery shopping

“Choosing store brands might save you a lot of money in the long run,” says Andrews.

“It’s extremely easy to become trapped in the habit of buying the same goods and brands over and over again when it comes to grocery shopping,” she added. However, if you’re willing to do a little testing and research, you could probably reduce your shopping expenses by half by forgoing luxury products in favor of ones that are half the price but with the same quality.

Uber everywhere

Although taking a taxi or Uber is faster than riding the bus or train, it is also much more expensive.

“Little things such as taking a cab when public transportation is just as convenient or eating out five or more days a week may add up over the course of a year,” Investopedia editor-in-chief Caleb Silver said. While it’s nice to treat yourself once in a while, cutting those two splurges in half could save you $1,000 or more per year, which is only $83.33 a month. However, $1,000 invested in the stock market over ten years, assuming a 5% average annual return, will be $1,629 in ten years. That’s thanks to compound interest, and it’ll only cost you $83.33 per month.

Spending too much on rent

If you aren’t quite ready to purchase a house but have the money to rent a place, living alone is an enticing alternative. However, Logan Allec, CPA and owner of the personal finance website Money Done Right, believes that extra rent money should be put into a retirement account.

“Many of us want to live in a nice place or to get rid of roommates as soon as possible. While it improves your quality of life, it devastates your bank account,” he stated. Roommates might be annoying sometimes, but they could save you thousands of dollars a year.

Designer clothes

Designer clothing and shoes are unnecessary extravagances. The money you save by purchasing less expensive brands may be easily redirected towards retirement savings.

“Designer clothes may cost hundreds, if not thousands, of dollars for a single piece,” says Robert Gauvreau, CPA and founding partner of Gauvreau & Associates CPA. There are excellent designer-like alternatives available that may substitute for these purchases and save you a substantial amount of money.

Credit card purchases you cannot afford

Make sure the purchase is within your budget before swiping your credit card (or entering your credit card number online). Spending more than you can afford will put you in debt, and with credit card interest rates as high as they are, it will be difficult to get out of it.

“So many individuals put unnecessary purchases on their credit cards that they can’t afford right now, leading them to incur interest on an amount they can’t pay off,” Gauvreau explained. With annual interest rates in excess of 20%, you might soon find yourself in an expensive scenario where you are in debt and unable to find a way out.

Spa treatments

Jill Bradley, a Wells Fargo Advisors financial advisor in Louisville, Kentucky, says cutting back on pricey salon treatments like manicures, pedicures, and hair dyeing may make a significant impact on retirement savings.

“Consider going to the nail salon less often – women can spend thousands on this a year without realizing it,” she says. Regarding hair color, Bradley suggested prolonging the time between trips to the hair salon, buying a pack of root touch-up color, and in 15 minutes, you can delay a salon visit for a week or two.

Why is it so important to make sacrifices now to save for retirement?

“The ‘time value of money’ is a powerful incentive to save now and spend later,” Gauvreau explained. The time value of money is the concept that money available now is worth more than the same amount in the future owing to its earning potential. That implies that if you start saving and investing money today, you will acquire more wealth and retirement savings as a result of generating investment income and continuing to invest and earn money from these assets. So, saving now and spending later will help us accumulate more retirement funds, ensuring that we are ready for retirement when the time comes.

And once the day comes, your future financial health will be entirely dependent on your previous actions.

“Think about this the next time you want to splurge on something: You can borrow money for your children’s education, but you can’t borrow money for retirement,” Bradley added. “You have to save that money throughout the years on your own. That is why you should start saving for retirement rather than spending on frivolous purchases.”

Contact Information:
Email: [email protected]
Phone: 8139269909

Boost Your Retirement Income and Earn More Sponsored By:Flavio J. “Joe” Carreno

July 24, 2021 /by joe carreno

Social security makes a large chunk of most retirees’ retirement savings. Most rely on it to fund their desired lifestyle in retirement. But is it ever enough?

Several factors determine how much you earn from Social Security. The average amount one can get is around $1,500, while the maximum amount is around $3,900 (which would typically require a high-earning career and waiting until age 70 to file).

To live comfortably in retirement and be able to make your health payments, you’ll need to look for some other sources of cash flow. There are a handful of strategies you can consider to boost your retirement income; however, whatever you choose should be dependent on your age and personal situation.

Build Retirement Assets If You Still Have Time

If you are still years away from retirement, consider investing in assets to generate dividends and interest, and ensure a monthly and quarterly cash flow.

If your employer offers a matching contribution for their 401(k) plan, contribute enough to earn the maximum matching amount. It’s like free money going into your retirement investment for each paycheck.

Also, consider some tax-advantaged plans like traditional and Roth IRAs. Contributions to traditional IRAs are tax-deductible, which means that you can defer the tax to pay later (usually when you make withdrawals in retirement). On the other hand, Roth IRA isn’t tax-deductible, so you’ll pay the taxes upfront, and as such, withdrawals in retirement are tax-free.

For savers aged 50 and above, the IRS allows for catch-up contributions up to $1,000 for IRA accounts and $6,500 for 401(k). So the annual contribution for savers aged 50 and above is $7,000 for an IRA and $26,000 for your 401(k).

Have an Investment Strategy

If you are already retired and have some savings built up, you should optimize it to generate more income. Most savers have portfolios consisting of bonds and stocks to ensure growth without excessive volatility. Though bonds aren’t high currently, they are an excellent tool for conservative investments to balance your portfolio.

Dividend stock is also a great retirement investment. Retirees can benefit from a constant retirement income stream by investing in dividend-paying companies with a strong balance sheet.

Another financial product to consider is high-yield savings accounts. It offers better rates than savings and checking accounts. If you keep a lot of cash in the bank, high-yield savings can provide constant returns to your savings account.

If you want a guaranteed income, consider investing in an annuity contract. Annuities are financial products offered by insurance companies that give periodic payout based on what the policyholder invested. It’s essential to look through every detail, including the fees, before investing in annuities.

Minimize Taxes on Withdrawals

If you’re already in retirement, it’s essential to minimize taxes on the income from your investments. This would help you get the most out of your savings.

Typically, you have the option to choose from 401(k), IRA and brokerage accounts. The withdrawals from all these accounts are taxed differently, so it’s essential to put these into your consideration. If you’ll make a large withdrawal for healthcare or vacation, then consider a brokerage or Roth IRA as they can be withdrawn tax-free.

Roth withdrawals are usually untaxed, whereas withdrawals from brokerage only incur capital gains when you sell them.

Meanwhile, if your withdrawal would be low, then a 401(k) or traditional IRA can be advantageous. A low-tax bracket means that you’ll pay less in taxes and would only move higher if you make a substantial withdrawal.

In conclusion, while the best money moves to make regarding your retirement planning are dependent on your unique situation, having a long-term and tax-sensitive strategy can make a big difference in your retirement cash flow.

Contact Information:
Email: [email protected]
Phone: 8139269909

Is the Classic 4% Rule Ready to be Broken? Sponsored By:Flavio J. “Joe” Carreno

July 11, 2021 /by joe carreno

After decades of work, deciding to leave the working world behind is a somewhat relieving one. You write the letter, get everything arranged, and step outside the door for the final time is like one giant sigh of relief. It’s like fifty years of Friday evening relief sighs all rolled into one.

Despite the positives that come with retiring, there’s still one stressful decision to make – choosing how much to spend and withdraw in retirement. For those without experience in this area, some initial research will bring up the notorious ‘4% rule.’ But if there’s an example of ‘rules are made to be broken,’ this is surely it.

When researching the 4% rule on Google, it won’t be long before your head is filled with conflicting thoughts. Ultimately, this is because there’s no universal belief over its success. While some believe that it still applies to retirees, others think it’s more outdated than Windows 98.

When it comes to retirement spending, we all need a crystal ball. We need to skip ahead briefly to the end – if there’s too much sitting in your accounts, you’ll know to be less cautious earlier in retirement. However, this is impossible, and making spending decisions is just as hard.

For the next twenty years and beyond, people will judge the way that you spend in retirement. What’s more, you’ll find people who support your method and people who disagree with it. This being said, there is growing evidence that ignoring the 4% rule is a strong retirement move.

Problems with the 4% Rule

While the rule may have made sense many years ago, it no longer applies in an environment where bond yields are low and high stock prices. Back in the mid-1990s, William Bengen created ‘Safemax’ as a system for retirees to withdraw without worrying about draining their savings.

Why was the system important? Because retirees towards the end of the 1960s were just around the corner from a decade and a half of bear markets. Simultaneously, inflation rose significantly, and bond investments and other savings were rendered useless as purchasing power crumbled.

Economists and other experts worked on solutions for retirees so that this worst-case scenario didn’t happen again. Eventually, Bengen decided that 4% was the limit for those who wanted to live thirty years in retirement. Even through unlucky circumstances, they would have survived with funds until death.

However, people often forget (or don’t know) that Bengen himself readjusted his formula to 4.5% back in 2006. Furthermore, he has been saying for over ten years that 5% is now more accurate (and that even this doesn’t work for some retirees). Despite these changes and revelations, people only tend to remember the 4% rule.

The 4% rule causes problems because it doesn’t consider the individual circumstances of the retiree. Although it was designed to be a blanket rule, retirees need to consider numerous factors before choosing how to spend in retirement.

Important Factors When Withdrawing in Retirement

When looking at the 4% rule, it’s important to remember that all Bengen’s research was based on the conditions in 1968. Compare this to somebody retiring in the 2020s and you find very different circumstances. Therefore, the moment at which you retire is one of the most critical components of your decision.

If you retire when the market is up, your money is likely to last longer. Spending in the early years is taken from interest rather than savings. If you retire when the market is down, not only are you taking directly from your savings, but these savings are also steadily draining.

Elsewhere, you also need to consider your retirement age, existing and planned standard of living, and health (life expectancy). Only when you consider all these factors can you decide whether the safest withdrawal rate is 4%, 5%, 6%, or 7%.

Sadly, the decision for retirees is also made harder by the fact that the people managing their accounts often have a stake in the decision. Financial advisors earning commission will steer retirees into one direction over another.

As an older worker, you need to remember that the goal is to make the funds last until the last day. Though you might want to pass some money to loved ones, the primary goal is to pay for yourself. If the funeral expenses use the last of the savings, this equates to a perfect retirement.

If you currently have $1 million saved, let’s say that you follow the 4% rule. Also, you’ll receive Social Security and want to live on $50,000 per year. Listen to the studies, and you’ll learn that you’ll have close to $1 million left at the end. While this is good news for financial advisors and loved ones, it doesn’t help you. You could have lived some more and ticked lots of things off the bucket list. Instead, you were scared to spend money and had $1 million left in the bank.

Unfortunately, no universal rule exists that fits every American retiree (sorry!). Instead, you need to consider your circumstances and decide from here. Don’t be afraid to break the 4% rule because even the creator of the system has admitted its shortcomings in today’s market.

Withdrawing in retirement isn’t a precise exercise; it’s about adjusting to the changing environment, considering your health, and making money last until the very last day (not using it all before or having lots left after!).

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