#32 – LWOP, L Funds, Beneficiary

LWOP, L FUNDS and El Beneficiary’s today on Fednobabble.com,

This is Fednobabble.com, where Kevin and Cassie make federal retirement benefits understandable for humans like you.

These two don’t hold back as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

OK, Cassie, as you can tell, I don’t know Spanish, because I don’t know if El Beneficiary’s is anything, I just I obviously just made that up, so I don’t you speak Spanish.

I’m trying to pretend to. You know what? Let’s just skip that that ever happened and go on to the first question. OK, here we go.

All right.

I most aspects of retirement not affected by being LWOP status for a year and most aspects of retirement not affected by being in service for. The way I take what this is. So, yeah, the way I take this, I think is is your TSP affected by you going on leave without pay. And the answer is not not really. Except you’re not going to be. Well, you’re not contributing. Right. You’re not making contributions during that time.

So but I and I guess I was thinking afterwards and there’s no match, so. Yeah. So I guess yes. Because I was I was just strictly thinking in retirement, is there is there an effect. No, there really is, but actually there is because you’re not contributing to it while you’re on LWOP. So I guess that’s true.

And depending on how long you’re in LWOP, there could be pieces of service missing. Right. So if you’re in LWOP for a year and it’s a whole, you know, January to December kind of year, then you’re going to miss out on six months of service. Right, so that I have to work for another six months. Right.

That that affects eligibility. It also affects the calculation of your pension. But, for example, I can’t think of right off the top of my head. It doesn’t. Does it affect actually, I don’t know this answer. Does it affect health care? FEHB if you go on if you go on an extended, let’s say, more than six months of LWOP, what does affect FEHB?

Well, again, it’s not going to to qualify to keep it in retirement.

If you were to retire January 30, 1st of twenty twenty two and you’re to leave without pay status, January of twenty twenty one to December of twenty twenty one, you’re going to lose out on six months of service and you’re going to have to pay those premiums. But you’re not like if you have coverage for January of twenty, twenty two and you’ve had coverage for four years and 11 months previously before January of twenty twenty one, then technically you’re still meeting the five year requirement for FEHB.

Right.

It could affect your high three.

It can affect you like, yeah, it it affects most of your aspects of retirement and depending on your situation and when that service time, we’re where to be.

Like, if you’re in a situation where my year is June of twenty twenty one to June of twenty twenty two, then all of that service time counts, it might affect your high three and those certain things, but it really depends on your situation when you’re looking at retirement and what the dates of the LWOP service are.

You know, this is a great question. This is one that honestly I’ve never been asked before and I’ve never really contemplated and dove into. How does LWOP affect everything? I mean, I know I know a few I know some certain rules about that. You know, for example, the pension eligibility in the calculation. But as a total package overall, how would that affect someone that I love that question. And you know what? This OK, this is a this is a great example of why it’s important for people, for federal employees to be speaking with an adviser who understands federal stuff years in advance, because this is a question they could ask them and they will have dealt with this before.

They’ll have seen this and say, yeah, I’ve dealt with, you know, people who have gone on LWOP haven’t didn’t ask me this previously. Then they return. They go, oh, wait, you mean my LWOP up 10, 20 years ago affects this and has this an. Oh, yeah, it does. And they could guide the person who is in their early 20s, you know, taken up for a birth of a child or, you know, or whatever surgery or whatever it may be.

And then and then saying, OK, here is how you want to do it. You want to if you need to take a year off, you want to you want to take six months of this year and six months and that year that way it doesn’t affect you in these areas. And then you want to do this and it can have it can have a whole year of eligibility diff difference. You can retire a year earlier by doing that. So I love this.

This so far is my favorite question. I have deemed this my favorite question.

I like this time of the day. Yay, yay, yay. Yeah, it’s amazing to me.

People just don’t simply understand what or how they leave without pay really affects their situation. They just think, oh, I’m going to go on leave without pay, you know, some time on the beach or whatever. But it can affect a lot if you’re looking at that bigger picture. So definitely something to take a look at. And if you can plan it, you know, for surgery or something, say, you know, it’s going to be an expensive thing and it’s not a surprise.

You know, maybe you can gauge it to where, OK, I’m going to have the surgery coming up and, you know, maybe I need to push it out if it’s not going to hurt you too bad.

Or make make it to where you you can or, you know, are you in the long run then push that surgery out a couple of months or a couple of weeks or whatever that looks like, but really coordinate with somebody and how that’s going to affect your retirement. You know, and that’s one thing I love about our advisors is they don’t just do the retirement planning for you, like they’re going to help you if you have any questions or concerns about your federal benefits or your federal service or whatever, they’re helping you and telling you, OK, this is what you do here.

This is what you can do here. And that’s you know, I get questions all the time. Oh, I haven’t dealt with the situation in a while or, you know, I got this new one because that always happens. And, you know, how do I how do I help this person? And we’re giving them that advice if we don’t know the answer, like we’re researching it and we’re figuring it out and we’re giving it back to the advisor in that black or white, whether it’s from OPM or Social Security or whatever that question needs to be or how are we going to answer it?

We’re making sure that we’re getting that information back to the advisor from the horse’s mouth like we’re not. Oh, this article says, no, no, we will go and find out, like, where do they get that source from and where was that information? Because employees need to know exactly how it pertains to them and what the rules are today, because, as we know. These things change all the time. Yes, they do. Yeah, yeah.

In fact, I was thinking about how something just recently changed at the beginning of this year and with TSP. And most people don’t know that. You know, even though the TSP Modernization Act happened a year and a half ago, something just changed because of it. So you’re right, it’s important to stay up on changes like that. OK, good, good. Let’s go to the next one. Let’s see, doesn’t it make sense when a life cycle fund is reached such as L.C 20 20 and one is still working instead of retiring in 20 20, does it make sense to leave TSP as is or switch the LLC to another option?

So here’s the thing.

Go ahead and sorry. No, no, no, no, no, no, no, no, no, no. Go, go.

No, I so, I was just going to say with L Funds, with the life cycle funds I mentioned in the in the workshops, it is a set it and forget it strategy.

Right. You put it in, you don’t touch it. And they do all the mixing for you. A lot of people don’t realize that. They think there’s the G, F, C, S & I and the L. Nope. The L is the mix of the GFC and I and but they’re doing the TSP is doing the mixing for you, so. Right. And every quarter it changes, the mix changes and it’s on a set regimen to happen and it happens the same for everyone.

And it’s like a pre-programmed program that just does what it does. There is no variation in it. So when someone says, should you know, when I get to the end of the life cycle, the twenty twenty, you know, I’m in the life cycle fund twenty twenty two. Should I go to the twenty, twenty five. Because it’s in five year increments now you know, should I go to that one or should I go to a different one or shall I go to the L Fund which is the most conservative.

The L.

Yeah. The L income fund. Yeah. Really. How, what do you want your allocation to be. I mean that’s really what it comes down to. I mean the L, the L funds by title make no sense. It doesn’t matter. It has no relevance to your TSP at all because each of those, all they represent is a continuing change of allocation and that’s it. So where do you want to be. So that’s, that’s why I stumble on that one.

Yeah.

The L twenty twenty because it changes every quarter has changed into the L income fund.

Right. Because it’s like those are some more of time and it gets to the point where you know, eventually in five years from now the L twenty twenty five will be the L income and then we’ll have the L twenty thirty and all of that and the L twenty thirty will mimic the same percentages and values that the L twenty five has today. Right.

Because it changes to those different things over time.

And so I really think that sorry, I really think that somebody needs to look into the, the compilation of the percentages of how they want their TSP right to be allocated and what they want. You know, I prefer not to mess with a l a fund. I have no desire to be in that fund. And it’s just based on my personal preference. And if you want to, you want to say, well, I want to be more risky, even if you’re retiring in, you know, twenty, twenty three, you can still be in the L twenty sixty five FICA, which is the highest funding goes right now.

Like you don’t have to contribute to this lifecycle fund just because you’re retiring on a certain date either. Right. You can move it because you decide to be more risky if you still want it to be diversified or you. So people don’t understand kind of how this works. And so if you’re confused about this at all, reach out. Let us get you in connection with somebody who can tell you exactly what those percentages should be based on your retirement goals.

Like why are you in why are you in those funds? We’ve talked about this on a previous episode, like know why you’re contributing to your TSP and what what different percentages there are for those five different funds. And because of your set goals and priorities in your own life. Right. Take hold of that retirement and make it yours because it is right.

You know, it’s I kind of see it as so as as a parent of children as we are, right. You have a few. I have a few. And so when when we start learning about parenting, we have this advice given to us. And this advice is, oh, you should do this in this. And then honestly, to tell you the truth, I kind of see like having your first child as retiring because everything goes out the window at that point.

You’re like, what the heck is this? I didn’t know what you told me about this. I was not expecting this. Right. Oh, my haak. This is not what anyways. So that’s kind of how I see that. But leading up. To that, you’ve got you’ve got your L Income funds and basically what the TSP did was say, well, I’m going to I’m going to create an avatar, I’m going to create a federal employee.

And this federal employee has one point two children who has been saving in their TSP all this long and has been doing this. And if they follow those rules and they do and they do this perfectly, then they’ll be brought along through the L funds to the end and then everything should be perfect. But I hate to say it, no one fits that mold. Not a single person that works for the federal company fits that exact mold, but that’s what they based it on.

And so I personally, I will say I’m not a huge fan of the lifecycle funds, because I know that because I know that there’s something better and that something better is being able to ask someone, where should I be right now? Tell me, you know, where can I, Max, take advantage of the market situation as it is and do something right now and next year it may be something completely different and that’s OK. But like you do, you don’t have control of your money.

If you’re in a life cycle fund, you just don’t you put it in their hands and say, I hope you do what’s best for me. Good luck. That’s it right there.

Without taking into consideration your other retirement investment accounts, if you have or your current financial situation or you know, any of those different personal reasons that you should be maybe in a different fund or something like that. And let me be clear, that is we are not financial planners. We should not be giving you advice that your TSP at all. We do not have recommendations for you. And this is just our own personal beliefs in from what we’ve learned about these different things.

Right. Because we ran out and we’ve done our research on these different topics. And, you know, Kevin teaches the Fed Pilot program, and I’m working directly with the advisors to get employees. And I see the TSP statements coming in to build those reports and things like that to get employees their numbers and project out what that looks like in the future at retirement. Right. And so we’ve seen kind of a bigger picture on this, and that’s why we have personal opinions about certain TSP funds.

You know, personally, I’m I’m a spouse of a federal employee. And so that’s you know, we’re directly involved with that. And that’s why I have my own personal opinion.

But everybody’s going to have their opinion. What works for me isn’t going to work for somebody who is looking at retiring next month. There are different things that you need to take into consideration, so reach out to a financial planner or a financial adviser who is versed in the federal benefits so they understand how these indexes work and what they Cassie Knight funds and find and fund are so they can tell you which fund to be in. It’s not simple and you do OK.

You got this far one COLA a year and you’re on this option. Then you need to do this in your TSP and they’re going to take into consideration the bigger picture and be able to guide you and give you advice there.

So, yep. Thank you. Thank you. Who said things like he did it. But you’re right. And I’m going to build on what you said. I’m going to go back on what I said. I would say I’m not I’m I again, I’m not going to hide it. I’m not a fan of it. That’s just me. However, you’re right. Do not take that as advice that that you should. Oh, well, I’m not a fan either.

No, go figure out if you’re a fan, because, you know, I’m I’m a fan of the University of Oregon football because I graduated from there. Other people are not fans of you of. Oh, at all.

Well, that’s OK. Go go figure out if you’re a fan of a certain strategy or whatever. So anyways, that’s that. OK, let’s go for the last question. Should I feel this is a yes or no question? Cassie should I fill up beneficiary forms for TSP. Absolutely. Yeah. Yeah. Doing a done deal.

You know, you don’t even have to fill out a form. You can go on TSP Dolgov and you can fill out that information there too.

Yeah. This, this is this is not subject to debate. Yeah. Nope. No this is not this is not an opinion. This is not advice. It is. Just get your butt out and go do it now. Yes.

And not only the TSP form, there are a total of four forms any employee should have filled out for beneficiary’s or are there a federal program. So if you don’t know what those are, then please reach out to us. We’ll send you those directly. If you want to reach out to a financial advisor who’s going to help you fill out those forms, then do that as well. If you don’t have a financial advisor who understands what those forms are, let us know how we can not only get you the the beneficiary forms, but also a report about your benefits.

Yet I know the people in our team are in our network. Sorry they are so great. A lot of them already have those forms or you you’re just talking to one that’s more than words.

Yeah, yeah, yeah, yeah, yeah.

Because needing that service, they want to make sure that you guys are in control of your financial situation and your benefits period, whether you choose to do service with them or not or continued planning. They’re making sure that they are going to help you get what you need to for the betterment of you and your future and your family’s future. So make sure that you have those forms filled out.

I know that TSP says there’s a standard order of presidents, but there are different rules in different states as to reasons why we want those beneficiary forms filled out prior to you passing away or having to need it the beneficiary form and also say they have to be filled out correctly, too.

There are certain things that you certain considerations and things you well, you don’t just want to fill them out. You need to fill them out correctly, given certain family situations, et cetera, et cetera. So, oh boy. OK, we are way over time. What I did I mean, it really the benefits reforms are worth it for us to go over time and to say you need to fill up those. And if you haven’t if you haven’t looked at those forms for thirty years, go look at him again and possibly just fill them out again.

It is that important. It really is.

OK, I know we’re over time, but I was talking to an advisor this just before we had the show and he was telling me that he had a federal employee couple I know, I’m sorry, not a federal employee a couple, but a federal employee and their spouse. It is office. And she did not understand and he didn’t realize either that his beneficiary was not named LES TSP and she was about to lose it. Because how dare he not put her as a beneficiary of his TSP, right?

He just hadn’t looked at it over the you’re right. He didn’t know that he didn’t have one.

Period.

Oh, I was like, well, a is I’ve had a situation where the former spouse was listed as the beneficiary and the current spouse was in there and they were like, what do you mean that person’s all there?

Yeah, exactly. I’ve seen that.

Or maybe they don’t get along with their mother in law and you put your mom in when you first hired it as a federal employee and oh, boy, you’re going to have to answer for her.

That happens all the time.

Yeah. You’ve got to have these boards up to date. So if you haven’t even looked at it in five or 10 years, maybe that’s something that you want to revisit depending on your situation. So.

So, yeah, that important that we get that much over time. It is that important. OK, you give everyone a break now. All right. Thank you, Cassie. Yeah. Thanks for watching, everyone. Take care.

We’ll see you next time to get Cassie’s comprehensive report on your federal retirement benefits. At no cost, no obligation and no sales pitch. Go to Fednobabble.com while you’re there. Submit a question for them to answer on the show.