Get a glimpse of future you with a Texa$aver Retirement Plan Advisor

The hosts Suzanne, Dani and Angelica are joined by Texa$aver Retirement Plan Advisor Nik Frye to talk about retirement planning, the value of meeting with a retirement plan advisor and what to expect during a Retirement Readiness Review. So whether your retirement is a few days or a few decades away, there's something for you in this episode.

Mentioned in this episode:

www.texasaver.com

Texa$aver dashboard

Meet with a Retirement Plan Advisor scheduling tool

Transcript

Copy

ERS Money Talks Podcast Episode 3: Get a glimpse at future you with a Texa$aver Retirement Plan Advisor

Music

Intro I think one of the most common misconceptions is I have to be investor savvy when I'm participating in my 401(k) and 457. What I can tell you is that if you're doing investing right, it's as boring as watching paint dry. That’s Nik Frye from Texa$aver here on today’s ERS Money Talks Podcast to talk about retirement planning and the value of meeting with a retirement plan advisor like him. So keep listening, whether your retirement is a few days or a few decades away.

Suzanne Krause Hello, Money Talks listeners. My name is Suzanne Krause. I'm one of the editors of the Money MattERS newsletter and co-host of the Money Talks podcast. I'm here with my co-workers, Angelica Harborth and Dani Levrie, and our special guest today is Nik Frye from Texa$aver. He's a retirement plan advisor. We're super excited to have him because he's going to be talking about the Texa$aver 401(k) and 457 Program. 

Nik Frye Good to be here, Suzanne. My name is Nik Frye. I'm a retirement plan advisor with the Texa$aver Plan. I'm located in Central Texas and cover about half the state participants in Central Texas. So glad to be here. Thanks, Nik. Mostly today we want to talk about what it's like to meet with you or perhaps one of your co-workers because you cover different regions of the state in Texa$aver. 

Suzanne: So what is a retirement plan advisor? 

Yeah, great question. What our goal is, is to help folks prepare for retirement. So, We help folks in every single stage, whether they're just getting started, maybe it's their first job, maybe they're coming in from the private sector, um, all the way up to folks that are Well into retirement. So our goal is to basically give them a snapshot of what their retirement looks like, give them some different scenarios of what it could look like, and then kind of fill in the gaps from there. Any meeting with us is completely complimentary. So there's no cost. No question is a stupid question. We'd rather participants meet with us. Um, then be shy about it and then make a mistake. And then we haven't, we're having to correct that mistake maybe when it's too late. So yeah, all the meetings with us are completely complimentary. Our only clients are state of Texas employees. Like I said, whether you're an active employee, terminated employee or retired employee, we always offer those services to participants of the state. 

Suzanne: I think that's one of the really great points is that you're not trying to sell anything. So thanks for making that point. So what can people expect when they meet with a retirement plan advisor, particularly if it's their first meeting? 

Yeah, great question. I think the first thing that I want to know is that you have a basic understanding of your options. So I would always start out every meeting with what prompts you to reach out. So there's probably something that has happened, whether it's you're new to the position, new to the state. About to leave the state, maybe it's a promotion, transferring agencies, have kids, buy a home. I want to ask you what prompts you to reach out so I can understand how to take the meeting and where to lead it. But beyond that, I want to make sure that you understand all your options as far as retirement within the state. So from a very high level, we'll cover the ERS pension, give you some bullet point answers on the pension. And then kind of go into your different options for the 401(k) and 457. Make sure that you understand your options as it relates to your specific circumstances. If you're early on in your career or maybe you're new to the state altogether, The main thing that I want to establish in that first meeting together is do you understand your options? Are you doing what you want to be doing? And if not, what do we need to do to get there? So we start by gathering some information from the participant about their personal information in relation to retirement goals, things like when they want to retire, what they think they'll need in retirement as far as income. And then we also talk about other retirement or investment accounts that they might have and any other retirement income streams. This would be something like the ERS pension. Maybe you have a TRS pension, social security, rental property, et cetera. We gather all that information and data and we run an analysis and provide a probability of success in the participant reaching their goals. So it's something called a Monte Carlo simulation. They use it in a lot of different industries. In finance, we use it to determine, hey, are we going to be successful or what's the likelihood of success for this particular participant or this participant's household? 

Can you talk a little bit more about what do you mean for success? Like, how do you define that? 

Great question. So we define success as not running out of money before you run out of time, right? That's the ultimate goal. So when we run these different scenarios, what we're doing is we're taking your information that we have today. So we're taking a snapshot of the portfolio you have with Texa$aver, any other portfolios you might have. That will be valuable to you in retirement. And we go to the pass and we look at 5,000 past market simulations. And what this does is, is it takes those 5,000 market simulations and then it determines your future cash flow. So what's future cash flow? So future cash flow for participants would be pensions, social security, Any other annuities, rental income, part-time work and retirement. And then we subtract that from expenses and federal taxes. And based on human capital, which is future cash flow and those 5,000 past market simulations, The system will determine, hey, is this participant on pace to meet their retirement goals?

Angelica Harborth: Nik, is that something that's visible in their Texa$aver account? What does that look like? 

Nik: Excellent question. All the planning that we do is going to be located in the participant’s Texa$aver website. So I think that's, that's important to clarify because a lot of times I get done with a retirement readiness review. And they're asking if I can print this out for them and say, hey, good news is this is right on your website. So all the information that we gather together and all the data that we input is located on the Texa$aver website. So the retirement planner tool is where we run the Monte Carlo simulation. That's where we have to make sure that the data is to a T correct and accurate. We've got to update that once a year. If you're a little bit younger, maybe once every three to five years, but we've got to adjust for changes because there's going to constantly be changes, not just in taxes. The markets, rules in general, but also there's going to be changes in the participant’s life as well. And that's the most important aspect of updating the retirement planner tool is that there are going to be constant changes within the participants life. Therefore, we need to have that software reflect that. 

Suzanne: So when somebody sets up the appointment with you, what do they need to have ready for the discussion? And how confident do they need to be in the information they're bringing to the conversation? What if they want something casual is that also a possibility when they're talking with you? 

Angelica: I think that's a great point, Suzanne, because I think so many people are, you know, just intimidated to start the conversation, right? Some background on, you know, what would you tell these people might be interesting. 

Nik: Yeah, great question. So this would be more for my early career and mid-career folks. The information isn't that dire. We just need to get some sort of number put into the system that is going to give us some sort of clue on what retirement would look like, but it's, it's impossible to gauge exactly how much you're going to spend if we're thirty years away from retirement. There's too many factors, right? Kids, grandkids, purchasing cars, houses, maybe you're not even with the state at that time. I won't tell anybody here at ERS that, but there's too many changes that can take place between now and then. Really what we're trying to do is we're just trying to get some sort of projection put in place to say, hey, if you contribute X amount to retirement, what does that look like versus what you're doing now? And it's not always, hey, can we contribute more? Sometimes it might be, hey, let's contribute less. I always give this example and the specific individual. Always would meet with me and he was always in a bunch of credit card debt because he was sacrificing his income to save 50% into retirement. And a lot of people don't believe me in that, but I could not believe it when I saw that he was getting himself into literally 25% interest credit card debt just to contribute into retirement.

Dani: I believe it. I've heard a lot of crazy stories about people. 

Nik: That's right, we don't want to sacrifice the unknowns of tomorrow, um, for today. So that's a big piece and contributing to retirement is yeah, there's rules of thumb. Suze Orman, Dave Ramsey, a lot of people have their 15%, 20%, 25%. And I'll throw those numbers out there just to get participants thinking. But really what we want to look at is if we contribute this amount versus that amount, does that put us in a better situation? And if the answer is yes, and the participant can afford to do it. There's probably something we should implement.

Dani I think that sometimes we just think long-term instead of the here and now. And then other people, they might be thinking about only living in the here and now and don’t think long term and think about that saving aspect of it. 

Suzanne: Yeah, Nik, do you have the ability to give people advice beyond their Texa$aver accounts? Is it kind of like a holistic financial planning? 

Nik: Our relationship with the state is very interesting because we are only really allowed to talk about Texa$aver, the pension, of course, because it relates with Texa$aver. If you meet with us, we can give you some general rules, some general guidelines. Nothing is going to be specific in relation to your investments inside of another account that you have. Let's say you have an IRA or Roth IRA that you're looking to get investment advice on. Not gonna be able to do that for you. Not gonna be able to give you specific tax advice. But some of us are equipped to be able to give you some information, some guidelines to where you can implement that and maybe take the relationship on to the next level with financial planners that are on staff at Empower or financial planners that you may have with your IRA or, just in general. 

Suzanne: People are coming to you at different points in their career. So yes, some of them might be new to the state, but maybe they're already longtime savers. That's a group or they might just be really young and just getting started but can you walk us through how you approach members when they have these appointments at the early, mid and late stages of their career.

Nik: Yeah, that's a great, great point with anyone new to the state. And that could be someone that's brand new, maybe it's their first or second job out of college, or maybe they've transitioned their career and they worked in the private sector in the city or county and now they work. For the state, I think the number one thing is to not get bogged down on all the information. So allow yourself to go through the training, allow yourself to get acquainted with the insurance benefits with ERS. 

The reason I say that is because you're automatically enrolled into the 401(k) at 1%. Now there's a brief window where we can retract that. I believe it's six months, um, where if you didn't want to contribute, we can kind of pay you back for that. But the point is, is that you're automatically enrolled into the 401(k) at a pre-tax contribution of 1%. So I would say don't get bogged down on the information there. Get comfortable in the role, get comfortable with your other benefits. Another reason why is because we can change these contributions and the plan and investments at any point in time throughout the year. So yeah, we do a lot of summer enrollment table service, but we don't have to necessarily change your contributions, investments, or plan at that time. We can change that anytime throughout the year. 

But furthermore, I would say with participants that have come from a different role, we probably just want to get a snapshot of what they have going on, what they were doing with their prior plan if they had a prior plan. And kind of talk about maybe doing some consolidation with that prior plan and pros and cons of why they may or may not want to do that. And then really the idea there is just to give them a baseline and say, Hey, you know, maybe they're in a new position. Maybe things are kind of tight. Let's just say, for example, what can we do today? So if we're doing 1% today, 2%, 3%. Let's maybe increase that by 1% next year. And then let's just kind of scale up from there. Um, when it comes to investing, once again, I wouldn't focus on that. Because you're automatically defaulted and a 1% pre-tax contribution to something called a life path fund, which I'm sure we'll get into in a little bit, But the closer you get to, to retirement, I want to say within about ten years, ten to fifteen years, it's subjective. To the participant, but around ten to fifteen years, you really want to get more and more particular about why we're doing what we're doing within the plan. So the game really changes at that point to where we need to make sure that we're making conscious decisions inside of the plan. 

Um, someone that's maybe in the middle of their career, let's just talk about them for a second. We like to call this the messy middle, and the reason we call this the messy middle, or at least I call this the messy middle, is because usually you have aging parents, maybe you have kids, nieces and nephews, there's probably a lot going on at that time. We really want to focus on the fundamentals, the blocking and tackling. So we want to make sure that we know where we're going, right? It's more important at that time that we get more and more accurate information. Make sure that the pension is. As accurate as possible, social security as accurate as possible, other accounts you might have, we want to make sure that data is accurate. But the biggest piece is that we want to make sure that everywhere we're going at that time is leading to the place we want to go. And that there's no surprises when we start planning when you're five to ten years away from retirement. So the messy middle is kind of a place where you may be able to stop contributing as much. Maybe there's some short term needs. Maybe a kid is going to college. Maybe you need to increase your emergency fund, right? I'm not type person that says contribute, contribute, contribute, contribute because I'm realistic. I understand that things happen. Um, we transition in life. And so the middle of your career looks different for everybody. But I think it's also a good point to say, hey, number one, are we going in the right direction? If not, what can we do to get headed in the right direction? And also, are we sacrificing the unknowns of tomorrow for the knowns today?

Dani Fabulous. It’s like you’re a spokesperson for life. 

Nik: Pretty much. An advocate for life. 

Suzanne: Yeah. I just think that's like a really nice to hear from a retirement plan advisor to kind of ease anybody's mind if they're concerned about calling and maybe getting told that. They're not on track or they're doing something wrong, but really these retirement plan advisors they're your advocate, you know, they really understand The state system, the pension benefits and, you know, all your options through Texa$aver. So especially if people are either feeling. Like, they don't have enough to contribute and they, you know, maybe don't even know how to get started. I think that really discourages some younger people to feel like if they don't have enough money, so they shouldn't contribute yet until they've done other things. But really the important thing is to just get started. That's why that 1% auto contribution is a really good kind of, foot in the door for investing, but, um. People don't even have to understand how investing really works because y'all take care of a lot of the work. There's the target date funds you alluded to. So it sounds like you've heard a lot from people you've talked with that they are concerned about needing to understand a lot about investing, but you would say that's not true. 

Nik: Yeah. It's pretty common that I get a lot of frantic questions from new hires in general. And I just, of course I listen. And then after that, kind of like take a step back and say, okay, what's important right now as far as your finances? Let's not talk about retirement. Let's just talk about finances in general and tell me what you have going on. Well, you know, I had to pull out a loan because Of this situation or that situation or, you know, I had to dip into my emergency fund and. Um, I've got that going on or maybe, Hey, I'm about to have a kid. So we want to take a step back and look at what. Is going on in the individual's life before we just start giving rules of thumb and telling people to contribute, contribute, contribute. So depending on when you were hired, let's say you were in group four, group four, I believe they do a 6% mandatory contribution. So there you go. That's 6% right there. And then the state also puts in a portion. I think it's about 10%. So then that's 16%. We're already getting into retirement.

Angelica: I think the important thing to note at a high level with group four is they're contributing less, right, than groups one, two and three. And so while you do have a really great benefit, you're already contributing this six percent. Um, and you're getting another contribution from the state to your point. But do you have a little bit of room, you know, you're not contributing nine and a half percent like some other state employees there. So maybe you have a little bit of room to maybe make the gap smaller and maybe you don't. And that's, that's fine too. 

Nik: That's right, and I'm not a retirement counselor with the IRS, so I don't want to steal their thunder, but I'll say this, there's a lot of misinformation about the pension too. So group four, can't tell you how many times I hear this. Schedule a call with me or I meet them on site somewhere. We don't have a pension. We don't have a pension. Group four is a pension. But to your point, Angelica, we've got to make up the shortfall, right? The groups before you were doing nine and a half percent. We're doing about six, percent. So we got to make sure that we're going to meet that shortfall somehow, some way. So one of the opportunities is the Texa$aver 401(k) and or 457. 

Dani: That's really insightful. And now I'm concerned that I need to schedule an appointment with you like tomorrow. Maybe even today if you have availability. Yeah, no, thank you. I want to say for all of our group four people out there listening, Nik is very available. Please schedule an appointment if you have any fears like me. 

Suzanne: You really need to have time on your side. I think that's the huge benefit of being younger, so. Yeah. Because then you get a compound interest, you can put less of your own money to meet the same dollar figure later on. It really, If you did a calculator, I mean, you could see how huge that can be. 

Nik: Yeah, and one more thing on that, too. There's a lot of studies and charts out there that show you what if you had contributed only from ages 22 to 32, 25 to 35, just a brief 10-year period from your 20s to your 30s and then stopped. Now, this is not a recommendation for you to do this. My only point is that If you had done that versus someone that had started at 35 and contributed until your let's just say, 65, it is astronomical the difference. So compound interest to your point is very pivotal if we have a lot of time on our side. That's why if you think that the 1% is not making much of a difference, I promise you down the road, you'll be thanking yourself because you started early. Even if it is just quote unquote 1%. 

Dani: Wow.

Suzanne: So, um. I have a couple questions about the account services you offer, like the meetings, and then we can talk about some common questions that you get. But so if you said that you can't, tell people how to invest. Is there a different service if people do want to get specific help and maybe even have y'all transact on their behalf? 

Nik: Yeah. So there's three services when it comes to investing. There's do it myself. And by the way, this is all on the website as well. Whenever you click on my investments, Do it yourself is just like it sounds. It's for DIY investors that can either just choose to roll with one target date fund or they can utilize the core funds, et cetera. There's another service called help me do it. So help me do it is a tool called online advice. That will require you to input some information about yourself when you're going to retire, how much you'll have in retirement, spending, et cetera. And it will give you a point in time recommendation. So I use those words on purpose, point in time, because it's for that exact time, that exact moment, it's going to give you a recommendation on how you should be invested. So you would be responsible for implementing that investment strategy. And then rebalance it on a monthly basis as things get kind of get out of whack and the market does what it does. Then we have a third option called do it for me. So I'm going to steal this from one of the advisors I work with. It's for people that don't have the time will or skill to do the investing portion themselves. So when you start getting to a point where maybe you're a little bit overwhelmed, maybe you're looking at your account more than you should. Or you're just second guessing all your decisions in general. That's probably the time to engage a retirement plan advisor. Consider all your investing options as well as what the managed account service offers. So that's where we take a take full reign of the portfolio based on the retirement plan and then we do the ongoing maintenance and rebalancing of the portfolio. 

Suzanne: Those sound like great services. We've talked about the retirement readiness review. Is that a special meeting or just part of a meeting with an RPA? Like how would somebody, they're like, I'm ready for this retirement readiness review. What do they do? 

Nik: Unless someone tells me otherwise. Every meeting is a retirement readiness review. 

Suzanne: Awesome. 

Nik: So I will go into my normal cadence. Of course, I'll ask what prompted them to reach out, ask if there's anything That's burning or any questions that they have off hand, but we will immediately go into a retirement readiness review. 

Suzanne: Yeah, and to set up the appointment, you can go to TexasSaver.com and find the, Meet with retirement plan advisor, scheduling tool, and then it'll find Nik or whoever else is the regional advisor, um, and set a date and time for the meeting. And are they virtual only? 

Nik: Yeah, it's a great question. So on the Texa$aver website, it's going to have all of our links. It's only going to list the virtual availability for all of us. So we all have our own individual links. My specific link will have other options. So for instance, I have an option to meet me in person on Wednesday. Wednesdays, I'm in the office downtown. I can meet with participants in person that way. There's also some other options. I do work with TxDOT. Shout out Texas Department of Transportation. They had me come on site. I have a specific link for that. DDS, HHS. So there's other ways you can meet with us, but what I would say is that get a meeting set up virtually if you want to. Or contact us. Our contact information is located under Planner Resources. You can find us that way. And if you're looking for an in-person meeting, more than happy to do that. So yeah, whatever's convenient for the participant. What I'll say is that a lot can be done virtually and I think a lot of people like the idea of doing it virtually. The difference in person is that if you want to bring your materials, like if you're wanting to bring your account information or you got a statement from ERS, That's probably the better way to do it would be to meet in person. So that way we can sit across from a table and we can kind of review the documents that you brought.

Dani: So does that mean that all Texa$aver RPAs have to have a license that y'all need to maintain or do you have to take some courses to ensure that y'all are qualified to do this? 

Nik: that, that's a great question. What, what are the qualifications for a retirement plan advisor? All of us come from a different background, right? Some of us come from banking, some of us come from insurance. Some of us come from other advising type roles. I personally came from a financial planner background. And work with federal employees. So I have extensive knowledge on governmental plans and how they operate with pensions. We all have licenses that are required by both the, at the state level, as well as at the federal level. So we all hold our S 6 or Series 7. I actually hold my Series 7. And then we have people on the team that either hold a 63 and 65 or something called a 66 which goes with the seven. 

Suzanne: Now, when we were talking earlier, you had a lot of, um, kind of member feedback you get because you do in-person presentations as well. So can you tell us a little bit about some of the common questions you get when you're talking to people and maybe some of the misconceptions you've been hearing? 

Nik: Most common question I think is, is there a match? So I want to set the record, there is a match, just not within Texa$aver. So the state of Texas, the ERS pension is matched by your employer. So each month when you make your mandatory contribution to ERS, Your employer also puts in 10%. So that's the state's version of matching. There's no match inside of Texa$aver, however. One of the other common misconceptions is I can't contribute to a Roth 401(k) or a Roth 457 because I make too much money. So there's certain income thresholds that you have to meet to contribute to a Roth IRA, but that is not the case with a Roth 401(k) or a Roth 457. Roth 401(k)s and Roth 457s are very flexible, they do not have any income limits. I think one of the most common misconceptions that I had is I have to be investor savvy when I'm participating in my 401(k) and 457. What I can tell you is that if you're doing investing right, It's as boring as watching paint dry. So this isn't a gambling account. This is not a day trading account. We're not talking about crypto here. We're talking about your retirement. So when it comes to investing, let's not get bogged down on all the options. We try to limit options because if you have too many options, then we have paralysis of analysis. So it's better to keep things super simple. The KISS philosophy, keep it super simple. But don't get bogged down on the investment options. The main idea here is to get money working for you in the market. 

Suzanne: So if people don't really know if they should be doing Roth or traditional contributions or if they should be doing the 401(k) or the 457. that's the kind of thing that they can get clarification on from the retirement plan advisor, correct? 

Nik: Correct. Now, I cannot give specific advice, but I think after a conversation with your retirement plan advisor, and if it's me, hope it's me. We'll give you a clear indication on which route you should be going or which route could make sense for your, your circumstances.

Suzanne Krause Nik, can you tell us about some of the features that are inside the Texa$aver account, particularly the auto increase? 

Nik: Yeah. So there's a lot of excellent features inside the Texa$aver website. Um, let me back up here because if you're auto enrolled into the plan, that doesn't mean you're auto enrolled into the website. So if you're wanting to utilize some of these tools that we're talking about here today, the auto increase, the budgeting tool, changing plans, beneficiary forms, most of that is being driven through the website now. So we've got to get you registered for the website. The auto increase feature is located under your my contributions tab. So one thing that I like to tell people is that, okay, just because you can't contribute the amount you want to contribute today doesn't mean you can't contribute 1% more next year than you're doing right now. One way to do that is through just setting an automatic increase and you can even get specific with it. You can say, Hey, every March 6th, Going forward, I want to increase my contributions by 1%, 2%, 3%. And then what you can do is you can have that set up to where one year for March 6th, so March 6th, 2026, That would increase by one two 3%, whatever you've selected. And you can put a cap on that too. So you can say, hey, I want this to auto increase every March six by 1%. But I don't want to go above 10% contributions. So what will happen is for the next, let's say, I guess nine years, it will auto increase by 1% until you get to the 10% mark. So that's a really amazing tool that state employees have available to them. One other piece is that there's some misinformation with beneficiaries because the website is misleading in this way. It says that you can upload your beneficiary form through the. Beneficiary icon, you cannot. You've got to upload the form through upload a document on the Texa$aver website. And then my team at Texa$aver will take care of the rest. 

Suzanne: Why should people aside from needing to invest, in general, why should they be using the Texa$aver program to invest? 

Nik: Yeah. Great question. I think number one, with employer sponsored plan, there's a lot of tax benefits to contributing to an employer sponsored plan. So versus using a brokerage account or an IRA. An employee sponsored plan, no matter if it's here with the state or anywhere, is going to give you higher contribution limits. So there's higher contribution limits, meaning you can put more in the plan on a tax advantage basis. The other thing with the Texa$aver plan is that when we're looking at income levels, there's no income levels that restrict you from contributing to something like a Roth 401(k) or a Roth 457. That's because Texa$aver is an employer-sponsored plan. They're not bound by any of those annual income limits. The other thing I'll say is that employer-sponsored plans such as the Texa$aver plan is a governmental plan. This is very important. Government typically gets the best deal on the block when it comes to retirement plans. And that's not unique to Texa$aver, but that's, that's a benefit of utilizing your employer sponsor plan through Texa$aver. 

Suzanne: Nik, is there any time in a person's career when it's too late to be contributing to Texa$aver?

Nik: It's a great question. The answer is no. There's not any point in time where it's too late. Matter of fact, if you're planning on retiring and you have some unused vacation time and you don't want to take that as a paycheck. We can actually utilize a 401(k) or 457 account and it can only be a 401(k) and 457 account where we do an unused annual leave deferral. So I do this quite often, or maybe there's a scenario where there's a participant only utilizing the 401(k) or only utilizing the 457. And they say, Hey, I've already maxed out my account this year. Where can I put this unused annual leave? Well, then we may want to consider opening up the other account that you haven't used yet. That's really the strategy is that if you're looking to defer taxes, not pay tax on it, then we probably need to consider getting that into the 401(k) and 457. But the point is, is that it's never too late. We just need to talk about it and make sure we know what type of transaction this is. So we're not paying unnecessary taxes.

Suzanne: Thank you, Nik. And can you tell us, just kind of high level about the target date funds and the core lineup inside of Texa$aver? 

Nik: Yeah. So this is going to be a change. The life path funds available, also referred to as target date funds because they are synonymous, are going to be changing from BlackRock to Nuveen. So we'll see that coming down the pike probably sometime in May. But those work on something called a glide path. So no matter if it's called a life path a life cycle fund. So what's a glide path? The earlier you are in your career, the farther away you are from the age sixty-five the more aggressive that fund is going to be in its investments. When I mean aggressive, I'm referring to the type of stock funds that they hold. As we get closer to age 65, the amount of stock funds that you hold inside of that life path fund is gonna get more and more conservative. So when I say conservative, I'm talking about the bonds inside of that fund are going to become a higher and higher allocation within that life path fund. The reason for that is the idea is that as you get closer to retirement, we need more bonds and cash to stabilize the portfolio. So when we're early on in our career, we want to benefit from growth. Suzanne, like you were saying earlier, we want to benefit from compound interest over time. As we get closer to retirement, the fund automatically gets more and more conservative allocated towards bonds and cash. Just because you're in a life path fund, And you're close to retirement doesn't mean you should stay in that life path fund. So I don't know what fund you should be in. I get the question all the time. How should I invest? Can't tell you how you should invest, but what I can do is run an analysis for you. And show you what scenario will best meet your goals. And that may or may not be the light back fund you're currently in. So that's, that's the default option is the life path fund. Once again, they're going to be called something different through Nuveen, but the glide path works very similar. 

Angelica: And it's accurate to say, Nik, that target date funds, are target date funds, whether they're, you know, through BlackRock as life path or through Naveen, whatever those ones are called, but target date funds generally work the same way in terms of using a glide path. There's sort of the, you know, easy, kind of set it and forget it for the long term, right? And you only need one target date fund. You don't need to spread your money out across all the different vintages, right? Because they're based on the year you plan to retire. And so we find sometimes that people are just putting their money like across, you know, in a, in a, in an attempt to diversify. But the great thing I think to mention about target date funds is just the fact that they're Easy. You set them and forget them. 

Nik: That's right. Perfect point. If you're utilizing a target date fund. You should only be using one. I cannot tell you which one to use, but you should only be using one. We're not trying to ladder your portfolio with various different life path funds because we're working against each other inside of your portfolio. 

Angelica: Do you find that people do that? Do you? 

Nik: A lot. 

Angelica: A lot?

Nik: Yeah. A lot. I find that to be very common or another common strategy I see is for some people to use maybe one or two life path funds and then they'll throw in like a bond fund or a growth fund. And what they're doing at that point is not only are they kind of working against themselves, but they're also over-concentrated. So they think they're diversifying because they're in a life path fund or two, and maybe they're in an S&P 500 fund, a growth fund. But really, if you look under the hood of what's inside of those target date funds, there's a lot of S&P 500 exposure. So that's why sometimes some cleanup work is needed, especially when we're getting closer to retirement. 

Angelica: You know, I tell people, if you find you're going to retire earlier, just adjust it at that point. Adjust all your money in the vintage at that point. So yeah, that's interesting. The thinking behind that. 

Nik: That's a great point. I think the common thought is it's similar to CDs. So you can ladder CDs or there's also something called barbelling bonds. Right, there's all these different strategies you can do inside of these different asset classes. Doesn't work the same way in the target date fund. You're not gaining really anything by laddering your target date fund. Exposure. And yeah, if you think you may retire earlier rather than later, then let's meet. Let's do the analysis and see if that's possible. And if it is possible, let's make adjustments accordingly. 

Angelica: I like that you add that too, right? Because most people are just looking at when am I eligible, right? But they're not necessarily thinking about the three-legged stool. Have I contributed enough to my personal savings account? What is my social security going to look like if I draw early? So yeah, not just thinking of, you know, service credit and eligibility, but can I retire, you know, by means of what I've been saving, so. 

Nik: And we get people all the time that meet with us thinking that we're ERS, I'm sure probably people meet with ERS thinking that they're Texa$aver. 

Angelica: We're too good at branding is the problem. 

Nik: We're excellent at branding. But I think the way to look at it is ERS tells you when you're eligible to retire. We tell you how that's gonna work. So always, always reach out, set up appointments with us. We love meeting with our participants. There's no fee to meet with us. Everything is complimentary. It's covered through the benefits of working with the state. There's a lot of misinformation out there when it comes to investing retirement plans. Roth versus pre-tax. Just meet with your retirement plan advisor. Get some of those things cleared up and it will make you feel better and it will help us. 

Dani: Yippee. Thanks so much. 

Suzanne: Thanks for being with us here today, Nik. We really enjoyed this conversation. 

Nik: Thanks for having me. 

Suzanne: Thank you, everybody, for listening to this episode of the Money Talks podcast.

Suzanne Krause We'd love to hear from you. So if you have any feedback or questions, please email us at story underscore ideas at ers.texas.gov because we'd love to hear your thoughts on Money Talks.

Music

Disclaimer: This materials is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice.