Mike Causey

Who’s Investing What, and Where?

More than a quarter of a million, mostly young, feds have rejected a four percent tax-deferred pay raise... Which Senior Correspondent Mike Causey says makes no...

Federal News Network Staff

May 22, 2008 4:00 am

4 min read

Do you ever ask, or wonder, how your coworkers invest in the TSP? Do you get the feeling that maybe somebody in your car pool knows something about the market that you don’t?

Well, here’s a snapshot as to how federal and military investors, and retirees with TSP accounts, have placed their money. As of April 2008 roughly 38 percent of the money TSP participants have invested was in the G-fund. The Treasury securities fund was worth $87.4 billion, up almost $3 billion since February.

The C-fund, which tracks the S & P 500 index came in in second place with 29 percent of the TSP’s total dollars, or about $67.7 billion as of last month.

Next in line, but way down the line, is the high-risk/high-reward I-fund which tracks the international stock market. It had about 10 percent of the total TSP value, or $22.2 billion.

The S-fund, which tracks most of the U.S. market not covered by the C-funds top 500, comes in at number four. It had 6 percent of the TSP’s value or $14.4 billion. It barely edged out the F-fund (bond index) which also had about 6 percent of the TSP’s money, valued at $13.9 billion.

The Lifecycle funds, with target dates, continue to slowly gain in popularity. The idea behind the L-funds is that you pick the date that is closest to the time you will begin withdrawing money from your TSP account. That date is often much later than when you will actually retire. Currently the TSP offers a current income fund, a year 2010 fund; 2020, 2030 and 2040. Money in individual accounts in each fund is regularly rebalanced among the C, S, I, G and F funds. The long-range funds are more aggressive (a higher percentage of stocks) and gradually grow more conservative as you approach your target date.

Young Losers Refuse Pay Raise

Would you turn down a 4 percent, tax-deferred pay raise? Most people would probably answer “are-you-nuts?” Of course not.

But that is exactly what roughly 274,000 federal workers are doing, even as you read this. All of them are under the newer FERS retirement system. FERS employees get an automatic 1 percent match to their account, even if they don’t put in any of their own money. Those who invest 5 percent or more get a total match of 5 percent (and it’s tax deferred) from the government.

Some of the folks missing out on the 5 percent total match are brand new to government. But many have been in a dozen or more years. For whatever reason (and it could be ignorance of the TSP) they aren’t putting anything into the TSP.

Most federal agencies (for reasons of cost) limit financial and retirement planning seminar participation to older workers. They don’t have sessions for younger employees and some people think that is a 2-way mistake: First for the employees. Many don’t get into investing until mid-career. They discover, too late, they’ve left tens of thousands of dollars (investments and earnings) on the table by refusing, by default, to participate in the TSP. Secondly, it may be a mistake for government which is anxious to attract younger workers. The problem is once it gets them it does little to show them they made a wise career choice. More education about the TSP would probably help retention rates.

Could you use some good, free advice? Good for everybody but targeted at the younger crowd. On our Your Turn radio show yesterday, co-host Francis Rose and I talked with financial planner Rebecca Schreiber. The emphasis was on what young feds should be doing to get the most out of their TSP and other federal benefits. Many will probably leave government but most will be hard-pressed to find a company with a 401(k) plan with the low-fees of the TSP, or the 5 percent match.

Schreiber said the TSP is a must for young feds, and she said when-in-doubt where to invest, check out one of the L-funds appropriate for you age. You can hear the full broadcast on your home or office computer by clicking here.

Nearly Useless Factoid

The state nuclear safety inspector of Maine gets paid $71,000 a year. According to the Knox County Times, he’s been coming to work every day since 1989, which seems odd considering the state’s only nuclear reactor was shutdown in 1997.

To reach me: mcausey@federalnewsradio.com