Most people under the Federal Employees Retirement System know that investments and earnings from their Thrift Savings Plan account will provide between 33 cents and 50 cents of every dollar they have to spend during their golden years. Social Security and a federal annuity, which is under constant political attack, will represent the rest of their income.
So maxing out in the TSP and getting the 5 percent government match is a no-brainer — if you can do it.
The tricky part is what comes next? Do you buy low and sell high and if so, when is that? Do you plunk it all into a self-adjusting Lifecycle fund? The C, S and I stock funds have the biggest rewards. But also take the biggest losses. What about the super-safe but low-return G fund?
Last week, we heard from David, a 66-year old postal worker with $317,000 in his TSP account. He’s split evenly between the C and S funds, with 10 percent in the International stock I fund. Most of his money is now going into a Roth TSP account. He plans to retire in 2022. He asked for some help so we passed the buck to you for the wisdom of the crowd. Here’s what you advised:
“Mike, I have some investment experience, but I’m not a consultant and am currently retired from federal service. David’s portfolio seems very aggressive for his age. Not knowing his personal situation it’s hard to propose an ideal portfolio.
“However, a good start is to have a liquid reserve that is in a safe investments outside of the TSP that covers about a year’s expenses. He should consider moving a portion of his funds into a bond position or a Lifecycle fund that meets his retirement date. This should reduce his portfolio risk.
“He mentioned he’s receiving Social Security but didn’t mention Medicare. That, and the house payments, need to be factored into how he should allocate the funds. He said advisers told him to leave the funds alone but that doesn’t sound right. I suggest he find an independent adviser that might provide him a different approach.” —Michael Salapka
”I will be following this next year when I retire — I’m a $1 million-plus in [the] TSP [at] age 55:
C fund: 25 percent
S fund: 25 percent
Lifecycle funds: 50 percent (pick the year you are most comfortable with)
“Because you can live to 90, you need to stay aggressive. Half of your TSP would be in C and S. The other 50 percent would be very conservative in the L funds. I would stay away from G and F altogether.” — John G. at IRS
“I don’t give financial advice as I do not consider myself qualified to do so, but I will prompt David with a couple other questions he doesn’t appear to have addressed when posing his question, so that he can make the best decision for him and his personal risk tolerance.
“When does David anticipate accessing his TSP? Does he plan to:
Begin access at retirement at what he believes to be a safe withdrawal rate,
Delay withdrawal and begin taking Required Minimum Distributions from the traditional balance only when required while allowing the Roth to continue to grow for as long as possible (for [children], etc.),
Take a lump sum distribution for a large retirement purchase, or
Customize a fourth option based on his own personal need in supplement of his pension?
“Assuming that David is planning on leaving the majority of his balance to continue to grow, what will be his response to a market drop once he retires (may differ from his response while younger and still employed)? Would his response be to:
Discontinue or lower withdrawals to allow it to recover because he has a pension sufficient to cover his needs and can delay his wants,
Continue his safe withdrawal rate or RMDs as if no drop occurred, or
Make a dramatic shift in asset mix because his risk tolerance has decreased with age?
“The answer to these questions will significantly impact the advice given by a responsible financial adviser and if it doesn’t then I would place less value on the advice received from that person.” —Ken
A cat named Stubbs was elected mayor of Talkeetna, Alaska, for 15 years until his death in 2017. He was elected as a write-in candidate, although the census-designated locality of about 876 people does not technically have a real mayor. Stubbs escaped death after a dog attack, falling into a restaurant deep fryer and hitching a ride to the edge of town on a garbage truck.