While there are still probably lots of self-made civil servant millionaires, the ranks of those who invested or saved their way into the 7-figure 401k club have definitely been thinned by the stock market’s reaction to the COVID-19, the illness caused by the current strain of the coronavirus, problem.
When the Thrift Savings Plan started 30 plus years ago, there were only a handful of millionaires in it. And none of them were “real” people in the sense that they had worked for or retired from the federal government or were in the uniformed military. At the beginning they were all elected officials, political appointees or hotshot-lawyers-turned-federal judges who brought their money with them.
But over time, thousands of rank-and-file federal and postal workers stuck with the C, S and I stock indexed funds, through good times and especially bad times, to become TSP millionaires. While they came from a variety of jobs, agencies and pay grades, all had one thing in common. They had been investing the maximum amount for 29-plus years. They had invested in stocks and they continued to buy shares in the C, S and I funds during the Great Recession when the markets tanked and thousands fled to the relative safety of the G-fund — paying about 4% — many of them never returned to the stock market, meaning they missed the biggest runup in history. But, as some would point out, they missed the coronavirus-nose dive too.
For the decade following the GR, the stay-the-course gang were rewarded when in March 2009 the bull market took off for its decade-plus record run without a major — 20% or more — correction. Many amassed accounts worth half a million or more.
Earlier this year, a number of investors were poised to join the millionaires club and some were estimating their accounts would be worth $2 million or more by mid-summer. Now, not so much. Feds who were quietly planning a 2020 celebration to mark their 7-figure status, maybe with trusted friends and family members, have had to cancel the party. For now. Many, after weathering three decades of financial ups and downs, will have to rethink their strategy because they are so much closer to retirement.
Do they take what’s left and park it in the treasury or bond funds? Or do they do what most did in 2008-09. Keep on keeping on. Stick with stocks and buy while the markets were down? At the end of 2019 there were 49,620 active and retired feds with accounts worth $1 million or more. One had $7.3 million in the TSP. Almost 75,000 had balances between $750,000 and $999,000 and close to half a million civil servants and military investors had accounts worth between $250,000 and $499,000. On average they had been investing for 21-plus years. The charts below show where people were at the start of this year. What, if anything, do the numbers tell us? Are you going to stay the course or pull back until things get better? And by the way, when will that be?
To Italians, trying to revive an old or unworkable relationship is as fruitless as reheating cabbage. That’s what they have a phrase for it: “Cavoli riscaldati,” taken from the proverb “cavoli riscaldati né amore ritornato non fu mai buono.”