TSP: Is everybody (anybody) happy?

With 5.8 million account-holders, a 93.3% participation rate and 39,399 Thrift Savings Plan millionaires — as of Sept. 30 — somebody must be doing something right. Right?

Last month the Thrift Savings Plan, the official name of the giant in-house federal 401(k) plan, implemented a series of changes in withdrawal rules it hopes/expects will lead to more people leaving their investments in the TSP when they leave government or retire. Before the changes more than half the people who left government took their TSP balances with them. Some did it because they wanted more investment options. Most apparently did so because their withdrawal options were extremely limited.

To check out the new, more flexible withdrawal options, refer to Thursday’s column.

Investing in the TSP is a nice option for the rapidly-dwindling number of current feds under the old Civil Service Retirement System. For long time employees, CSRS provides a generous — compared to private sector programs — starting annuity, linked to inflation, for retirees. For many of them the TSP is icing on the cake, a source of after-retirement income they have but may never need to touch. It’s something to leave kids or grandchildren who probably don’t, or won’t ever know what a defined benefit pension is.

But for workers under the Federal Employees Retirement System, which replaced CSRS, investing in the TSP is a financial must. FERS provides a less generous federal annuity and employees contribute less than under CSRS. And when inflation exceeds two percent, FERS retirees get smaller cost of living adjustments than CSRS retirees.

So how’s it going? Are investors happy with the new liberalized withdrawal rules? Will people stick with the TSP when they quit or retire? If not, why not? And what’s the overall satisfaction with the TSP?

We asked and you answered:

“The answer is ‘no.’ The withdrawal rules are still horrible, especially if you are a FERS retiree and married. In that case it requires a notarized signature from your spouse every time you want to make a withdrawal, change a withdrawal amount, stop or start withdrawal, etc. This must be done by printing out a form and then taking it somewhere to be notarized by the retiree and the spouse.

“The TSP could have asked Congress to change this, but they didn’t. The TSP could have a created a form for the spouse to sign that, until superseded by the spouse, the spouse agrees to waive all approval requirements. The spouse could still have been notified when withdrawal options or installment payment amounts are changed. Thus, there would have been a hopefully one-time spousal waiver, after which online changes to withdrawal options or amounts could have been processed without paper forms, notary, and other overhead.

“For annuitants, Fido, Schwab, Vanguard, etc., still look like better alternatives than keeping money in the TSP, unless they change the withdrawal rules.” — John

“Since it appears your readers are nervous about potential upcoming market gyrations, you may want to mention the market gyrations benefits of owing a TSP Lifecycle fund. TSP participants can use L funds by just simply picking an appropriate L fund based on when they will begin withdrawing their TSP money.

“The Nobel Prize-winning ‘Efficient Frontier’ asset allocation research was used by TSP in designing asset allocations for various L funds. The L Fund Fact Sheet says, ‘For each risk level, there is an “optimal” asset allocation that has the highest rate of return.’

“As you frequently mention, John Bogle, Vanguard founder, never met a successful market timer nor did he ever meet someone who knew of a successful market timer. Many studies show market timers have significantly lower rates of return than those that select appropriate asset allocations and stay the course through market gyrations.

“So why engage in market timing (deciding when to buy and sell) when TSP has done the heavy-lifting in designing and automating L fund asset allocations? Just pick an appropriate (very low-cost) L fund that daily balances to a target asset allocation so you can autopilot benefiting from market gyrations and move on with enjoy your life!” — Walt in Arlington, Virginia

“I’ve been in the TSP from day one. Put it all in the C (S&P 500), S (small cap stocks) and I (international stocks) funds. With more up than downs the C fund averaged around 10% plus. I finally lost my nerve and got out of international stocks. But during the Great Recession, which I didn’t see coming nor know when if ever it would end, I kept buying into the C and S funds. After months of bad news, low returns, suddenly the markets took off. I can’t time the market nor tell when it is time to get out, much less to come back. I did nothing but hold the line. My account when over the $760,000 mark earlier this year.” — Rick the Plodder

Nearly Useless Factoid

By Amelia Brust

White Castle’s signature sliders have five holes in the patties to help them cook — and get out the drive thru window — faster. The idea was suggested by employee Earl Howell at the Cinncinati White Castle in 1954. He is now in the White Castle Employee Hall of Fame.

Source: Thrillist

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