When your TSP nest egg won’t hatch!

When they eventually retire, 99% of all current federal-postal workers will depend on their Thrift Savings Plan to provide a substantial portion of their future lifetime income. By some estimates the TSP will be the source of one-third to one-half of their retirement nest egg alongside Social Security and their Federal Employees Retirement System annuity.

Social Security is fully indexed to inflation so it will go up with the cost of living, as measured by the Bureau of Labor Statistics. FERS is a diet-COLA plan that allows retirees to slip behind when inflation exceeds 2% per year, which it has done a lot in the past. The TSP’s value changes with the stock and bond markets, as investors learned during the record 11-year bull market which, finally, had its long-predicted, long-overdue, 20% correction earlier this year.

Because of changes in the market which were mostly triggered by the coronavirus pandemic sweeping the planet, the number of feds and federal retirees with million-dollar-plus TSP accounts was 49,620 as of Dec. 31, 2019. That number dropped to 27,212 as of March 31, but quickly rebounded to 45,219 as of June 30.

But the millionaires are mostly okay.

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The people who are concerned most are those with much smaller account balances who are within five years of retirement or at least eligibility to retire. Many of them have seen their accounts shrink to the point where they may have to put off retirement, in some cases for a long time.

So we asked Abraham Grungold, an active duty fed who is also a financial coach, the chicken-or-egg question: What do you do when your TSP nest egg is just not enough. Here’s what he would tell a client in that situation:

“You are facing retirement, and your TSP balance does not seem to meet your retirement needs. This is a problem that many individuals face. As feds anticipate their retirement, they choose to question their TSP investment strategy and whether they should continue working/contributing to their TSP. So, let’s look at these possible scenarios.

“You have been working 30 years and invested solely in the G fund. You find out that your annuity and Social Security benefits are not going to be enough to maintain your present lifestyle. You want to retire but think you should be investing a little more aggressively since your TSP balance is only $250,000. While this amount is not horrible, once you start withdrawing 3-4% annually, your TSP will deplete quickly. However, you could have been a TSP millionaire if you had just invested in the C Fund during your 30-year career.

“In retirement, employees think they should invest more aggressively which can be a formula for disaster. Investors who are only used to investing in the G fund will struggle when switching to investing aggressively in the C fund. During the next year, the market may be volatile and a G fund lifer may get nervous and pull out of the C fund at the wrong time. Don’t let this discourage you — it is still a good time to invest in the C fund because it is 6% away from the all-time high.

“Now let’s discuss the positive and negative points of continuing to work versus retirement. Continuing to work in your present position can help you increase the value of your annuity, but for most FERS employees, it only adds $1,100 per year. Many feds have the idea of collecting their pension in addition to working a full-time or part-time job. I know many co-workers who have been successful at this and many who have not. Taking on another career is risky, the grass is not always greener on the other side. If you are hired as a federal rehired annuitant or get a private sector position, you cannot receive Social Security benefits because you are earning too much annually. Also, you can lose your Social Security supplement if you exceed certain salary limits at your new job. Rehired annuitants can invest in the TSP, but they must follow specific TSP guidelines.

“Another stressful issue for rehired annuitants is that their funding is usually determined year to year. This means your agency can decide to let you go the following year. Additionally, if you are in the private sector earning a big check, many times you are a contract employee who cannot participate in the company’s 401(k) and are at risk of being let go due to budget restraints. From experience, I know retired feds who would say, ‘That won’t happen!’

“Well in the today’s world of COVID-19, anything can happen.

“Now, working part-time is a great idea if you are doing it to just keep busy or supplement your income. Part-time employment is wonderful as long as you do not exceed your salary limits which will put Social Security benefits at risk.

“As I calculate my clients’ annuity, Social Security benefits, evaluate life factors, and their TSP growth, I provide them with their best options and a timetable for a successful retirement. When my clients ask me when they should retire, I always answer, ‘Stay in your present position and salary, if you can.’ It is to your advantage to stay where you are with respect to growing your TSP and your annuity. Any questions or comments please contact me at on LinkedIn or my Facebook page.

Nearly Useless Factoid

By Amelia Brust

Little League Baseball, which was federally charted 56 years ago today, was the testing ground for batting helmets with ear coverings, aluminum bats, remote-controlled scoreboards and the “ump cam” for umpires, which were eventually adopted by the major leagues.

Source: MentalFloss