By Mike Miles
Retirement questions
June 17th, 2013 | Uncategorized
Q. I have selected a retirement date of June 28, 2014. I will be 59½ years old with 33½ years of government service. I have been FERS my whole career. I have $365,000 in my Thrift Savings Plan. I will retire with a high-3 at GS-13, Step 4 and a 16.51 percent locality pay. I am debating paying off my mortgage on my retirement home by taking a partial withdrawal from my TSP.
The reasons for this are:
1) Escrow of property taxes
2) Flood insurance imposed by Dodd-Frank
3) Desire to be mortgage-free in retirement.
I owe $185,000 on my mortgage. I am single and will have no other debt once I retire. Does this make sense? What are the tax liability consequences if I pay off the mortgage in July 2014?
My TSP distribution is 50 percent C Fund, 25 percent L2020, 15 percent S Fund, and 10 percent G Fund. I am only able to fund my TSP at 5 percent to take advantage of matching funds. Would you recommend a more conservative distribution at this point in my career or continue with this risk model that I have been comfortable with for several years?
I have enclosed my most recent annuity estimates from my human resources center.
Also, if I were to marry after retirement what is the policy for covering my future spouse on my Federal Employees Health Benefits? If I choose a survivor benefit for my future spouse, is it possible to change from a self-only pension to one with survivor benefits?
A. You’re asking for personal financial decision support, which I can’t provide without an engagement agreement and some analytic work. If you’d like to consider hiring me to do the work necessary to answer your questions about using the TSP to pay off your mortgage and how you should invest your TSP to support your goals, visit www.variplan.com.
Tags: age, C Fund, distribution, FEHB, FERS, G fund, L Fund, matching funds, mortgage, retirement, S Fund, survivor benefits, taxes, TSP
TSP allocation Part II
June 5th, 2013 | Uncategorized
Q. I have between 10 and 15 years to work until retirement (I am 52 yrs old). Right now, my contribution allocation is:
S: 25 percent
C: 25 percent
L: 20 percent
G: 30 percent
The distribution is more diversified. What do you think? I don’t know what I am doing; therefore, I am just guessing.
A. Your allocation is basically: 50 percent stocks, 20 percent bonds and 30 percent cash. This would generally be considered a moderately conservative allocation. Whether, or not, it’s right for you is impossible to say without more information and analysis, but it doesn’t appear to be grossly inefficient to me.
Tags: allocation, C Fund, contributions, distribution, G fund, L Fund, S Fund, TSP
TSP allocation
June 3rd, 2013 | Uncategorized
Q. I’ve participated in the Thrift Savings Plan since its inception as a CSRS employee and plan to retire next year. My current contribution allocation is 100 percent to the L2020 Fund and has been since that fund was created in 2005. Prior to the creation of the L funds, I had allocated my contributions equally to the C and G funds, which I have left untouched in the account. The account’s present holdings are approximately 50 percent L2020, with the remainder being 25 percent C and 25 percent G Fund. What should I now be doing, if anything, with those pre-L2020 account assets?
A. You should be competently and diligently monitoring and managing them to serve your financial goals with a minimum of risk. Is your current asset allocation arbitrary? If so, you should rethink it.
Tags: allocation, C Fund, contributions, CSRS, G fund, L Fund, retirement, TSP
Timing the market
May 13th, 2013 | Uncategorized
Q. As precaution for what I thought was going to be a market decline, in December, I moved $350,000 out of my Thrift Savings Plan accounts from the C, S, and I fund (60 percent, 20 percent, 20 percent) to the G Fund. The end of the year came and went with no crash. The government had several “doomsday” dates that kept me guessing on market reactions. All have come and gone and the market is still going strong.
I didn’t change my paycheck allocations, so I’ve continued to put money into the above funds in the percentages shown, so at least those funds are dollar cost averaging.
I don’t want to “buy high,” so what do I do? Keep the bulk of my funds in G until the market dips enough for me to get back in? Or take my spanking (I’ve “lost” $50,000 during this time) and get back in now?
A. You’ve just provided a textbook example of the problem with timing the market. If you’d studied the pros and cons of what you were doing before you did it, you would have known better. On one hand, the market could keep right on going without you, and the odds are that it will be higher tomorrow than it is today. On the other hand, if you didn’t like the price of the market in December, I can’t imagine why you would like it any better today. Selling low and buying high certainly isn’t a winning formula.
Loan balance and G Fund
April 29th, 2013 | Uncategorized
Q. I am a 48-year-old GS-14/7 with about $240,000 in my Thrift Savings Plan (I have a little more in a prior 401(k), and my wife makes more than I do but does not have a 401(k) plan…I am willing to take reasonable risks).
I have contributed the maximum at 43 percent C, 22 percent S, 25 percent I and 10 percent F for several years and rebalanced each year. Indeed, I stubbornly left it like that during the crash but have recovered nicely.
I recently borrowed $30,000 (yes, I know, that is not the best course), at the G rate of 1.5 percent. It seems to me that that is akin to putting more than 10 percent of my savings in the very safe G Fund. So, while I left my existing F Fund balance alone, this “new” G money (interest on my loan repayments) plus the “bond bubble” threat convinced me to stop putting new money into either bond fund. I now contribute 48 percent C, 25 percent S and 27 percent I. (Yes, I tweaked the ratio a little due to lackluster I Fund performance and good S Fund performance).
Is it correct/smart to treat the interest I am paying myself as a sort of surrogate G Fund investment? Secondarily, are these ratios out of whack for a (moderately) aggressive portfolio?
A. Your loan balance and the G Fund differ in a big way: The G Fund guarantees the principal and the interest on your investment with them; you do not provide the same guarantee. Your asset allocation is “out of whack” in that it is risk-inefficient. For the same risk you are taking, you could achieve a higher expected rate of return by adding allocations to the remaining TSP funds.
Tags: 401(k), allocation, C Fund, F Fund, G fund, I Fund, loan repayment, S Fund, TSP
TSP fund transfer
April 22nd, 2013 | Uncategorized
Q. I have money going into G, F and C funds. I recently changed my distribution to 65 percent and 35 percent for G and F funds, respectively. With C Fund losing money, how can I transfer my existing C Fund balance into the F Fund so I’ll stop losing money from my existing C Fund?
I see the procedure to change distribution between the funds. I don’t see a procedure to transfer all of my existing balance from one particular fund into another fund.
A. I’m a financial planner. This is a question for the Thrift Savings Plan’s website tech support staff.
Disability retirement
April 3rd, 2013 | Uncategorized
Q. I am being considered for disability retirement in the coming months. My application is pending consideration from the Office of Personnel Management. I am a GS-14 FERS employee, 54 years old, with about 32 years of service. I have approximately $250,000 in the Thrift Savings Plan, and my allocations are as follows: 15 percent C, 15 percent S and 70 percent I. I realize that is somewhat aggressive, but it has been like that for about seven years or so, and I have been hopeful of the international home run. Regrettably, this hasn’t necessarily come to fruition. I will likely shelter some of my remaining funds in G or F when I find out if my retirement is approved.
If I should retire, I plan to withdraw approximately $150,000 to pay off my mortgage. Therefore, should something happen to me or if the market fails, at least my home is paid for. I will have a reasonable annuity, and my wife draws $1,800 monthly as a service-connected disabled veteran. Combined, I feel we will have adequate income, especially when our mortgage of $1,000 per month is satisfied. Not rich, but with no real debt ($15,000 vehicle loan) consistent income and no mortgage. Sounds OK to me. Or am I off-base?
A. I think that what’s off-base is that, like too many investors, you are willing to gamble — without knowing the odds — with your life savings. If you’re not willing or able to prudently manage the money, then it’s probably your safest bet to use it to pay off your mortgage. At least you won’t lose it overnight. This might mean that later on, however, if you need the money to pay your bills, it won’t be available. There is no easy answer. That’s why I’m in business. If you’d like to discuss your options, you can contact me through www.variplan.com.
Tags: allocation, C Fund, Disability, F Fund, FERS, G fund, I Fund, loan, mortgage, OPM, retirement, S Fund, spouse benefits, TSP
S and I funds
March 14th, 2013 | Uncategorized
Q. In 2008, when the market crashed, I put a lot of my G and C funds into the S and I. The balance was around $107,000 at the time. It’s now 2013 and my balance today is $270,000 as the share prices for the S and I have more than doubled. The S Fund went from $11 a share to $26 a share. The I Fund went from $12 a share to $25 a share. When is a good time to move all of the S and I back into the G or C funds so that I do not lose what I have gained over the past five years? My thoughts are to bail out now, place it in either the G or C, but to continue to make biweekly contributions into the C/S/I funds as the years continue. I have 14 years in FERS and have another 15 to go before I retire.
A. First, the C, S and I funds are highly correlated. That is, they move in the same direction at the same time and have similar short-term volatility, so I’m not sure that I see the logic of jumping from S and I to C. Second, if you abandon stocks, when will you buy them back? What if there’s no big market crash in the next few years to give you an obvious opportunity. Don’t make the classic gambler’s mistake of thinking that luck is anything more than that. You can’t expect lightning to keep striking in the same place.
I do agree, however, that as stocks have run up, you should have, and continue to take stock risk out of your portfolio. A smarter way to do this is to pick a moderate to aggressive asset allocation, using all five of the Thrift Savings Plan’s basic funds, and regularly rebalance to that allocation. This will hedge the risk you’re worried about, and the ones you’re not.
Tags: C Fund, FERS, G fund, I Fund, retirement, S Fund, transfer, TSP allocation
Transfer from G Fund
March 5th, 2013 | Uncategorized
Q. I am retiring under FERS soon. I am now age 69. I have about $175,000: 74 percent in G Fund; 24 percent in C Fund. I would like to move some or all out of the G Fund to get a better return. Your advice would be appreciated.
A. This is not nearly enough information to determine the proper asset allocation for you. I will note, however, that the additional return you seek will come with much greater risk of loss than that posed by the G Fund, so be careful.
Tags: C Fund, FERS, G fund, retirement, transfer, TSP allocation
Management fees for C, S and I funds
February 4th, 2013 | Uncategorized
Q. I want to know what percentage I am paying in management fees and how they are being paid for my Thrift Savings Plan. I am invested in the C, S, and I funds. I am worried about fees eating into my profits.
A. The TSP’s expenses have been the lowest you’ll find, anywhere. In fact, they’ve been so low in recent years that they’re almost zero. In 2012, the TSP’s expense ratio was 0.027 percent (or, a multiplier of 0.00027). So, for every $1,000 you had invested during 2012, you lost 27 cents to expenses for the year. These expenses are applied against the TSP funds’ returns, day by day. A report covering the TSP’s expense ration is available at https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml.