By Mike Miles
May 9th, 2013 | Uncategorized
Q. Is F Fund performance based just on the principal amount, or does it pay a percentage or dividend at quarter end or year end?
A. TSP funds do not distribute earnings. Dividends and interest earned increase the share price.
May 6th, 2013 | Uncategorized
Q. Which account does my Thrift Savings Plan loan come out of? If I have enough in the G Fund, will TSP take the loan directly from the G Fund, or will it take the money out proportionally? For instance, I want to take a $35,000 loan, and I have enough in the G Fund to cover that loan, and I would prefer that the entire loan come out of the G Fund. But if the loan is taken out proportionally, does that mean 80 percent of the loan comes out of my stock funds, 5 percent out of the F Fund and 5 percent out of the G Fund if that is how my account is proportionally separated? If done proportionally, then am I better off shifting my entire account into the G Fund, taking the loan, and then buying back into the stock funds?
A. A loan reduces your invested balance without changing the existing asset allocation.
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.
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.
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.
March 26th, 2013 | Uncategorized
Q. Many experts are indicating that there is a bond market bubble growing. In addition, The Wall Street Journal survey report indicates that interest rates will be going up about a point in 2014. For the next year or two, would it be best to move money out of the F Fund and place it in the G Fund, or move monies out of both funds and place them in market funds like C, S or I? Since both G and F are invested in bonds, will increasing interest rates affect invested funds negatively?
A. I have been substituting G Fund for part of the F Fund allocation in my client portfolios for the past two years.
January 23rd, 2013 | Uncategorized
Q. Someone had a recent question about Thrift Savings Plan fund investment options in a speculative market, and I noticed in reading some of the comments at blog.federaltimes.com, a recommendation of “What’s safer than either the G or F Funds, alone, is a combination of all five funds at once. Without stocks, how are you going to hedge the risk of owning the G and/or F funds?” Doesn’t being in one of the L funds do that for you?
Also, would you move your TSP funds out of the TSP at retirement into an IRA?
A. Yes, the L funds put you in all five funds at once. I would not move money out of the TSP until I had to.
January 23rd, 2013 | Uncategorized
Q. I would like to know a good allocation of my Thrift Savings Plan funds. I retired a year ago, and I am under CSRS. I have about $140,000 in the F Fund. I am 60 years old and do not need the money as of yet. I am looking for a fairly safe allocation within the funds for a 6 percent to 10 percent return.
A. A good allocation will produce the maximum possible expected return in exchange for the level of risk it produces, and there are many such allocations. You should note, however, that there many more allocations that are not “good,” so care is in order. Six percent to 10 percent is a huge range in investing terms, so there is no single answer to your question.
January 21st, 2013 | Uncategorized
Q. I’ve been with the federal government going on 27 years and am a FERS employee. I don’t have much in my Thrift Savings Plan — barely over $30,000. Shouldn’t I have more? Due to my grade level, I can only contribute 1 percent, maybe 2 percent. How should I distribute the percentage to get the most out of it? Should I put in 50 percent into the G Fund, 10 percent into the F Fund, 10 percent into the C Fund and so on? Where should my percentage go that will give me the best return on my investment? Or is there someone who can instruct me or a website I can go to?
A. Getting professional help that is trustworthy will probably not be cost-effective. I suggest that you contribute the most you can afford and invest everything in the L Fund that most closely corresponds to your life expectancy.
January 9th, 2013 | Uncategorized
Q. I am 25 years old, and recently joined the government. It is difficult to fathom retirement at my age, but I understand that I can get ahead by taking time to address my financial planning needs now.
I don’t really have solid retirement goals. Let’s imagine I will retire around 2050. My investments need to provide support beyond any retirement date. I understand the risks associated with investing in stocks vs. mutual funds. I also understand that I can take more risk at a younger age. And I am comfortable taking on risk. After all, we’re only talking about Thrift Savings Plan contributions. I’m also putting money into a Roth IRA and considering a Roth 401(k).
My TSP contributions are allocated according to the default: 100 percent in the G Fund. LifeCycle funds seem to be recommended and preferred by a variety of folks. What do you think about this growth allocation:
25 percent — LifeCycle 2050
25 percent — C Fund
20 percent — S Fund
15 percent — I Fund
10 percent — F Fund
5 percent — G Fund?
A. I suggest that you consider maxing out your tax-deferred TSP contributions before saving anywhere else for retirement, and then fixing your allocation using the beginning allocation for the L 2050 Fund: 44 percent C Fund, 27 percent I Fund, 19 percent S Fund, 7 percent F Fund and 3 percent G Fund. Rebalance your account to this allocation at least once per year but no more than four times per year. I see no reason to mix the L Funds into the allocation.