By Mike Miles
TSP fund allocation
June 17th, 2013 | Uncategorized
Q. I have unfortunately neglected my Thrift Savings Plan since joining federal service in 2007. I started with the G Fund, stayed with it during the crash, and am still 100 percent in it today. I realize that was a huge mistake; the stock funds have done extremely well especially this past year. Would you recommend I dollar cost average in over the next six months or year? My instinct is to stop these low returns and get into the bond and stock funds and out of the G, but if the market takes a dive this summer, I will be very unhappy.
I have a 401(k) self-directed plan with one of the brokerages, with stocks, bond funds, cash, but I really have not been successful in managing it with individual stocks. I discussed possible asset management programs with Schwab and Vanguard. Do you think that, with their fees of 0.75 percent to 1 percent, that they can beat over time just transferring into my TSP? Do you have any suggestions about a service that helps me rebalance the allocations among the five funds over time, or change if there are economic concerns?
A. If you don’t know what to do, then I suggest that you stop fooling around, transfer as much of you money as possible into your TSP account and put it in the L Fund that most closely corresponds to your life expectancy. You’d be a fool to trust a broker or fund company with your financial decisions.
Tags: 401(k), allocation, G fund, TSP
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
Transferring funds after retirement
June 10th, 2013 | Uncategorized
Q. I retired in 2011 because of a base closing. Before leaving, I put everything in the G Fund. Can I take money out of the G Fund and put it into another fund now that I’ve retired?
A. Yes.
Tags: G fund, retirement, transfer, 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 5th, 2013 | Uncategorized
Q. I am coming up on 10 years in the federal government and have not done a good job with my Thrift Savings Plan. I have left it at 100 percent in the G Fund, contributing 5 percent of my salary to TSP. I am now looking to maximize my TSP contribution (although perhaps not right away; I am considering increasing it to 8 percent this year and the upping it again next year until I’ve maxed it out). I was planning to put the additional contribution this year into the L Fund. I am almost 35, will soon have two kids and am married. Thoughts on how to better allocate my contributions?
A. If you want to do it yourself and don’t know what to do, I suggest that you put it all into the L Fund that most closely matches your life expectancy. To use my usual airplane analogy, this is like advising you to fly straight and level at 20,000 feet. I have no idea if it will get you where you want to go, but it’s the safest alternative without more information.
Tags: allocation, contributions, G fund, L Fund, life expectancy, TSP
G Fund vs. F Fund
June 3rd, 2013 | Uncategorized
Q. In March of this year, I moved 50 percent of my balance from the G Fund to the F Fund because I was tired of not making any money in the G Fund. I evaluated the performance of the F Fund over the past several years before doing this and assumed that risk was low. Initially, I was quite happy with my decision, but now I see the F Fund share price dropping consistently. Is this drop in the F Fund share price temporary, and do you expect it to regain its momentum? I’m now a little nervous about moving to the F Fund and may cut my losses and move the money back to G. Can you give me your opinion?
A. Let this be your wake-up call. There is so much wrong with this, it’s hard to know where to start. You ALWAYS made money with the G Fund. You should NEVER base your future expectations for investment performance on recent history. Things always go up before they go down, and vice versa. Of course the F Fund’s share price will rise again — eventually. Nothing is right with the approach you’re taking, and everything is wrong. It’s obvious that you’re not qualified to be managing an investment portfolio. You aren’t even asking the right questions. Maybe you should put your money into the L Fund that most closely corresponds to your life expectancy and cross your fingers.
Transfer L Fund savings to G, then back to L?
June 3rd, 2013 | Uncategorized
Q. I have all of my money in the L Fund 2030. All of the money experts are predicting that the stock market will fall. Should I transfer all of my money to the G Fund, then transfer back when to the L Fund when it nears the bottom? Are there any fees if you transfer? Or should I just ride out the storm and stay where I am?
A. Are those “money experts” going to take responsibility for the outcomes you experience if you follow their “advice.” Of course not. So why would you listen to them? Aren’t these the same experts that have run some of the largest financial institutions in the world into the ground? Wake up! If all of this “advice” floating around were any good, no one would have any problems retiring. But just opposite is true. Whoever’s responsible for the outcomes should be making the decisions. Do the work to figure out the right investment allocation to meet your needs with a minimum of risk and then apply it to your portfolio. Market timing isn’t a requirement for success and only adds to the risk of failure.
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.
TSP loan
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.