Ask The Experts: Money Matters

By Mike Miles

TSP contributions

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Q. I’m 23 and recently began my FERS career with the government this past May. I contribute 5 percent of my income and plan on increasing the amount by 1 percent every year and 2 percent every GS level increase. What would be the best spread across the five basic funds for someone willing to work 40+ years in government service with a moderate amount of risk? Additionally, is there a limit where increasing the percentage beyond a certain point (besides the $52,000 yearly max) begins to yield diminishing returns when compared to other investment methods? Finally are there any other avenues of investment you recommend I pursue? Read the rest of this entry »

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L Fund recommendation

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Q. You recommend  that if we do not feel comfortable managing our TSP,  we should  invest in the L Fund that most closely corresponds to our life expectancy. However, the L Funds are named for the year we expect to start withdrawing money, not the year we expect to expire. I expect that I will not be withdrawing much money the year I expire, and certainly none afterwards. So why do you word your advice that way? Read the rest of this entry »

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More control over savings

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Q. I’ve been retired for several years and have been taking the good advice you’ve been suggesting in your “Ask the Experts” articles. Since I know very little about how to invest, I’ve put all my TSP savings in the L-2030 fund. Since I don’t need to withdraw any money at the present time, I plan on leaving the money there until it’s time for the RMD in about four years and I’ve named several beneficiaries for my account. You stated in one of your articles that if I didn’t need the money from the RMD, I can just move it to a similar investment in a taxable discount brokerage account. Does your company “Variplan” handle such accounts?

A. Yes, I provide comprehensive financial decision support for feds, including analysis and advice covering investments and other assets outside the TSP. Visit www.variplan.com for more information.

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TSP allocation

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Q. I work for the Defense Department. I have $75 biweekly going into the G Fund. I am in my early 30s and want to build my money. I don’t see it moving much in the G Fund, and I have been investing for four years. I can afford to invest $100 biweekly but don’t know what fund to put my money in for it to grow. My annual income is $38,780.

A. Given your circumstances, I suggest that you invest all of your Thrift Savings Plan money in the L 2050 Fund for the foreseeable future.

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Full TSP withdrawal

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Q. I am 67 and retired. I made a partial withdrawal a few years ago. I need some cash for a family matter, so I want to make a full withdrawal now. I don’t want an annuity, but I’ll invest half in a commercial IRA or retirement instrument in hope of reducing the immediate tax impact of this full withdrawal. Can I do so? — that is, invest half of this full withdrawal in another commercial instrument, thus avoiding for now the tax on this “re-invested” amount?

A. Yes.

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S Fund to G Fund

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Q. I am 47, have been investing for seven years, have reached maximum contributions at a total of $115,328.22 and will eventually retire at 63.

Recently, there is talk in the stock market of a global sell-off. I have had all of my investments in the S Fund and doing quite well. As of Jan. 23, I’ve shifted my contribution of 100 percent from S to G. Was this a financially dumb move?

A. Not if you’ve guessed right. Only time will tell. For what it’s worth, if we’re talking about your entire portfolio here, you should be invested in all five funds, all the time.

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S Fund

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Q. I currently have all of my Thrift Savings Plan investments in the S Fund, and I see that it is now losing money. Should I move my money today or this week, or wait and try to recap what I lost (Loss is recent, I think over this past weekend)?

A. The person responsible for managing your investment strategy will have to make this call. I can’t tell you how to work the controls if I don’t know where you’re going, what you’re driving or how much gas you have in the tank. I can tell you that a portfolio composed only of S Fund is not risk-efficient and is bound to lose significant amounts of money from time to time.

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Variable annuities

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Q. I just retired from government service under CSRS and have left my Thrift Savings Plan alone. My financial adviser, whom I consider a friend, is telling me I need to roll my TSP over into a tax-deferred variable annuity that guarantees a 5 percent return on investment each year even when the market does poorly. He says because of this “guarantee,” I can choose a very aggressive growth portfolio, while not having to worry about the results.

He claims my TSP is not protected against losses. I knew that already, of course. It’s with a highly rated company. Fees are around 2 percent annually. I noticed you have a real problem with these kinds of investments. The market is due for a major correction. Why are you so against these annuities?

A. They are expensive insurance policies. Two percent is huge! You’re more likely to lose than to gain from investing in one of these things compared to a comparable investment strategy invested in the TSP. Ask your “friend” how much money he will make from your purchase, including commissions, bonuses, fringe benefits, etc. You are paying that compensation from your account, in addition to the insurance and other costs which are designed to make sure that the insurance company profits at your expense. You shouldn’t even think about investing in a variable annuity until you’ve read the prospectus and clearly understand exactly what you’re getting into.

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Return on annuity

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Q. What is the percentage of return if I invest the balance of my Thrift Savings Plan account in the annuity provided by TSP?

A. The monthly payment depends upon your circumstances and the interest rate environment when you purchase the annuity. You can run a quote at www.tsp.gov. The return on investment from a TSP annuity can’t be known in advance, however. You’ll have to wait until the payments stop to figure it out. To illustrate, what if you buy a single life annuity with no refund and then die right away? Your return on investment will be hugely negative. The longer you live, the better the rate of return.

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TSP withdrawals and investments

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Q. I am a civilian FERS employee who will retire this summer at age 59 with 35 years of civil service.  After retiring, I intend to start monthly withdrawals from my Thrift Savings Plan account ($2,000 per month). Even though I will have begun making monthly withdrawals from my TSP account, can the remainder of my money in the TSP continue to be invested in the various funds (G, C, F, S, I) and continue to grow via earnings within these funds?

A. Yes.

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