Ask The Experts: Money Matters

By Mike Miles

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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TSP allocation

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Q. I have 14 years of federal service and have always been in the C Fund 100 percent, currently with $230,000. For the past few years, I’ve contributed at 15 percent. I was not very attentive to my Thrift Savings Plan and, after 2008, was leery of moving after the big losses and getting into L2030. In 2013, the C Fund was amazing, but 2014 has been way down so far. How do I know the right time to transfer the whole thing to an L Fund, and is that the right thing? I will probably retire by 2035.

A. Your current asset allocation scheme is risk-inefficient. You should move to the appropriate risk-efficient asset allocation scheme, using all five of the TSP’s basic funds, as soon as possible.

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G Fund

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Q. In your recent column “4 keys to TSP success,” you mentioned, regarding asset allocation, to “diversify your holdings among cash, stocks and bonds to hedge the risk lower.” I agree with this approach wholeheartedly, but ask where in the TSP to keep “cash”? There is no money market option, just the L funds (which I don’t use, preferring to personally allocate my investments), and the G, F, C, S and I funds.

By the way, I took everything out of the G Fund and ceased all future allocations to it when there was a proposal by our leaders last year for the federal government to be able to borrow against it. Do you have any update or comment on this proposal?

A. The G Fund is a cash equivalent with an above-market rate of return. It’s as safe as anything you’ll find.

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TSP allocation

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Q. I’m 33 years old and have been in the federal government since 2004. I own a house and max out my Thrift Savings Plan every year into the L2040 fund. Can I be more aggressive with my allocations? I won’t be able to retire until at least 2034.

A. You can be more aggressive, but I can’t tell you if you should without the benefit of more information and some solid planning and analysis. The allocation you use should depend entirely on your unique resources, goals and circumstances.

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L Fund

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Q. When I retire in two years at age 62, I would like to take a fixed monthly payment out of my Thrift Savings Plan. Can I still leave the balance in the L Fund and earn the rate that the L Fund is earning?

A. Yes.

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Holding on to capital

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Q. I’ve just been flying straight with the L2030 plan until I can get some reliable advice. I would like to keep my capital I have in the Thrift Savings Plan, receive a monthly or quarterly check, and reinvest the amount I don’t need back into my capital. When I turn 70½ (in four years) I’ll have to start receiving the required minimum distribution, which I can’t reinvest. I don’t want to get an annuity because I’d have to give up my capital. How can I hold on to my capital, reinvest in it and possibly leave that money to my children or even my grandkids?

A. I don’t see a problem. The money in your TSP carries a tax liability that must be paid, eventually. There is no requirement that you spend the RMD. You can just move it from the TSP to a similar investment in a taxable discount brokerage account.

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TSP fund transfer

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Q. I am 65 years old and retired from government service in March. I have about $ 400,000 in my Thrift Savings Plan account, with over $150,000 in G Fund. (For the record, I also hold about $70,000 in the F Fund, $90,000 in the C Fund, $50,000 in the S Fund and $40,000 in the I Fund.)

I am considering transferring $40,000 from the G Fund to L2020 to make my TSP portfolio a bit less conservative and also as a reflection of long-term price expectations on the bond market.

Do you consider this a wise move?  If so, is $40,000 enough/too much? (Incidentally, I do not intend to withdraw from my TSP until I am required to do so in 5½ years.)

A. Wise? It sounds like a shot in the dark to me. What is the expected rate of return for this portfolio? How likely is it to produce returns that differ from the expectation? Given these characteristics, what is the probability that this portfolio, along with the way you’ll manage it in the future, how likely is it to support your financial goals? Can you afford to take less risk and still achieve your goals? Without knowing the answers to these questions, you’re flying blind.

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L Fund

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Q. I don’t understand what you mean by invest in the L Fund based on your life expectancy. My husband plans to retire in 2014 when he turns 62. If his life expectancy is 85 years old, does that mean he should put his money in the L2020 or L2030 Fund? He is still employed, but his Thrift Savings Plan money is in the L  Income Fund.

A. Recommendation to invest in the L Fund that most closely corresponds to your life expectancy (or joint life expectancy with your dependent) assumes that you don’t have the basis for a more suitable strategy. It’s like recommending that you fly a plane straight and level because I have no idea where you are or where you’re going. It’s the safest bet, but there is no assurance that it will get you where you want to go safely. Still, it’s better than recommending that you dive or climb.

Based on the information you’ve provided, you expect your husband to live until 2037, when he is 85 years old, so my rule of thumb would lead him to the L 2040 fund.

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L Fund vs. G and C funds

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Q. I am fairly new to investing in the Thrift Savings Plan, having been active in it for about three years. I am 31, with about $3,800 and contribute about 13 percent of my pay into the L2040. When I started, I had 60 percent G Fund/40 percent C Fund. Am I going the right direction when I moved into the L Fund?

A. Probably.

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TSP allocation

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Q. I’m 53 years old and plan to retire in 10 years. My current Thrift Savings Plan balance is $131,000, and I’m 100 percent allocated into the L2040 fund. I’m very aggressive in my investing. Should I allocate my TSP 60 percent C Fund, 20 percent S Fund and 20 percent I Fund instead of the L 2040 fund, which allocates in all of the funds to include the G and F funds?

A. You’re the investment manager, so you’ll need to use your process for determining the correct allocation of your TSP funds. If I were responsible for the decision, I would want quite a bit more information and analysis before deciding on the right allocation to meet your needs with a minimum of risk.

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