Ask The Experts: Money Matters

By Mike Miles


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Q. If I have Thrift Savings Plan funds in both G and C funds when I am required to begin taking required minimum distributions at age 70½, can I specify which funds the RMD are taken from? (My concern is that the C Fund may be at a low due to market conditions, and withdrawals may be better to defer till the market improves.)

A. TSP distributions are always taken proportionately from your various holdings at the time. I don’t see the rationale for your concern, though. Your account will be allocated exactly as it was before the withdrawal. If you don’t like the allocation, you can rebalance it. Alternately, you could invest the proceeds from the withdrawal in the equivalent of the C Fund in a discount brokerage account and be right back where you started.

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‘Locking in losses’

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Q. I understand why you defend leaving your money in the Thrift Savings Plan because of low expenses, security, protection from lawsuits, etc. However, how do you address the issue of “locking in losses” when withdrawing money in retirement from the TSP? For example, in an IRA, I can have (for a basic portfolio) a cash fund, an income fund and an equities fund. I know I can do this in the TSP, as well, G/F/C or S, but the primary difference is when I go to withdraw my money, in the TSP it comes out of all of these funds equally vs. an IRA which I can take money just from my cash fund and, if the stock market had a bad year, don’t touch that money for that year. I can’t do that in the TSP and I would immediately lock in my losses when I take out the money from the TSP. Please furnish your opinion.

A. Add to the list of pros the fact that the G Fund is likely much better than your IRA’s cash fund. The disadvantage you perceive is an illusion. There is no such problem as “locking in losses.” The real issue is whether your portfolio is in or out of balance. You should be establishing a cash reserve to fund your withdrawal needs and then rebalancing the remaining portfolio to the asset allocation model you’ve selected each time you rebalance. For example, suppose that your account contains $105,000 at the beginning of the year, you plan to withdraw $5,000 during the coming year, and you’ve settled on an asset allocation of 30 percent C Fund, 20 percent S Fund, 10 percent I Fund, 20 percent F Fund and 20 percent G Fund. You would rebalance your account at the beginning of the year to $30,000 C Fund, $20,000 S Fund, $10,000 I Fund, $20,000 F Fund and $25,000 G Fund. Notice that the G Fund is overweight by $5,000 to support the cash reserve. Each time you rebalance, you simply set aside the next year or two’s worth of withdrawal needs as cash reserves and then rebalance what’s left to the appropriate percentages, adding the cash reserves to the G Fund target. This approach can be used in the TSP account or any IRA, and there is no problem of locking in losses.

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‘Bucket’ strategy for TSP

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Q. I am interested in seeing if the Thrift Savings Plan can be managed on a bucket type of withdrawal strategy. I realize it would take an act of Congress to get the rules changed. Can you identify the member of Congress whose pet project is the TSP?

A. No, but you can use a “bucket” strategy in the TSP now. Just allocate your account the way you’d like, take your withdrawal and then rebalance your account. The “bucket” strategy is just another way to look at an asset allocation strategy. Even if you use “buckets” for your money, there is always an underlying asset allocation being implemented.

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International Fund vs. G fund

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Q. I have about 10 percent of my TSP invested in the International Fund and about 90 percent invested in the G fund. I do not want to take payments for the International Fund because it is down so much. Can I just take payments from the G fund and wait until the International Fund recovers, or do I have to take a proportional amount form each fund?

A. Any distributions will come from your investment funds proportionally. You may rebalance after the withdrawal is made, however.

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Rebalance of funds in TSP

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Q: I recently read an article by Mike Miles regarding rebalancing the distribution of funds in your TSP. I’m currently in the L Fund 2020. With being in the L Fund, do I need to consider rebalancing my distributions or is this done automatically for me just by being in this type of fund?

A: The L Funds are automatically rebalanced daily to an ever-changing allocation. That is not the same as rebalancing your account regularly to an allocation selected to best meet your needs. I suggest you research the L Funds, and anything else in which your life savings is invested, to be sure that you clearly understand how they work and the risk they pose.

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