Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 05-01-2008, 01:21 AM   #41
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,620
Quote:
Originally Posted by Robert the Red View Post
When noting the low ER for TSP, it is also important to realize that some of the expenses are 'paid' by employees who forfeit the 1% contributions the Government puts in for all employees -- if someone quits (or is fired) before the probationary period is over. In principal, if enough of this stuff happened, the reported ER could go to zero. This is a cost recovery mechanism not available to mutual funds.
IIRC Vanguard turns their 2% early-redemption penalties over to their mutual funds as well.
__________________

__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 05-01-2008, 07:22 AM   #42
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by Nords View Post
Yeah, I bet that TSP is a heckuva recruiting incentive to get people to forsake private enterprise for public service.

I think Clif's question is well put. If the federal govt is capable of finding contractors to administer a tax-deferred fund with rock-bottom expenses and index choices, how hard would it be to make a similar program available for a portion of Social Security payroll taxes... or indeed, for any employee's tax-deferred contributions?

I think we've all seen how capitalism has served the "civilian" 401(k) system. Just about every day we see a post on this board asking whether an employee should hold their nose and invest in their 401(k) for the tax deferral, or just go with a taxable Vanguard index fund.
Nords has it exactly right.

If you asked my to design the perfect saving plan for the 99% of my fellow American who are less financially sophisticated than the board members, I'd be hard press to come up with something better than the current TSP.. I felt this way before they lowered the expense ratio even further.

TSP provides exactly the right choices and the right number of choices not too few not too many. The choices are obvious (e.g I fund international stock S fund Small companies), and have virtually no overlap. If you don't want to do your own AA, target retirement is also available at very low cots. It is easy to transfer money but not so easy to encourage day trading your retirement.

AFAIK, other than various federal government departments providing matching funds I believe the TSP is self-supporting, Federal employees pay all the fees associated with the administration.

The Republican wet dream of transforming social security into private saving accounts, was pretty much doomed once you had the Democrats special interest + AARP pitted against Wall St brokerages. As the plan was sinking to the bottom of the Potomac, President Bush floated one excellent idea, unfortunately the trail balloon never made it to the surface.

In response to the demigogually "no we can not have people bet their retirement on stocks, look at what happens to the stock market a few years ago". He suggested that the folks have the option to invest 2% of their SS funds into a program just like TSP. I suspect that it is virtually impossible for somebody who has regularly contributed to the TSP for 20 year to have not made a lot of money.

Forget the linkage to social security. Why not allow all working American the option to contribute a portion of their salary to TSP? It is not like expanding the $225 billion in the TSP is going to cost existing federal employees any money. Presumably a large asset base would result in even smaller fees. There are already a lot of funds in the (50-100 billion range.)

Now it might upset Wall St firms, but that is part of the idea.
Imagine if 30 something worker looks at his SS statement and see his $20K invest in the TSP L fund get charged $3 in expense, while his 20K in the Merril Lynch Large Cap Growth fund gets charge $300 in expense (i.e. typical 1.5% mutual fee). If TSP L also outperforms the Merril Lynch a bit of pressure might be put on the employeers to make better 401K options.
__________________

__________________
clifp is offline   Reply With Quote
Old 05-01-2008, 07:24 AM   #43
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,451
Quote:
Originally Posted by Nords View Post
IIRC Vanguard turns their 2% early-redemption penalties over to their mutual funds as well.
I think many if not most employeer 401Ks do something similar. But you are right without the forfeiture the ER might be higher than what we see.
__________________
clifp is offline   Reply With Quote
Old 05-01-2008, 09:20 AM   #44
Full time employment: Posting here.
 
Join Date: Oct 2003
Posts: 961
Quote:
Originally Posted by clifp View Post
In response to the demigogually "no we can not have people bet their retirement on stocks, look at what happens to the stock market a few years ago". He suggested that the folks have the option to invest 2% of their SS funds into a program just like TSP. I suspect that it is virtually impossible for somebody who has regularly contributed to the TSP for 20 year to have not made a lot of money.

Forget the linkage to social security. Why not allow all working American the option to contribute a portion of their salary to TSP? It is not like expanding the $225 billion in the TSP is going to cost existing federal employees any money. Presumably a large asset base would result in even smaller fees. There are already a lot of funds in the (50-100 billion range.)

Now it might upset Wall St firms, but that is part of the idea.
Imagine if 30 something worker looks at his SS statement and see his $20K invest in the TSP L fund get charged $3 in expense, while his 20K in the Merril Lynch Large Cap Growth fund gets charge $300 in expense (i.e. typical 1.5% mutual fee). If TSP L also outperforms the Merril Lynch a bit of pressure might be put on the employeers to make better 401K options.
clifp,

While I agree that much lower expenses in retirement plans is warranted, I'm not so sure that allowing everybody to only have a DC plan for retirement is such a good idea. I've stolen the following example from PIMCO:

Quote:
A DC plan participant’s retirement income is highly sensitive to the savings end-point. When a DC plan participant retires plays a significant role in determining the final value of their retirement portfolio and therefore the income they will receive in retirement. This is particularly true for those who invest heavily in equities, which have volatile returns. Some are lucky enough to save and retire in an equity bull market; others are not.

For example, assume a DC plan participant has $50,000 by age 45, saves $5,000 in inflationadjusted dollars/year each year until he retires at age 65, and has invested 100% of his portfolio in the S&P 500. Table 2 shows the final value of those savings and the resulting annual income, in the form of a 30-year real annuity stream that eliminates inflation risk and longevity risk up to age 95 for two different periods. As the table shows, the variability of the (ex-post) equity risk premium (for example, the excess returns equities provide compared to bonds) resulted in significantly different returns, retirement portfolio values and post-retirement income depending on the investment period.

For our hypothetical plan participant, the difference between being born in a “good” year versus a “bad” year, means that he would retire on $38,576/year versus $9,627/year in inflation- adjusted dollars, respectively – despite their choosing the same investments and contributing the exact same real amount of money.
*see table 2 on page 7.

Instead of writing a long piece on what I think future retirement vehicles should look like, I'll just offer what Paul Samuelson and Robert Merton said at the Life cycel investing conference.

For starters, how about just letting everyone who wants to transfer their 401(k)'s, etc., to the TSP, since most of our options could be improved by switching, and we've already got our 401(k)'s invested in stocks and bonds. Or just have give our plans access to the cheap funds run by Barclays.

- Alec
__________________

__________________
ats5g is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Lower cost of living areas Moemg Other topics 58 03-04-2008 05:47 PM
Grad School or Lower Paying Job? PsyopRanger Young Dreamers 16 01-02-2008 08:26 AM
House prices to drop much lower: Greenspan retire@40 FIRE and Money 82 10-05-2007 09:58 PM
Diversifying Doesn't Lower Risk, But It Does Lower Potential Gain justin FIRE and Money 44 11-05-2005 05:16 PM
Lower your returns Now! unclemick FIRE and Money 22 05-28-2004 08:57 PM

 

 
All times are GMT -6. The time now is 01:24 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.