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Post-Retirement TSP allocation?
Old 05-27-2014, 08:32 PM   #1
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Post-Retirement TSP allocation?

Well, I'm one month from being gainfully unemployed . I'm retiring (age 56 1/2) from a federal govt. career spanning 37 1/2 yrs. I'm not one of those really high-graded feds who'll pull down 100k in retirement, but between my fed civilian pension & my AF Reserve retirement that will kick in in another 3 1/2 yrs, the foundation will be there, with some wiggle room.

Wife will continue to work another 2-3 yrs, and when she stops working, basically my military retire pay will be about the same as her income and will simply replace it at that time. She has no pension, just a smallish 401k (approx. 100k now). She will qualify for a small SS at 62 (maybe $600/month). When I am 62, I'll get maybe $250 SS as well.

So here's my question: Once I stop working, I will obviously no longer be contributing to my TSP. This greatly concerns me because I'm worried how I can recover from dips in the market going forward. I'm hoping that some of you who are retired feds with TSP accounts will share your allocations, and how it's working for you. Are you sticking with your allocation regardless of what the market does, or do you move funds into/out of the G or F fund when things go south?

I'm retiring under the old CSRS system, but I'm only a GS-11, step 5 so not such a huge pension. I expect to net $34,200 per year after all taxes, health & life insurance plus max survivor's benefit. Wife's job adds another $13,300 net after her 401k contributions. So that's $47,500 net, before taking any TSP withdrawals. I don't have a huge TSP balance, but enough for $9000 net or so per yr if I want to or need to. I'm leaning towards not doing any w/d before my military pay starts. If I follow that route, then when combined with wife's 401k, we could probably w/d $13000 if we want/need to when she's 59 1/2 in 6 yrs.

We currently live on a combined net income of $38000 per year, and that does include some discretionary spending such as eating out, a movie now & then etc. Mostly goes for living expenses, though. This means that when I retire, we'll actually get a pay raise ($38k to $47.5k) plus any portfolio withdrawals.

So...we have some flexibility with the 401k/TSP withdrawals. I just need to know more or less how others are investing their TSP funds now that they're no longer contributing. Thanks folks!
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Old 05-27-2014, 08:53 PM   #2
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In addition to the TSP, I also have a traditional IRA of about equal size. My target asset allocation is 50/50. Since the TSP offers the G Fund, which is very unique in that, even if interest rates rise, you can't lose principal, my TSP is currently 90% G fund which is my fixed income portion of retirement portfolio.
The traditional IRA is currently 100% Vanguard Total Stock Market ETF (VTI).
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Old 05-27-2014, 09:26 PM   #3
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Good thread! Because I'm CSRS, I didn't start maxing out my TSP until the last 4 years. I took a onetime withdrawal and only have a little under $200,000 left. I have about 87% in the L2020 and 13% in G. My net is $67,044 annually and that covers all living expenses, savings etc. So I can wait 7.5 years until I have to take those mandatory distributions, and figure if the market dips I have some time to recoup. I also have a very small ROTH IRA (~$28,000) I think of as one of my emergency funds. Thanks Marty for starting this discussion.
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Old 05-27-2014, 09:30 PM   #4
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I have about half of my retirement nest egg in TSP and half in Traditional and Roth IRAs. I'm a 50/50 Equity/Fixed income guy in both the total portfolio and in the individual TSP and IRA portions as well since I withdraw funds from both portions.

I'm believer is assessing your risk tolerance, choosing your asset allocation to match that tolerance and staying the course. To succeed in timing markets peaks and valleys requires prognostication skills I do not possess. Guessing right on both exiting and entering the market...multiple times...is a tall order.

I take a constant monthly stipend from TSP and then decide on the appropriate lump sum withdrawal from my IRAs to fill out the total annual withdrawal amount as well as manage my total tax withholding. I was an ART as well, so I have a FERS/AF Reserve combination of annuities that provides enough income to allow me to vary withdrawals from investments to meet varying markets.

Another item to consider is your tax withholding. Each entity paying an annuity as well as the TSP, considers the funds paid to you in isolation so you'll either have to manually increase the withholding or pay estimated taxes to avoid an underpayment penalty.

Congratulations and happy retirement.
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Old 05-27-2014, 09:43 PM   #5
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Forgot to put in the previous post...my fund allocation percentages in the TSP portion of my retirement accounts are:

C 15%
F 10%
G 40%
I 15%
S 20%

I normally rebalance once a year to restore the desired allocation.
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Old 05-28-2014, 06:57 AM   #6
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The only reason I can see to distinguish between TSP and any other account (e.g. Vanguard or Fidelity) is if you have both. In that case it can be worth keeping a large portion (or 100% in my case) in the G fund because the G fund is unique. It is as safe as cash but delivers the average of mid term treasuries. In your case it sounds like the TSP will be your sole or at least major source of non-pension income. In that case you simply (or not so simply) have to figure out what you want as an overall AA and divy up TSP between equities and bonds. You could go very simple and just use the general total stock fund for equities and the G fund for bonds/cash. Or you could use a broader array of available funds (e.g. mix G and F funds for bonds) Or you could let the TSP professionals pick the mix for you by selecting a life style fund that will set your allocation for you. If you chose the later you still have to think through your risk tolerances and general feelings about AA. For the lifestyle funds you pick a retirement date more based on the allocation you want at various ages than the actual date you start retirement.

By the way, exploring what the lifestyle funds do for various retirement dates will give you a lot of information about what somewhat objective financial professionals (i.e. folks that are not trying to profit off your choices) think are prudent AAs at various life points of average retirees. I suspect they base their AA recommendations on the average age of Federal retirees which was about 62 when I looked a few years ago.
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Old 05-28-2014, 07:46 AM   #7
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I rolled all my TSP into an IRA when I retired this year. I have invested about 75%s of it in a Buy and Hold strategy (i.e. Boglehead website). 60% stocks, 40% bonds. I'll ride the waves of the stock market. The larger the bond allocation, the softer the blow of any stock market crash. The other 25% I have in dividend paying stocks.

I am taking 72T monthly distributions based on the amortization calculation which gives me the highest dollar amount but I might change it to the simple interest calculation in a year or two if I find I am withdrawing more than I need or my account balance takes a nose dive faster than I can accept.

Between my stock/bonds and dividend stocks they will pay about 2/3's per year in dividends from what I am withdrawing. If I change to the simple interest calculation the dividends will cover nearly all my withdrawals. My intention was not to deplete my account over the next 9 years of withdrawals. I only have to make 1-2% a year, after dividends, to maintain my current account balance. If I make more my account grows.

TSP is great, but with my IRA I could diversify into multiple asset funds across the US and foreign markets. And although everyone talks about the low cost of TSP there are low cost ETF's out there with no commission fees (Schwab, Vanguard). I rebalanced last month and paid 30 cents in fees when I bought/sold between the 15 funds I own.
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Old 05-28-2014, 07:57 AM   #8
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Hey Marty,

Congrats on your soon to be retirement. 37.5 yrs is a long time to be working for the man. I think the two best things TSP has going compared to others are the low expenses and the G fund. The G funds provides an opportunity to preserve capital while earning something. I suspect we will see the funds performance return increase in the next few years. I think in my planning I will use the G fund as the fixed component of my complete portfolio once I start drawing. It will not make up my entire allocation.

You mentioned you are not going to need your TSP to cover your immediate expenses. I understand what you are saying about a dip however as bad as the last one was it came back in less than 3 yrs. Maybe you keep enough to cover 3 yrs of potential need in the G fund and the rest you keep in equities.

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Old 05-28-2014, 07:57 AM   #9
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My TSP allocation is 50% G and 50% L2030. The downside of TSP is their limited choices in taking distributions so when that time comes that I need to start pulling money out I will probably transfer everything to an IRA.
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Old 05-28-2014, 11:07 AM   #10
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I decided to make my TSP like a second pension, because my FERS pension is so tiny.

So, I have it 100% in the G Fund, and I get equal monthly withdrawals from it that will last me the rest of my life (despite the low returns on G Fund).

This also takes care of part, though not all, of my bond allocation in my portfolio as a whole. Got to have bonds somewhere, so G Fund seems as good as any to me.
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Old 05-28-2014, 11:33 AM   #11
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I appreciate the responses. My biggest concern is the fact that without further contributions, my TSP will be completely at the mercy of the stock market (if I have any of it invested). Kind of feels like being in the middle of the ocean with no life jacket. I guess I just have to come to terms with the amount of risk I'm willing to take and make some allocations. Thanks again for all the inputs!
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Old 05-28-2014, 12:00 PM   #12
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My biggest concern is the fact that without further contributions, my TSP will be completely at the mercy of the stock market (if I have any of it invested).
I think I would look at it in terms of my entire portfolio not just TSP in a vacuum. In addition something that I struggle with is thinking about my retirement income in terms of a bond like portion of a portfolio. If I took that into consideration I would keep my equity allocation a lot higher.

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Old 05-28-2014, 12:13 PM   #13
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Originally Posted by martyb View Post
I appreciate the responses. My biggest concern is the fact that without further contributions, my TSP will be completely at the mercy of the stock market (if I have any of it invested). Kind of feels like being in the middle of the ocean with no life jacket. I guess I just have to come to terms with the amount of risk I'm willing to take and make some allocations. Thanks again for all the inputs.
I agree it's wise to keep some % outside the G fund, maybe look into one of the L funds to do the allocation for you. If taking withdrawals I would prefer to use a bucket type approach and take my withdrawals from the G fund and let what I have in any index funds sit and have time to ride out any bumps in the road. Unfortunately when you start taking withdrawals from the TSP you cannot designate what funds your withdrawals come from. It automatically takes an equal percentage from each fund you're invested in. I guess you could always reallocate and do transfers between funds but that's a PITA. Another reason why I'll be moving my funds from TSP when I need to take distributions.
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How about L -Income Fund?
Old 05-28-2014, 05:44 PM   #14
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How about L -Income Fund?

I really like the L-Income fund. It currently consists of 74% G Fund/ 12% C fund and the rest is in F, S, and I. The performance has been 4.5 % annual average since inception (2005). In 2013 it did 6.97%. I think it lost 5-8% in 2008.

The TSP annuity rate is looking much better these days (for a portion of your funds)
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Old 05-28-2014, 05:59 PM   #15
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I really like the L-Income fund. It currently consists of 74% G Fund/ 12% C fund and the rest is in F, S, and I. The performance has been 4.5 % annual average since inception (2005). In 2013 it did 6.97%. I think it lost 5-8% in 2008.

The TSP annuity rate is looking much better these days (for a portion of your funds)
The current rate for annuities from TSP is 2.875%, which seems pretty low to me, to get locked into for life, but like most here I'm not an annuity kind of guy. I'll already have the 2 pensions so those are my "annuities". I am also taking a look at the L-Income fund. I'm trying wrap my head around playing it safer (G or L-Income) or stepping up my game by being 50% to 60% in equities.

I suppose there's really no rush...I can park my funds in G or L-Income until I decide on my true allocation.
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Old 05-28-2014, 07:23 PM   #16
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The current rate for annuities from TSP is 2.875%, which seems pretty low to me, to get locked into for life, but like most here I'm not an annuity kind of guy. I'll already have the 2 pensions so those are my "annuities". I am also taking a look at the L-Income fund. I'm trying wrap my head around playing it safer (G or L-Income) or stepping up my game by being 50% to 60% in equities.
6%
I suppose there's really no rush...I can park my funds in G or L-Income until I decide on my true allocation.
I think that rate is an index, not an interest rate. The index has risen from the bottom to the midpoint of its historical range in the past 12 mos. According to DW's annual statement, the payout is around 6.2% for a 62 yo.
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Old 05-29-2014, 07:45 AM   #17
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Hey you guys...

Marty, I understand your concerns about being locked into an account that is ever decreasing as you withdraw from it without being able to contribute to it as you have done all these years. The way I look at it...and looking at the big picture...much of your income will be from an annuity, SS, etc., (in my mind like bond funds), the other will come from your TSP, (probably a smaller amount). In that light, I have been keeping 60% in the C and S funds and 40% in the G. I am still stock heavy. I think you can be a little more aggressive since just part of your pie is TSP. I do watch the market and shuffle between the funds now and again. You can always run to the G. I more aggressive.

Bottom line...I think you need to look at all your income sources...to determine what percentage your TSP will be. Not just look at TSP only and ignore everything else. I would stay mostly in equities, Marty.

I also already have a good amount of IRA funds with Vanguard. We have always contributed each year. My plan is to move my TSP into Wellesely when I hit 60 or so.

This may explain what I have been trying to say...and food for thought...opinions please...
The Whole Story on Federal Retirement Income
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Old 05-29-2014, 10:09 AM   #18
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This may explain what I have been trying to say...and food for thought...opinions please...
The Whole Story on Federal Retirement Income
That article is certainly up for debate, but I tend to agree with it. Our plan has us at 85/15 and probably staying 85/15 well into retirement (I should start receiving active Mil pension at 42). I use the G fund for 75% of my bond allocation, F makes up the rest, and I move money from C and S over to G/F as my stock allocation rises in accounts outside TSP. (Note: still in the accumulation phase).

Once I've "won the game," maybe I'll go more conservative, but with a significant fixed income stream, it makes sense to me to remain aggressively allocated otherwise.
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Old 05-29-2014, 03:38 PM   #19
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That article is certainly up for debate, but I tend to agree with it. Our plan has us at 85/15 and probably staying 85/15 well into retirement (I should start receiving active Mil pension at 42). I use the G fund for 75% of my bond allocation, F makes up the rest, and I move money from C and S over to G/F as my stock allocation rises in accounts outside TSP. (Note: still in the accumulation phase).

Once I've "won the game," maybe I'll go more conservative, but with a significant fixed income stream, it makes sense to me to remain aggressively allocated otherwise.
I prefer to sit back, relax, and enjoy my retirement and let the markets do what they do over time, grow my money. I tried timing the market but it was too much stress and it is hard to time the market consistently. If I was still in TSP I'd be 20% in each, G, F, C, S, I, for a 60/40 split, I am about 70/30 now in my roll over IRA due to owning a few individual dividend stocks.

20% each would have averaged 8.76% per year for the last 10 years. Only 100% S fund would have beaten you. But you'd have to suffer through some serious losses from time to time.

Here is the 10 Yr Compound for the G, F, C, S, and I from the TSP Website. 3.39% 4.65% 7.44% 10.43% 7.08%

Here is a link to some lazy/couch potato type portfolios outside TSP and how there returns have averaged over the past 10 years compared to the SP500 (C-Fund). As you can see, a diversified portfolio over the long run does as good as 100% C fund with reduced risk during a bear market.

Invest Simple with Lazy Portfolios - MarketWatch.com
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Old 05-29-2014, 04:22 PM   #20
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I prefer to sit back, relax, and enjoy my retirement and let the markets do what they do over time, grow my money. I tried timing the market but it was too much stress and it is hard to time the market consistently. If I was still in TSP I'd be 20% in each, G, F, C, S, I, for a 60/40 split, I am about 70/30 now in my roll over IRA due to owning a few individual dividend stocks.

20% each would have averaged 8.76% per year for the last 10 years. Only 100% S fund would have beaten you. But you'd have to suffer through some serious losses from time to time.

Here is the 10 Yr Compound for the G, F, C, S, and I from the TSP Website. 3.39% 4.65% 7.44% 10.43% 7.08%

Here is a link to some lazy/couch potato type portfolios outside TSP and how there returns have averaged over the past 10 years compared to the SP500 (C-Fund). As you can see, a diversified portfolio over the long run does as good as 100% C fund with reduced risk during a bear market.

Invest Simple with Lazy Portfolios - MarketWatch.com
Yeah, my 85/15 is across all accounts. TSP is heavy bonds (mostly G) because that's where my bond allocation is. All IRAs and taxable are 100% stock. I just prefer to look at the holistic portfolio rather than keep each account at 85/15. Maximizes tax and expense efficiency, IMO.
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