TSP introduces Life Cycle Funds

[daystar]

The TSP is now offering Life Cycle Funds. Go here to read more:
http://www.tsp.gov

I'm considering investing in the 2040 L Fund. I can retire from the Federal government as early as 2028 if I'm offered early retirement. Otherwise, my regular retirement age (57) would be in 2036. If I retire in 2036, I will have a large enough pension and enough assets to postpone my TSP withdrawals until mandatory withdrawal age (70 1/2) in 2050.

The TSP claims that their life cycle funds lie along the "efficient frontier." Do you think this is an easy way to maximize return and minimize risk?

 

[yakers]

Well I like the Life Cycle funds because of their diversification and their progressive shift in allocations. I will be 55 later this year and I have just changed my new contributions to the LC2010 fund. I had been 40% G, 20% I, 20% S and 20% C. So the 2010 is close enough. I also have some DRIP stocks, IRA and Roth funds so getting the best asset alloaction is another issue.
Folks on this board are bright enought to figure out their own AA but if you want to "set and forget" then the Life Cycle funds look good to me.

 

[tozz]

Thanks for the tip, Daystar.

I'm slowing pushing my funds into the L 2020 fund.  That will be the extent of my investment decisions this year.

Our retirement specialist here seems pretty harried with everyone bolting for the door.  So I hate to bug her.  Are the results from the USGS calculator (below) pretty consistent with the official ones you guys use?  Thanks.

http://hr.er.usgs.gov/calculators/retire/csrs.html

 

[daystar]

The two busiest times of the year are the two months before September 30, and the two months before December 31st. Agencies typically offer their buyout incentives (VSIP) at the end of the fiscal year which is September 30th. I tried the USGS retirement calculator and it seemed accurate. I compared it to the charts in the CSRS/FERS Handbook and all the numbers added up.

However, you will want to get a real retirement estimate if you have ever:
Taken a refund of your retirement contributions
Had time where you never paid into CSRS
Have Military Service and you didn't pay the deposit
Made Voluntary Contributions to CSRS
Are a re-employed annuitant
Unsure of your service computation date
Unsure of your high-3 salary
Worked Part Time after 4/6/1986

I just completed two years as a retirement specialist and it's on to new challenges as a staffing specialist. Now I see brand new federal employees and process their personnel actions.

 

[cons]

the expense ratio for the lifecycle funds is 60 basis points compared to 6 basis points for the other funds

 

[yakers]

the expense ratio for the lifecycle funds is 60 basis points compared to 6 basis points for the other funds

That is different than the way I understand it: "The administrative expenses of the L Funds are those of the underlying G,F, C, S and I Funds, calculated in proportion to their allocations in each L Fund."

 

[daystar]

The L Fund will cost you $.60 per $1000 invested, which = .06%

The rate will fluctuate depending on the costs of the C,S,I,F,G funds (because the L fund invests in them).

 

[jerryo]

Planning to ER sometime in the next 4 years (betw 55 & 59) and I was looking at the life cycle funds. But the asset allocations seemed very conservative (heavily biased towards cash & bonds at retirement....particularly since I'm planning to sit on my TSP accounts as long as possible while using other resources.

Anybody have any thoughts on that? What about buying into a later fund (2020 or 2030) as a more aggressive strategy??

 

[azanon]

I think they're great for the average investor who wants risk and volatility moderated.

Me?  I want my money working hard as possible.   That obiligates me to hold 100% stocks, which i do.  Im 50% S and I atm (because a good portion of my personal IRAs are primarily large cap domestic).

If interest rates keep rising eventually past about 9% or so, i might take a more defensive position.

 

[yakers]

Anybody have any thoughts on that? What about buying into a later fund (2020 or 2030) as a more aggressive strategy??

Good question. I went with the 2010 for future contributions but thought about the 2020. My anticipated CSRS pension could let me take a more (stock) aggressive fund but I really am not interested in a lot of volatility right now unless someone can guarantee that it is upward volatility
I also have an earlier IRA in a growth fund and some money in DRIP stocks. I have my Roth in a Vanguard Asset Allocation fund (VAAPX), which is almost all stock right now. So I figure I have enough stocks and I just want to use the TSP G fund for my bond allocation. I will be 55 later this year and expect to retire in about 2 years unless there is a buyout or a negative change in management. I’m in kind of a balance, I like my job but I think I might enjoy retirement more but I have one son left in high school. So I will stay on the job as long as I like it and until I resolve the son’s college funding issues.

 

[Patrick]

What about buying into a later fund (2020 or 2030) as a more aggressive strategy??

Yes, that is a possibility. My deferred comp. manager actually suggests doing that.  Let your risk tolerance be your guide.

The supposedly great thing about these funds is that your money is automatically moved to less volatile investments as you get closer to retirement.  This is done slowly over a long time (several years), so the adverse affects on portfolio value should minimized.

 

[tozz]

That's what I did, Jerry.  I'm shifting everything over to L 2020 even though I'm retiring in 2005.   Having a secure pension increases risk tolerance.

Similarly, I use a 80% safe rate when I perform FIREcalc scenarios.    If the money runs out it would be unpleasant, but I wouldn't be out on the street.

Anybody have any thoughts on that?  What about buying into a later fund (2020 or 2030) as a more aggressive strategy??

 

[Michael Moore]

My sweetheart retired a year ago, and I've got two weeks to go (yeah!) and we've just moved all of the TSP money (we're both CSRS) into the G fund. I haven't a clue what to advise someone who has some time still to go, but right now we're definitely concerned about asset preservation, and not so much about potential gains (or losses).

cheers,
Michael

 

[Dreamer]

Planning to ER sometime in the next 4 years (betw 55 & 59) and I was looking at the life cycle funds.  But the asset allocations seemed very conservative (heavily biased towards cash & bonds at retirement....particularly since I'm planning to sit on my TSP accounts as long as possible while using other resources.

Anybody have any thoughts on that?  What about buying into a later fund (2020 or 2030) as a more aggressive strategy??

This is from the L Fund literature: How do I choose the right L Fund for Me? All you have to do is determine your "time horizon" by answering this question: "After I leave Federal service, when will I need the money in my TSP account?" (Depending on your age and your other assets, your time horizon may be later than your retirement date.)

In other words it is not your date of retirement, but rather when you think you might need the money.

I switched all of my funds to the 2010.

Dreamer