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What do you think? - AA & DCA method
Old 11-18-2008, 07:25 AM   #1
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What do you think? - AA & DCA method

Planning to ER Dec 09 at 49 y/o - have a sizeable amount (multiple 6 figures) in my TSP (federal employee version of a 401k) I don't plan on tapping till 60 y/o. This is my biggest bucket of money.

I went 100% G-fund (Treasuries) in spring 07 & so missed the big market fall -but I realize I'll be lucky to even pace inflation in the long term.

I'm thinking it's now time to get back in. I've got 10 years till I plan on tapping the money but have also though of doing 72t distributions starting in 5 years to pay for DD college.

Here's my investment options:
G-Fund: Treasuries
http://www.tsp.gov/rates/fundsheet-gfund.pdf

F-Fund: Bonds (Barclays US Debt Index Fund)
http://www.tsp.gov/rates/fundsheet-ffund.pdf

C-Fund: S&P 500 (Barclays Equity Index Fund)
http://www.tsp.gov/rates/fundsheet-cfund.pdf

S-Fund: Small-Caps (Barclays Extended Market Index Fund)
http://www.tsp.gov/rates/fundsheet-sfund.pdf

I-Fund: Foreign Equities (Barclays EAFE Index Fund)
http://www.tsp.gov/rates/fundsheet-ifund.pdf

There are also various Life (L) funds that automatically change your allocation depending on your target retirement date.
http://www.tsp.gov/rates/fundsheet-lfunds.pdf

I've become fairly risk averse as I approach ER date & have never been very active moving money around in the TSP. I was previously:
20% G-fund;
10% I-fund;
70% C-fund

TSP now only allows us to move money twice a month. I'm considering at DCA'ing back into more equities to the tune of 5% every two weeks till I get to:

30% C-fund (S&P 500);
15% S-Fund (Small caps)
15% I-Fund (International equities)
50% G-Fund (Treasuries)

Is this too aggressive considering my risk aversivness?

Any suggestions/comments on AA or DCA method would be appreciated.
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Old 11-18-2008, 07:50 AM   #2
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ah, a question right down my alley.
FYI, i was FERS from day one.
your post reminds me of how i did my TSP for 18+ yrs.

i always used my new money to slowly rebalance. i kept my AA at roughly 60/40.

feel free to shoot big holes in this approach -

Bucket #1 - when the L funds came out, i took approx 3/4 of my existing principal and parked it in L2020. this became my "no touch" zone.
Bucket # 2 - the remaining principal and all NEW money with 5% agency match was equally distributed between C,S, and I. this became my "play" zone.

i left it alone for 6 months. no changes.
when i revisited the non L funds, if i saw the combo of the C,S, or I had grown too much, or was at a relative "high", i transferred most of that into the L2020.
i was transferring apples to apples - L2020 has C,S,I in it. Ergo no loss.
but some of the separate C,S,I shares in the "play" zone were morphing to the G,F portion of the L2020 in the "no touch" zone. so there was a slight harvest of gains. and no taxable exchange issues.
Most of the time i did nothing. it took a pretty good relative "high" for me to do a transfer. i used the historical cost/share prices to determine diff between the cost 6 months ago and the current cost/share.
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Old 11-18-2008, 07:52 AM   #3
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are you 49 now and planning ER at 50 on an early out in 09?
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Old 11-18-2008, 08:14 AM   #4
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Quote:
Originally Posted by freebird5825 View Post
are you 49 now and planning ER at 50 on an early out in 09?
I'll be 49 when I pull the plug in Dec 09.
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Old 11-18-2008, 08:22 AM   #5
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Quote:
Originally Posted by freebird5825 View Post
i always used my new money to slowly rebalance. i kept my AA at roughly 60/40.
It would take a really long time to rebalance using new money alone - I'm going to have to shift some big $ out of G to get rebalanced - it's just a matter of what percentage each month & to which funds.
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Old 11-18-2008, 08:36 AM   #6
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maybe take a look at the L funds.
i used 62 yrs old as my retirement age at the deciding factor on which L fund to pick, hence the L2020 for me.
you mentioned using 72(t), SEPP.
i used this, but under a voluntary separation at age 48, not a regular retirement. i took the immediated fixed annuity option, which worked for me but is definitely not the correct answer for others.
bounce stuff off me if you like. i did a ton of research into the TSP plan and can point you to the links if you need them.
your personnel folks can be very helpful, but it can tip your hand about your plans to retire. not always a good thing if you are up for promotion in terms of your high 3.
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Old 11-18-2008, 09:36 AM   #7
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observation ... you're proposing 110% invested ... (probably good in today's economy)
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Old 11-18-2008, 03:11 PM   #8
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observation ... you're proposing 110% invested ... (probably good in today's economy)
Ooops - well, you know what I meant - something along those lines.

(Hey, maybe I can get a bailout to make it up that extra 10%?)
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Old 11-18-2008, 03:19 PM   #9
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Quote:
Originally Posted by freebird5825 View Post
maybe take a look at the L funds.
i used 62 yrs old as my retirement age at the deciding factor on which L fund to pick, hence the L2020 for me.
you mentioned using 72(t), SEPP.
i used this, but under a voluntary separation at age 48, not a regular retirement. i took the immediated fixed annuity option, which worked for me but is definitely not the correct answer for others.
bounce stuff off me if you like. i did a ton of research into the TSP plan and can point you to the links if you need them.
your personnel folks can be very helpful, but it can tip your hand about your plans to retire. not always a good thing if you are up for promotion in terms of your high 3.
Hope you at least got a decent interest rate when you bought the annuity.

I've considered L2020 - whether I use that or my own AA I'm still on the fence about how rapidly to DCA into it when I feel the time is right. (perhaps soon, afraid I might be missing the "big sale" )

I'm not expecting much from our personnel folks - they seem to know less than I do. I could really care less who knows I'm pulling the plug, boss already knows.

Q. If I wanted to get Substantially Equal Payments based on Life Expectancy directly from TSP (instead of rolling it over into an IRA & exercising my own 72t plan) - can I tell TSP 5 years from now I want to start that, or do I have to make the decision at retirement?
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Old 11-18-2008, 05:26 PM   #10
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Quote:
Originally Posted by Texarkandy View Post
Hope you at least got a decent interest rate when you bought the annuity.

I've considered L2020 - whether I use that or my own AA I'm still on the fence about how rapidly to DCA into it when I feel the time is right. (perhaps soon, afraid I might be missing the "big sale" )

I'm not expecting much from our personnel folks - they seem to know less than I do. I could really care less who knows I'm pulling the plug, boss already knows.

Q. If I wanted to get Substantially Equal Payments based on Life Expectancy directly from TSP (instead of rolling it over into an IRA & exercising my own 72t plan) - can I tell TSP 5 years from now I want to start that, or do I have to make the decision at retirement?
heeheehee - i converted my TSP in July 2007, a relative strong market point, 5.25% fixed. i lucked out and caught a high point on the annuity interest rates in 2007. now that may seem like small potatoes, but it gave me the ability to free myself of a j*b that was like going to the dentist for 10 fillings all in one day and he just ran out of novacaine. i will point out a critical fact - i did not need to retain health benefits from my own career, i have them as the widow of another fed employee. it was the only way i could do a voluntary separation, the nice phrase for "I QUIT". See ya! LOL
i did the MRA+10 deferred retirement option. in 6 years, i apply for my deferred FERS retirement. woohoooooooo

personnel folks are as good as they are trained. OPM site is good to educate oneself, but a contact with a human being is superior. go up the chain if local personnel reps cannot (or will not ) give you the right service.

all TSP docs are at
TSP: Publications Query by Type; 2008 Oct 15
read these first. not all of them, of course. the summaries will tell you which you can skip.

A: see document page 1, bottom at
http://www.tsp.gov/forms/tspbk02.pdf
you will not be 59 1/2. watch out for early withdrawl penalties and tax implications. see http://www.tsp.gov/forms/octax92-32.pdf
it does not specifically say if you decide right at retirement.
call the TSP number for separated employees for that answer. pretend you are already retired. i'm serious. i did before i separated.
TSP: Features ch#1, Define ServiceOffice & ThriftLine; 2008 Sep 18
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Old 11-18-2008, 05:47 PM   #11
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a thought...does your agency offer retirement seminars periodically? mine did, but i was denied attendance cuz i was not within 3 yrs of retirement age.
ask around when the next one will be. if not offered locally, request TDY if funds allow.
i am an out of the box thinker, and DIY is often the norm for planning your retirement. if i make suggestions that seem outrageous, remember you are in a bureaucracy and the rules can be bent, but not broken, as needed.
be creative, be polite, and ask away. i found a lot of helpful folks in places i didn't expect. but i was armed with enough knowledge to ask the right questions.
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