TSP strategy

[kitesurfer2]

I retired 6 weeks ago with a good chunk of change in my TSP, all in L income where i have had itfor the past 5 years. after finally getting my checks from SS, FERS and military I've found that I'm not too bad off. I will not need to drawn down my TSP to make ends meet. so i moved 50% to L2050 fund, 25 to C fund and 25 to S fund. i only earned 3.98% last year and was hoping for a little better returns. My goal is 6% return so i'll give this a year and then take another look. i know the presidential election will affect the market, but i don't know how. I really hope the TSP comes up with a Roth plan.

 

[hesperus]

Congrats on your retirement.
Over the last five years it's too bad you didn't have more allocated into the C fund, or one of the longer target date funds - there's some lost market gains there. I would choose an allocation strategy based on all your assets and change the TSP to match that, then leave it alone.

 

[MikeWillRetire]

If you don't need it, you have won the game. However, going from L income to 50% L2050, 25% C, 25% S is a drastic change.

 

[Greg V]

There is a Roth TSP, but unfortunately it uses current contributions and you can't convert your existing TSP into a Roth. Since L Income is 80% bonds, a 3.98% return last year was not too bad. What is your investment strategy that drives the new TSP asset allocation you have recently chosen?

 

[kitesurfer2]

Greg, I guess i'm trying to get even. i followed the advice from TSP and missed out on all the gains over those years. I started out with %50 to C fund and %50 to G fund. along came L funds and I again followed advice. i have done very well compared to my coworkers who mostly contributed just enough for the match and I have retired comfortably. it really make no sense for me to take any risk at all as i don;t need the extra return it will earn. This was probably a foolish move so when I am back in the black, i'll probably go 100% L2050.

 

[karluk]

Greg, I guess i'm trying to get even. i followed the advice from TSP and missed out on all the gains over those years. I started out with %50 to C fund and %50 to G fund. along came L funds and I again followed advice.

I am not exactly sure what "advice" you are referring to, but a quick look at the tsp.gov website fails to find much, if any, support for the notion that you were "advised" to put all of your money into the L income fund. Tsp.gov indicates that the L income fund is designed for retirees already making withdrawals from the TSP, or soon-to-be retirees who plan to start withdrawals within a year. Yet, you say you have been 100% invested in this fund for the past five years while working, are now retired, and still have no need whatsoever to make withdrawals from your TSP. Based on what I'm seeing, one could make a legitimate case that you completely ignored the "advice" you were getting from tsp.gov as to the appropriate use of the L income fund.

it really make no sense for me to take any risk at all as i don;t need the extra return it will earn. This was probably a foolish move so when I am back in the black, i'll probably go 100% L2050.

Are you aware that shifting from your current allocation of 50% L2050, 25% C, 25% S into 100% L2050 would take you to a portfolio that is still about 85% stocks? I would hardly characterize having 85% of your TSP investments in the stock market as a low risk strategy that's appropriate for someone who says, "it really make no sense for me to take any risk at all".

My overall impression from your posts is that you are drifting back and forth between investment options based on what has been performing well in the past. I think most people in this forum, myself included, would suggest that you first determine an asset allocation that you're comfortable with and that meets your stated objective of taking little or no risk. Then you can make an informed judgment of which TSP funds you should be invested in. If that puts you back into a much more conservative allocation, so be it. You can chalk up your brief excursion into an ultra-aggressive allocation to the growing pains that come with learning how to manage your investments as a new retiree.

 

[samclem]

Greg, I guess i'm trying to get even. i followed the advice from TSP and missed out on all the gains over those years. I started out with %50 to C fund and %50 to G fund. along came L funds and I again followed advice. i have done very well compared to my coworkers who mostly contributed just enough for the match and I have retired comfortably. it really make no sense for me to take any risk at all as i don;t need the extra return it will earn. This was probably a foolish move so when I am back in the black, i'll probably go 100% L2050.

"Don't take this the wrong way" (uh, oh!), but your approach is the classic route to crappy long-term results. Following tips on what the market is going to do next, trying to take a gamble "just until I get even" and then changing investments, etc. This is what you seem to be doing. Nobody knows what the market is going to do next. They never do. The proven long-term strategy that works is to determine your desired asset allocation and then stick to it. If you like the asset allocation that is used by the L2050 fund, then put your money in it and forget it--they'll automatically rebalance the stocks and bonds for you every day. If you want an allocation with fewer stocks (= less volatility, but lower expected long-term returns), just pick a different L-series fund that matches your tolerance for ups and downs. You say you've got enough money, you just want to keep it, so that would argue for a fairly low allocation to stocks.
The >vast< majority of individual investors get results way below the market indexes (more here). That happens because they move in and out of various assets just as you seem to be doing--based on hunches, what the financial press says, how they've done lately, emotions, etc. For the 20 year period ending in 2014, the average investor with a mix of stocks and fixed income assets averaged an annual return of 2.4% (per Dalbar study above). Meanwhile, a "dumb" set-it-and-forget-it investment in a balanced mutual fund (example: Vanguard Tax Managed Balanced, but many similar funds did just as well) returned 8% per year over that time. I think you are on the path to that lower return, when it is easier and less gut-wrenching to get the higher return. Pick an allocation and leave it alone.
Sorry for the unsolicited advice.

Edited to add: Oops, I see I cross-posted with karluk. Same general idea . . .

 

[Greg V]

Developing a plan that fits you and sticking to it are crucial to optimizing your portfolio's performance and having realistic expectations about investment returns. As you begin retirement, understanding your new financial situation and mapping the way ahead is very important. If you have not done much of this research, analysis and planning in the past, a good place to start is the Bogleheads.org site. Their wiki at

https://www.bogleheads.org/wiki/Main_Page

has great advice on investments and gives a structured path to building and managing your portfolio whether you're a beginner or have extensive experience.

 

[unno2002]

If a retired federal employee, WHY would you leave any money in the Thrift Savings Plan (TSP)? Roll it out to some sane private sector custodian. There, you can still "invest" in the five "tunnel vision" accounts of the TSP, or in the broader aspects available in the "real world".

 

[Greg V]

Uno, here’s a different view on the TSP from a retired Fed employee.

Four of the five TSP funds (managed for TSP by Blackrock) track the S&P 500 Index (C Fund), Barclay’s US Aggregate Bond Index (F Fund), The Dow Jones US Completion Index (S Fund) and MSCI EAFE Index (I Fund). These choices cover the Domestic stock and bond markets and developed foreign stock markets…same investment opportunity as Vanguard ETFs VOO, BND, VXF and VEA. The remaining Fund (G Fund) invests in a special type of US Gov’t securities required by law to give the return of Intermediate Treasuries with no principal risk…a unique opportunity if you rely on a fixed income allocation to limit portfolio volatility. The max Expense Ratio for any of the funds is 0.029%, about half of their Vanguard alternatives. If you’re a Slice and Dice guy there is no Value Tilt option, but you can Tilt Small/Mid Cap and international. While I agree that more options would be better (REITs, anyone?), this list of investments hardly constrains most investors and I don’t believe that “tunnel vision” is an accurate description of TSP funds. The major TSP disadvantage, and it’s not a small one, is its limited distribution options…something that could change in the future.

In my situation, having about half my retirement funds in TSP and half in Traditional/Roth IRAs works well. Expenses are low and investments options plentiful. I take a constant monthly income stream from TSP to make the best use of its distribution options and augment that as needed with lump sums from the IRAs.

Bottom Line: Investors with the opportunity to use TSP should seriously consider including it as part of their overall investment strategy...you get unbeatably low expenses, broad market coverage and a solid fixed income investment found nowhere else.

 

[Nords]

If a retired federal employee, WHY would you leave any money in the Thrift Savings Plan (TSP)?

Because it has:
- lower expense ratios than any other index fund
- the "G" fund for guaranteed returns
- the world's cheapest single-premium immediate annuities (for those who want them)

... and finally, because it's a very flexible and cost-effective part of your overall asset allocation. You can get all of those other options (real estate, commodities, triple inverse-leveraged beever cheeze futures) through accounts at other brokerages.

I've been retired for over 13 years, and my spouse for over seven years. The only reason we transferred our TSP accounts was for the one feature that the traditional TSP should take a hard look at adding: converting to a Roth IRA.

 

[robertpsimpson]

TSP is your new "Job"

Dear Kitesurfer,

Welcome to retirement, I've been retired since 2012. Here is what I do, I look at my TSP as my new "Job", I take a few hours ever month to study the market, different web sites, and then move my money to make the best returns I can get. Then at the end of the year, I take my increase and divide it by 12 and pull that much out of the TSP fund on a monthly bases. TSP will let you make adjustments yearly. So, If I have a good year in the market then next year I have more to spent! It is that simple! Also, remember to keep your money in the "G" fund until the other funds are at the lowest point they have been at in the last 12 months... then move the allocation around! It is a very interesting roller coaster ride, but when you get the handle on how the system works it is a great way to create income. Just remember this very simple rule " Buy LOW and Sell HIGH.
Good Luck,

 

[samclem]

Dear Kitesurfer,

Welcome to retirement, I've been retired since 2012. Here is what I do, I look at my TSP as my new "Job", I take a few hours ever month to study the market, different web sites, and then move my money to make the best returns I can get. Then at the end of the year, I take my increase and divide it by 12 and pull that much out of the TSP fund on a monthly bases. TSP will let you make adjustments yearly. So, If I have a good year in the market then next year I have more to spent! It is that simple! Also, remember to keep your money in the "G" fund until the other funds are at the lowest point they have been at in the last 12 months... then move the allocation around! It is a very interesting roller coaster ride, but when you get the handle on how the system works it is a great way to create income. Just remember this very simple rule " Buy LOW and Sell HIGH.
Good Luck,

robertpsimson,
Welcome to the site.

Kitesurfer2,
Don't do any of that stuff robertpsimpson described. You worked too hard for the money. Pick a constant allocation and rebalance to it.

 

[zinger1457]

Because it has:
- lower expense ratios than any other index fund
- the "G" fund for guaranteed returns
- the world's cheapest single-premium immediate annuities (for those who want them)

I have kept my TSP going into retirement and agree with the reasons for keeping it except for the annuity part. The immediate annuity offered through the TSP (MetLife) was far from the best deal around when I was pricing SPIA's a few years ago, as I recall they had one of the lowest monthly payouts for a given $/age.

 

[unno2002]

[FONT=&quot]Higher risk/reward than TSP annuity.[/FONT]
[FONT=&quot]
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[FONT=&quot]When I retired (2012) I rolled the TSP out to something along the lines of a “checkbook IRA”. Among other things that account then bought was a small rental property for $77,500, which is bringing in $805/month. After expenses it is putting in the tax deferred account a consistent $583/month. ($6996 per year), from which account we can withdraw if we need it, otherwise it remains tax-deferred. We have the risk of no tenants, repairs, etc., but with the potential for the equity aspect of the investment increasing, available to leave to heirs. [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]I estimate the average investment return from rents to be around 9%.[/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]For comparison, if at my retirement I had chosen a “secure” TSP annuity and allocated $77,500 to it, seeking an annuity for my lifetime which would continue for my spouses lifetime, TSP would only have offered a FIXED annuity of $306 per month ($3,672/year). No inflation adjustment. If the wife and I both died (say in the same car accident) the daughter would have gotten nothing. [/FONT]
[FONT=&quot]
[/FONT]
[FONT=&quot]With the rental, there is upside (and down) potential on the value of the asset, rental income, etc..[/FONT]
[FONT=&quot]
I prefer the “risk”.[/FONT]

 

[GolfingDuo]

I retired 6 weeks ago with a good chunk of change in my TSP, all in L income where i have had itfor the past 5 years. after finally getting my checks from SS, FERS and military I've found that I'm not too bad off. I will not need to drawn down my TSP to make ends meet. so i moved 50% to L2050 fund, 25 to C fund and 25 to S fund. i only earned 3.98% last year and was hoping for a little better returns. My goal is 6% return so i'll give this a year and then take another look. i know the presidential election will affect the market, but i don't know how. I really hope the TSP comes up with a Roth plan.

I will tell you I disagree with the first few answers you had here. I think you did a good choice. There is nothing wrong in your allocation. It gives you more exposure to stocks and still preserves your balance. I am not quite doing that for other reasons but suffice it to say I have additional resources beyond my two pensions and TSP.

Congrats on your retirement. I just started mine.