Author Topic: TSP contributions  (Read 1959 times)

Rasputin

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TSP contributions
« on: December 09, 2018, 06:15:13 AM »
I知 42. Just started this job. By default they put the money into a 2040 L fund. I知 thinking about splitting it up 50% C fund, and 50% 2040 L fund, or even 75/25 with the C fund getting the bulk of my contributions. I知 hoping to retire in 20 years. Suggestions to get the most out of this fund? I contribute up to the 5% match.

Beach_Stache

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Re: TSP contributions
« Reply #1 on: December 09, 2018, 07:24:20 AM »
It depends how risky you want to be.  I've been a Fed for 10 years (38 years old right now) and my long term plan is to stay for 30 years but not sure if that'll happen.  If that does happen then I'll get a decent pension and I consider that my "bonds".  I actually used to have it all in the 2050 fund b/c I wanted to be more aggressive, but found that that was still much heavier in bonds than I would like, so switched it all to the C and S funds so they are all in stocks.  I'll probably leave it there for a while (no plans to move it or guess when the market is going to tank and rebound) and tread my eventual pension as my "bonds" (someone from MMM forum actually said that and it made sense to me).  It's all paper money now though so we could lose 50% and I know historically it would rebound.  Lifestyle funds are fine, but literally it's an allocation of the 6 funds in the TSP, so it's not rocket science to do it yourself.  I prefer to be aggressive knowing that I will lose more in down years but gain more in up years.  So I think it all depends on how aggressive you want to be and how long you want to stay in the gov't.  If you stay until 62 you'd get a pension of 22% of your high 3 years, so if that is your plan and enough to cover most of your expenses then I'd aim at being more aggressive, but it's all about you and how risky you want to be and how the rest of your portfolio is looking.   

I also started splitting my TSP between Roth TSP and regular TSP since taxes are so much lower this year than they've ever been.  I would put it all in Roth but based on our numbers that might push us above the threshold to be able to also invest in a Roth IRA and I'd prefer that we are also able to do that.  If at tax time I find that my MAGI is much lower than the Roth IRA contribution phase out limit then I'll put more into the Roth TSP portion for 2019.

terran

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Re: TSP contributions
« Reply #2 on: December 09, 2018, 07:29:40 AM »
Mixing target date funds and other funds doesn't really make sense. Target date funds are good because they have a perfectly reasonable asset allocation and they rebalance automatically so you don't have to. If you invest in a target date fund and another fund you're saying you don't agree with the target date fund's asset allocation, and the automatic rebalancing just messes with what you've decided your allocation should be. It looks like the 2040 L fund is currently:
> 20.93% G fund (Government Securities Investment Fund)
> 7.32% F Fund (Fixed Income Index Investment Fund)
> 38.53% C Fund (Common Stock Index Investment Fund)
> 11.69 S Fund (Small Cap Stock Index Investment Fund)
> 21.53% I Fund (International Stock Index Investment Fund)

The C fund is an S&P 500 fund and the S fund is a completion fund that follows an index of the US stock market that doesn't include the S&P 500. Used together in the right proportions (about 80/20) they'll be about the same as the often recommended VTSAX.

See the links to each of component funds in the lefthand sidebar at the L fund link above to learn more about them.
 
Sticking with an L fund with a date around when you plan to retire would be a perfectly good option.

Selecting your own asset allocation from among those five funds (and also your available investments in other accounts) would also be a perfectly good option.

Rasputin

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Re: TSP contributions
« Reply #3 on: December 09, 2018, 02:25:44 PM »
I guess I値l just leave it in the 2040 fund. I have my iRA mostly in a 2045 fund, some in a 2050 fund.

Michael in ABQ

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Re: TSP contributions
« Reply #4 on: December 09, 2018, 07:30:04 PM »
I'm 50% C, 25% S, 25% I.

RJC

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Re: TSP contributions
« Reply #5 on: December 09, 2018, 08:38:45 PM »
I'm 100% C and will be until about 10 years from retirement if I stay fed.

ThatGuy

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Re: TSP contributions
« Reply #6 on: December 09, 2018, 09:03:14 PM »
I'm 55 and will probably retire in a year.  I'm 60% C 40%S.  It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with.  I think it's a mistake to put anything in bonds or be conservative, that's my opinion.  Opinions are like assholes, everybody has one.  Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock.  Obviously this isn't a direct quote but my point is do what you're comfortable with.

jacoavluha

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Re: TSP contributions
« Reply #7 on: December 09, 2018, 10:35:47 PM »
Tip: try not to completely empty your TSP account if you ever leave, change jobs, and want to move the money somewhere else. The TSP is unique in that it will accept rollovers into the plan, even if you no longer work for the gov and contribute to TSP. That is, as long as you don稚 empty the account. Having this flexibility can be helpful down the road.

RJC

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Re: TSP contributions
« Reply #8 on: December 10, 2018, 07:04:57 AM »
I'm 55 and will probably retire in a year.  I'm 60% C 40%S.  It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with.  I think it's a mistake to put anything in bonds or be conservative, that's my opinion.  Opinions are like assholes, everybody has one.  Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock.  Obviously this isn't a direct quote but my point is do what you're comfortable with.

So it's better to stay in 100% stocks even in retirement? What happens if there is another down turn?

I'm 100% in stocks and was planning to stay that way until close to retirement then slowly add more bonds.

dude

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Re: TSP contributions
« Reply #9 on: December 10, 2018, 10:57:21 AM »
I guess I値l just leave it in the 2040 fund. I have my iRA mostly in a 2045 fund, some in a 2050 fund.

I think the better option for using L Funds is to use your life expectancy, not your retirement date, as the target date. The L Funds become VERY conservative at maturity, when they convert to the L Income Fund, which is 80%+ in bonds. That's WAY too passive for a 30-year retirement. Most of the reasonable voices in personal finance (and indeed the 4% researchers) would not recommend going below 50% equities. Scroll through the wheel on the L Fund pages and watch how conservative they get! (It should be noted, however, that the TSP is changing some L Fund characteristics come 2019:  https://www.tsp.gov/whatsnew/Content/index.html#lifecyclechanges ).


dude

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Re: TSP contributions
« Reply #10 on: December 10, 2018, 11:00:49 AM »
Also, I would add that what matters FAR more than your allocation is how much you save! The nature of compound interest demands that you put in as much as you can AS EARLY AS YOU CAN. Those early contributions are the ones that will compound multiple times and supercharge your wealth. Live like a student now, so you don't have to later.

Indexer

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Re: TSP contributions
« Reply #11 on: December 11, 2018, 06:32:19 AM »
I guess I値l just leave it in the 2040 fund. I have my iRA mostly in a 2045 fund, some in a 2050 fund.

That's a safe bet for now. I'll agree with others that they get a bit too conservative down the road, but for now the L 2040 or 2050 is a good option. After the L fund drops below a 60/40, or whatever AA you would like in retirement, you can always take the funds that make up the L fund and rebalance it yourself to maintain that AA. You could also just switch to the next L fund at that time. Example: L2040 gets to conservative, switch to the L2050.



I'm 55 and will probably retire in a year.  I'm 60% C 40%S.  It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with.  I think it's a mistake to put anything in bonds or be conservative, that's my opinion.  Opinions are like assholes, everybody has one.  Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock.  Obviously this isn't a direct quote but my point is do what you're comfortable with.

Being 100% stocks 1 year from retirement is very risky. You are correct that adding some bonds slightly drops the return, but is great for risk reduction.

The following numbers go back to the 1920s.

100% stocks. Average performance: 10.2%/yr. Worst year: -44% (-55% from peak to bottom, but that took over 1 year)

60% stocks, 40% bonds. Average performance: 8.8%/yr. Worst year: -26.5%

10+ years out from retirement that extra 1.4%/yr + compounding is worth being more aggressive, but once you are close to retirement that potential downside is a much bigger risk to your goals.

I think the better option for using L Funds is to use your life expectancy, not your retirement date, as the target date. The L Funds become VERY conservative at maturity, when they convert to the L Income Fund, which is 80%+ in bonds.

I agree with the problem, but not the solution. Your life expectancy should be decades after your retirement date, especially for people on this forum. If you used the L fund for your life expectancy your AA at retirement would likely be 85% stocks.

kendallf

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Re: TSP contributions
« Reply #12 on: December 11, 2018, 09:00:41 AM »

I'm 55 and will probably retire in a year.  I'm 60% C 40%S.  It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with.  I think it's a mistake to put anything in bonds or be conservative, that's my opinion.  Opinions are like assholes, everybody has one.  Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock.  Obviously this isn't a direct quote but my point is do what you're comfortable with.

Being 100% stocks 1 year from retirement is very risky. You are correct that adding some bonds slightly drops the return, but is great for risk reduction.

Risk != volatility.  Risk should be defined relative to the time horizon of needing the money.  I'm 52, retiring in 4 years, and also currently 100% in stocks.  I intend to stay at this allocation into retirement.  I have a pension, a supplemental pension, and eventually social security to count on.  I don't need to touch my TSP funds to pay my base expenses.  If I am confident that I can stay invested and not react irrationally, and would like to build and preserve wealth, it's the best option.

Jeremy of Go Curry Cracker has a great post on this topic:
https://www.gocurrycracker.com/path-100-equities/

fattest_foot

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Re: TSP contributions
« Reply #13 on: December 11, 2018, 09:08:45 AM »
80% C, 20% S is supposed to match a total market index pretty well. That's what I'm in.

Rasputin

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Re: TSP contributions
« Reply #14 on: December 11, 2018, 09:27:54 AM »
I知 42. I知 shooting to retire in 20 years. Should I change to a 2050 L fund?

M5

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Re: TSP contributions
« Reply #15 on: December 12, 2018, 11:53:25 AM »
Glad someone else asked the question as I was curious about the same info. I'm 25 with about 18 years to go before being eligible for an active duty military retirement and had my TSP invested in the L2050 fund. Decided to make the change to 80% C and 20% S. Finally able to start maxing my traditional contributions as well, excited about that.

Indexer

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Re: TSP contributions
« Reply #16 on: December 12, 2018, 07:36:15 PM »

I'm 55 and will probably retire in a year.  I'm 60% C 40%S.  It doesn't matter what mix I have or anyone else has, what matters is what you are comfortable with.  I think it's a mistake to put anything in bonds or be conservative, that's my opinion.  Opinions are like assholes, everybody has one.  Studies have shown that if you have something like an 80% stock and 20% bond, or is it 70% stock and 30% bond you reduce the risk of your portfolio but only slightly reduce the return compared to 100% stock.  Obviously this isn't a direct quote but my point is do what you're comfortable with.

Being 100% stocks 1 year from retirement is very risky. You are correct that adding some bonds slightly drops the return, but is great for risk reduction.

Risk != volatility.  Risk should be defined relative to the time horizon of needing the money.  I'm 52, retiring in 4 years, and also currently 100% in stocks.  I intend to stay at this allocation into retirement.  I have a pension, a supplemental pension, and eventually social security to count on.  I don't need to touch my TSP funds to pay my base expenses.  If I am confident that I can stay invested and not react irrationally, and would like to build and preserve wealth, it's the best option.

Jeremy of Go Curry Cracker has a great post on this topic:
https://www.gocurrycracker.com/path-100-equities/

Risk and volatility....  I'm not talking about modern portfolio theory equations. I didn't say anything to imply that I was. Risk doesn't always mean volatility.

I'm talking about the risk that someone won't achieve their goals. You don't have to touch the money so it's fine for you to 100% stocks. If someone intends to spend from the portfolio a 50% drop in the first few years poses a risk that they will run out of money, and a more conservative portfolio could help mitigate that risk. If you had a 4% SWR and experienced a 50% drop your WR jumps to 8%. Unless markets recover quickly that won't be sustainable. On the other hand if your portfolio dropped 26% your WR goes to 5.5%. While not ideal that gives you plenty of time to recover. BTW, the studies that created the 4% rule were based on a 60/40 portfolio.


Side note:  Playing with cfiresim, starting with a 60/40 and moving to 100% stocks over time (aka: living off the bonds in the early years) bumps the success rate higher than a straight 60/40 or 100% stocks. Bonds help protect against sequence of return risk in the most vulnerable years. For someone on the brink of retirement I believe having some bonds is prudent.
« Last Edit: December 12, 2018, 07:37:54 PM by Indexer »

kendallf

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Re: TSP contributions
« Reply #17 on: December 12, 2018, 08:47:21 PM »

I'm talking about the risk that someone won't achieve their goals. You don't have to touch the money so it's fine for you to 100% stocks. If someone intends to spend from the portfolio a 50% drop in the first few years poses a risk that they will run out of money, and a more conservative portfolio could help mitigate that risk. If you had a 4% SWR and experienced a 50% drop your WR jumps to 8%. Unless markets recover quickly that won't be sustainable. On the other hand if your portfolio dropped 26% your WR goes to 5.5%. While not ideal that gives you plenty of time to recover. BTW, the studies that created the 4% rule were based on a 60/40 portfolio.


Yes, I am familiar with sequence of return risk, the studies and cfiresim.  I was just pointing out that, in this thread for mustachian federal employees, the odds are good that ThatGuy has a substantial pension and won't need to touch his TSP funds immediately, much like me.