Federal Employee's CSRS & FERS Federal Civil Service Retirement
& Financial Planning Resources
A RETIREE'S DILEMMA
Caution Verses Risk & Reward
There is much to consider for retirees in order to preserve their assets and
to live comfortably in retirement. Over the past 10 years the most conservative
G fund has beat out all other funds and the S&P 500 index. That says
volumes! What does this mean to the average federal retiree? Well, from
my perspective, retirees need to conserve their cash to ensure they have the
funds needed to live comfortably in retirement unless they are independently
wealthy.
A number of financial experts suggest subtracting your age from 100 and
investing the difference (in percentage) in stocks and higher risk investments.
All remaining funds should be invested in cash or cash equivalent safe high
rated bonds, CDs, money market accounts and the like. For example, at age 60 you
would keep 60% of all of your assets in government bonds and cash equivalents
and the remaining 40% could be invested in higher risk stocks, real estate, etc.
You shouldn't risk what you can't afford to loose and if you are depending on
the TSP to improve your standard of living in retirement, it's best to keep the
majority of that money in the
conservative G fund, the only fund that is guaranteed not to decrease in
value.
Their is also a Fixed
Income Index Investment (F) Fund available. However, you have to be careful
with commercial bond funds because as interest rates go up medium to long term
bond funds tend to go down in price along with stocks. The G fund is no brainer
for the person who will need their TSP cash in retirement.
What About Growth
It doesn't take a rocket scientist to know that the most conservative
investments basically keep up with inflation if you're lucky. From 1999 to 2009
the G Fund has outperformed the growth fund sectors by a wide margin. Is
this an anomaly or the way of the future?
With America's devalued dollar and outlandish 10.2 trillion dollars
in national debt and another 90 trillion dollars in unfunded liabilities
many are predicting hyper inflation in our immediate future. If this happens, no
matter what we have, other than assets like gold, silver, copper, oil, and
possibly inflation-indexed securities, I bonds, and TIPs, will be worth only a
fraction of what they are today. That can only mean that our standard of living
may suffer dramatically over the next decade. The only way out of this is for
government to stand up and become fiscally responsible with OUR money.
Voters must hold our representatives from both parties accountable and vote in
fiscally responsible representatives that will do the right thing.
Even with all of this turmoil all federal retirees must have a plan to
allocate their funds to not only maintain their value but grow it to match or
beat inflation and that is the challenge.
Mixing it Up
So, what do we do to protect ourselves? The TSP funds offers
a number of life cycle and
one income fund that has only a small percentage of risk adverse
investments. The closer you are to retiring the more conservative the Life Cycle
Funds become until you reach the target date and the fund then becomes basically
an income fund invested mostly in the G fund, a good thing. The income funds
investment in funds other than the G fund are meant to try and match or slightly
beat inflation.
Getting back to basics, the life cycle funds automatically adjust your
investment portfolio every quarter and the closer your target date the more
conservative mix in your portfolio. Many like the life cycle funds because the
fund makes the decision each quarter to rebalance your account and participants
have little to do other than visit the TSP occasionally to check their balances.
Others like to be more active and play with their fund mix. If you are well
versed in investing that may the way for you to go, however, no one can time the
market successfully and you can experience huge fund value swings when trading
in and out of funds based on tips and unreasonable expectations.
Take a look at all of the fund
offerings and determine what is best for you and your personal situation.
The TSP offers you two approaches to investing your money:
- The L Funds — These are “lifecycle” funds that are
invested according to a professionally-designed mix of stocks, bonds, and
Government securities. You select your L Fund based on your “time horizon,”
which is when you will need the money after you leave Federal service.
Depending upon your plans, this may be as soon as you leave or further in
the future.
- Individual Funds — You make your own decisions about
your investment mix by choosing from any or all of the individual TSP
investment funds (G, F, C, S, and I Funds). These investment options are
designed so you can choose either the L Fund that is appropriate for your
time horizon, or a combination of the individual TSP funds that will support
your personal investment strategy. However, you may invest in any fund or
combination of funds. Because the L Funds are already made up of the five
individual funds, you will duplicate your investments if you invest
simultaneously in an L Fund and the individual TSP funds.
The L Funds are designed for participants who may not have the time,
experience, or interest to manage their TSP retirement savings.
The five L Funds are:
- L 2040 — For participants who will need their money in the year 2035 or
later.
- L 2030 — For participants who will need their money between 2025 and
2034.
- L 2020 — For participants who will need their money between 2015 and
2024.
- L 2010 — For participants who will need their money between now and
2014.
- L Income — For participants who are already withdrawing their accounts
in monthly payments.
The assumption underlying the L Funds is that participants with longer
investment time horizons are able to tolerate more risk while seeking higher
returns. The funds automatically adjust to reflect a lower tolerance for risk as
the investment time horizon approaches. Each L Fund invests in a mix of the five
individual TSP funds. The mix is chosen by experts based on each fund’s time
horizon.
The L Funds are designed to achieve the highest possible rate of return for
the amount of risk taken. If the time horizon is a long time from now, the L
Fund will be more heavily weighted toward stocks (C, S, and I Funds). As that
fund’s time horizon shortens, the allocation will gradually shift toward
Government securities and bonds (G and F Funds). The L Income Fund is designed
to preserve your account balance while protecting against inflation.
Continue on to the G,F,C,S, & I Funds
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