Advice On Fund Allocation, 44 Year old with 20 years let till retirement

[FedSince2009]

So I have about 52K sitting in my TSP, 75% in the 2040 and 25% in the C fund.
With 20 years left to work, is this the best allocation for my investments?
I am currently contributing 15%

In comparison, is 15% pretty much the standard or is that slightly aggressive? Just looking to benchmark myself. I understand the more/the better.

Any other advice on how i can make my investment grow any faster?

Thank you for taking the time to read and hopefully respond.

 

[Cactus]

I think people on here are all over the board from cutting back to 0% for now to maxing out their contributions to the IRS 401K max limit ($18,000 for 2016). It comes down to how much you can afford now versus how much you are willing to cut back in retirement.

You want to at least get all your matching, which means 5% or you are throwing away free money. Contributing 15% is great! Not only are you socking away more now for later, but you are already acclimatizing yourself to living on less than your full salary now. That's a big problem for people and why the government signs you up right away before you get used to your new salary. My wife has had to wait 6 months to a year to sign up for the 401K plans at the companies she's worked at. By that time it hurts to cut back and contribute so a lot of people don’t.

I wouldn't say any contribution is too aggressive. I would say put in the max you can afford as early in your career as you can so you have a larger pile of cash to work with. You will always find excuses later in life to cut back (housing, college, medical, etc.). When I started with the government we were limited to a max of 10%. I hated that at the time because I was young and not yet married and could have contributed a whole lot more. Now they have done away with that limit but I'm older with a lot more commitments. So put it in there while you got it.

As for how to allocate your money, don't listen to me. I'm still negative for the year and you can see my prior year returns in my sig. line along with my 5 year average. You can do much better than that by staying where you are or listening to others on here.

 

[emily]

This is great advice for the newer employees who are not yet sure of what to do.

 

[Scout333]

Great idea re contributing 15%. Contribute as much as you can early in your career! Money has much longer to grow! As far as where you put the funds not as important. At your stage of life I would keep a large chunk in the equity funds C or S. I'm a little scared of the I fund right now. JMHO Read here and learn after all it is your money. Good luck!!:smile:

 

[Boghie]

FedSince2009,

A couple of points should be made. Your L2040 Fund is not really a separate fund from G/F/C/S/I. It is a combination of those funds 'scientifically' allocated to offer the best return for the risk you are taking if you retire around 2040. Thus, you are holding a bit more risk than the mathy types at Blackrock think is good. But, then again holding L2030 makes you too conservative. Oh well.

More importantly, since you are 75% in L2040 and 25% in C your allocation moves from:

L2040

• G: 20%
• F: 6%
• C: 40%
• S: 12%
• I: 22%

To:

75% L2040 with 25% C Fund

• G: 15%
• F: 4.5%
• C: 55%
• S: 9%
• I: 16.5%

As you can see, you have accidentally mucked with the brainy ones. If you are intending to overweight the C Fund than all is good, if you thought the L2040 was invested in gold or emerging markets or in a thousand funds and you didn't have any C Fund it it than take another look.

Regardless, to me it is not a bad allocation for someone 44 years old. Making some guesses here is where you will probably be in 21 years:

• Current Age: 44
• Current Balance: $52K
• Guess at annual income: $60K
• Guess at annual contribution: $12K (your 15% + the 5% match)
• Expected Return: 9%

Results for your TSP account:

• Annual income till age 85: $51K
• Balance of TSP at age 65: $1,167,360

Personally, if I were accepting a risk of 11% like you are I would hold a little less of the C Fund and G Fund and a little more of the S Fund. If you can grow by a percent higher on average you annual take home pay grows to $62K. But that adds risk.

 

[blkflm6888]

Very nice input thank-you

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[FedSince2009]

Thank you for the reply.

 

[FedSince2009]

Do you know of a spreadsheet where I can use to play around with my "expected Return as you quoted?

FedSince2009,

A couple of points should be made. Your L2040 Fund is not really a separate fund from G/F/C/S/I. It is a combination of those funds 'scientifically' allocated to offer the best return for the risk you are taking if you retire around 2040. Thus, you are holding a bit more risk than the mathy types at Blackrock think is good. But, then again holding L2030 makes you too conservative. Oh well.

More importantly, since you are 75% in L2040 and 25% in C your allocation moves from:

L2040

• G: 20%
• F: 6%
• C: 40%
• S: 12%
• I: 22%

To:

75% L2040 with 25% C Fund

• G: 15%
• F: 4.5%
• C: 55%
• S: 9%
• I: 16.5%

As you can see, you have accidentally mucked with the brainy ones. If you are intending to overweight the C Fund than all is good, if you thought the L2040 was invested in gold or emerging markets or in a thousand funds and you didn't have any C Fund it it than take another look.

Regardless, to me it is not a bad allocation for someone 44 years old. Making some guesses here is where you will probably be in 21 years:

• Current Age: 44
• Current Balance: $52K
• Guess at annual income: $60K
• Guess at annual contribution: $12K (your 15% + the 5% match)
• Expected Return: 9%

Results for your TSP account:

• Annual income till age 85: $51K
• Balance of TSP at age 65: $1,167,360

Personally, if I were accepting a risk of 11% like you are I would hold a little less of the C Fund and G Fund and a little more of the S Fund. If you can grow by a percent higher on average you annual take home pay grows to $62K. But that adds risk.

 

[Boghie]

Sorry about the super late response...

I use the Asset Allocation tool in Quicken for a quick review. The mappings are as follows:

• G = Cash (You actually get about a 1% higher return than cash in the G Fund)
• F = Domestic Bonds (This is actually the SAME ETF we use, ie the AGG Index)
• C = Large Cap Stocks (The C Fund is a S&P500 ETF)
• S = Small Cap Stocks (This has the greatest wiggle room and is the least accurate. Ours is something call the DFA 6-8)
• I = International Stocks (EAFE ETA)

Be aware that the Expected Return is an After Inflation Expected Return. Add 3% or so to get the number most see.

 

[DrDetroit]

I like what Boghie and others have said.

15% is awesome! Keep that up until you hit your contribution limit of $18k a year, tremendous saving. Most feds should envy you but most people just contribute whatever the minimum is they think will make them not sound dumb to the savers.

I've said before I really don't like combining a lifecycle fund with a straight fund (and some financial experts who get paid to be financial experts don't like it either), but I also like your aggressive approach to the S&P 500. I've always been a huge S fund fan, because I like the risk/reward with it. At your age and with the time you have left some asset allocation that has you over 50% in C/S combined but at least 20% in S is what I'd recommend. I think I'm like 38/25 in C/S but I'd have to look, as a long-term investor I only check my stuff once a month max.

Bottom line though is contribute whatever you can, invest in a manner that balances your goals and risk tolerance, read up on asset allocation and re-balancing your portfolio, and avoid market trends. Good luck to you, again well done socking away 15% per pay period. :arms:

 

[gboper]

Let me tell you of another strategy, The easiest money you will make in you TSP is your initial allocation. It reduces your gross income on your federal and state taxes which reduces your income tax, without affecting your Social Security income. The reduced tax burden equals, (depending on your tax bracket) from 7.5% to 12.5%, this being the 15% bracket and the 25% bracket, which you pay half of the tax with your agency paying the other half. (Sorry for the italics, not sure how I did it) Contribute as much as possible with out affecting your life style. If you can live modestly on $40k a year, please do, put everything else into the TSP. If your salary increases by a step or grade, add that amount to the allocation, and live the same level of life. This next part many will disagree with, but....Another nifty little feature of the TSP is that you can borrow from it. If you are in debt of any type,where you are paying to someone else a significant rate, borrow from the account to pay it off. But, this the most important part, then stay out of debt. Do not payoff a credit card, then turn around and reload the card. As for which fund to invest in, just remember the stock market moves up, and down, but generally it is more up than down. Bonds always move up, but at such a slow rate.

 

[evilanne]

Do you know of a spreadsheet where I can use to play around with my "expected Return as you quoted?

TSP has several calculators that you can play with: https://www.tsp.gov/PlanningTools/Calculators/howSavingsGrow.html

 

[moonwalker83]

Check out this video: Financial Fitness Services

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