Fund allocation in Retirement

[roadsta]

Hello all,

I'm hoping I can get some advice and information. I'm 63 and retired a year and a half ago (CSRS). At that time I started withdrawing $1,400.00 per month out of my TSP. When I retired, I started with $300,000 and as of today, I have $304,500. I'm pretty happy with having been withdrawing $1,400.00 a month for 18 months and still have a total up from when I retired. I truly am not very knowledgeable about the market and don't have the ability to make knowledgeable regular fund changes. Having said that, when the market started to fall, I did transfer out most of my money from the C, S, & I funds then moved it back and was able to enjoy the upswing.

My current fund allocation is approximately G = 12%, F = 30%, C = 33%, S = 15%, I = 10%.

I would love to hear thoughts on a fund allocation strategy for someone already in retirement (and needing monthly withddrawals). Am open to all recommendations anyone may have as to a good, fairly safe (but still with the opportunity to grow a little) fund allocation in retirement.

Thanks in advance!

 

[Boghie]

RoadSta,

Your allocation seems a bit risky for a retired person. Not too bad, but a normal market return for you is between -2% through +12%. Can you handle the -2% along with yanking $16,800 from the account? And understand, a market like 2000 and 2008 will lead to losses in the range of -9% to -16%. That seems a bit high for someone drawing money out of the account. For example, if this year was like 2008 your starting balance would have been $300,000 and your ending balance would be $235,200.

Regardless, I would strongly recommend reading Ray Lucia's 'Buckets of Money' and contacting him to set your allocations. It would be perfect for you. The basic idea is to break up your assets into three or more buckets. One short term that is very safe and expected to last 5 to 7 years. You completely empty that bucket over the predetermined time. That gives the mid tier risk bucket time to grow as well as giving an equities bucket a chance to grow. Buckets 1 and 2 give the equities bucket 15 - 20 to grow and backfill the emptying buckets.

 

[clester]

Overall, you have it spread out and slightly more in stocks which is a pretty good spread IMO. You are csrs so you have a good pension and life expectancy of about 20 years so you should be in good shape. I think I would leave the allocation alone. I am retired but only 52 so I have about 32 years to make mine last and I'm fers. Bottom line..I think your in great shape and would leave it alone except tweaking a little more into g from f over time ( g pays almost nothing so I wouldn't be in a hurry but soon the f fund will crack) and leaving stocks about the same. Unless you have the inclination and time to do research and keep up with the daily moves in the market. Jmho

 

[James48843]

My current fund allocation is approximately G = 12%, F = 30%, C = 33%, S = 15%, I = 10%.

I would love to hear thoughts on a fund allocation strategy for someone already in retirement (and needing monthly withddrawals). Am open to all recommendations anyone may have as to a good, fairly safe (but still with the opportunity to grow a little) fund allocation in retirement.

Thanks in advance!

First of all, only YOU can decide your level of risk tolerance. The last year has been one of incredibly good returns, higher than statistically normal. Your asset allocation is 58% in stocks. Traditionally, that is far, far higher in risk than professional money managers usually advise if you are already at the stage where you are taking money out.

If you look at the "L" funds, you would see that they are designed with life in mind- and the "L - income" fund, designed to be a fund for general use by those who are taking money out of the fund, is invested much less in stocks that your portfolio. The L-Income is only 20% stocks, and the rest mostly in "G". Here is a link to see exact percentages:

https://www.tsp.gov/investmentfunds/lfundsheet/fundPerformance_L.shtml

Anyway- you have done well over the last year with the allocation you have- I'd only say YOU have to be comfortable with whatever your allocation is.

Good luck.

 

[Boghie]

Roadsta,

Unlike Clester, I am assuming you NEED to draw the $1,400/month out of TSP for everyday expenses. That seems rich to me since safe money is earning zip, zero, nada now. Do not trust my calculations, I am taking them from a book (1st edition) written in 2004. I, personally, would find a financial advisor to discuss this with - it isn't worth guessing on.

Anyway, just cracked my 'Buckets of Money' book. It was written before 2008 but after 2000 so there are references to that -40% market. However, with Ben 'The Helicopter' Bernanke killing the 'G Fund' and the 'F Fund' overbought there are probably changes in his example.

Anyway, his example assumes a $300,000 nest egg, 3% inflation, and a desired draw of $1,500 a month inflation adjusted. Where it fails is the expected returns in Bucket 1 and Bucket 2 - that is why I would make contact with his financial management company... I will as I near retirement - or someone with a similar concept; still have 15+ years.

Anyway, the best I could map would be:

• G: $106,200 (36%) - Bucket 1: You would draw from ONLY this fund for 7 years.
• F: $ 86,800 (29%) - Bucket 2: This would be used to backfill Bucket 1 after 7 years
• C/S/I: $107,000 (35%) - Bucket 3: Buckets 1 and 3 give your equity Bucket 14 years to grow. You fill Buckets 1 and 2 with this and start over...

As I stated, the returns on Buckets 1 and 2 are probably lower so that will muck things up a bit.

 

[roadsta]

Great recommendations and comments! Thanks everyone for the food for thought. Boghie, I did not even realize that you could withdraw from one fund only! I also think consulting with a financial advisor is a great idea and will probably do that sooner rather than later. Thanks so much for taking the time to respond.

 

[roadsta]

Hi James, Yes, 58% in stocks is quite high, I agree. I've played very hard over the last 12 years, took lots of risk, but you're right, I don't want to lose my shirt at this stage. In 2000, I had approx $60K and with 15% contributions and trying to watch the market, I ended up with $365K in 2011. (I rolled 65K into a vanguard IRA in 2011 for emergency access). Looking at the "L - income" fund returns, I'm afraid I wouldn't be able to stay ahead of the game with earning only 2.23%. Granted it's ultra safe but I think I'd prefer a bit more risk/return. I was actually thinking of something along the lines of G = 40%, F = 20%, C = 25%, S = 10%, I = 5%. Boghie made a comment about withdrawals being made from one fund, while letting the others work for you, then backfilling the bucket. I like the sounds of that and need to look into that. Great ideas to think about!!!!

 

[Birchtree]

roadsta,

If we are in a bull market the correct course of action is to load up as many shares as you can get workin. Get out of the twinky twins and into the C fund with as many shares as you can purchase and hang on because now is the opportune time to make the gains - you can't be timid. Bernanke has your back and everyone is underinvested and now is the time to throw caution to the wind if you want outperformance. You simply have to be contrarian and assume risk and you can really build that account. Snort.

 

[Kaufmanrider]

Are you sure you can specify which funds in TSP to take money of it for the monthly payments? I know you can outside of TSP by setting up separate IRA's and using the Bucket Strategy.

I either read, or heard, that TSP takes the money out equally from all your investments? You can't specify which one.

I'll look around and see what I can find in my records.

Roadsta,
Anyway, his example assumes a $300,000 nest egg, 3% inflation, and a desired draw of $1,500 a month inflation adjusted. Where it fails is the expected returns in Bucket 1 and Bucket 2 - that is why I would make contact with his financial management company... I will as I near retirement - or someone with a similar concept; still have 15+ years.

Anyway, the best I could map would be:

• G: $106,200 (36%) - Bucket 1: You would draw from ONLY this fund for 7 years.
• F: $ 86,800 (29%) - Bucket 2: This would be used to backfill Bucket 1 after 7 years
• C/S/I: $107,000 (35%) - Bucket 3: Buckets 1 and 3 give your equity Bucket 14 years to grow. You fill Buckets 1 and 2 with this and start over...

As I stated, the returns on Buckets 1 and 2 are probably lower so that will muck things up a bit.

 

[Kaufmanrider]

OK, I found it. On the TSP website, Plan Participation link:
Proportional Distributions
Withdrawals are paid proportionally from your traditional and Roth balances, and from each TSP fund in which you have investments. If you are a uniformed services member with tax-exempt contributions in your traditional balance, your withdrawal will contain a proportional amount of tax-exempt contributions as well.

 

[Boghie]

OK, I found it. On the TSP website, Plan Participation link:
Proportional Distributions
Withdrawals are paid proportionally from your traditional and Roth balances, and from each TSP fund in which you have investments. If you are a uniformed services member with tax-exempt contributions in your traditional balance, your withdrawal will contain a proportional amount of tax-exempt contributions as well.

Yuk, more of a reason to transfer your TSP assets to a self-directed IRA upon retirement. Roadsta, if you want to bucketize and control your assets than you have to migrate your assets out of TSP. If you do so, make certain it is a trustee to trustee transfer - do not get a check. It must be from TSP to your new IRA custodian. They can handle it.

Yuk, and more yuk. Why can we move assets around bi-monthly and a retiree cannot distribute assets as they wish. Stupid. Thanks Kaufmanrider.

 

[burrocrat]

ok, don't laugh, i'm no economist but i think i've got a handle on this whole 3 buckets of money thing. bohgie was talkin figuratively not literally. of course you can't put your cash in 3 different buckets and only withdraw from one, at least under the tsp boot. you could always pay a money mangler 2% per year to do it for you, or you could leave it all in the tsp funds and reallocate yourself anually. the idea i think is to find an allocation that you think will give you enough cash to live on without going broke before you die. that means assuming some risk so that the part you don't spend earns some returns to keep the hole in the buckets from draining you dry. let's run the numbers, dear liza.

 

[burrocrat]

let's say you retire with $100k in tsp, and you only need $833 each month to buy cat food (that's a lot of cat food), or exactly $10k per year. and you're the conservative non-risktaking type so you set it and forget it at 25% G, 50% F, and 25% C (feeling little frisky ain't ya).

after one year your balances look like this: G started +25,000 -2,500 withdrawn +250 earned at 1% = 22,750; F started at +50,000 -5,000 withdrawn +1,250 earned at 2.5%; and C started at +25,000 -2,500 withdrawn +1,250 earned at 5%. so you spent 10k but earned back 2.5k for an ending balance of about 92,750. you're going backwards at a rate of 4 to 1 (10,000 - 7,500). you can do this for about 13 years before your kids have to let you sleep on the couch and wipe your ass. fair is fair.

or, if you're more aggressive with your allocation you can set it at 10% G, 40% F, and 50% C. netting you 93,600 after one year, or +1% vs the whitey tighty plan. man it's hard to move the needle when you get old. that's what viagra is for.

either way, you're going to have to depend on social security and private savings, you know the three-legged stool, pretty depressing huh? how do you think the kids feel when they realize they will not get any social security even though they dutifully paid into it because grammy and gramps broke the system with their spend more now collect it from someone else later ponzi scheme? and they can't even afford to save privately on account of the great recession somebody left them.

you can keep your buckets and everything you managed to stuff in them. just let me off this broken ride.

 

[burrocrat]

that doesn't even address the real concern, comfort level in retirement. conservative investments yield 92,750 while aggressive nets 93,600. or 1% more per year. 365 days in a year times 1% = 3.65 days, or roughly four nights per year. if your allocation is so risky that it causes you to lose sleep that often then you are better off spending it sooner rather than later and enjoying as best you can the time left. why prolong the agony?

i was going to start my own hedge fund, but i didn't think my customers would be happy.

 

[Birchtree]

Hold it right there, Pedro. A 50% C fund is by no means aggressive - make that 100% C fund like my wife's defined contribution plan and you have an aggressive plan.. We are in a bull market and roadsta can probably double his money before the next cyclical bear arrives. But you gotta have faith in our economy and take the risk to make the gains and ride the pain along the way.

 

[PessOptimist]

Somewhere in this MB is a simple formula about amount in TSP/monthly withdrawal. I cannot find it. It was titled something about wrapping your head around your TSP in retirement. There was a link to a calculator. Some one will point you to it I am sure.

Bottom line, simply put is $300k minus 1.4K per month would I think equal 300/1.4 or 214 months. Divide that by 12 and get 17.8 years. That would assume you earn nothing and lose nothing in that acount. Simplistic, you bet. Ball park, I hope so.

As to future movements in your account, up to you as stated by many others. To paraphrase another member: ¿Tiene suerte, Senor?

Roughly it means "are you feeling you are having good luck today, Sir".

It's a southwest US thing.

Best of luck and great to hear from one a few years older than myself.

PO

 

[nnuut]

They used to say 4% was the number!

 

[PessOptimist]

Who they?