Risk for retirees ????

[skycophigh]

What do you guys and gals think us retired folks should be doing with our TSP?? I am retired ATC, been in the TSP since inception, have ridden the ups and downs for 37 years, have won some and lost some. My question is: with the "G" fund returning above 3 %, (looks like it will be higher in the future with the FED raising rates). using the age formula ( I am 65) 65% stocks, 35% cash and bonds. If the S and P makes the annual 9 % yearly average, My return is very close to the G fund return rate on 100%. Why take the risk if the G fund will pay near 4% up coming. BTW, I was fortunate enough to work at all big facilities so with my pension and SS, the TSP looks like a good inheritance for my sons. Thanks for any advise.

 

[Boghie]

The 'age formula' is the opposite of what you posted. You take 100 (or, some say 110 now), subtract your age, and THAT is the amount you should have in equities.

• So, in your case: 100 - 65 = 35% C/S/I.
• Since you apparently intend to not use it and want to leave it to the youngin's maybe: 110 - 65 - 45% C/S/I
• The remainder (65% or 55%) is in G/F

An S&P500 (C-Fund) return of 9% (average) is much, much better than the return of the G-Fund. That 5% - 7% higher return is the difference between the Alpo Meal Deal Retirement and a very nice retirement with a Winnebago. It's not even close. I can't work the numbers at the moment, but your G-Fund is really just Social Security bonds. So, it would produce something a bit less than Social Security (the politicians overpromise Social Security).

As far as what your allocation should be I would strongly NOT recommend a high equity allocation. I would probably go with around 50%. You will lose to inflation guaranteed if you camp it all in G. And, look at this year to see what over-emphasizing C/S/I will do to your assets. Right now, if you camp G you will be -5% YtoD when factoring inflation - which is actually pretty good. Most years, however, you will be +-1% when you factor inflation. You will be eating principal as a normal part of your diet. Not good.

 

[Bullitt]

90% or more in L-Income fund during retirement.

 

[NatInPW]

I heard a guy on youtube the other day mention that for a FERS retirement, both the pension and SS are the equivalent of "bonds" (they provide a steady and predictable income stream), so the TSP monies should be heavily invested in the market (presuming you have enough cash to survive a few-year down market). Sounds a little chancy, but if your pension is large enough to live off of, perhaps you could be a little riskier in the market?

"heard a guy on youtube" is probably not the best financial advice so take it with a grain of salt

 

[felixthecat]

The common rule of asset allocation by age is that you should hold a percentage of stocks that is equal to 100 minus your age. Another good rule is to tap the TSP during market appreciation stretches and avoid taking out during lengthy market declines. These two rules should maintain a healthy TSP. You sound like you have experience in the buy and hold approach of the TSP. That has worked out well until recently. Since we are in a recession/lengthy stock market decline...you would not recover those loses using the age rule now. I would think it would be better to wait out the recession and when your TSP recovers...you can then change your allocations to less risk. Congrats on retirement. Good luck!