Upcoming Talk

[Dave M]

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My supervisor desired that I deliver a presentation of some sort to our staff as a performance requirement. I'm sure he had in mind something technical dealing with weather.I told him that for the last 6-9 months the subject of myresearch has beenFERS and the TSP as I am within five years of retirement, so how about that as my subject? He said that sounded great and he would probably attend, too, since he has been neglecting that!

So I have posted a noticeof a "group discussion" concerningthe TSP on two consecutive days during the noon hour, thinking that an informal brown bag luncheon-type thing might be easiest and best.

I asked that they go to the TSP site first and print out their latest account summary, bring that with them to the conference room. I intend to hit the following points:

* TSP is the single most important thing under their control as far as retirement benefits go.

* They need to revisit their contributions and allocations from time to time.

* The relation between risk and return.

* The importance of diversification among asset classes and periodic rebalancing.

I would say that more than half our staff is in the group that puts their money in the G-fund and forgets about it. Of the rest, a few haveall of it the C-fund and then forget about it. Both of these groups would benefit from diversification I think.

What else whould I talk about?

Dave

 

[Birchtree]

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You might mention the option of $20K for 2006 and the benefit of continuing management of the account when retired with the low fees. The younger people in the group need to be consistant with their dollar cost averaging. Wake 'em up.

 

[Show-me]

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Tax advantages and catch up contributions.

 

[Show-me]

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Don’t forget the obvious. Get the matching funds. I could not believe the number of people in my small office that do not contribute the 5% for the matching fund. Most famous excuse “I can’t afford it right now.”

 

[Mike]

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For the younger people, emphasize the tax advantage. If you aren't paying off a mortgage, TSP witholding is the single most important tax deduction you have. Matching is free money... to those who aren't witholding at least 5%, tell them they're basically turning down a raise.

Beyond that, I'd say cover a few different approaches to allocating funds... and show how those would have fared over various historical periods. I would guess a big concern among some of these people would be "how do I protect myself against major downturns like the bear market of '00-'02?"

 

[Brak]

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Dave: Although I'm not a big fan of the L Funds for myself, it does sound like this would be the easiest way to diversify theiraccount withthe hands off approach that they are accustomed to.

 

[Spaf]

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Dave M wrote:

What else whould I talk about?

Dave

Dave,

A couple more ideas for you!

1. Current TSP balances/allocations. At the TSP site. See the funds. They show about how much $ is being invested in each one. Somewhere on their site (maybe news) they say about how many members there are in TSP. You can do the math from there!

2. How about some charts of the market: a. before 2000, and b. after 2000.

3. If you are not in the L fund, it's up to the member to manage their account. Why not use Tom's analogy of what happened in 2003.

I think you are doing a great thing, to bring information to members. For too long that's been a problem.

Good luck to Ya! :^ Spaf

 

[Dave M]

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One of our fellows is leaving shortly to go to a new job up in Washington. So he and I had a one-on-one last night which served as a practice session for me.

First I told him that I was not a certified financial planner and that I wasqualified to give financial advice only to myself; if I set myself up as suchI would probably be arrested. Then we talked about his recent divorce and spousal rights to the TSP balance; he had that covered explicitly in his Judgement And Decree, smart man.

Then we looked at his account summary. He has only about five years in the service. Initially he set his contributions at 5% with all of it going to the G- and F-funds. Later he set them to 5G 5F 25C 30S 35I (approximately) but he had neverrebalanced so he was way out of whack. Over 30% of his balance was in the F-fund and thus doing absolutely nothing.

Since he planned to work for another 20 years, his contribution allocations looked good enough -- plenty of time to recover from market downturns such as occurred 1987 or 2000. We rebalanced to conform with his contributions. He now knows to repeat this at intervals in order that his portfolio earnings will also be in that proportion, thus equalizing risk at the same time, and that he should use his COLA's and bonuses to increase his 5% to at least 10% and then 15% as soon as he can. (At present he has expenses to defray thanks to his divorce, heh.)

This shows what I will find generally, I think: Money going into accounts willy-nilly and left on its own to grow or not. We aretrained as scientists,not portfolio managers. It is hard to think about something that might not even apply for 20 or more years and which is so vague in the first place.

"Retirement is for when you are old. I'm young! Besides, if you're barely making it while working every day, how can you think about retiring, ever?" That was my attitude for a long time. I am no longer young and I wishto 'make it' with ease so therefore yes, I am thinking about my retirement. Now I wish I had paid more attention in the early years. This is the message I am giving.

Dave

 

[Spaf]

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Dave,

You need a training aide!!!

Find a stool with three legs, and cut one leg about 1/2 way off, and, label it TSP!

Try sitting your retirement out on that one!

 

[Greg]

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Dave M wrote:

the subject of myresearch has beenFERS

What else whould I talk about?

Dave

How about pointing out how FERS stinks compared to CSRS?

How back in 1984 the current federal employees sold-out the future employee by pushing for a 2-tier system?

How 2-tier retirement system don't work for the company(government) in the future and the future employees?

How FERS people can't retire until they are 61, unless the win the lottery/inherit money/wife is rich? Because they don't get COLA until they are 61.

After 30 years:
CSRS get 60% of salary.
FERS get 25% of salary that is fixed therefore goes down at least 3% in value every year.

We were sold out by CSRS that wanted to keep theirs.

How FERS people need outside money to retire?

How social security was started to give old people a basic living income because they put their money in the stock market and lost it all?

How people who had their money in TSP stock funds lost half of their worth in just 2 years (2000-2002) and it still anywhere near want they had in it (S&P 500ain't anywhere near 1500).

How the TSP cheat you if you IFT is just mystery lost?

How TSP does bad things to keep people from doing trading on a daily basis?

How about pointing out no where else people have to be commented to buy a stock now but at a undermined price that will be set in 4 hours from now?

2-tier systems don't work! Ask the U.S. automakers or airlines.

Dave,

This is just a start. I'll post more later.

Greg

 

[Rolo]

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Dave M wrote:

It is hard to think about something that might not even apply for 20 or more years and which is so vague in the first place.

haha...that's my work...in the space program!

Keep us posted...Iam consideringdoing something like that just to increase awareness.

 

[Dave M]

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Greg,I get your message; further remarks are unnecessary. Rolo,Monday and Tuesday the 3rd and 4th are the scheduled days. Check back on Wednesday the 5th. Spaf, I like your idea.

Thanks to everybody. Brak, I believe I will recommend the L-funds to those who do not wishactively to manage their accounts.

Dave

 

[yakers]

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One great contribution you can make is to introduce the concept of Asset Allocation. While people can set up their own within the TSP or go with the predetermined AAs in the L funds once they get the idea of selecting an AA the idea should be extended to ALL their portfolio. So they can start to think about stocks, real estate, ibonds and cash working with their TSP tax deferred funds.

 

[Dave M]

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Interest appears to be out there. One personexpressed concern:I was reassigned to a swingshift Monday but will carry on with the talk anyway, I told him.

If there is time and interest, we will talk about life outside of TSP. I thinkthat after the TSP is fully-funded, an individual could set up a Roth and max that out. It is easy to manage a Roth, you can do things with it you can't with TSP, and once maxed a mix isbest. Right?At my house we set one up for her this year.

My outline looks like this:

* Three-legged stool;FERS in a nutshell.

*Quick derivation showingTSP should equal(4 to 6) times H3.

*How to get there. Table of expected balance at 5-6-7-8-9% average return on an average salary of $50,000 after 20 years with 5-10-15% contribution.

*Noting that these are real returns and that inflation-protection is a must, I shall haveproven that the G-fund isinadequate, and that some form of stock investment is required.

*Risk and Return --60G40C vs 40G60C. Spaf, you remember this. C varies by +/-10% while G always goes up 5%. 60G will protect you from 90% of the downside risk while generating 70% of the return compared to 100C; and 140% of the return compared to 100G.

*Display my allocations: 35G 26C 26S 13I. Whys and wherefores; rebalancing.

*L-funds vs do-it-yourself.(My recommend is L-fund now, DIY later.)

*IRS limits and Catch-Up contributions; front-loading, etc.

*The result should be that in 20-25 years they are swinging a club like yours, Birchtree, having fun trying to decide what to do first -- go to Europe or to Hawaii. "The alternative is a trailer in Punta Gorda. Think it over, your future self will thank you."

Dave

 

[yakers]

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Well I think that is a terrific package, simple and not too long. I also agreee that the next thing to think about after maxing the TSP is a Roth, then after tax investments. Very brave to talk to coworkers and friends, actually harder than pitching strangers, I think. Hope it goes well.

 

[Dave M]

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The talk went well. About five people showed up and we had a lively discussion Monday -- I scrubbed Tuesday because of another meeting in the conference room. I gave them my message which was really just two points when you boil it down: be prudent and pay attention.

Be prudent? By that I meant that if you are 100% in one fund or another, you are gambling not investing. Investing means managing a portfolio. A balanced portfolio will make money in just about any environment. As we are in it for the long haul we can expect to meet ALL environments eventually, so prudence is always a good thing.

Pay attention? By that I meant that once a balanced portfolio is set up, it needs to be rebalanced at regular intervals. I do so monthly. This will control the downside risk by assuring that no one fund comes to predominate the portfolio's earnings. I used the idea that we are not the sole beneficiaries of our TSP and that we will create widows and orphans one (sad) day. We do not want to impoverish them tomorrow by making poor decisions today. Be prudent!

I recommended the L-funds for those who don't actively manage their account, then DIY once retirement is in sight. Sighting range is five years.

In a couple years we will do this again and I will talk about how to get your money OUT of the TSP.

Dave

 

[grandma]

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Your colleagues are fortunate there is someone in their midst who would take the time & make the effort to share about utilitzing the TSP to their best interests. Congratulations for your success! I would bet that in the near future as word speads thru the facility, that you are asked if you tapedthe program,or if you will be doing it again in the near future! :^

 

[yakers]

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Glad it went well.


"I used the idea that we are not the sole beneficiaries of our TSP and that we will create widows and orphans one (sad) day. We do not want to impoverish them tomorrow by making poor decisions today. Be prudent!

I recommended the L-funds for those who don't actively manage their account, then DIY once retirement is in sight. Sighting range is five years."

Like the message, most Govt people are responsible people and appealing to their responsibilities is appropriate.

I also strongly agree that if someone is not going to manage their TSP account they should use an L fund.