Funds in your TSP Plan

[hawgrunner]

For the FED folks out there...

http://www.fedweek.com/tsp/tsp-questions-answers-readers/

How much money should I have in my TSP?

If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.

What's your take?

[kodiakisland]

Obviously if the TSP is your main source of retirement income, you want as much as possible in it as you can.  For Federal civilians, at the very least you should be getting the full matching contribution each year.  For military, I guess it depends on what you can afford and if you plan on a full military retirement as well. 

My wife and I will both have military and federal civilian retirements as well as TSP and other mutual funds.  There is no set amount I think I have to have in my TSP.  We both put in as much as we can afford to.  Hopefully a person will not have all their eggs in the TSP come retirement time.

[McKdaddy]

For the FED folks out there...

http://www.fedweek.com/tsp/tsp-questions-answers-readers/

How much money should I have in my TSP?

What's your take?

Using a 4% distribution, as indicated above, how much you should have in your 401k depends in part on how much income you'll need your TSP (or other retirement account) to generate for you.

[je100]

From the link,  the guy makes some sense.  He's basically saying that a 4% withdrawal rate is too high, if your funds are invested too conservatively during the withdrawal phase.  The G Fund (Short-Term Treasuries) in the TSP plan won't generate enough income to sustain the inflation-indexed withdrawals needed to sustain a 4% withdrawal rate.  A retiree would have to be more aggressive in his investments to allow for that kind of withdrawal rate.  For example, allocating 40% to the F Fund (Fixed Income Fund), and 60% to the C Fund (Common Stock Fund).

Financial planning stud Michael Kitces points out that using a 60/40 Stock/Bond split (instead of retiring with funds solely allocated to the G Fund), "not only do 90%+ of retirees finish with more than their starting principal after 30 years by following the 4% rule (so even if you outlive the time horizon, there's still funds left over), the "typical" retiree actually finishes with many multiples of their starting wealth with this spending approach! Over 2/3rds of the time the retiree finishes with more-than-double their initial principal left over."  His belief (and the data backs him up) is that 4% is too little (as long as one isn't invested too conservatively) and that a 4% starting withdrawal rate is more of a floor, and that withdrawal rates probably could be ratcheted up during periods of stronger returns.  There's also nothing to say that during periods of extremely poor performance returns, inflation adjustments could be halted, or spending could be decreased. 

Point is, the G Fund is too safe to retire on, and withdrawal flexibility could be - and should be - used during retirement.

https://www.kitces.com/blog/the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule/

[kodiakisland]

I actually don't think the article means much unless you plan to do exactly as his scenario.  I don't know how many people that applies to.  For most, the TSP should be just a part of your retirement plan.  If it's your only plan then you may be in trouble regardless of how much is in it.  I am going on the assumption that I will be in better health earlier in my retirement and will spend more on travel and activities that I won't do as I get older.  I plan to use my TSP up in 20-25 years.  I will have other income to sustain beyond that if I actually live that long.  I don't plan on dying wealthy just to pass it on to someone else.

[hawgrunner]

From the link,  the guy makes some sense.  He's basically saying that a 4% withdrawal rate is too high, if your funds are invested too conservatively during the withdrawal phase.  The G Fund (Short-Term Treasuries) in the TSP plan won't generate enough income to sustain the inflation-indexed withdrawals needed to sustain a 4% withdrawal rate.  A retiree would have to be more aggressive in his investments to allow for that kind of withdrawal rate.  For example, allocating 40% to the F Fund (Fixed Income Fund), and 60% to the C Fund (Common Stock Fund).

Financial planning stud Michael Kitces points out that using a 60/40 Stock/Bond split (instead of retiring with funds solely allocated to the G Fund), "not only do 90%+ of retirees finish with more than their starting principal after 30 years by following the 4% rule (so even if you outlive the time horizon, there's still funds left over), the "typical" retiree actually finishes with many multiples of their starting wealth with this spending approach! Over 2/3rds of the time the retiree finishes with more-than-double their initial principal left over."  His belief (and the data backs him up) is that 4% is too little (as long as one isn't invested too conservatively) and that a 4% starting withdrawal rate is more of a floor, and that withdrawal rates probably could be ratcheted up during periods of stronger returns.  There's also nothing to say that during periods of extremely poor performance returns, inflation adjustments could be halted, or spending could be decreased. 

Point is, the G Fund is too safe to retire on, and withdrawal flexibility could be - and should be - used during retirement.

https://www.kitces.com/blog/the-ratcheting-safe-withdrawal-rate-a-more-dominant-version-of-the-4-rule/

After reading your point on the 60/40 break down I was reminded once what Dave Ramsey said....
https://www.daveramsey.com/blog/3-steps-to-confident-military-retirement

—60% in the C Fund, a common stock fund modeled after the S&P 500 that generally does whatever the stock market does
—20% in the S Fund, a small-cap fund which offers an aggressive, high-risk investment that can give a higher rate of return
—20% in the I Fund, an international fund made up of overseas companies

As I pay off more debt (ie credit cards and car payments) I'm increasing my % up the 15.

[AFWarrior83]

I invest about $5000 annually in my Roth TSP, and another 1% in the traditional using the 2040 plan. I already had a bit of money in my traditional TSP before switching over to the Roth TSP when it became available a few years ago.

To answer your question, I'd invest in any type of Roth IRA, 5-10% on your annual wages in TSP, and have a certificate of deposit if you have a couple thousand dollars you can afford to forget about (not touch) for a year. I wouldn't go for longer than a one year CD unless the rates improve, which I don't see happening anytime soon. I would just let the CD mature and keep renewing annually with whichever bank or credit union offers the best fixed rate. I've also bought some silver bullion (coins).

The bottom line is you should invest what you can afford to invest, and diversify your retirement portfolio. Hope I helped answer your question.

[hog.goblin]

I invest about $5000 annually in my Roth TSP, and another 1% in the traditional using the 2040 plan. I already had a bit of money in my traditional TSP before switching over to the Roth TSP when it became available a few years ago.

To answer your question, I'd invest in any type of Roth IRA, 5-10% on your annual wages in TSP, and have a certificate of deposit if you have a couple thousand dollars you can afford to forget about (not touch) for a year. I wouldn't go for longer than a one year CD unless the rates improve, which I don't see happening anytime soon. I would just let the CD mature and keep renewing annually with whichever bank or credit union offers the best fixed rate. I've also bought some silver bullion (coins).

The bottom line is you should invest what you can afford to invest, and diversify your retirement portfolio. Hope I helped answer your question.

That Roth TSP is going to be awesome

[AFWarrior83]

That Roth TSP is going to be awesome

I hope so! Starting in 2018 the AF (and I think DOD in general) is going to change the military retirement system, by lowering the retirement % after 20+ years, and investing 1% of your base pay towards the TSP retirement plan, and will match up to 5%.

Basically the military is encouraging (forcing) military personnel into investing into the TSP. I have a feeling that it's going to vastly increase my stocks worth since more money is going to be pumped into the TSP overall.

Since the new retirement system has not been encorporated yet, I'm still not 100% sure how it works, but I think what I wrote is pretty accurate based off what I've read about the changes. The best part for me is that my Roth TSP investments get taxed immediately, and 2018 is a few years away, so it should lower my investment risk.

For the record, I still have 7 years left in the AF before I'm eligible to retire.

Anyone else here that is familiar with the changes being made to the retirement system for the military?