I once worked with a great guy who was super-smart, super-funny and a whiz with numbers. A CPA and all that. He was also a close friend. At one point, our employer let us withdraw money from the company 401k plan and transfer it to another tax-deferred vehicle. So we could more actively “manage” our investments. I made one stupid move, in hindsight, based on a popular book I read. I predicted when it became a movie it would move certain financial markets. Lesson: Hindsight is always 20/20. I then retired from trying to read and predict the market. Lost a little. But today I have a healthy 401k balance.
My more learned friend, the CPA, lost his shirt. Literally. Everything he had. He got into predicting trends — incorrectly most of the time — and lost his share of the money we had been allowed to withdraw. Then he retired and lost the rest.
Many financial planners (except those to make their fortunes by telling YOU how to make YOUR fortune) warn against timing the market. They agree it is best to buy low and sell high. They disagree on when that is because nobody (but maybe your personal tarot card reader) knows for sure.
Here’s what one former fed has to say:
I found your article “Navigating a choppy (sinking?) stock market” to be very interesting. There are so many stories of poor timing with selling near the bottom to “preserve value” and then buying back in near the top. As a just-retired FERS Fed, I have found it easier on my worry scale to let those professionals who adjust the TSP L-funds to manage the timing and balance between C, S, I, F and G portions of the portfolio so I don’t need to be a “day trader.” For those who have a good bit of time before retirement, they can take the longer term view with an L-2050, while short-timers or less risk averse can look at L-2025 or L-2030 funds.
It is easy to monitor the C, S and I TSP funds as well as the L-funds on the TSP website.
The tables show 1-year, 3-year, 5-year, and 10-year performance.
There is also a wonderful planning tool for TSP: a TSP installment payment calculator. In this calculator you can enter your current or future projected TSP balance; whether you plan monthly, quarterly or annual payments; the size of each of those payments you wish; and an expected annual rate of return from your TSP funds. The calculator will tell you how long your TSP will last. I recommend looking at the above fund performance link to determine what rate of return you would like to estimate.
For example, the L-2030 fund has had a 9-10% return over the 1-3-5-10 year performance. So for a $200,000 TSP balance, and monthly payments of $2,000 and a 9% rate of return, the payments would last 14 years + 8 months. If your retirement period is different you can adjust the assumptions you put into the calculator. If you took monthly distributions of $1,400 on the above $200,000 and 9% rate, the payments would last forever and there would be a TSP balance to your beneficiary.
You can also use the tool in planning when to retire by adjusting the future TSP balance you expect to have at later retirement dates and, when you are considering later retirement dates, you can reference L-2035, L-2040, etc. to estimate different rates of return.
Add these TSP payments to your FERS retirement and Social Security payments to evaluate your retirement income.
G.R. from Philly – former Fed, now COO of Honey-Do List
Nearly Useless Factoid
By David Thornton
In 540 A.D., Iranian king Khosrow I destroyed the city of Antioch, and deported its population to a newly built city, which he named Wēh Antīōk Khosrow, which literally translates to “Better than Antioch, Khosrow built this.”