Thrift Savings Plan / TSP allocations and balancing problems

[Btodd3]

I'm a 35-year-old federal employee, who plans on staying put until I retire. God willing, I'll get both a federal and military-reserve pension in addition to savings in retirement accounts. My wife and I each have an IRA, and I have the Thrift Savings Plan / TSP as a federal employee.

I just read Mr. Rowland's book and decided to invest all future retirement contributions in a 25-25-25-25 PP split, if possible.

But I'm having trouble figuring out 35/15 balancing, since we're too young to move money between retirement accounts. And the TSP has, based on what I've read in other posts, only two viable PP options (G Fund (cash) and C Fund (large U.S. stocks)). (There's an F Fund for bonds, but I understand them to be too short to satisfy the 25% LT bond allocation.)

Understanding that perfect is the enemy of good, the best thing I can think of is a regular 25-25-25-25 in each IRA and 1/4 G Fund, 1/4 F Fund, and 1/4 C fund in TSP--supplemented by a 1/4 gold ETF in an outside, non-retirement account. But I'm stumped on balancing. Have any federal employees out there in similar circumstances figured out a better strategy?

Any suggestions are appreciated!

Thank you,
Btodd3
(new member)

[AdamA]

Understanding that perfect is the enemy of good...

I think your plan is fine.  As long as you have cash, bonds, stocks, and golds in some reasonable mix you're doing much better than most.

Having said that, if it were me, I'd probably not hold the F-fund (I use the TSP for some of my holdings too). 

I would just use the TSP for stocks and cash and not worry too much about it if I got a little bit outside of the 35/15 rebalancing bands.  Just stay as close as you can.  As long as you can keep your gold and treasury bonds at 10% of your holdings, I think it won't matter much.  You may have a bit more volatility, but the long term return probably will be roughly the same. 

The G-fund is a really great fund, by the way.  It's like a treasury only money market fund that pays the interest of a 5-10 year treasury bond, so I wouldn't sweat it at all if it got a little bit overweighted. 

Welcome to the forum!

[sophie]

To present an alternative option...

Many of us have given up trying to squeeze the square peg of the PP into the round hole of retirement accounts with limited options.  If you're like most of us, the bulk of your savings is going into your current employers' retirement accounts, and it will eventually become impossible to maintain the gold and bond portions in taxable or other retirement savings, even if you allow the allocations to drift.  Not to mention keeping enough taxable cash to serve as an emergency fund.

If you have a sizeable emergency fund and you can match your retirement plan savings with taxable and other retirement savings (e.g. Roth IRA/HSA), then there shouldn't be a problem carrying on with your plan to maintain a PP split across multiple accounts.  Several members of the forum have posted the spreadsheets they use to track these sprawling PPs. 

Otherwise, I'd suggest choosing a reasonable Boglehead-style stock/bond allocation (e.g. 50/50, or maybe 50% stocks/25% bonds/25% cash), set up automatic annual rebalancing, and forget about it.  Save the PP for the portion of your savings over which you have full control.

[MomTo2Boys]

I second what Sophie says.

My husband is a federal employee and has been for 14 years or so. We are contributing the max to our TSP. And, quite frankly, we're doing pretty much a 60 (stock)/ 40(bond) split in that bad boy. It's just easier that way. We're a few years older than you guys - but not way older - and the TSP is a good thing. We're staying away from the G fund because we're so young.

Our other money in taxable accounts - we've loaded those a teensy bit heavy on the long term bond and gold and cash side of things but not a whole lot. I'm at peace with the arrangement. You said it yourself: perfect IS the enemy of good, and at least for our family I think we're in the "good" range.

Interestingly enough, with the PP being such a stinker this last year and a half, our taxable money pot hasn't been performing that well (we've been nothing but down this whole time - we're currently down something like - 4%, which seems to be the average since I started the PP), but our TSP has been doing AWESOME, LOL! I have a feeling these two pots of money will be trading performance on and off depending upon how the financial winds blow. Which is how it should be. Again, I feel like we're in as good a place as could be, with it all being so complicated.

[Btodd3]

Thank you all very much for the insights and taking the time to write. It really is a square peg, round hole situation, so I'll just do the best I can!

[stuper1]

Another option would be to attribute F fund (intermediate-term bond) amounts as 1/2 cash and 1/2 long-term bonds.  This is called the "bullet" bond strategy, versus the "barbell" strategy of equal portions short-term bonds (cash) and long-term bonds.  So, you would contribute 1/4 to the C fund, 1/2 to the F fund, and then a separate 1/4 to Gold outside the TSP.

I'm sure you realize that the F fund is not purely treasury bonds, so it's not a pure PP approach, but it's a lot better than a lot of other ideas.

Rebalancing would be a little tricky, but very doable.  You'd have to look at your TSP and IRA accounts as one big PP.  If you're overweight in one sector in TSP, then you would underweight that sector in your IRA accounts.  As long as you have all four sectors represented in your IRA accounts, rebalancing properly should be possible, unless your total TSP amount is a lot more than your total IRA amount.

[AdamA]

If you do use a BH portfolio, I'd encourage you to buy at least a little bit (10%) in gold coins. 

It smooths out the volatility and I also think it's a good idea to have some hard, non paper assets in your portfolio.

45% C fund, 45% G fund, 10% gold.

[sophie]

Nice to hear from you MomTo2Boys!  It's been a while since you've posted.

AdamA's suggestion is an excellent excuse to buy gold coins at these nice low prices.  Assuming of course that the current price IS a low - no guarantees.

[Btodd3]

These are more good ideas. I really appreciate it. I'm wondering: can i rebalance WITHOUT selling? In other words, can I rebalance my PP retirement portfolio by allocating new contributions in a way that brings things into balance when 35/15 bands are reached instead of selling? I can't move funds between Roth IRA 1 and Roth IRA 2 and my Roth TSP. I'm leaving my current retirement portfolio as it is and dedicating all future contributions from here on out per the PP, so we're not talking about huge amounts of money that might need balancing anytime soon. This way I could do G fund and C fund in TSP and gold etf in Roth 1 and TLT bond etf in Roth 2. (I have gold and silver coins in safety dep box already.) Math isn't my strong point, so sorry if I'm missing something obvious!
Thanks again,
Brandon

[AdamA]

Without getting too much in the details, I'd say to just get as close as you can.  It's not exact science, and you'll be surprised at how things just sort of work once you get started.

[HB Reader]

Without getting too much in the details, I'd say to just get as close as you can.  It's not exact science, and you'll be surprised at how things just sort of work once you get started.

AdamA -- 

I agree with most everything you've posted in this thread, especially how the G Fund is really a great fund.  It provides bond-like returns with T-Bill safety.  If there is anything I'd let get slightly over weighted, that would be it.  After all, the PP is for your safe money.  The only real drawback is that most people still need some additional near cash funds to serve the "emergency cash" function of the cash component. 

I used about one half (12.5%) F Fund/one half (12.5%) long term zeros (called STRIPs these days) in our IRAs for many years for our bond allocation.  EDV might work alright in place of, or in addition to, the STRIPs, although it wasn't around when that was an issue for me.

Obviously, everyone's situation is a little different with respect to the relative sizes of their IRA, regular holdings, and 401k/TSP "spaces" and that has a huge effect on how you juggle all of this.  Although I have been a PP follower for many years, I also agree a BH portfolio with some small fairly equal allocation of gold coins and T-Bonds on each end of the portfolio for balance may be a reasonable option for some people.  The most important thing is to have a plan and stick to it -- it can be very easy to let "VP thinking" creep into your PP allocation management, often at just the wrong time. 

I would also encourage most Federal employees to use the TSP Roth option.  I wish it had been around when I was contributing.  It may not offer many immediate tax benefits (if I understand it correctly), but after having done a number of Traditional IRA to Roth IRA conversions in recent years I think most federal employees would be best served by keeping as much as possible in a Roth status from the very beginning.   

 

[Reub]

There is also a little known program called the Voluntary Contributions Program for CSRS only (I know, a dying breed) that allows one to transfer up to 10% of lifetime earnings that have already been taxed into a Roth IRA with no fees or taxes. I used this myself.

[HB Reader]

There is also a little known program called the Voluntary Contributions Program for CSRS only (I know, a dying breed) that allows one to transfer up to 10% of lifetime earnings that have already been taxed into a Roth IRA with no fees or taxes. I used this myself.

Yeah, I remember that.  I switched from CSRS to FERS in the 1980s.  My wife stayed in CSRS and we looked very carefully into the VCP/Roth connection possibilities just before she retired in 2009, but ultimately decided not to pursue it.  It was a neat little maneuver if you were properly situated to use it.  I'm really glad to hear you were in a position to benefit to some degree from it.

Like you, we were facing some very uncertain elderly care (we were caring for my wife's mother) issues that clouded the decision at the time.  I now (with perfect hindsight) wish we had pursued it.     

[MomTo2Boys]

I would also encourage most Federal employees to use the TSP Roth option.  I wish it had been around when I was contributing.  It may not offer many immediate tax benefits (if I understand it correctly), but after having done a number Traditional IRA to Roth IRA conversions in recent years I think most federal employees would be best served by keeping as much as possible in a Roth status from the very beginning.   

Oh heck yeah. We're Roth-ing it up in my home. We're 100% TSP Roth-ers here. The matching funds from the gov't go into the traditional pre-tax pot (there's nothing we can do about that), but our contributions are 100% Roth contributions. I feel like it's the right thing to do, although only time will tell if it actually is. And of course we're paying the taxes for it now. But I figure it's best to pay the taxes for it when we're working, rather than when we're retired. Or something. Again, I'm doing it because it seems like the best thing to do, but only time will tell if I was right...

[MomTo2Boys]

 
I switched from CSRS to FERS in the 1980s. 

May I ask why you switched?

My husband and I often moan and wail because we came in too late to be CSRS and had to be FERS...

[MomTo2Boys]

Nice to hear from you MomTo2Boys! 

Thank you, Sophie! 

[AdamA]

I agree with most everything you've posted in this thread, especially how the G Fund is really a great fund. 

Yeah...if I had to pick just one fund to own, that would be it.  It's averaged close to 6% over its lifetime and has literally no volatility.  Hard to beat. 

The only real drawback is that most people still need some additional near cash funds to serve the "emergency cash" function of the cash component. 

True, although it is very easy to take out a "loan" from your TSP.  You can borrow 1/2 of your total savings from yourself.  You have to pay interest when you repay, but you pay it to yourself. 

The only thing is if you stop working for the government, they won't let you do this anymore. 

[HB Reader]

 
I switched from CSRS to FERS in the 1980s. 

May I ask why you switched?

My husband and I often moan and wail because we came in too late to be CSRS and had to be FERS...

Boy, I can't tell you how often I get asked about that.  FERS was designed on Capitol Hill in the early 1980s (after a decade of fairly high inflation) to bring the 401K-type system to the government and cut long term federal pension costs, particularly those associated with full inflation indexing.  By the mid-1980s, it became clear (at least to me) that the more generous pension features of CSRS were becoming relatively less valuable. 

Most federal workers seemed to just automatically assume they were intentionally getting screwed by Congress.  I didn't and thought it was more likely that Congress was just closing the barn door after the horse had escaped.  FERS offered a scaled-back and less generously indexed pension, but after carefully looking at all the details I concluded that it was probably better for me.  A few years before, Congress had revamped the old US savings bond program and had somewhat inadvertently turned what was really a crappy investment in the 1960s and 70s into an exceptionally nifty little program.  I figured this was similar, depending on your personal circumstances and whether you were prepared to take full advantage of all the FERS components.

First, I really liked the C and G fund options (there were only three funds when it started) and the matching terms and tax benefits of the system.  In addition, it seemed to offer better "portability" tradeoffs in case I decided to leave government.  Also, CSRS employees were not allowed any access whatsoever to the TSP funds initially.  That only came several years later, and it didn't seem to be on the immediate horizon. 

Second, I would lose none of the benefits of the eight years of CSRS participation I had accumulated.  My traditional pension is a CSRS/FERS hybrid.  One third of it is under CSRS terms and two thirds is under FERS terms.

Third, I already had between 15 and 20 quarters under Social Security from private sector jobs and I liked the way it aligned with FERS.  I believed that Social Security recipients would be far less politically popular scapegoats in any future "reforms" than federal employees.   

Lastly, I've always felt comfortable depending on the investment markets if I could make my own decisions.  I liked both systems, but I felt that the higher pension and indexing features of CSRS were overrated and amounted to "golden handcuffs" in many ways.             

I am happy with the decision.  I decided to retire early after 24 years, even though I had a pretty interesting job at Treasury.  My wife (who I met after switching) chose to stay in CSRS at another agency and did feel the need to put in a full thirty years.