TSP Retirement Transition

Transfer TSP Allocation into G Fund For Retirement?

I recently had a TSP member inquire about her personal situation regarding her move towards FERS retirement. She informed me that she didn’t know much about her Thrift Savings Plan so she simply invested in the C Fund, S Fund, and I Fund then forgot about it. She recently met with a financial advisor to get some advice as she will be retiring in 5 years.

Now I’m not bad mouthing financial advisors in general because all financial advisors are not created equal but what her advisor told her absolutely astonished me! She was advised to move 20% of her TSP Portfolio into the G Fund every year and this would ensure that 100% of her retirement portfolio was not at risk to the stock market by her retirement date. I personally find this advice ridiculous and certainly hope she did not pay for it.

My TSP Advice

First and foremost I believe that financial advice needs to be given in relation to the individual’s specific situation. How in the world can you give any sort of advice without knowing what a person needs? With that being said, I wouldn’t give any advice at first, I would simply listen. The only questions I would have in order to get the conversation started are:

  • What are your goals for Retirement?
  • How much money do you need to survive?
  • How much money do you need to live comfortably?
  • What large financial obligations do you have within the next 5 years?
  • Do you want to be “ok”, rich, or wealthy?

All of these questions give significant details to an individual’s financial situation and goals. In finance you simply cannot give a cookie cutter answer to a group. One strategy may work well for one individual and the same strategy turn out catastrophic for another individual.

Where Will You Live?

Unfortunately she did not answer this question but let’s assume that she did and I discovered that her and her husband owe approximately $200,000 on their home. I personally believe that no individual should enter into retirement with financial obligations, especially a mortgage. Once you lose your active income, expenses pile up a lot quicker than normal. After conducting a little math I calculated that by the time she retires they will owe approximately $180,000 on their home. Based on that information I would recommend she transfer $180,000 into the G Fund immediately and here is why…

I do not believe in risk, especially for retirees or individuals approaching retirement. At the end of the day you always need a place to live.

I know 5 years is a long time frame in regards to investing however, I would prefer to see that money sit safe and grow a little bit then risk having it sit in the C Fund, S Fund or I Fund exposed to market risk. Everyone always loves to think about possible gains than potential losses, I’m a glass half empty personality. If there’s one thing I learned from my time in the military it’s that whatever can go wrong will go wrong and at no time will I ever accept more risk than I have to.

Case in point…

C Fund Market Cycle

Here is the S&P 500 over the last 20 years, just take a look at any 5 year time period. There are certain time periods where you could have made a lot of money but other time periods when you could have lost a lot of money. In our TSP Newsletter we strive to identify these bullish and bearish markets to the best of our abilities but we absolutely cannot predict what the market will do. Case in point, on October 19, 1987 the S&P 500 dropped 23% in one day. How would that have affected most people approaching retirement?

The Rest of Her TSP Portfolio

As for the rest of her TSP Portfolio, I would recommend following our TSP Newsletter as it provides the maximum amount of gains while limiting risk significantly. More specifically, at all times our subscribers know just how much money is at risk while being exposed to the market. This allows our members to assess their own specific situation and take into account the risk they are taking.

Recap

So instead of moving her entire account into the G Fund over the course of 5 years, it would be much more beneficial for her to assess her personal situation then develop a plan. To be more precise, evaluate where you will live during retirement and calculate the expenses you will incur based on the lifestyle you wish to maintain. This will help you develop a plan of action in regards to managing your TSP Portfolio.

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