TSP Retirement Transition

Achieving TSP Retirement Goals

I recently received the following message from one of our subscribers in regards to their retirement account:

Immediately upon subscribing and reading your past newsletters, I’ve made 2 changes to my TSP account. First, I created a Roth TSP and moved all future contributions to Roth (I will have contributed $5,000 to Roth by the end of this year and reached $17,500 limit for total contributions). Secondly, I moved all the money that I had in the XXXXX to XXXX, and this represents 20% of my account.

 

The remaining 80% is in L2020 fund and I’m too chicken to make a move.
I have really big favor to ask you. I understand you don’t offer suggestions, but I truly need your opinion. So thank you in advance! One reason I’m chicken to move the remaining 80% in the L2020 to XXXXX is because I’m close to retirement, which means I don’t have a lot of time to recoup if something goes awfully wrong. The other reason is that I don’t know anything about investing but I keep hearing that you shouldn’t put all your eggs in one basket. I have not touched my TSP account for quite sometime. I just let it ride, and of course got hit pretty bad in 2000 and 2007 for being ignorant and passive.

 

I currently have $600,000 total in my traditional TSP. I’m contributing $17,500/year, and will continue to do so for the next 6 years, until retirement in 2020. I would like to have about $1.2 million total account balance by 2020, which I think may be doable if there are no big losses like 2000 & 2007. My questions are:

 

1. Should I allocate all the remaining 6 years’ contributions to Roth TSP only?
2. If you were me, would you move the 80% currently sitting in L2020 to XXX and/or XXX? Why or why not? And when (today, this week, next week)?

 

I am always humbled and grateful when subscribers write in with their detailed questions. These questions truly make my day because I believe I can provide guidance in an area where it is severely lacking.

I know this subscriber only asked 2 questions but I’m going to answer 3 and in this order:

  1. Should you allocate all future contributions to the Roth TSP?
  2. When should you start following our TSP strategy?
  3. Can I expect to have $1.2 million by the end of 2020?

TSP Allocations in the Roth TSP

I have learned quite a bit about this subscriber’s personal situation but I do not know everything. Retirement planning cannot be done in a single day and certainly not within one article. But in regards to the Roth TSP you have to take the following into consideration:

  • Would you rather be taxed now or later?
  • Can you afford to be taxed now or later?
  • What expenses do you currently have planned for retirement?

Some individuals simply make more money than others. In my experience, government employees and servicemembers who are closer to retirement are at their highest salary levels. I don’t like making assumptions but in this particular case I would say this individual should consider being taxed on their salary now as opposed to being taxed on their withdrawls later. Now I realize this isn’t always the case and some individual’s may need every single penny from their salary that they can spare. In this case I would much rather see an individual choose the traditional TSP because they are still putting money aside for retirement.

Additionally you must take into account what your expenses will be as you move into retirement. As retirees of the government or the military you receive a pension which gives you a stable income which your civilian peers do not have. However, it is imperative that you try as best you can to calculate your expenses prior to your actual retirement. Once you have done that, then you should have a basic idea of how much money you need to live on an annual basis. Even if the numbers are not 100% correct, I would recommend you start calculating and anticipating now than to wait a year before you retire.

TSP Strategy – When Do I Start?

“The secret of getting ahead is getting started”

~ Mark Twain

This strategy is built solely off of statistical data. We have taken all the emotion out of your investment decisions. Unfortunately conventional financial wisdom would have you believe that a good financial advisor or stock analyst can predict when the market will move and which direction it will go. But I’m here to tell you this couldn’t be farther from the truth. The truth is, the stock market literally exchanges trillions of dollars every single day. How in the world can one single person know exactly what will send the market up or down? It is literally the most ridiculous concept I have ever heard. Nobody can consistently time the market or predict bear/bull markets, it simply doesn’t exist.

I know most people want to hear me say, “Now is a great time to enter the market.” But the truth is I have no idea what the market will do. It can suddenly drop tomorrow and our indicator can signal that we need to move into the G Fund or the market can rise 30-40% higher from its current position. As investors we can only react to what the market gives us, investors who try to make the market move are playing with fire and risk substantial losses.

So when should you get started? My answer would be today!

Turning $600,000 into $1.2 Million

As I stated above there is no sure thing when it comes to investing. Having a TSP retirement goal of $1.2 million is great for planning purposes but if you are hopping in and out of funds trying to reach that mile marker you are playing with fire! Instead of aiming for $1.2 million I would suggest focus on not losing what you have worked so hard to accrue and growing your portfolio safely while minimizing risk as much as possible.

With that being said, let’s take a look at the 20 year performance of the stock market. Notice how the bear markets are significantly shorter than the bull markets. While history does not guarantee what will happen in the future it gives us the best insight.

TSP Retirement Subscriber
I have broken this graph into bull market and bear market cycles based on our indicator. Now I will admit I could have gone through and tested this for every year but I just didn’t have the time. What I did do was break this 20 year period into 4 year segments. This gave us 5 potential investment periods for this subscriber. Let’s see how a $600,000 investment would have performed over a 6 year period following our conservative system.
TSP Retirement Subscriber 1995

Using our strategy from 1995 – 2001 would have turned $600,000 into a whopping $1,724,820.

TSP Retirement Subscriber 1999

Using our strategy from 1999 – 2005 would have turned $600,000 into a measly $785,248.

TSP Retirement Subscriber 2003

Using our strategy from 2003 – 2009 would have turned $600,000 into a considerable $906,960.

TSP Retirement Subscriber 2007

 

Using our strategy from 2007 – 2013 would have turned $600,000 into an astounding $1,306,090. (Please note this number did not account for the whip saws you see in this graph, in reality this number should be smaller but not by much)

TSP Retirement Subscriber 2011

 

Using our strategy from 2011 – Present a starting account balance of $600,000 would currently be worth approximately $1,002,000. (Please note this number did not account for the whip saw you see in this graph, in reality this number should be smaller but not by much)

Key Takeaway & Recap

When it comes to investing there simply is no sure thing. I know that’s not what a lot of people want to hear but it’s the truth and I simply cannot give you anything better than that. In regards to investing over a 6 year time frame prior to retirement, I would say that is plenty of time to catch part of another bull market. Based on our quick study, no time period resulted in a TSP portfolio losing money. Please remember past results have no bearing on future results but they are the best thing we have to navigate. I hope this helps!

Do you have any specific questions regarding your Thrift Savings Plan? Send them our way, we’re more than happy to help even if you’re not a subscriber!

Here’s to our Wealth!

7 Comments

  • Jackie Nguyen

    Reply Reply October 13, 2014

    Thank you for sharing this case study, especially the 20-year performance analysis of the large cap stocks.

    • Admin

      Reply Reply October 15, 2014

      Its our pleasure Jackie!

  • MM

    Reply Reply October 31, 2014

    I have been investing poorly (believe it or not) on my TSP fund. Due to too many reasons i neglected to pay attention to it as I should have (All my contributions were allocated to G fund). After I made the changes to what I intended it to be back in the end of 2009, I calculated that I am 5 years on the red (hypothetically speaking). I am 40 years old, and would like to make it up in the next few years. What is my best strategy? Should I change my contribution from 10% to the maximum? I have my TSP now allocated between the C – 35%, and S – 65%. I would like to make up for the 4 1/2 years i had lost, and still retire when I am 65.

  • Charles Martin

    Reply Reply December 5, 2014

    I AM PRESENTLY A RETIRED GOVERNMENT EMPLOYEE as of (July 31 2014) age 62. I plan on not touching my TSP funds for at least another year. What is the best fund allocation for me being retired and unable to contribute money into my account. Or should I just stay in the “G” fund?

    Thanks

    • Admin

      Reply Reply December 7, 2014

      Unfortunately I cannot give personal investment advice. However, I can share my personal plan with you and perhaps that can give you some perspective. I personally plan to roll over my TSP into a self managed IRA because I can manage my money far better than the TSP but that is me. As I move closer to retirement say 1-3 years, taking a couple factors into consideration I will more than likely sit in the G Fund to maintain the massive amount of capital I have accrued. Hope this helps

  • Yasir Azim

    Reply Reply November 13, 2015

    WHich EMA/SMA lenghts (15,20,30day etc) were being used on the monthly charts. I see they were not included.

    • Admin

      Reply Reply November 13, 2015

      Good afternoon Yasir

      Our system is proprietary so we do not divulge that information.

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