How to Invest TSP When You Have a FERS Pension
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- เผยแพร่เมื่อ 17 พ.ย. 2023
- Having a FERS pension should change the way you allocate your TSP and other investments. A good retirement portfolio is completely different than when you're working, and if you aren't properly factoring your federal pension and Social Security, then you may be investing incorrectly.
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#TSP #federalretirement #federalemployees #FERS - แนวปฏิบัติและการใช้ชีวิต
i have not moved my money in the TSP in 18 years since day one they have been c and s. no matter how bad or good it is that is where it has been. no complaints of the amount of zeros in the account.
Glad to hear it!
Doubling time about every 4y 9m right? 21 years here and retirement is linked to 2 more doubling cycles then I'm retired. (paid off house, will be zero debt by end of '25, then can live off the FERS & SS alone)
I retired 15 years ago and have maintained a 60 to 70% TSP stock investment. My principal in the TSP is the same now as it was 15 years ago even after having taken monthly disbursements according to my life expectancy. I rode out covid and the 2008 debacle.
That’s awesome that you have the same balance after 15 years. You’re definitely doing things right. I will retire in four years at age 62 and I keep debating if I should take life expectancy withdraws or using the 4% rule. Reading your post gives me hope.😊
Great to hear! Just remember that the last 10-15 have not been the norm in the total market’s history. We can’t be certain the next 10 years will behave the same, so you have to hedge against that massive risk.
@@TheFedCorner I've been thru the Covid drop, the 2008 and 2000 drops. One thing that history has shown is that the market bounces back and it is better to hold on thru it rather than getting more conservative in fear and foregoing returns.
Great video, thanks!
New to the channel and appreciate your content. I’m an early career fed but it’s never too early to start planning! Keep it up. Subscribed.
Glad to hear it, welcome!
Using my FERS pension to bridge the gap between retirement 62 and FRA 66/10 mo. Leaving TSP and one Vanguard Roth IRA alone until I really need it. House is paid off which makes this possible. I think I'm good.
Great! Make sure you're doing tax planning each year along the way or you may end up overpaying in taxes later on in life when RMDs begin.
Excellent information. The only video of many that considers federal and military retirement. Thank you
Glad you found it helpful!
Incredibly helpful (and easy to understand) presentation.👏👏 Will definitely check out some of your other videos. Thank you 🙏
Awesome, thank you!
The bottom line is that the pension and social security should be treated like the bond portion of your portfolio. I have my TSP 85% in equities because 80+% of my retirement expenses will easily be covered by the pension and social security.
Right, pensions create income but not liquidity. Bonds can do both depending on how you use them. It shouldn't be a direct replacement for your bonds, as pensions generally don't outpace inflation. But they are an influencer to your bond strategy overall. -TG
That's a good point. Im 100% C fund. 10 years to 62.
@@joet.7831 I’m 70% C 20% S and 10% I. 12 years to 62. I use to be 45/45/10 but the C fund is hard to beat. I’m excited for you and jealous at the same time!
@@joet.7831same. 6 years to retire
What percentage of income do you recommend putting in the TSP?
I have always felt the way you were discussing in this video. With Mil ret, Fed ret, disability and SS I continue to keep 90% in growth in my TSP while still 5 years away from retirement at 62. I look at the TSP as not my retirement income to rely on but as "fun money" as with the 4 income streams listed above my wife and I can easily live and enjoy on those. The TSP will fund vacations, grandkids college funds, etc.
That's a great point. Just make sure you're not neglecting the planning despite not needing those funds. Remember that at some point you'll be forced into RMDs (required minimum distributions). Feds who neglected to do the right planning up until then can easily pay significantly more in taxes than was necessary.
Are you maxing out your TSP?
@@itguru2037 Yup, been doing that for 10 years plus the "catch up" for over 50.
@@TheFedCorner Roger that, I ope to be in the position my parents are where they have no choice but to take the RMD's and they turn around and buy CD's as they are hovering near 5% right now.
Look forward to our meeting next year TG 👍
This is why retiring without debt is so important. Market goes down, you spend less, thus need less to withdraw. Market goes up, you can withdraw more, maybe put some extra in other things like an online bank account. That will help buffer those down years. Yes, an over simplification. Debt just creates mandatory obligations which could be very stressful in a down year. Maybe a video about debt and how that affects retirement portfolios. Thanks for the video - the way you explain a concept is exceptional.
Great points! Glad you enjoyed the video!
Amazing how many high GS pay Federal Employees that are retiring with loads of debt...
Yes to the online bank account for down times. Make sure you have 3-5 years of living expenses in it before you retire, debt payments included. Then your debt payments are covered by your reserve when the markets are down.
I have 12 years to pay off everything except my house. Don’t believe I can get that done in 12 years unless I eat dirt and cardboard…
@@bigblue3568it’s because they come back as contractors
I’m not good at math so your example made so much sense to me and helped me a great deal. You’re awesome!!!
Happy to help!
This video does a good job on explaining it for FERS recipients. They changed the old CSRS because it was too generous, but did give CSRS folks the opportunity to open a TSP account which many of us did.
That's right! The differences between CSRS and FERS are many, and the TSP is a great tool to help build wealth to make up for reduced pension benefits.
The drawback of CSRS is no matching. 35% of my tsp is matching funds.
True, but they earn more. I have clients with the old CSRS program that are earning $120K+ annually just from their pension. They continued working and also eventually qualified for Social Security as well. -TG@@joet.7831
@@joet.7831 Having match represent 35% of your TSP balance is not necessarily a selling point as a higher percentage is really not a good thing. If matching were 50% of your TSP balance that simply means you contributed only 5% of income to your TSP.
Well, I am a couple years from my retirement. But I have not made a lot of investments and not used my TSP to the best of my ability. I won't retire a millionaire but I never figured that I would. I have been saving and I am starting to understand investing. And I have very little debt. I am single, no children. No ex wives. I am fiscally responsible. I will be fine. I just hope the government will still be around in the future to pay our benefits. 🤔
Everyone's financial picture looks a bit different, so that means everyone's retirement plan does too. Success comes in many packages, it's just making sure you have a good plan throughout your retirement!
Forget the music
Thanks for letting us know, we'll dial it down!
@@TheFedCorner Forget
Exactly.
I’m new to federal employment so please excuse my question. I opted out of an annuity with my former state employer & took a lump sum. Is this a possibility once retired, or leaving a federal job before retirement? Are you stuck with their pension? (Stuck meaning you lose it upon death if unmarried correct?) Seems crazy to me to pay into it for years and then potentially pass away if single & the money is lost. This feels social security’ish. Is this correct?
You are correct. It is functionally very much like Social Security. The FERS pension is an annuity only, not a lump sum benefit. Survivor benefits are decided at retirement, and typically cease upon your death if you do not elect a survivor benefit pension (SBP).
Hi Thiago - I watched your videos all the time. Question: I retire 2 years ago. I just change allocation this month 50/50 G&C. Since I am newly retired unaware to lots of stuff being a retiree, did I do the right thing or this was a mistake?
If you want you retirement money to last 30 years or more and keep pace with inflation, you will probably need to have more of it exposed to risk than 50%. Having 50% out (sitting in G fund) this early is going to give up a lot of potential gains. If you do not tolerate any risk and you can live on the income that charts out for you, that might work for you, but i suspect most people would say you should have much more invested.
The challenging part about the G fund is that it does not grow fast enough to outpace inflation. You need to think about inflation, spend rates, and market volatility as you think about what allocation is best suited to help you accomplish your objectives. Can't go into more detail without it counting as personal advice, but hope this helps. -TG
if the G Fund typically equates to the 10 year Treasury, then won’t that generally keep up with inflation?
Hey I have a question. My husband is a federal employee and in his early 50’s. When it comes to his TSP upon retirement, do we have to take a set amount each year? Like the 4%? Or if there is a year we need more money are we able to take more? This is all new to us and basically no one knows in his office 😅
Take as much as you want. Take more and it won’t last as long. Taxed as ordinary income. Take less and it lasts longer.
The only time you have to take out an amount is once reaching the Required Minimum Distribution (RMD) age. Until then, how much to take out (or not) is up to you. I can't speak to specifics for you since I don't know your circumstance. We talk a lot more about distributions on our blog if you're interested.
Here's some challenging questions.
If, after many years of contributions n yields into G Fund, I see the F fund maybe better for the future. is it really as simple as ok, i can move it n see how it goes? is there something i dont know?
Like, i thought when buying T-Bonds in a brokerage, if rates go up, the T-Bonds go up. But they don't because they're bonds that are worth less because they were issued with less interest, whos value is decided by the secondary market n selling before maturity locks in losses, correct? so would that, or anything else bad, possibly happen if i move $ out of the G Fund into another Fund? Am i selling older bonds for losses? are there tax consequences or any tax reporting hassles or anything?
How we know what exactly is in the G fund, such as the Treasuries' length before maturity of each Treasury in it, etc?
Very thoughtful questions. The key to remember is that the value of bonds and interest rates have an inverse relationship, like a see-saw. If rates go up, existing bonds may reduce in value, and vice versa. This is a fundamental principle of bonds that should be well understood when using bonds inside a portfolio. Bond pricing is impacted by myriad other elements too, but if you're holding bonds to maturity, they're less relevant.
@@TheFedCorner Yes, I know what you're saying, n that's why I touched upon it in my last comment.
But my main concern now is the questions from my last comment.
Like basically n specifically, what, if any, consequences would there be if all Thrift savings was in G Fund now, n half was moved to F Fund? n would u recommend that move right now?
@@airplayrule Moving from the G fund to the F fund is changing investment strategies. The consequences are that the investments behave differently. The G fund doesn't lose money but doesn't provide enough growth to keep up with inflation and spending. The F fund is a bond fund, which is subject to duration and interest rate risks, among others. It's hard for me to say if it's the right move right now since I don't know your specific circumstances. Try to thinking about each TSP fund as a specific tool, and how you'd use that tool to meet your financial objectives. Hope this helps. -TG
@@TheFedCorner Yea, that sounds right. last questions are, so would moving $ from the G Fund "lock in" losses because some bonds weren't "held till maturity" n have decreased in value? I think that's how it'd work if I bought T Bonds on the secondary market, but from the G Fund, I'm unsure.
anything else i should know regarding mostly switching previous, n all future, funds from G fund to F Fund, just a few years from retirement, with modest risk averse preferences?
@@airplayrule If you sell bonds "at a discount from par", meaning their face value has decreased from the value in which it was issued, then you may be realizing a loss. However the G fund works differently. Think of it more like a cash position, or mmkt. The G fund does not lose value. The F fund can definitely reduce in value, as it's priced like regular bonds. Wish I could comment on the switch itself--that falls into the category of advice which we can't do over a public platform like this. I can say that in general, it's technically increasing your risk, but you should start first with what allocation will be appropriate for your needs, then work backwards to find the investments that fit your required allocation.
Bottom line, you can be more aggressive in your investing when you have a pension and Social Security that can make up a majority of your needs.
I didn't quite see nor hear where you can continue to invest into TSP while being a FERS retiree. Maybe I missed it. Can you please point it out.
TSP salary contributions are only allowed during federal service. Once retired/separated, you cannot make new contributions.
You can change the fund allocation at any time. So if you have 75% in c and 25% in g. You can submit a form and adjust the allocation to 60% c and 40% in g. (Or whatever allocation you want. It just needs to total to 100%)
@@stevejacobs9411I thought you could do that almost instantaneously online at Tsp.gov?
Good video sir. What’s your attitude regarding buckets? I have 13 more working years left as a fed employee. My plan at that point is to withdraw 8 years of income from my TSP; around $350K. I will leave the remainder invested in the C and S fund over the next 8 years to allow for market volatility. Some of the examples you described seem to follow that strategy. Thoughts?
I tend to like the bucket approach for many circumstances, but it doesn’t work for everyone. I can’t comment on your plan because that falls into advice, but in general, the sooner you need cash flow, the more conservative you may want to consider being! -TG
Hard to do buckets in tsp when you can’t target a fund to withdraw from.
Caution. Pretty big tax hit if you take $350K out all at once.
@@swright5690 my plan was to remove the 8 years of income from the tsp and leave the remainder. However; I know you should avoid huge income spikes in retirement due to taxes. Not sure how I’m going to avoid a huge tax bill with each withdrawal.
@@calvinhaynes5781I just sent this to you but you were already on it I see😂😂😂
Do you have a video on how much extra money we get after buying back military time? im 29. i have 9 years of federal service (buyback included). it says i can take a full retirement at age 57...
Every year of military service you bought back turns into a year of total federal service. It raises the years of service on your FERS calculation. For example, you retire with 20 years of service in a federal agency, and you bought back 5 years military time, your calculation would be 25×(high 3 average)×.01. If you put in at least 30 total years then it would be 25×(high 3 average salary)×.011. You get 10% extra for all years 30 and over
The OPM website has great info on this as well as many podcast and you tube videos.
You can retire at 57, but your pension would be reduced 5% every year you retire under 62
@@markd8540 and what about the 10% you mentioned for every year over 30? Will that still apply?
@@markd8540 I think it’s crazy that they can reduce it with 37 years in. I’m better off leaving the federal service and then coming back for a few years to collect that pension.
I moved most of it out and bought real estate.
I moved my TSP out to Fidelity and invested in MYGA's and Tbills at 5.3++% to create a revenue stream form which I dollar cost average my excess yearly cash into the stock market. This way, I have a steady income stream, but can also grow my money in stocks as it makes sense. I don't think people should have anything in stocks that they can't afford to lose, or can't afford to wait for 10 years to recover should a downturn take place.
Great points. Just remember that you can also own dividend-stocks, which may provide respectable income streams in addition to allowing you to participate in equities. Dividends tend to be sticky even when markets are volatile. -TG
@@TheFedCorner And dividends are taxed at a lower rate right? But what are the realistic dividend rates of return? Can they beat a 5.6% 7 year MYGA?
Can i transfer my 457b over to tsp and still be eligible for early retirement?
To retire with a federal pension is based on age and years of service not size your of TSP balance.
i have 300k in the c fund is it a good move to alocate everything today to the g fund ,,, i still have 5yrs to retired
Hard to say without knowing your specific financial position. The G fund is designed to protect your wealth from volatility, but it doesn't protect you from inflation and is not good at replenishing your spending once you retire. Hope this helps!
Yes you should, close to retirement and the US economy, inflation, and US debts,
No. Why would you think that'd be a good idea? As a guide look at composition of L Income Fund which is 13.4% C Fund and 25.75% CSI, and L2025 which is 17% C Fund.
Ok, I may be an outlier, but I contribute to my TSP because of the free match and the growth; I won't need it in retirement. I have invested in income properties and other real estate instead and am still purchasing more. I'm currently about 69 years old and am planning to work through 72 (I'm on a two week leave and halfway through I wanted to go back to work). 🤪 The plan is to draw the RMDs only, unless there is a catastrophic event. My family history is of longevity on both sides, with many ancestors living way over 90, even 300 years ago! Having meticulously planned my retirement and comparing bring-home pay to retirement income, I will make more in the future than I am now or will in the future working; post-tax medical premiums factor into that. Paying off what little I have in mortgages in the next three years is a huge plus and will allow me to purchase more income property. Therefore, I'm a little bit more aggressive in my TSP investing than the average retiree. I like having investments that give me a tax break rather than paying more already excessively high taxes.
Glad to see you've done a lot of thinking! You're certainly the outlier, concentration in real estate can be risky, and most of our clients want to maximize the use of their portfolio assets to enhance their retirements rather than keep saving. The key is to find what works best for you! Thanks for tuning in and for your thoughts!
I’m certainly an outlier too, but not as much as you! I have about $200K from property I sold and keep it in an emergency fund just in case the C Fund takes a big hit. Been retired for 9 years and kept 100% in the C Fund. Biggest concern is tax consequences.
As soon as I heard the Dave Ramsey recommendation, I knew this video was worthless
but he said Ramsey is wrong.
Maybe watch the whole video before commenting, friend.