How to best utilize TSP in retirement, particularly G Fund

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ccf
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How to best utilize TSP in retirement, particularly G Fund

Post by ccf »

My in-laws have recently retired and they are confused about how to best use their TSP.

They are currently living off of a pension and social security but they could see themselves (depending on whether or not they move to a more expensive area, medical expenses, etc) drawing most or all of their retirement savings during retirement. I think they have roughly 30% in a Thrift Savings plan and the remainder in a Vanguard 401k. They'd like to be at 50/50 and for the time being they are achieving that by using target date funds in both the TSP and Vanguard. The RMD for his TSP will start in 4.5 years. The RMD for her 401k will follow 2.5 years later.

With retirement savings that is 70% Vanguard and 30% TSP, what are some of the better ways to build a 3(ish) fund portfolio that is 50% bonds?

One thing we are wondering is if being ~13% G Fund (it is 44% of their TSP) is too low if their desired allocation is 50% bonds.
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hoppy08520
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by hoppy08520 »

If 30% of their retirement assets are in the TSP, and if they would like to be 50% stocks and 50% bonds overall, then it strikes me that this is a simple one: put the entire TSP into the G Fund. That covers 30% of the bond allocation. The remaining 20% of the bond allocation can be held in Vanguard.

In practice, they could do:

Portfolio 1
TSP
30% G Fund (the entirety of the TSP)

401(k) at Vanguard
70% Vanguard LifeStrategy Growth - this is an 80% stock, 20% bond fund

OR:

Portfolio 2
TSP
30% G Fund (the entirety of the TSP)

401(k) at Vanguard
20% Vanguard Total Bond Market Index Fund
35% Vanguard Total Stock Market Index Fund
15% Vanguard Total International Stock Market Index Fund

Portfolio #2 might be easier to keep in balance, especially after RMD starts.
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retiredjg
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by retiredjg »

If they have been happy with the target funds up till this point, I don't see any reason to change it. Why not just use something that is near 50/50 in each account?

It's not that I don't like hoppy's suggestions because I do. But I think your in-laws may like the completely hands off approach they have been using.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Kevin M »

Simplicity is nice, but I would have a hard time passing up the free lunch of the G fund: longish-term Treasury rate with no default risk or term risk.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Professor Emeritus »

We have the entire TSP in the G fund and Stocks in an IRA in VTSAX. That is 90% of the retirement portfolio. We also have some legacy TIAA. and fidelity spartan stock .
Question why hold bonds and take SS instead of deferring? (no problem if its a health issue) DW is disabled and on SSDI. I am deferring.
Last edited by Professor Emeritus on Tue Apr 28, 2015 8:23 am, edited 1 time in total.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

Professor Emeritus wrote: Question why hold bonds and take SS instead of deferring?
I think they regret this but he started taking SS as soon as he was eligible (3 years ago) so it's too late. I suggested that they try http://www.socialsecuritychoices.com before deciding what to do with my mother in law's benefits and the assessment helped her decide to defer hers until 70 (and take spousal benefits, I believe)
Last edited by ccf on Mon Apr 27, 2015 6:35 pm, edited 1 time in total.
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ccf
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

retiredjg wrote: But I think your in-laws may like the completely hands off approach they have been using.
My mother in law checks the balances daily and I want her to feel like no matter what happens in the market, everything is in a good place. I have to think on this I guess. The TSP would be less interesting to peek at if it was all G Fund but the other money will be scarier to watch as the market moves around.


Thanks everyone.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by joe8d »

Kevin M wrote:Simplicity is nice, but I would have a hard time passing up the free lunch of the G fund: longish-term Treasury rate with no default risk or term risk.

Kevin
+1
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Jerry55 »

I agree with many above ~

Depending on ones risk, I'd be either in the G Fund or L Income Fund at best. No need to add risk.

Personally, I've been retired 3 years now (age 60) and am 50% C, 25% S and I for at least another 5 years.

I'll revisit that in 2020 or later, but that's where I'm heading...L or G for sure. Unless Congress changes G fund interest rates.
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Professor Emeritus »

ccf wrote:
Professor Emeritus wrote: Question why hold bonds and take SS instead of deferring?
I think they regret this but he started taking SS as soon as he was eligible (3 years ago) so it's too late. I suggested that they try http://www.socialsecuritychoices.com before deciding what to do with my mother in law's benefits and the assessment helped her decide to defer hers until 70 (and take spousal benefits, I believe)
For anyone else , there is a one year reverse and repay window
http://www.ssa.gov/planners/retire/withdrawal.html
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Professor Emeritus »

My mother in law checks the balances daily and I want her to feel like no matter what happens in the market, everything is in a good place. I have to think on this I guess. The TSP would be less interesting to peek at if it was all G Fund but the other money will be scarier to watch as the market moves around.
I think it is obvious that anyone who does this should not be in the market.

Anyone who contemplates using up their retirement assets for routine living expenses (including medical costs) should not be speculating inthe stock market.

How about buying an annuity right now to replace the income they lost by not deferring SS?
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by NoRoboGuy »

I have G Fund and it is the largest part of my bond allocation, but I do not have 100% of my TSP in it because it will create some difficulties with rebalancing. For that reason, I like to have both stocks and bonds in every tax-deferred account.

For your situation, the L Income Fund is a great single fund choice. It is comprised of 74% G, 6% F (80% bonds), and the other 20% is in US and international stocks. She can "follow the prices" and not lose sleep over volatility.
There is no free lunch.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

Professor Emeritus wrote:How about buying an annuity right now to replace the income they lost by not deferring SS?


I think that they really want to leave a big chunk to their children but the reality is that it's not a huge sum to last 25-30 years (somewhere near 1.5 million I think?), they will likely move closer to all of their children/grandkids where the cost of living is significantly higher, and my father in law's health... could be much better for his age. We both do You Need a Budget and talk about it to keep ourselves motivated and even with their current lifestyle I think that they are going to have to start drawing at least a small amount to make it until she is collecting spousal benefits.

I would be pretty surprised if they didn't eventually use most of their retirement savings.

I know my MIL has become a little addicted to the growth we've seen in stocks over the last many years and I don't want to see them suffering (emotionally or financially) if they experience a big drop.

She uses Personal Capital and just shared her allocation breakdown with me. It turns out it is 40% bonds, 56% stocks. I imagine that some retirees with a pension and social security might be satisfied and comfortable with that, and I don't want to push my personal preferences on them. They do ask for advice and I think that if my opinion was that they should be heavier in G Fund (to at least hit 50/50 or even 60% Bonds) they would do it. It could be as simple as changing their TSP from Target Date 2030 to 2020. My MIL says she changed the TSP from target 2020 to 2030* after he retired for "more growth" :/

* target date 2030 is currently 65% stocks
Last edited by ccf on Tue Apr 28, 2015 9:16 am, edited 4 times in total.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by NoRoboGuy »

ccf wrote:
Professor Emeritus wrote:How about buying an annuity right now to replace the income they lost by not deferring SS?


I think that they really want to leave a big chunk to their children but the reality is that it's not a huge sum to last 25-30 years (somewhere near 1.5 million I think?), they will likely move closer to all of their children/grandkids where the cost of living is significantly higher, and my father in law's health... could be much better for his age.

I would be pretty surprised if they didn't eventually use most of their retirement savings.

I know my MIL has become a little addicted to the growth we've seen in stocks over the last many years and I don't want to see them suffering (emotionally or financially) if they experience a big drop.

She uses Personal Capital and just shared her allocation breakdown with me. It turns out it is 40% bonds, 56% stocks. I imagine that some retirees with a pension and social security might be satisfied and comfortable with that, and I don't want to push my personal preferences on them. They do ask for advice and I think that if my opinion was that they should be heavier in G Fund (to hit 50/50 or even 60% Bonds) they would do it. It could be as simple as changing their TSP from Target Date 2030 to 2020. My MIL says she changed the TSP from target 2020 to 2030 after he retired for "more growth" :/
Hmmm...does she understand "there is no free lunch"?
There is no free lunch.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

Based on your input so far, this is what I'm thinking I could suggest:

Move the TSP back to Target 2020 (effectively moving the TSP to a 50/50 allocation), leave everything else alone and stop touching things.

In 2020, his RMDs start and the Target fund stops gliding and becomes the same as the L Income Fund, which seems perfect.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Professor Emeritus »

[quote="ccf"
I know my MIL has become a little addicted to the growth we've seen in stocks over the last many years and I don't want to see them suffering (emotionally or financially) if they experience a big drop. She uses Personal Capital and just shared her allocation breakdown with me. It turns out it is 40% bonds, 56% stocks. ][/quote]

Asset allocation is meaningless in this context
It requires income analysis .
No one who needs retirement money to "live on" should have it in stocks.

Do this . Tell them there was a big crash in the market and they lost 75% of the value. What is plan B?

as an example
DW and i keep adequate funds in pensions SS and bonds to pay for us in a nursing home for 5 years
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Kevin M »

ccf, are you and your in-laws familiar with the concept of having a Liability Matching Portfolio (LMP) of safe assets to fund residual expenses (after SS and pensions) in retirement? If not, I strongly recommend that you and they read this book: The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults; [Book 1]): William J Bernstein: 9781478227137: Amazon.com: Books.

I think that anyone in retirement who is basing their asset allocation on stock performance since 2009 is making a grave mistake.

Kevin
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by Professor Emeritus »

Kevin M wrote:
I think that anyone in retirement who is basing their asset allocation on stock performance since 2009 is making a grave mistake.

Kevin
+1
I tried to say the same thing in SIL language
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by HIinvestor »

We live on H's pension & TSP (which we have moved ALL into the G Fund). We have our other investments split among index funds, a few individual stocks and some cash. Agree with the above that funds that one will need to live on should NOT be in stocks, especially if withdrawal may need to be in 5 years or less.

With the TSP, you can't specify where the funds are drawn from -- they come from the fund in pro rata shares, so if you have it 50% in C fund and 50% in G fund, when there is a RMD or other withdrawal, 1/2 of the RMD amount comes from each of those 2 funds, regardless of how well (or poorly) each has been performing.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

ccf, are you and your in-laws familiar with the concept of having a Liability Matching Portfolio (LMP) of safe assets to fund residual expenses (after SS and pensions) in retirement?
Not at all. I will read the Bernstein book.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by ccf »

This thread should probably be titled "Retired, now what?" :)

Originally I was thinking I could be of use by trying to encourage my MIL to focus less on growth but reading all of this over, I see that they need to make more of a plan.
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by larmewar »

If your mother-in-law gets antsy from checking markets (and their investments) too often, balanced funds like the TSP L series might be helpful. Personally, I don't like to see bond funds jumping around so Wellington helps me stick with intermediate term bonds.

Lar
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Re: How to best utilize TSP in retirement, particularly G Fu

Post by grabiner »

Professor Emeritus wrote:
My mother in law checks the balances daily and I want her to feel like no matter what happens in the market, everything is in a good place. I have to think on this I guess. The TSP would be less interesting to peek at if it was all G Fund but the other money will be scarier to watch as the market moves around.
I think it is obvious that anyone who does this should not be in the market.

Anyone who contemplates using up their retirement assets for routine living expenses (including medical costs) should not be speculating inthe stock market.

How about buying an annuity right now to replace the income they lost by not deferring SS?
And the TSP offers an annuity with good terms; inflation adjustment is also available. (If it is her 401(k) and his TSP, I don't think they can roll the 401(k) into the TSP to get a larger annuity or more G fund.)
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