Novice with 403b and TSP questions

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Jetpack
Posts: 52
Joined: Fri Apr 05, 2013 2:42 pm

Novice with 403b and TSP questions

Post by Jetpack » Sat Apr 06, 2013 10:32 am

This is such a great forum. I’ve been trying to read and learn as much as I can, but at this point it is all a little overwhelming. We are just now getting our personal budget under control and allowing us to build an EF and increase contribution to retirement accounts and would like some thought on where we should go from here. If I left anything out, please let me know and thank you all in advance for your guidance.

Emergency funds:
3-4 months
Debt
House $1370/mth includes tax/insurance (Paid $200K, balance remaining $185K, worth about $170K. 30 year, 5.125% fixed (lender paid PMI) , making $400 extra principle payment per month in a double effort to pay off by age 50 and to try to get principle down so I can refi to lower rate

My car $676/mth, balance due $38k, loan has 60 months left at 2.5% fixed
Wife's car $397/mth, balance due $25k, loan has 66 months left at 1.9% fixed
Student loans $130/mth, balance due $11k, 2.38% fixed

Tax Filing Status:
Married Filing Jointly with one child (age 3)
Tax Rate: 25%?? Federal, ?? State
State Ohio
Age: Me 33, Wife 34
Desired Asset allocation: ??% stocks / ??% bonds
Desired International allocation: ??% of stocks
Current retirement assets

His Thrift Savings

I currently have a balance of $43196.00 split as follows:
L2040 at 50% broken down as 13.52 G Fund (gov securities), 9.23 F Fund (fixed income index), 38.90 C Fund, 16.45 S Fund, 21.90 I Fund (International Stock Index), 12 month performance 14.27% (after fees)
C Fund similar to S/P 500 at 25%, 12 month performance 16.00% (after fees)
S Fund similar to DJ US Completion TSM at 25%, 12 month performance 17.89% (after fees)

Company match: 100% match up to 5% of income
His Pension
Will be eligible for 34% of high 3 years at age 57 and will receive a supplement similar to my age 62 social security until age 62

Her 403b

Currently the balance in 403(b) is split into 4 accounts with an administrative fee of .39%/$1k on top of the individual fund fees.
Pre-Tax Elective, Balance $5432.27, 12 month returns 15.02%
Employee Matching, Balance $8106.41, 12 month returns 16.20%
Retirement Savings Plan, Balance $9822.53, 12 month returns 15.48%
Above accounts spread equally among these funds:
JHancock Disciplined Value I, Vangaurd Extended Market IDX S, Aston/River Road Small Cap Val, Vangaurd Wellington ADM, Vangaurd Total Intl St Ind Sig
Employee Deferrals, Balance $1345.26, 12 month returns 14.52%, balance spread equally among these funds:

Company match: 50% match on 4% of income (climbs to 6% with years of service/age over next 10 years)


Total of All Accounts Together : $67902.00

Contributions

New annual Contributions
His: 13% or $10,098.01 to TSP with $3885 matching contributions
Her: 6% or $3312.00 to 403b with $1104 matching contribution

Available funds

Funds available in TSP, all expense ratios is .027%
G Fund (Gov Securities)
C Fund (Stocks close to S/P 500)
S Fund (similar to DJ US Completion TSM)
I Fund (International Stock Index)
Life Cycle Funds (2020, 2030, 2040, 2050)

Funds available in her 403(b)
.39% Administrative Fee in Addition to fund expenses below
American Funds EuroPacific Growth Fund (RERFX)- .55%
Aston/River Road Small Cap (ARSIX)- 1.27%
Fixed Interest (FB125)- ?
JHancock3 Disciplined (JVLIX)- .88%
MainStay Large Cap (MLRRX)-.92%
Oppenheimer Developing Markets (ODVYX)- 1.00%
PIMCO Low Duration (PTLDX)- .46%
PIMCO Total Return (PTTRX)- .46%
RidgeWorth Mid-Cap (SMVTX)- 1.07%
T.Rowe Price 2050 (TRRMX), 2055, 2010, 2015, 2020, 2025, 2030, 2035, 2040, 2045, 2005, Income- .76%-.56%
TimeSquare Mid Cap (TMDPX)- 1.28%
Touchstone Diversified SmallCap (TDSIX)- 1.15%
Vanguard Total Bond (VBTSX)- .10%
Vanguard 500 Index (VIFSX)- .05%
Vanguard Extended Market Idx (VEMSX)- .14%
Vanguard Prime Money Market (VMMXX)- .2%
Vanguard Total Intl (VTSGX)- .18%
Vanguard Wellington (VMENX)- .19%

Questions:
1. Her 403b has more fees and many more options than my TSP. What is the best options for her 403b to simplify things and to have the balance between performance and fees? She doesn’t have a pension but will have Social Security.

2. I know we have a mid to high APR on the house, so we’re paying $400 extra in an effort to lower the balance to refi to a true 15 year with a lower APR. I also know our auto costs should be lower but we’re upside down on those. Are we doing the right thing by letting those loans work their course and paying our retirement funds instead?
Last edited by Jetpack on Sat Apr 06, 2013 12:16 pm, edited 1 time in total.

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: Novice with 403b and TSP questions

Post by Default User BR » Sat Apr 06, 2013 12:07 pm

In the 403b don't use anything but the Vanguard funds. I personally don't like blended funds, so I would only consider these:

Vanguard Total Bond (VBTSX)- .10%
Vanguard 500 Index (VIFSX)- .05%
Vanguard Extended Market Idx (VEMSX)- .14%
Vanguard Total Intl (VTSGX)- .18%

As everything there has a direct counterpart in the TSP except VTSGX, I would concentrate on that. It's a better fund that I Fund because it's more complete.

BTW, at one point you say .39% on top for admin, another .039%. Which is correct?

The loan rates on the cars and student loans are good, so I agree that any extra should go to mortgage with a goal to refinancing.

You will need to come up the percentages in an allocation. A typical recommendation would be 35% bonds, with 30% of stocks in international.


Brian

BerkeleyChris
Posts: 61
Joined: Sat Feb 09, 2013 11:23 am

Re: Novice with 403b and TSP questions

Post by BerkeleyChris » Sat Apr 06, 2013 12:14 pm

Hi,

congratulations on getting started on taking control of your finances.

for her 403b, most of the options are too expensive...but she does have a few good funds available. I agree with Default User BR that the 4 vanguard funds named could be used to get to her desired asset allocation.

I have a different take on the car, however. The low interest rate is not a reason to keep it...it is expensive and falling in value. Hard to tell without all the details such as how long you're going to stay in the house and how much underwater you are on the car, but I have a strong feeling that using that $400 a month extra you are putting toward the house (plus maybe some temporary budget cuts elsewhere?) would be much better spent to get yourself out of the big car loan ASAP. Are you willing to trade down to say a $10 or $15k car, or even be a single-car family for a while? I would keep contributing to your TSP/403b to get the matches, not stress out too much about fine tuning the asset allocation for now, and focus on ridding yourself of the expensive depreciating assets that are hurting your ability to save.

Good luck!

Jetpack
Posts: 52
Joined: Fri Apr 05, 2013 2:42 pm

Re: Novice with 403b and TSP questions

Post by Jetpack » Sat Apr 06, 2013 12:24 pm

BerkeleyChris wrote:Hi,

congratulations on getting started on taking control of your finances.

for her 403b, most of the options are too expensive...but she does have a few good funds available. I agree with Default User BR that the 4 vanguard funds named could be used to get to her desired asset allocation.

I have a different take on the car, however. The low interest rate is not a reason to keep it...it is expensive and falling in value. Hard to tell without all the details such as how long you're going to stay in the house and how much underwater you are on the car, but I have a strong feeling that using that $400 a month extra you are putting toward the house (plus maybe some temporary budget cuts elsewhere?) would be much better spent to get yourself out of the big car loan ASAP. Are you willing to trade down to say a $10 or $15k car, or even be a single-car family for a while? I would keep contributing to your TSP/403b to get the matches, not stress out too much about fine tuning the asset allocation for now, and focus on ridding yourself of the expensive depreciating assets that are hurting your ability to save.

Good luck!
Thanks for the quick feedback. We plan on staying here for the long haul, no plans on moving. As for the cars, I'm around $10k upside down on mine and about $6-8K upside down on hers. I am more than willing to drive a $15k car but I wasn't sure if coughing up $10k to do it made sense? Or if just waiting until the loan balance was closer to the value (maybe in 2 years or so), then moving to something cheaper. A single car isn't possible as my wife and I both work and we live half way in between work locations...so I drive 30 miles one way, she 30 miles the other. So if I'm reading your response correctly, you're saying drop to 5% in my TSP and 4% in 403b and apply all available funds to debt?
Default User BR wrote:In the 403b don't use anything but the Vanguard funds. I personally don't like blended funds, so I would only consider these:

Vanguard Total Bond (VBTSX)- .10%
Vanguard 500 Index (VIFSX)- .05%
Vanguard Extended Market Idx (VEMSX)- .14%
Vanguard Total Intl (VTSGX)- .18%

As everything there has a direct counterpart in the TSP except VTSGX, I would concentrate on that. It's a better fund that I Fund because it's more complete.

BTW, at one point you say .39% on top for admin, another .039%. Which is correct?

The loan rates on the cars and student loans are good, so I agree that any extra should go to mortgage with a goal to refinancing.

You will need to come up the percentages in an allocation. A typical recommendation would be 35% bonds, with 30% of stocks in international.


Brian
Brian...thanks for catching my error on the expense ratios. I edited my originial post to show the correct amount is .39%. I am glad you think I should stay in Vanguard only as that seems to make since with the lower fees. So you suggest concentrating a higher allocation in the VTSGX of my spouse's 403b to compliment what I'm doing in the TSP?

BerkeleyChris
Posts: 61
Joined: Sat Feb 09, 2013 11:23 am

Re: Novice with 403b and TSP questions

Post by BerkeleyChris » Sat Apr 06, 2013 1:47 pm

Hi, Jetpack,

Yes, I would personally contribute up to the maximum match and then temporarily use anything extra to try to get yourself out of the car and/or get yourself in a position to refinance since you anticipate keeping the house a long time. ...if you can get just one of those two things done in the next year it will be great :)

(Just to clarify, after trading down in car and/or refinancing I would personally go back to maxing out the TSP/403b, consider doing IRAs, and really save up to pay cash for the next round of cars...)

Chris

Jetpack
Posts: 52
Joined: Fri Apr 05, 2013 2:42 pm

Re: Novice with 403b and TSP questions

Post by Jetpack » Sat Apr 06, 2013 2:10 pm

BerkeleyChris wrote:Hi, Jetpack,

Yes, I would personally contribute up to the maximum match and then temporarily use anything extra to try to get yourself out of the car and/or get yourself in a position to refinance since you anticipate keeping the house a long time. ...if you can get just one of those two things done in the next year it will be great :)

(Just to clarify, after trading down in car and/or refinancing I would personally go back to maxing out the TSP/403b, consider doing IRAs, and really save up to pay cash for the next round of cars...)

Chris
Chris,

The plan is to pay for the next round of cars with cash. Cars have been the one area I've always allowed myself to splurge on and it wasn't until recently when I sat down and did an actual budget on a spreadsheet that I realized the impact this was having on my overall net worth or lack of! Something about seeing the "yearly" number at the end of that spreadsheet for the auto line item finally made it sink in. I thought about keeping the contributions to matching only and then I ran those numbers in a calculator and saw the hit I would take in potential earnings from not keeping my contributions at 13% and 6% in the TSP and 403b and it made me balk and retreat. :shock:

Jetpack
Posts: 52
Joined: Fri Apr 05, 2013 2:42 pm

Re: Novice with 403b and TSP questions

Post by Jetpack » Sat Apr 06, 2013 9:58 pm

Okay, my wheels are really turning now! :idea:

I ran the numbers of keeping my TSP and wife's 403b to matching only and we would have the available income to snowball the debt and have my car paid off by 5/2015, wife's by 11/2015, and the house paid off by 10/2020. I can then max the TSP and 403b until target retirement date of 57 and would have much more money in the account (assuming 6% returns) than starting and staying at 13% to the TSP and 6% to the 403b from now until 57. I'm not sure I'm retiring at 57, that is just my minimum retirement age, so I am using 57 as a comparison point.

Anybody have any thoughts or comments about this idea? Is there something I'm not taking into consideration or a risk I'm not considering by holding off on increasing contributions? What are your thoughts on paying debt down before maxing TSP/403b? Also, after house is paid off, there would be enough income after maxing TSP and 403b that I could look for Roth IRAs and 529 plans...since wife's 403b has higher expense ratios, at the time of maxing our her 403b should I consider a ROTH first?

F4mandolin
Posts: 29
Joined: Tue Dec 02, 2008 7:41 am
Location: Harrogate, England- Spokane

Re: Novice with 403b and TSP questions

Post by F4mandolin » Sun Apr 07, 2013 3:31 pm

The Social Security Supplement may not be as high as you think. The one I am going to begin this summer at 56 will be well less than SS. They state (at least for mine) that you will get approx 2/3rd of what your SS estimate will be....but they base that on only the years you have worked for the Govt. If almost all of your years are with the Govt it could be a decent amount..... I am not betting on much for than half of my SS estimate.

Jetpack
Posts: 52
Joined: Fri Apr 05, 2013 2:42 pm

Re: Novice with 403b and TSP questions

Post by Jetpack » Sun Apr 07, 2013 5:36 pm

F4mandolin wrote:The Social Security Supplement may not be as high as you think. The one I am going to begin this summer at 56 will be well less than SS. They state (at least for mine) that you will get approx 2/3rd of what your SS estimate will be....but they base that on only the years you have worked for the Govt. If almost all of your years are with the Govt it could be a decent amount..... I am not betting on much for than half of my SS estimate.
F4mandolin

Thanks for the tip...it seems that I ran across the supplement calculation in my explanation of benefits a few years ago, but at that time I wasn't all that concerned about my retirement and didn't pay much attention. I think I still have the calculation in my office somewhere. I started with the government shortly after college so all of my real earnings have been from that point forward. Hopefully, this means my supplement will be similar to my age 62 social security benefit. If we still have a supplement by that time. :wink:

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