G fund

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cresive
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G fund

Post by cresive » Wed May 29, 2019 5:45 pm

Quick question:

I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.

Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?

Thanks,
Ben

JoinToday
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Re: G fund

Post by JoinToday » Wed May 29, 2019 5:53 pm

G fund is equivalent to cash or better than cash.

Do you have restrictions on withdrawing the funds? (over 59.5, number or withdrawals per year?).

Only other thing I can think of is that it may not be immediately available, like a MMF. How long does it take to get money from the G fund? Do you get a check in the mail? could be a couple weeks delay from when you call/request online to when the check clears your account at the bank. This is a small issue if you plan ahead a little bit.
Last edited by JoinToday on Wed May 29, 2019 5:56 pm, edited 1 time in total.
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delamer
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Re: G fund

Post by delamer » Wed May 29, 2019 5:54 pm

I would consider the G Fund to be a cash equivalent, and do so for the purpose of my own portfolio.

Just keep in mind that you’ll pay income taxes on withdrawals from the G Fund (assuming you aren’t in the Roth) unlike if you saved the same money in a taxable account. But in the latter case, you don’t save on taxes today.

So you either pay taxes today to pay them tomorrow. :wink:

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cresive
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Re: G fund

Post by cresive » Wed May 29, 2019 6:00 pm

JoinToday wrote:
Wed May 29, 2019 5:53 pm
G fund is equivalent to cash or better than cash.

Do you have restrictions on withdrawing the funds? (over 59.5, number or withdrawals per year?).

Only other thing I can think of is that it may not be immediately available, like a MMF. How long does it take to get money from the G fund? Do you get a check in the mail? could be a couple weeks delay from when you call/request online to when the check clears your account at the bank. This is a small issue if you plan ahead a little bit.
All Good points. I will be well over 59.5 y.o. by this date. I will look into how to withdraw the money, but will have a good plan for that by the time I retire.

thanks

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cresive
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Re: G fund

Post by cresive » Wed May 29, 2019 6:01 pm

delamer wrote:
Wed May 29, 2019 5:54 pm
I would consider the G Fund to be a cash equivalent, and do so for the purpose of my own portfolio.

Just keep in mind that you’ll pay income taxes on withdrawals from the G Fund (assuming you aren’t in the Roth) unlike if you saved the same money in a taxable account. But in the latter case, you don’t save on taxes today.

So you either pay taxes today to pay them tomorrow. :wink:
LOL,
Thank you! I totally forgot about taxes in this scenario. I will have to recalculate my numbers.

Stupid me!!

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Re: G fund

Post by JoinToday » Wed May 29, 2019 6:50 pm

cresive wrote:
Wed May 29, 2019 6:01 pm
....
LOL,
Thank you! I totally forgot about taxes in this scenario. I will have to recalculate my numbers.

Stupid me!!
:shock:
That's funny. I thought about including the tax aspect, but figured you had to know about the taxes, given it was with your retirement funds.
I wish I had learned about index funds 25 years ago

feehater
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Re: G fund

Post by feehater » Thu May 30, 2019 7:37 am

One thing you can do to somewhat avoid those withdrawal income taxes and still use the G fund:
If you have any money in stocks in a taxable or Roth account, you can sell those stocks and spend that money. Then, inside the TSP you can sell the equal amount of G fund and buy stocks with it. Your total asset allocation remains the same, but you have reduced the tax you owe to either capital gains, or none.

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tadamsmar
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Re: G fund

Post by tadamsmar » Thu May 30, 2019 8:39 am

cresive wrote:
Wed May 29, 2019 5:45 pm
I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.
Sounds like the bucket approach: mental accounting that detracts from considering your asset allocation (AA) as a whole.
Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?
One could argue that you are not being simplistic enough since buckets could be viewed as a pointless additional complexity.

You seem to be planning to live off the G fund part of the time. When the market is down, I guess you plan to, in effect, change your AA by drawing from the G fund.

The G fund has the safety of cash but a higher return. You should have a G fund allocation if you have a bond allocation, the L funds are an example of this. That means you should have an allocation to the G fund now unless you are all in stocks.

The G fund tends to displace bonds in an optimal overall AA. You overall AA should be designed to protect against market risks, no need for buckets.

But I think the bucket approach that you seem to be contemplating is mostly harmless.
Last edited by tadamsmar on Thu May 30, 2019 11:19 am, edited 2 times in total.

azanon
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Re: G fund

Post by azanon » Thu May 30, 2019 11:11 am

cresive wrote:
Wed May 29, 2019 5:45 pm
Quick question:

I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.

Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?

Thanks,
Ben
You strike me as a low-risk investor, and there's certainly nothing wrong with that, but also want something straight-forward and pretty worry free. That being the case, I wish I could get you to just consider just using the L-income fund, which is currently moving from 20% to 30% equities (and L income has plenty of G fund). 30% equities is very close to the optimum risk-adjusted return portfolio, and would certainly be a level of equities well below what the average financial adivsor would tell you. Below 20% equities, in theory, risk actually rises relative to the return provided. Then you could just use the popular lifetime payment methods set up for monthly distributions.

One neat combo I thought of is taking the life expectancy withdrawal method combined with deferring social security to 70. The reason that works out quite nicely is because the payments will drop after 70 (cause it switches to a different table), but that will coincide with social security payments starting at 70 to fill in the gap. Just a thought.....

MichDad
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Re: G fund

Post by MichDad » Thu May 30, 2019 5:42 pm

Cresive,

I'm currently doing something similar to what you're contemplating, albeit on a bigger scale and over a longer time horizon.

I'm a retired federal employee, age 63, with a TSP balance of over $1.8 million. Of that, I've got almost $1.1 million in the G Fund. I'm not touching my TSP account until the liberalized withdrawal rules take effect in mid-September 2019. At that time, I'll begin to move substantial sums each year from my TSP account to Roth IRAs with firms such as Schwab, Merrill Edge, and Fidelity, while collecting bonuses from those firms for transferring my money to them. I'll also start drawing down my TSP's G Fund for ongoing living expenses. My plan is to use my G Fund account for the next eight to twelve years, which will put me beyond the time I'll turn age 70 and begin to collect my Social Security benefits.

My thinking is that even if the US and international equities markets drop by 90 percent between now and when I begin to collect Social Security benefits, my wife and I will be well protected. I should add that we have substantial non-TSP assets in Roth IRAs, a tIRA, and in taxable accounts. While I wouldn't be happy about it, my FERS pension plus my and my wife's combined Social Security benefits, along with an already paid-off house, will be sufficient to meet more than our basic needs.

MichDad

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Re: G fund

Post by White Coat Investor » Fri May 31, 2019 8:57 am

cresive wrote:
Wed May 29, 2019 5:45 pm
Quick question:

I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.

Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?

Thanks,
Ben
Yes, cash on steroids. It currently yields 2.5%, which isn't all that different from Prime MMF right now (2.4%), but it's usually significantly higher, like 0.5-1% higher.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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cresive
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Re: G fund

Post by cresive » Sun Jun 02, 2019 7:39 pm

MichDad wrote:
Thu May 30, 2019 5:42 pm
Cresive,

I'm currently doing something similar to what you're contemplating, albeit on a bigger scale and over a longer time horizon.

I'm a retired federal employee, age 63, with a TSP balance of over $1.8 million. Of that, I've got almost $1.1 million in the G Fund. I'm not touching my TSP account until the liberalized withdrawal rules take effect in mid-September 2019. At that time, I'll begin to move substantial sums each year from my TSP account to Roth IRAs with firms such as Schwab, Merrill Edge, and Fidelity, while collecting bonuses from those firms for transferring my money to them. I'll also start drawing down my TSP's G Fund for ongoing living expenses. My plan is to use my G Fund account for the next eight to twelve years, which will put me beyond the time I'll turn age 70 and begin to collect my Social Security benefits.

My thinking is that even if the US and international equities markets drop by 90 percent between now and when I begin to collect Social Security benefits, my wife and I will be well protected. I should add that we have substantial non-TSP assets in Roth IRAs, a tIRA, and in taxable accounts. While I wouldn't be happy about it, my FERS pension plus my and my wife's combined Social Security benefits, along with an already paid-off house, will be sufficient to meet more than our basic needs.

MichDad
Thanks for sharing. I hadn't heard about the liberalized withdrawal. What is that? It sounds like we will be in a similar situation, so hearing your story was a big help.

Ben

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cresive
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Re: G fund

Post by cresive » Sun Jun 02, 2019 7:46 pm

azanon wrote:
Thu May 30, 2019 11:11 am
cresive wrote:
Wed May 29, 2019 5:45 pm
Quick question:

I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.

Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?

Thanks,
Ben
You strike me as a low-risk investor, and there's certainly nothing wrong with that, but also want something straight-forward and pretty worry free. That being the case, I wish I could get you to just consider just using the L-income fund, which is currently moving from 20% to 30% equities (and L income has plenty of G fund). 30% equities is very close to the optimum risk-adjusted return portfolio, and would certainly be a level of equities well below what the average financial adivsor would tell you. Below 20% equities, in theory, risk actually rises relative to the return provided. Then you could just use the popular lifetime payment methods set up for monthly distributions.

LOL, No, you missed on that one. I am not conservative at all, just dot my "i"s and cross my tees. I am trying to figure out how to get my cake and eat it too. I am in the process of organizing myself so that I will have sufficient funds in "cash" equivalents, yet earn enough to offset inflation to cover a worse-case scenario. That way, I can let the rest of my money grow. My being careful, is asking the group to double check my math to make sure I didn't over sell my idea to myself.

One neat combo I thought of is taking the life expectancy withdrawal method combined with deferring social security to 70. The reason that works out quite nicely is because the payments will drop after 70 (cause it switches to a different table), but that will coincide with social security payments starting at 70 to fill in the gap. Just a thought....
This is a great idea. I will have to run the numbers on this. Are you using the US Gov numbers on that? I may have a window between 67 and 70 to do some Roth conversions, so will have to play with the numbers. Thanks for the idea.

Ben

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cresive
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Re: G fund

Post by cresive » Sun Jun 02, 2019 7:49 pm

feehater wrote:
Thu May 30, 2019 7:37 am
One thing you can do to somewhat avoid those withdrawal income taxes and still use the G fund:
If you have any money in stocks in a taxable or Roth account, you can sell those stocks and spend that money. Then, inside the TSP you can sell the equal amount of G fund and buy stocks with it. Your total asset allocation remains the same, but you have reduced the tax you owe to either capital gains, or none.
This is an interesting concept. I don't know how much I will have in taxable accounts, and I don't think I want to touch my Roth accounts for this, but I will look into it. Most of my money is in a tIRA and now building a TSP account. Fortunately, I do have a Roth IRA and am adding a LOT to my Roth TSP.

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Re: G fund

Post by azanon » Sun Jun 02, 2019 7:53 pm

cresive wrote:
Sun Jun 02, 2019 7:46 pm
azanon wrote:
Thu May 30, 2019 11:11 am
cresive wrote:
Wed May 29, 2019 5:45 pm
Quick question:

I am estimating how much money I want to have in cash as I hit my retirement date. To guard against any market risks, I have estimated that I want to have about $103K in cash (plus my pension and SSA benefits). This amount will equate to about 2 yrs of expenses. My game plan is to redirect my last few years into cash equivalents, thus allowing my previous allocation to remain and, hopefully, grow.

Would you consider the G Fund held within my TSP account to be a cash equivalent? My game plan would be to reallocate any new savings a few years prior to retirement into my G fund account. At retirement, I could pull from this fund to pay my salary after retirement. This way, I get the added growth the G fund provides and protection against any loss.

I can't see any issues with this. Am I being too simplistic?

Thanks,
Ben
You strike me as a low-risk investor, and there's certainly nothing wrong with that, but also want something straight-forward and pretty worry free. That being the case, I wish I could get you to just consider just using the L-income fund, which is currently moving from 20% to 30% equities (and L income has plenty of G fund). 30% equities is very close to the optimum risk-adjusted return portfolio, and would certainly be a level of equities well below what the average financial adivsor would tell you. Below 20% equities, in theory, risk actually rises relative to the return provided. Then you could just use the popular lifetime payment methods set up for monthly distributions.

LOL, No, you missed on that one. I am not conservative at all, just dot my "i"s and cross my tees. I am trying to figure out how to get my cake and eat it too. I am in the process of organizing myself so that I will have sufficient funds in "cash" equivalents, yet earn enough to offset inflation to cover a worse-case scenario. That way, I can let the rest of my money grow. My being careful, is asking the group to double check my math to make sure I didn't over sell my idea to myself.

One neat combo I thought of is taking the life expectancy withdrawal method combined with deferring social security to 70. The reason that works out quite nicely is because the payments will drop after 70 (cause it switches to a different table), but that will coincide with social security payments starting at 70 to fill in the gap. Just a thought....
This is a great idea. I will have to run the numbers on this. Are you using the US Gov numbers on that? I may have a window between 67 and 70 to do some Roth conversions, so will have to play with the numbers. Thanks for the idea.

Ben
Yeah i used the 2 charts and simulated the drop in payments vs. adding in a deferred social security after 70 to compensate for the lower chart. It's not a perfect match but its close enough.

MichDad
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Re: G fund

Post by MichDad » Mon Jun 03, 2019 2:57 am

cresive wrote:
Sun Jun 02, 2019 7:39 pm
I hadn't heard about the liberalized withdrawal. What is that?

Ben
Cresive,

Here's a link to the fact sheet published by the folks who run the TSP:

https://www.tsp.gov/PDF/formspubs/tspfs10.pdf

MichDad

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cresive
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Re: G fund

Post by cresive » Mon Jun 03, 2019 7:59 pm

MichDad wrote:
Mon Jun 03, 2019 2:57 am
cresive wrote:
Sun Jun 02, 2019 7:39 pm
I hadn't heard about the liberalized withdrawal. What is that?

Ben
Cresive,

Here's a link to the fact sheet published by the folks who run the TSP:

https://www.tsp.gov/PDF/formspubs/tspfs10.pdf

MichDad
Thank you.

Ben

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Re: G fund

Post by FedGuy » Sun Jun 09, 2019 3:02 pm

White Coat Investor wrote:
Fri May 31, 2019 8:57 am
Yes, cash on steroids. It currently yields 2.5%, which isn't all that different from Prime MMF right now (2.4%), but it's usually significantly higher, like 0.5-1% higher.
Down to 2.25% for June. It's been dropping like a stone for the last several months.

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Re: G fund

Post by White Coat Investor » Mon Jun 10, 2019 11:54 pm

FedGuy wrote:
Sun Jun 09, 2019 3:02 pm
White Coat Investor wrote:
Fri May 31, 2019 8:57 am
Yes, cash on steroids. It currently yields 2.5%, which isn't all that different from Prime MMF right now (2.4%), but it's usually significantly higher, like 0.5-1% higher.
Down to 2.25% for June. It's been dropping like a stone for the last several months.
That's the downside of the G fund. While it protects against capital loss in a time of rising rates, there is no upside when interest rates decline. It's all bad for G fund investors- lower yields and same stable principal.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Earl Lemongrab
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Re: G fund

Post by Earl Lemongrab » Tue Jun 11, 2019 11:31 am

FedGuy wrote:
Sun Jun 09, 2019 3:02 pm
White Coat Investor wrote:
Fri May 31, 2019 8:57 am
Yes, cash on steroids. It currently yields 2.5%, which isn't all that different from Prime MMF right now (2.4%), but it's usually significantly higher, like 0.5-1% higher.
Down to 2.25% for June. It's been dropping like a stone for the last several months.
The G fund is formula-based, it's the weighted average of Treasuries longer than 4 years. So you're seeing the effect of the yield inversion. MegaCorp's stable value is usually pretty close to G, but the past few months they've been diverging. I expect things will go back to normal eventually.
Play Gloria!

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