How To Invest the TSP
How to Invest the TSP in Retirement
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The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees and members of the uniformed services. While it is a great way to save for retirement, many individuals may find themselves wanting to double their TSP savings in a shorter amount of time, especially if they are closer to retirement age. If you find yourself in this situation, there are a few strategies you can employ to help you achieve this goal.
One of the fastest ways to double your TSP savings is to take advantage of the TSP’s matching contributions, if you are eligible. The TSP offers a matching contribution for the first 5% of pay that you contribute to your TSP account. This means that if you contribute 5% of your pay, your agency or service will also contribute an additional 5%. By contributing the maximum matching amount, you are essentially doubling your savings in one fell swoop.
Another way to quickly increase your TSP savings is to increase your contributions. If you are already contributing to your TSP, consider increasing your contributions to the maximum allowable amount. For 2021, the maximum annual elective deferral limit is $19,500. By contributing the maximum amount, you can significantly boost your TSP savings and potentially double it in a shorter amount of time.
Additionally, consider investing in the TSP’s more aggressive investment options. While it may seem counterintuitive to take on more risk as you are nearing retirement, investing in the TSP’s C, S, and I funds can potentially lead to higher returns over the long term. Of course, it’s important to consult with a financial advisor to determine the best investment strategy for your individual situation.
Lastly, if you are nearing retirement and looking to double your TSP savings quickly, consider delaying your retirement. By working a few extra years, you can continue to contribute to your TSP and take advantage of potential market gains. Additionally, delaying retirement will also mean that you will have fewer years in retirement, which can help stretch your TSP savings further.
It’s important to note that while these strategies can help you quickly increase your TSP savings, they also come with their own risks and considerations. Before making any changes to your TSP contributions or investment strategy, it’s important to consult with a financial advisor to ensure that you are making the best decisions for your individual situation.
In conclusion, doubling your TSP savings in a shorter amount of time, even if you are close to retirement, is possible with the right strategies. By taking advantage of matching contributions, increasing your contributions, investing in more aggressive options, and potentially delaying retirement, you can expedite your TSP savings and better prepare for retirement. Just make sure to consult with a financial advisor before making any changes to your TSP savings plan.
Thank you Sir for all I do for us…..
The market goes down?
Recycled video?
Here is a summary of investing advice from a personal finance program called Quicken, so you don’t have to buy it:
Level 1-3 = less than 3 years to retirement, unable to tolerate loss in any given year, expected return 3%
Level 4-6 = 3-5 years to retirement, can tolerate an occasional loss, expected return 4.5%
Level 7-9 = more than 5 years to retirement, can tolerate a potential loss in any given year, expected return 6%
Level 1 is the lowest risk and level 9 is the highest risk. The basic idea is that you reduce your risk as you get closer to retirement.
Level 1 – G 16% F 61% C 11% S 5% I 7% – 23% stocks
Level 2 – G 8% F 63% C 15% S 6% I 8% – 29% stocks
Level 3 – G 7% F 54% C 20% S 9% I 10% – 39% stocks
Level 4 – G 6% F 45% C 25% S 11% I 13% – 49% stocks
Level 5 – G 5% F 36% C 29% S 14% I 16% – 59% stocks
Level 6 – G 4% F 27% C 34% S 17% I 18% – 69% stocks
Level 7 – G 3% F 18% C 39% S 19% I 21% – 79% stocks
Level 8 – G 2% F 10% C 44% S 21% I 23% – 88% stocks
Level 9 – G 0% F 2% C 49% S 23% I 26% – 98% stocks
There is a rule of thumb that says to subtract your age from 110 and put that percent in stocks. I'm 61 years old, so 110-61=49. I chose level 4 because that is the closest to 49% in stocks. [Funds C, S and I are stocks]
Another approach is to copy the percentage in stocks from Marotta’s Gone-Fishing Portfolio Calculator for the current year. https://www.marottaonmoney.com Click the down arrow next to “articles,” select Marotta’s Gone-Fishing Portfolio,” then click on the Gone Fishing Portfolio Calculator for the current year. If the calculator says “77% stocks (appreciation) and 23% bonds (stability)” you would choose Level 7 because 79% in stocks is close to what Marotta recommends. Marotta disagrees with the Quicken experts who recommend greatly reducing your exposure to stocks in retirement. In the summer of 2022, the TSP will add a “mutual fund window” that gives you access to thousands of mutual funds. When this happens, you can buy the specific investments recommended in Marotta’s Gone Fishing Calculator.
https://www.marottaonmoney.com/asset-allocation-and-the-efficient-frontier/
To understand the math behind blended returns, let’s start with a simple case of two investment choices and two years. Investment A goes up 30% the first year and 0% the second year. Investment B goes up 0% the first year and 30% the second year. If you invest in either A or B, you get a 30% return over two years. Your average volatility is 15% [in other words, in any given year the return can be 15% more or 15% less than the average.]
It seems no matter how you mix these two investments, you can’t get more than a 30% return over two years. But you can. And you can lower your volatility as well.
Imagine a blended portfolio of half invested in A and half invested in B. The first year you would experience a 15% return, and the second year a 15% return. Your volatility would be 0%. Lower volatility means a more efficient portfolio.
You would have both lower volatility and higher returns. Compounding returns would produce a total return over the two years of 32.25%. You experience a higher return because after half of your portfolio invested in A grows by 30% the first year, you rebalance your portfolio. So, half of the growth from investment A is rebalanced and put into investment B. Half the growth would experience another 30% growth the second year when investment B did better. Thus, your total return for the two years would be 32.25%.
4 months out
Is it too late to do it as a spousal beneficiary?