“Micah, love your videos. I’m retired (58 years old) from USPS. Very aggressive in TSP. 40% C, 40% S, and 20% I- I’m down close to 30% from all time high of $675K to 500K now. I’m getting very nervous. Any advice is greatly appreciated. Thanks, Jerrold”
As a Federal Employee, your retirement consists of three elements: your pension (OPM calls this an annuity), your social security benefits, and your Thrift Savings Plan (TSP).
Of those three, two are predetermined, your pension and your social security benefits, by your contribution and the regulations regarding how your benefits are calculated.
Your TSP though is the part of your retirement benefits determined to be more in your direct control. No, you can’t control market volatility but you can control your allocations, contributions, and distributions.
The fact that the TSP is a significant part of your retirement and something entirely up to you as the account owner to control, can cause many Federal Employees to become nervous or anxious about making the “right decisions” – especially when markets swing significantly one direction or the other.
It sounds like Jerrold is having a lot of this angst.
Having a financial plan that incorporates market volatility is imperative. As an individual you can only control so much of the TSP, you cannot control the markets overall which are sensitive to economic factors like:
Supply & Demand,
Interest Rates,
Acts of Terrorism and/or Wars,
Inflation or deflation,
Monetary policy,
Technological changes,
Natural disasters,
Corporate Price and Earning ratios,
Regulations and now,
Infectious diseases causing a pandemic,
And More.
Think about it, in the list above how much are you as an individual able to control?
What you can control is how YOU will react during moments of extreme volatility and this is best done, in our opinion, by developing a financial plan based on your specific needs and circumstances.
We talk about Buckets of Money in our 3 Critical Concepts Video where we go through these “buckets of money” concept in far greater detail.
For discussion purposes when it comes to your retirement assets we talk about using various buckets in a strategical manner that aligns with your cash flow needs and your long-term goals.
For example, here an idea of what a “Buckets of Money Approach” could look like:
The operative word, theory. This is not a guarantee that markets WILL recover after 5 years, you have to make a plan that is financially right for you and your family.
Here is what we consider when we discuss our 5-year theory: how long on average has it taken markets in the past to recover from their losses?
When markets decline because of devastating events, investors have to rely on the financial plan that they had in place BEFORE the event happened. Making financial decisions from a place of extreme emotion is never a good idea.
That doesn’t mean you don’t monitor and re-evaluate your financial plan but it does mean that you have a plan in place for what you’re going to do WHEN markets decline.
The Great Depression took 25 years to recover, yes – 25 years. However, since then due to advances in technology and monetary policies, we have not experienced such a devastatingly long recovery.
In fact, the Great Recession of 2008 that is perhaps too fresh in the minds of most Federal Employees still, took roughly 4 years to recover from.
In 2020, during the COVID-19 Pandemic that swept across the globe, the DJIA dropped -37% on March 23, 2020.
By May 2020, the same index grew by 30% from its March 23, 2020 lows and continues to recover though unprecedentedly fast.
Had a Federal Employee taken 100% of their TSP and sold it during the bottom of the markets in any one of those crises they were alive for, it could have devastated their long-term retirement planning options. We saw this a lot in 2008 during the Great Recession when many Federal Employees delayed retirement because of extreme losses endured because they couldn’t control the markets and did not have a financial plan in place for how they would react during times of extreme market volatility.
Jerrold, you mentioned that your account is down almost 30% which is causing significant nervousness.
It sounds like you have 100% of your account investment in the markets and are not yet using a “Buckets Approach” to your investment accounts that you plan on using in retirement.
My advice is that you take our 3 Critical Concepts course where we really get down into the details of the Buckets Approach we highlighted here in this article.
It is imperative that before you make any investment decisions, you have a financial plan in place that weighs your risks, objectives, and long-term strategies.
As Financial Planners who specialize in helping Federal EMployees with their benefits and developing financial plans for them and their families, we are licensed to provide financial advice.
We provide recommendations and financial advice on a one-on-one basis.
This is the internet. It is not one-on-one.
While we will be addressing Jerrold’s specific question we will not be talking about individual investments or market performance. We want to keep this broad, neutral, and unspecific.
Markets are volatile and fluctuate often. We recommend working with a financial advisor who can provide you with specific information based on your independent situation.
“Is there a reason why you did not include the MRA+10 in the group below when speaking about qualifying for FEHB? I thought that this group would also be qualified
“Next May I can retire with 35 years at the age of 62. I was considering working 10 more months to retire at 63 and get more Social Security.
“I retired on Dec 31 2019. Don’t you think I should pull all my money out of the TSP and put it in a high interest saving? Thank You, Alfreda”
“I am considering transferring/$10,000 from my TSP to my Roth account in Fidelity. Your presentation mentioned TSP to IRA to Roth. What’s the correct steps for my financial advisor?
Get the most out of your federal retirement benefits by taking advantage of the FERS resources created by Micah Shilanski, CFP®, and the team of independent financial advisors at Shilanski & Associates, Inc. Join the thousands of federal employees who trust us to guide them in their retirement planning journey because of our unique perspective of how your FERS benefits contribute to your comprehensive financial plan.
Year after year I see Federal Employees missing the same critical concepts in their federal retirement planning. That’s why I’ve created an online workshop to help educate Federal Employees on these critical concepts.
Advisory services offered through Shilanski & Associates, Inc., an Investment Adviser doing business as “Plan Your Federal Retirement”. Plan Your Federal Retirement is not employed by the United States Federal Government and does not represent the United States Federal Government. All content on this site if for information purposes only. This website is not personalized investment advice. Securities investing involves risks, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful. Please review our Customer Relationship Summary (Form ADV Part 3) for important information about our services and fees.
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7 CLASSIC RETIREMENT MISTAKES Federal Employees Make
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7 CLASSIC RETIREMENT MISTAKES Federal Employees Make
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