Financial Planner for Federal Employees Shilanski & Associates, Inc., is a financial planning firm for federal employees. We help federal employees understand their benefits from a financial planning perspective and help them make the best choices for their personal situation. But we are not right for everyone. Let’s take a closer look at what we do and how we help our clients to see if our team is the right financial planning firm for you. Read More
“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”
If the Thrift Savings Plan (TSP) had a “panic” button, it would be labeled “G Fund.” When the markets are volatile, the safety of the G Fund is often the most appealing option for Federal Employees seeking refuge from market swings.
Is moving all of your money into the G Fund as you prepare to retire the best option?
TSP: Volatile Markets When You Are Planning for Retirement
Markets are volatile, and they fluctuate often. When you’re planning to retire, how should you have your TSP Invested?
The G Fund in the TSP – The Cash Bucket
The G Fund is the Government Securities Fund. This particular fund guarantees that you’ll never lose money. This is often why the G Fund is the refuge of Federal Employees when markets are volatile. Before you transfer your assets to a “safer” investment, you need to ensure that this corresponds with your long term financial plan for retirement.
In our opinion, if you need money from your investments for daily living for the next 2-5 years, then that money does not belong invested in the stock markets.
Now that does not mean that your ENTIRE account needs to be in cash or of cash-like investments, like the G Fund. Rather, you have to look at what amount of your invested funds are you going to need to withdrawal over the next few years to know what you should have in cash.
Let’s walk through an example of what a hypothetical situation would look like with a Federal Employee who is about to retire and has $500,000 in their TSP.
During their working years, let’s say that this was the Federal Employees allocations:
C Fund – $150,000
S Fund – $150,000
I Fund – $150,000
G Fund – $50,000
In our example, let’s say that the Federal Employee needed to withdrawal $3,000 a month net to fill their retirement income “gap (the difference between their pension and what they need in retirement for their lifestyle).
$3,000 X 12 months = $36,000 for 1 year.
For two years of distributions, we need to have $36,000 set aside in cash-like investments.
In this example, we wouldn’t necessarily recommend that the client put $500,000 in the G Fund because that isn’t what the client needs. What they need is $72,000 available to withdrawal over the next five years perpetually.
Five years is a good time to allow markets to recover – it is not a guarantee or a rule that markets will recover or not experience a downturn.
If you’re going to need money from your TSP, why not put it all in the G Fund?
It is unlikely that the G Fund’s relatively small gains will provide enough growth for a sustainable retirement long term. Remember, your retirement savings have to also keep up with inflation and
The TSP’s F, C, S, and I Funds might help you spread, diversify your retirement money across different investments to help keep up with inflation and hopefully allow your account(s) to experience some growth.
During your working years as a Federal Employee, your main concern about retirement accounts was probably “saving enough for retirement.” That is what we call the accumulation phase.
Once you retire, you transition from the accumulation phase of your financial plan to the distribution and preservation phase. This is why you need to ensure you have built a financial plan that incorporates room for markets to be volatile and hopefully recover.
The Income Bucket
Remember, we said that markets are volatile and often take around 5 years to recover from a significant market downturn.
We like to see our Federal Employees have around 3 years worth of distributions in this account.
In our example, we used a monthly distribution of $3,000, which means for three years, we need:
$3,000 X 36 months = $108,000 for 3 years
The Income Fund can have periods of gain and loss, just as the individual TSP funds do. This income bucket should focus on preservation and have reduced exposure to risker funds (like the C, S, and I funds) to reduce the inflation effect on your purchasing power.
The Growth Bucket
Finally, the rest of the assets in this example should be allocated in a growth bucket.
Growth investments (like the C, S, and I funds) are exposed to more risk; potentially keepin up with inflation and purchasing power.
If you need to withdraw money from this account, you may not choose the timing in which you need the funds, which means that you are susceptible to withdrawing funds during a market downturn.
TSP – Planning for Withdrawals
Your TSP is a tool, knowing how best to use that tool and what job is imperative to your long-term financial success.
It would be best if you had a strategy as you plan for retirement on how and when you plan to use the funds you have accumulated for retirement.
If you’re unsure about the right strategy for you, let us know! We work with federal employees throughout the United States to help them prepare for the retirement they have been saving for.
At age 59 1/2, I would like to use a TSP one time withdrawal to pay off a mortgage then eventually transfer the balance to a IRA when I retire
Your Financial Planners
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.
3 Critical Concepts that Most Federal Employees Miss When Planning Their Retirement
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.
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