What is the one thing federal employees need most when it comes to retirement planning? A fully inflation-indexed immediate life annuity. The one missing piece of the retirement puzzle for federal workers is the option to use their Thrift Savings Plan balances to create a stream of income that is guaranteed to last a lifetime and to maintain its purchasing power over the years. Yes, you do have the option to purchase a TSP annuity, but it has what may, for many, be a fatal flaw: It doesn’t guarantee that the payments will keep pace with inflation. Planning for retirees…
Q: I contribute approximately $1,200 each month into TSP. Half of it goes to the L2030 and the other half into the I fund. Should I put everything into the G Fund until everything settles and we start seeing a steady incline in the market? Or is my allocation fine? A: The answer depends upon your objectives. If your primary objective is to avoid downside market volatility, then the G Fund is the only TSP fund that guarantees preservation of capital, plus interest. Of course, if you’d like to maximize the odds of funding the highest level of retirement income…
Q: I’m 66 and employed by the Army. I am covered by CSRS-Offset and have been making contributions to the TSP, but no “make-up” contributions. I have applied for and received Social Security benefits based on full eligibility during this calendar year. Are my TSP contributions still excluded from my computation of Adjusted Gross Income? A: Your TSP contributions via payroll deferral are always taken pre-tax and stay that way until you withdraw the money.
Q: I put in 20 percent of my income into my TSP and monthly see the amount decline rather than increase. Should I lower the amount I put in for the next year and place it in a regular savings account until the market comes back or continue the 20 percent and hope for the best? A: You’re talking about market timing, which is a long-shot bet. Your odds of success will be better if you determine the correct asset allocation scheme for your circumstances and goals and stay in it. This will put you in a defensive position that…
Q: I’m 51 and have 27 years of postal service. If they pass a layoff or RIF, they broke the contract for me to save for my future. I would be retired in there eyes, why not let me have my TSP to pay off my home loan. I also have debt I would like to pay off. It’s not right to lay someone off before their time, then penalize them for drawing their money out. A: Ask your elected representatives why they won’t change the law.
Q: I am a retired postal clerk with FERS. I have money in my TSP. I am 57 and I called someone at TSP to ask if I can take a partial amount of my money now without getting penalized. They said I can do it only once. Is this true? A: You are only allowed one partial lump-sum withdrawal from your TSP account. That’s a TSP rule. Whether your withdrawal is subject to the early withdrawal penalty is a matter of law. Once you have taken a partial lump-sum withdrawal from your TSP account, your only withdrawal option is…
It looks like most career federal employees will wind up working in retirement, after all — as their own pension fund managers. Federal employees, for all the challenges they face, enjoy something that is increasingly scarce in the private sector — a guaranteed annuity. Not only are guaranteed retirement streams rare, but guaranteed retirement income with inflation protection — like that in Civil Service Retirement System and Federal Employees Retirement System annuity payments — is even rarer. There are increasingly frequent and aggressive calls for cuts to the federal budget, and in particular, to federal retirement benefits costs. As a federal employee,…
Q: Have you noticed that the C Fund is consistently up on the dates that the bi-weekly purchases are made for employee accounts? The attached table shows the closing price of the S&P 500 for each date in 2011, with TSP purchase dates in yellow. As you can see, a large number of the purchase dates occured on big up days and none of the purchase dates occured on big down days. The result of this is that participants receive less shares than they would if the purchases were distributed over each trading day of the period. To prove this…
Q: I am 37 and have three children. My spouse will retire after 20 years in the Army in December or January. We are in the middle of a divorce. What are my options regarding any portion of my spouse’s TSP I may be entitled to? Does an annuity make sense? A: An annuity is an option, but you would lock in today’s interest rate for life. Otherwise, you may continue to manage the money yourself, or pay someone else to do it for you.
Q: I am 56 and will retire in December under FERS. I read your article in Federal Times’ Sept. 12 issue, “How to avoid TSP early withdrawal penalty.” What other options are available besides transferring my TSP to an annuity with an insurance company? A: The article clearly explained the answer to your question – since you’re retiring during or after the year in which you reach age 55, the early withdrawal penalty will not apply to your TSP withdrawals.