Risky accounts


Q: I have seen your recommended allocations for the Thrift Savings Plan. You mentioned using your lifetime expectancy, therefore placing you in the correct lifecycle fund. At that point, allocate the beginning percentages of that fund and rebalance annually until your life expectancy indicates a change to a different L Fund. This contribution allocation would have resulted in approximately a 30 percent to 35 percent loss in the account within the past two years. Utilizing this method, I would be contributing 15 percent combined to the G and F funds and 85 percent to the risky funds at the age of 65. Why would you recommend being so deeply funded in risky accounts at retirement age?

A: I recommended this approach to those TSP participants who wanted to maximize the after-tax, inflation adjusted withdrawal rates they could expect over their lifetime. To do this, you must maintain a significant exposure to equities. Remember that you ultimate success will depend upon what happens over the remainder of your life and those riskier funds can, and have, produced some very attractive upside results. The average healthy 65-year-old male, today, has a life expectancy of about 19 years. My recommendation would lead him to select either the L 2030 or L 2020 fund’s allocation. Using the more aggressive L 2030 allocation would result in an allocation to the G and F funds totaling 25 percent, not the 15 percent you indicate. You should keep in mind that I have always presented the recommendation you mention as an alternative to the TSP’s recommended use of the L Funds. It’s still only a do-it-yourself solution and not the ideal approach.

— Mike Miles


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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