'Locking in losses,' Part II


Q. I had the same concerns as the person who you answered Aug. 8. He is trying to follow a bucket strategy and not sell off equities in a down market. I think there is a way to do this in the Thrift Savings Plan, but it is more complicated than I like. Suppose you have $400,000 invested equally in G, C, S and I. Assume your required minimum distribution is $12,000 or $1,000/month and it is paid on the first of each month. On the last day of the month, before 1200 Eastern time, transfer $300,000 to the G Fund. Money transfers on the last day of the month. RMD of $1,000 pays on the first. After 1200 Eastern time, transfer $100,000 each to the C, S and I funds. Do this 12 times and you will have taken $12,000 from the G Fund and maintained your position in the equity funds. If the equity funds are up, move $12,000 to the G Fund, calculate your new RMD and repeat. If they are down, sell nothing, recalculate RMD and continue as before. This meets the rules of the TSP that allow two interfund transfers per month and minimizes the time that you are not fully invested in equities.

A. This is a lot of effort for nothing, and a “bucket strategy” is nothing but a repackaged asset allocation model. You could accomplish the same ends by simply rebalancing to the appropriate asset allocation model periodically during the year as your withdrawals accumulate. Doing it every month should not be necessary to keep things on track. This is a case of the “tail wagging the dog.”


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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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