L funds or individual funds for short term, (7 years)?

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gtc
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Joined: Wed Feb 28, 2018 4:16 pm

L funds or individual funds for short term, (7 years)?

Post by gtc »

Hi All,
As I mentioned in my intro, I've been a civilian employee for 6 years and didn't pay attention to TSP. I've been in the G for 6 years but, recently re-allocated to the L2030 which matches my expected retirement date at age 70. I've been enlightened somewhat that if I were to stick with an L fund to maybe go with the L2050 which has a lower percentage of G in the mix.

After coming across this site, (wish I would have earlier in the game!), I'd like to know what strategy might best serve me. Age 63, GS12, 7 years to retire. I am not opposed to watching and working with my funds once I learn a little about how to manage them and, I'm not afraid to take a little risk in an effort to catch up. I guess I'm looking for that magic combo of max return with as minimal risk as possible. I plan to max out at 18,500 in contributions for the duration.

Thanks in advance for any advice!

Glen

crondanet5
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Joined: Tue Aug 19, 2008 8:51 pm

Re: L funds or individual funds for short term, (7 years)?

Post by crondanet5 »

You can do that. And if you want more involvement in your account you can follow the top five ytd leaders and see what they are invested in.

Have you begun Social Security?

gtc
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Joined: Wed Feb 28, 2018 4:16 pm

Re: L funds or individual funds for short term, (7 years)?

Post by gtc »

Do you mean have I started receiving social security benefits? I have not.

Carmen909
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Joined: Sun Dec 04, 2016 12:16 am

Re: L funds or individual funds for short term, (7 years)?

Post by Carmen909 »

I don't have any advice for you other than do what makes you feel most comfortable. 7 years is a ways off so maybe you can afford to be a little more risky. In my Vanguard IRA I am in a 2060 retirement fund but I'm more likely to retire in 2040. But I have less money in that account and TSP is my primary, so I am more comfortable with taking risk in that account.

I think you are also eligible for catch up contributions in addition to maxing out the $18.5k. So maybe you could think about putting those into a riskier fund while keeping your primary contributions in a "safer" fund. But, again, it's up to you. I'm in a very different situation than you as I have about 20 years to go. Good luck!

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evilanne
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Re: L funds or individual funds for short term, (7 years)?

Post by evilanne »

At age 70 you will get max social security payments + small FERS pension for 13 years of service. Do you have any other investments or retirement accounts or pensions from non government work prior to federal service? Do you have a goal in mind of how much you want to have in your TSP when you retire? You can use the TSP calculators https://www.tsp.gov/PlanningTools/index.html to guesstimate based on different assumptions in how much your money will grow based on your current balance, future contributions & anticipated rate of return. At 70.5 you will be required to take Required Minimum Distributions (RMDs). The retirement income calculator will give you an idea of how this works (life expectancy column starting at age 71). Since all withdrawals from tax deferred (traditional) accounts are taxable, you may want to consider how much you should be contributing to traditional or Roth (not subject to RMDs)

gtc
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Joined: Wed Feb 28, 2018 4:16 pm

Re: L funds or individual funds for short term, (7 years)?

Post by gtc »

When I use the TSP calculator, there is a default 8% annual return. Go ahead and use that figure?

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evilanne
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Re: L funds or individual funds for short term, (7 years)?

Post by evilanne »

Which calculator? All the TSP calculators that I have used ask you for your anticipated RoR?

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TopNotch
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Re: L funds or individual funds for short term, (7 years)?

Post by TopNotch »

Maxing out to $18.5k will help. Also if you can afford it financially, catch-up contributions as well. That's been a big help to me. By maxing out and adding an extra $200 per biweek, it works out to over $1200 per biweek and reduces my tax liability in the short term. Good luck.
David Tepper - "There is a time to make money and a time to not lose money."

Warren Buffett - "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."

gary markh
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Joined: Sat May 27, 2017 9:20 am

Re: L funds or individual funds for short term, (7 years)?

Post by gary markh »

How dependent are you on your TSP/investments for retirement?
How much risk can you afford?
Can you reduce your debt and still maintain your investment contributions at desired levels?
Is it Hail Mary time?


Understand the value of the money you all ready have and the value of what you are projecting to have at your retirement date.
https://www.tsp.gov/PlanningTools/Calcu ... yCalc.html
https://www.tsp.gov/PlanningTools/Calcu ... sGrow.html

Scorpio70
Posts: 432
Joined: Thu Dec 24, 2015 11:49 am

Re: L funds or individual funds for short term, (7 years)?

Post by Scorpio70 »

I like the L2050 as it is the least expensive of the L Funds.

gtc
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Joined: Wed Feb 28, 2018 4:16 pm

Re: L funds or individual funds for short term, (7 years)?

Post by gtc »

So, lower price/share means more shares/$ in contributions. Will that ultimately result in a larger fund balance in the end?

When I use the tsp calculator, what is an appropriate RoR% to use for the L2030 & 2050 funds?

Should I transfer all or part of my current fund balance, (all G fund), to whichever L fund I decide to go with?

Finally, am I understanding the TSP Roth correctly: Since I'm older than 59, contributions come out pre tax and distributions upon retirement are tax free? This was the way a tsp rep explained it to my when I called them?

Thanks all!

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evilanne
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Re: L funds or individual funds for short term, (7 years)?

Post by evilanne »

gtc wrote:So, lower price/share means more shares/$ in contributions. Will that ultimately result in a larger fund balance in the end?

When I use the tsp calculator, what is an appropriate RoR% to use for the L2030 & 2050 funds?

Should I transfer all or part of my current fund balance, (all G fund), to whichever L fund I decide to go with?

Finally, am I understanding the TSP Roth correctly: Since I'm older than 59, contributions come out pre tax and distributions upon retirement are tax free? This was the way a tsp rep explained it to my when I called them?
1. It depends on RoR, which can be positive or negative.

2. No comment on RoR - it is a guesstimate with any fund.

3. I typically don't recommend any of the L Funds

4. Currently all distributions are proportional based on your account balance. You have the option to have the Roth portion go to an outside Roth IRA if you wish or the Roth part of it should be a non-taxable if distribution is from contributions. With the TSP modernization act, the rules will be changing sometime in the next few years. One of the advantages of Roth is that you are not required to take any distribution (or RMD) and it grows tax free. Although you should be able to rely on what a TSP representative tells you, I have gotten bad information or advice more than once...so I would suggest you verify with written TSP guidance e.g. https://www.tsp.gov/PDF/formspubs/tspbk02.pdf

The tax rules surrounding distributions, transfers and rollovers can be complex, particularly if you have both traditional and Roth balances
For more information, read the TSP tax notice Important Tax Information About Payments From Your TSP Account. You should also consider speaking with a qualified tax advisor before making your decision
Interesting foot note from linked pub:
4 Roth earnings become qualified (i e , paid tax-free) when the following two conditions have been met: (1) 5 years have passed since January 1 of the calendar year in which you made your first Roth contribution and (2) You have reached age 59 1⁄2 or have a permanent disability or in the case of your death. Note: The TSP cannot certify to the IRS that you meet the Internal Revenue Code’s definition of a disability when your taxes are reported Therefore, you must provide the justification to the IRS when you file your taxes

With the proportional allocation method, any distribution should only be contributions (not earnings) initially but if you are not transferring Roth portion to outside Roth IRA, those retiring early could be subject to 10% penalty if any of the withdrawals include earnings.

gtc
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Joined: Wed Feb 28, 2018 4:16 pm

Re: L funds or individual funds for short term, (7 years)?

Post by gtc »

Thanks evilanne. I understand re: RoR. Upon further review, I also have a better understanding of roth, (tax bracket now vs after retiring).

I'm considering L funds simply for easy, low maintenance investing. If there is a fairly uncomplicated investment strategy/plan that a non-investment genius, (me), would be able to follow as a better alternative to the L2050, I am all ears!!

nodak
Posts: 69
Joined: Sun Apr 02, 2017 6:36 pm

Re: L funds or individual funds for short term, (7 years)?

Post by nodak »

gtc wrote:So, lower price/share means more shares/$ in contributions. Will that ultimately result in a larger fund balance in the end?

When I use the tsp calculator, what is an appropriate RoR% to use for the L2030 & 2050 funds?

Should I transfer all or part of my current fund balance, (all G fund), to whichever L fund I decide to go with?

Finally, am I understanding the TSP Roth correctly: Since I'm older than 59, contributions come out pre tax and distributions upon retirement are tax free? This was the way a tsp rep explained it to my when I called them?

Thanks all!

1. No, share price means nothing. As an example, VOO, Vanguards S&P 500 ETF, is $253 per share vs C funds $38. Both returns are very, very similar and their difference has nothing to do with price.

2. As stated above, it is a guess. The average market return is somewhere between 6-12%, depending on who you ask. After inflation, somewhere around 5%-7% wouldn’t be too far off. Keep in mind, that is an average over a very long period of time – 7 years is a drop in the bucket and anything could happen.

3. Not completely sure what you are asking here – if the question is all-at-once vs DCA (dollar cost averaging), either way has its proponents so don’t overthink that one. If the question is all L vs some L and some G, then that kind of defeats the purpose of the L Funds. The funds makeup is selected by professionals based on a lot of data and experience; if you don’t trust them, then don’t use them. Either select your own allocation or if L2050 doesn’t have enough G, then pick L2040 or 2030.

4. No. First, your age has nothing to do with contributions (other than catchup, but that’s not what we are talking about). Second, contributions to the Roth would be taxed, not pre-tax. Traditional IRA or TSP would be examples of pre-tax. But yes, distributions from the Roth would be tax free.

You never answered how reliant you are going to be on this money and if you have other investments so my opinion on the L2050 may not mean anything to you, but, with that being said – 63 years old with only 7 years to go, L2050 seems really high risk. Right now, L2050 is 17.5% fixed income, increasing to 24.5% when you retire. That seems pretty rich going from 100% G to almost 83% equity. But only you can make that determination.

gtc
Posts: 7
Joined: Wed Feb 28, 2018 4:16 pm

Re: L funds or individual funds for short term, (7 years)?

Post by gtc »

Thanks nodak. Yeah, I'll have a small pension, SS & a smaller 401 from my wife's job, so I'll be fairly reliant on my TSP account. 21 years of self employment with a not so great retirement strategy, thus the interest in trying to make up for lost time. Much of the information out there re: tsp strategy seems to be geared towards long term investing, ie. 50% C, 25% S & 25% I, etc... I guess I was looking at the L2050 as an agressive mix of the 5 funds that would be a bit less risky but still providing higher returns in 7 years. I understand & agree with you re: fund distribution.
So, better to stick with the L2030, $18,500/yr + $6000 in catch up? Or any suggestions for a different strategy that would require a little management on my part?

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Fund Prices2024-03-28

FundPriceDayYTD
G $18.15 0.05% 1.05%
F $19.08 -0.06% -0.74%
C $82.21 0.11% 10.55%
S $82.43 0.30% 6.92%
I $42.57 -0.24% 5.95%
L2065 $16.38 0.02% 8.37%
L2060 $16.39 0.02% 8.38%
L2055 $16.39 0.02% 8.38%
L2050 $32.73 0.01% 6.95%
L2045 $14.91 0.02% 6.58%
L2040 $54.38 0.02% 6.22%
L2035 $14.34 0.02% 5.79%
L2030 $47.67 0.02% 5.38%
L2025 $13.15 0.03% 3.43%
Linc $25.61 0.03% 2.82%

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