Posted on Monday, 11th January 2016 by Dennis DampPrint This Post
Important Note: This article is not an investment recommendation and should not to be relied upon when making investment decisions – investors should conduct their own comprehensive research. Please read the Disclaimer at the end of this article.
Each year I review our investments and rebalance funds as necessary to maintain a pre determined asset allocation. In 2015 the THRIFT Savings Plan (TSP) performed better than the market in general. The Dow closed at 17,425 in 2015 down from 17,823 in 2014 for a loss of 2.2% while the S&P was down .08% year to year. You can use the closing figures reported on YAHOO’s Historical Charts to track index performance for any period.
The TSP C Fund gained 1.46% in 2015 while the G Fund was the TSP winner with a 2.04% gain followed by the L Income Fund with a 1.85% increase year to year. The S and I funds were losers with a 2.92% and .51% loss respectively. The G and L Income funds returns far exceeded any gains that we could have earned from a bank CD last year.
I kept my TSP account in retirement because of their low fees and the fact that the G Fund is the only fund guaranteed not to decrease in value. I wrote several articles on the advantages of the THRIFT Plan last year including “The TSP Advantage – Should I Say or Go” and “Survivors Beware – The TSP Trap” that you may find informative. The G Fund purchases special issue government bonds that pay the long term treasury yield.
Retirees are often advised to keep a good percentage of their savings in cash or cash equivalent investments such as savings accounts, certificates of deposits, bank money market accounts, U.S. Treasuries, Savings Bonds, investment grade bonds, or Municipal Bonds to maintain account balances and to provide a cushion during bad economic times. Even some of the fallback investments such as bond funds can be risky today with increasing interest rates. As interest rates increase bond fund’s Net Asset Value (NAV) tends to decrease. A good example of this is the performance of the F Fund last year. Its yield was only .91% while over the past 10 years compounded yield was 4.89%. As interest rates rise bond fund yields tend to decrease in value because newly issued bonds have higher yields than the bonds held in the fund. The G Fund isn’t nearly as sensitive to interest rates because the G Fund yield is determined by the rate paid for long term Treasuries.
To determine what percentage of your investments to keep in safe and secure accounts you can use a factor of 110. Basically, you would subtract your age from 110 and that figure is how much to keep in equity stock and mutual fund investments. A person age 67, according to this formula, should have no more than 43 % of their assets in equities such as company stocks, Exchange Traded Funds (ETFs), and mutual funds with 57% kept in secure FDIC insured CDs, savings accounts, Treasuries, Savings and Muni bonds for emergencies and to weather a market meltdown like we experienced in 2008. Many use a more conservative factor of 100 to determine how much to retain in cash and equities. With the 100 factor your age determines what percentage of your investments should be kept safe and secure.
Retirees that receive a fixed annuity, like those in the federal workforce, often use the higher factor of 110 because of the added financial security an annuity provides. Retirees that don’t need to tap their retirement nest egg and can live comfortably off their annuity and Social Security checks often choose to keep higher percentages in dividend paying equities, ETFs, or mutual funds.
I use my TSP account to cover a good portion of cash equivalent savings and invest in the L Income fund. The L Income invests approximately 75% in the G Fund and 25% in all of the other funds to give your assets a chance to keep up with and beat inflation when it returns. With the dramatic stock market sell off last week my TSP account balance hardly changed compared to private sector investments. It is reassuring to visit the TSP site and see that your funds balance remains fairly constant even during major market volatility. In 2008, during the stock market meltdown, the L Income Fund lost 5.09% compared to a 36.99% loss in the C Fund, 38% loss in the S fund and 42.43% loss in the I Fund. The F & G Funds were the winners that year with a 5.45% and 3.75% gains respectively.
Over a 10 year period the L-Income Fund returns ranged from a low of -5.09% in 2008 to a high of 8.57% in 2009 while the C-Fund ranged from a low of -36.99% in 2008 to a high of 32.45% in 2013. The ten year average gain for the L Income fund is about half that of the C Fund. Retirees that can’t afford to wait years to recover from a major recession will find the L Income and G Funds safe havens for their critically needed cash. Younger workers and those retired that don’t need to tap their TSP funds can tolerate more risk. It all depends on your personal situation.
Insurance Policy Review
I purchased a whole life policy in 1973 from a large private insurance company shortly after being discharged from active duty. I received my annual premium notice and called them last week to discuss the possibility of converting it to a paid up policy since the annual dividend is more than my premium. The policy’s death benefit and cash value has more than doubled over the years due to very generous dividends.
I discovered that I could stop annual payments and convert the policy to paid up status. By taking this step the death benefit will increase approximately 10%! A good deal I thought until I asked the agent what dividends the policy is paying. The policy pays a guaranteed 4% annual dividend and the agent advised me that I could continue earning the full 4% and grow the death benefit for as long as I desired. I decided to keep the policy and pay the small premium at least until I turn 70. There are few opportunities to earn 4% a year today. If you have an older policy like mine, and you are 65 or older, you may be able to stop payments and convert your policy to paid up with an increased death benefit like they offered me.
Retiree Employment Update
Employers recruiting federal retirees and those soon to retire post job vacancies on our Jobs Center. Recently Adams Consulting Group, LLC posted an IT Audit VP position and the Idaho Department of Parks and Recreation advertised for a state park maintenance position.
Private companies, contractors, and state government departments use our Jobs Board to hire skilled federal retirees for part and full time positions nationwide. Many opportunities exist for those looking to supplement their retirement income or to start a second career. We provide this free job listing service to companies that are seeking to hire experienced retired federal workers.
Request a Retirement Benefits Summary & Analysis. Includes projected annuity payments, income verses expenses, FEGLI, and TSP projections.
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Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment, tax, legal or any other advisory capacity. This is not an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material.
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