Which portfolio should I be in?
Choose the portfolio that matches your goals. You will be able define your goals greatly with the TSP Goals Calculator. The Calculator will tell you what Rate of Return you need in your TSP. Once you know what return you need, you will see which portfolio matches that return. For example, “The 5% Portfolio” will target an ANNUAL 5% return. “The 7% Portfolio” will target an ANNUAL 7% return. Etc. In addition to the target rate of return, each portfolio has an expected range of fluctuation, which indicates the level of risk associated with that portfolio. Each month you will see my new allocations for each portfolio. The targeted return will not change, but the allocation and the associated risk needed to yield the targeted return WILL CHANGE EVERY MONTH. As it changes, we will update you with our new allocations that may carry MORE or LESS risk in order to achieve the targeted return. You should ALWAYS REVIEW THE TARGET RETURN IN CONTEXT OF THE RANGE OF FLUCTUATION. You need to be comfortable with BOTH the rate of return & the range of fluctuation. Sometimes you will find that both of the above criteria are met in a single portfolio. That portfolio would be your portfolio of choice for that month. However, sometimes the two criteria don’t land within one portfolio. In such a case you must choose which criterion supersedes the other. If you need help with this, please contact me at firstname.lastname@example.org.
The calculator gave me a return that’s between two of your portfolio’s, which should I choose?
When choosing your portfolio you need to consider and be comfortable with BOTH the rate of return & the range of fluctuation. That being said, you have two choices: Either increase your savings rate so you can lower the rate of return needed, or choose the portfolio with the higher return. There’s nothing wrong with choosing a higher rate of return than you need, so long as you are comfortable with the associated risk. You may be pleasantly surprised to find that a more aggressive portfolio carries a range of fluctuation that you are comfortable with. You should ALWAYS REVIEW THE TARGET RETURN IN CONTEXT OF THE RANGE OF FLUCTUATION.
How will this service help me on a monthly basis?
I know some investors misunderstand this service as providing 1-time allocations that last forever. It is far from that. It is designed to keep an eye on market conditions and adjust the portfolios as we encounter new economic strengths or weaknesses. When indicators tell me it’s time to adjust, I adjust and I pass that info along to all my subscribers. Think of it driving a car to a destination, and your GPS is monitoring for traffic, road closures, tolls, delays, alternate routes, etc. This service is the GPS for TSP investors.
I’m already retired, do I need a TSP?
Of course! Just because you’re retired doesn’t mean you shouldn’t have goals for your TSP. In fact, many retirees NEED their TSP to produce certain returns in order to remain retired. If you are not clear how much you’ll need your TSP to produce in retirement, you may appreciate my FREE retirement workbook “Ready, Aim, Retire!”
How often should I recalculate my goals?
This is a personal decision. You will certainly want to revisit your goals to make sure they still apply. Perhaps they’ve changed over time. I would say, as a general rule, reviewing your goals once a year is a responsible practice. If you have a life event, that may be grounds to review your goals, too.
I am concerned about tax for my TSP beneficiaries. Can they make partial withdrawals?
If you were to pass your TSP would go to your named beneficiary. If your children are your beneficiary, they can roll the TSP into an inherited IRA. See here: https://www.tsp.gov/PDF/formspubs/tspbk31.pdf Only a spouse can keep the funds in the TSP. A non-spouse cannot keep the funds in the TSP. The funds will be disbursed to the named beneficiary (form TSP-3). That beneficiary can direct the TSP proceeds directly into an inherited IRA using form TSP-81. From the inherited IRA, they will have Required Minimum Distributions (RMDs) based on their life expectancy (an IRS table). They will need to pay tax on the RMDs (traditional, not Roth).
What series of events would make and annuity a good option?
In order to figure out if you need an annuity, you need to figure out the rate of distribution from your TSP. Whatever your balance is – whether $100k, $500k, $999k – you will need to figure out your rate of distribution. For example: If you need $10k a year of income, that $10k represents a 10% distribution rate from $100k, 2% of $500k, or about 1% of $999k. If your distribution rate is low enough, you may avoid any need for an annuity. However, above a certain threshold - which I outlined using a documented study - that's where you have to choose between strategic investing vs. a guaranteed annuity income stream.
Do I need to apply your portfolio model to BOTH my current TSP balance AND future contributions?
The model should be applied to BOTH. This is easy. The whole reallocation process should not take you more than 5 minutes per month. I will even be sending you a “heads up” email at the beginning of each month reminding you to set aside 5 minutes of your time to make your TSP changes when you receive the monthly update.