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Life after government: Where’s the best place for your TSP nest egg?

When they leave government service, about half the people with Thrift Savings Plan accounts move them to some other tax-deferred vehicle of option. Half keep their nest egg parked in the TSP. How its managed and how It grows (hopefully) is critical because for FERS retirees the TSP could provide one third to one half of their spending money in retirement. Which, in some cases, will last as long or longer than you worked!

Most feds are smart enough to invest enough in their in-house 401k plan to get the government match. Many long time feds on modest salaries have become TSP millionaires. The vast majority did it by investing in the TSP’s stock-indexed C, S and I funds.

But when they retire, or leave government for another job, most transfer their TSP to an outside IRA. Good idea/bad idea? The TSP is considered one of the best, most heavily monitored and lowest-cost funds in the business. But many people believe it lacks flexibility and doesn’t offer as many investment choices as most outside plans.

Most top government officials you see on nightly TV — whether elected, appointed or regular civil servants — belong to the government’s in-house 401k plan. Many are the best in their fields. And while they may not be financial gurus, but they are smart. And busy trying to guide the nation through the current pandemic, watching China, Russia, North Korea, the status of Brexit and the once-again spiking coronavirus cases nationwide. The fact is some of the smartest people in the nation, probably the world, in their field, work for Uncle Sam. And contribute to the TSP. For some — millionaire politicians — it is a nice option. For most civil servants it is their primary retirement nest egg. It along with Social Security and a civil service annuity based on salary and length of service, will provide them a guaranteed life-time annuity, partially indexed to inflation — for life. Longer if they designate a survivor benefit.

When the federal Thrift Savings Plan was setup it was designed to be a low-fee, easy-to-use investment vehicle for active and retired civil servants ranging from NASA rocket scientists to Senators, letter carriers, NIH researchers. It is monitored by several federal watchdogs, all of whom have employees who are participants. It was designed so that the fees to users would be among the lowest in the investment business. And with 5 funds covering the U.S. and international stock markets (C,S and I), a bond fund (F fund) and a special Treasury securities fund (G fund), available only to feds — it in theory covers the investment options waterfront. It doesn’t have some of the bells and whistle options, which are nice, but add to the administrative fees workers and retirees pay. The people who run the TSP don’t get commissions because they are part of it. Combined with the government-matching contribution, the TSP — to many private sector investors — seems too good to be true. And yet…

When they leave government, either for other jobs or to retire, more than half of all TSP investors take some, most take all, of their money with them. They invest it elsewhere for a variety of reasons even though, in some cases, they pay more, sometimes lots more, for the privilege. How come? Today’s comments are from a recently retired TSP investor who made it to the millionaires club and said he couldn’t wait to leave the federal 401k plan. And here’s why:

I just wanted to follow up with you. I retired 30 April 2019 as a FERS employee, and I don’t miss federal service one bit.

I was in the seven digit TSP club. However, after careful research I moved 90% of my TSP balance to Fidelity investments. I kept the other 10% in the TSP because I’m not 59 1/2 and didn’t want to give the IRS the 10% early withdrawal penalty.

The TSP needs a wake-up call. I discovered there are much better options than the TSP funds. The reason retirees sprint out of the TSP. The TSP funds are so limited. I’m a huge believer in exchange traded funds (ETFs). The additional cost around .07 is offsetted by the higher returns and less risk. I back tested the TSP funds vs some ETFs for 5 and 10 years. I found that ETFs were so much superior.

The TSP doesn’t have a technology fund. I found that VGT is so much superior than the C or S fund. BLV, BND or VGLT BLV, BND or VGLT BLV, BND or VGLT exceed the F fund.

If I were a current federal employee, I would take the 5 percent match. Then I would open up a discount brokerage account with any of the big companies, (Vanguard, Fidelity, Schwab or Merrill Edge etc). Then invest the delta into ETFs. With no trade fees now, it makes a win-win situation.

-Dave “The Dummy,” Retired US Army TACOM Employee

Nearly Useless Factoid

By Alazar Moges

The nails on a human’s longest fingers, usually the middle finger is the longest, grow the fastest, and nails grow fastest during the day and in summer.

Source: American Academy of Dermatology

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