Thrift Savings Plan (TSP) Q&A

[Warrior]

I've selected a percentage that I know will be greater than the contribution limit for the year and am counting on the TSP not allowing the "overage" amount. I guess I'll see how that works out in a month or so. It's the only way I can think of to contribute the exact max amount. 

It works. Personally ops tested the past few years.

[ThreeHoler]

I've selected a percentage that I know will be greater than the contribution limit for the year and am counting on the TSP not allowing the "overage" amount. I guess I'll see how that works out in a month or so. It's the only way I can think of to contribute the exact max amount. 

I get as close as I can...a dollar less here or there won't make much difference.

[nsplayr]

Both Roth and traditional should let you contribute in either dollar amount or percentage...it's so stupid to be any other way. 

[GearMonkey]

Both Roth and traditional should let you contribute in either dollar amount or percentage...it's so stupid to be any other way. 

It did back in 2013 when I started.  For some reason it changed to % only in the last year or so.  I'll give the "overage" method a try next year.

[nunya]

Statistically, you're better off maxing out your TSP as early as you can anyway, instead of trying to plan it so you put in your maximum dollar in December.  (3.33, repeating, of course.)

https://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf

In this paper, we compare the historical performance of dollar-cost averaging (DCA) with lump-sum investing (LSI) across three markets: The United States, the United Kingdom, and Australia. On average, we find that an LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. This finding is consistent with the fact that the returns of stocks and bonds exceeded that of cash over our study period in each of these markets.

 We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use. Of course, any emotionally based concerns should be weighed carefully against both (1) the lower expected long-run returns of cash compared with stocks and bonds, and (2) the fact that delaying investment is itself a form of market-timing, something few investors succeed at.

And yes, TSP will take care of any overage.  Just be careful if you have more than one account (i.e. airline and TSP).  Neither knows the other exists and both will allow you to contribute up to the maximum, then it's on you to withdraw the overage.

Edited November 30, 2015 by nunya

[LJ Driver]

Timing it exactly right is more important when your company matches a percentage of your contributions.  Federal civilian employees have this benefit, and military will likely have it at some point also.  If you max your TSP prior to the last month, you lose the employer contribution portion for the remainder of the year.

[bluedevil]

TSP Gurus,

Looking for some advice on allocation for TSP contributions. 

Background: 1st Lt, 2.5 years in, current balance ~$10k, currently contributing 15% of base pay monthly (~$570)

Continuing to increase contributions with the plan of maxing by the time I hit the 4 year mark.

Currently all in Lifecycle 2050 fund.  Any thoughts/strategies appreciated, thanks guys.

[gimmeaplane]

27 minutes ago, bluedevil said:

TSP Gurus,

Looking for some advice on allocation for TSP contributions. 

Background: 1st Lt, 2.5 years in, current balance ~$10k, currently contributing 15% of base pay monthly (~$570)

Continuing to increase contributions with the plan of maxing by the time I hit the 4 year mark.

Currently all in Lifecycle 2050 fund.  Any thoughts/strategies appreciated, thanks guys.

TSP is a good managed fund (I personally put half retirement savings in TSP and half in a Roth IRA), but make sure to have liquid savings for life.  10% or so in TSP and the remaining savings in a mix of liquid (non-retirement account) managed or index funds.  That way you have cash for a home, car, or whatever when you need it.  And don't forget to keep cash in the bank.

[nunya]

TSP isn't a managed fund at all.  TSP is a plan housing several index and target date funds.  You could say the Lifecycle funds are "managed" because the weightings were set by a manager, but the underlying funds are index funds, so even that's a stretch.  That's part of what keeps the expense ratios incredibly low.

bluedevil, I think your question though is about asset allocation.  We'll assume we're only talking about your retirement assets - more about that later on.  You can google "asset allocation" and find months of reading if you desire.  I'll give you my OPINION.  I'm not a CFA or any other credentialed anything.

As a 1Lt with a stable job and many, many more years left in your career, I'd be (and I was) very aggressive.  100% stocks.  S or C fund is the only question, and I'd do a mix of both.  (I get my international exposure via non-TSP funds because I want broader exposure than what you get in the I fund.)  Maybe 70/30 C/S, maybe 50/50.  The C is going to do better in some parts of the business cycle, the S is going to do better in others.  You're better off not timing it.  Read up, pick your allocation, and leave it alone.  I don't like the Lifecycle funds because I think they waste space.  L2050 right now has almost 10% in the G fund.  In your mid-20s, I consider the G fund a waste.  There's no reason to accept that low of a return when you can handle more risk.

You need to be maxing BOTH the TSP and an IRA when you're able.  Preferably both of the Roth persuasion, too, because your taxable income/AGI while in the military is about as low as it'll ever be.

Now, as to your comprehensive financial strategy:  Retirement is only one piece, under which you have your TSP, your IRA, eventually your 401K, etc.  You also need an emergency fund, savings, checking, etc.  Read up on those topics and decide how to allocate your assets across the entire spectrum.

I love talking about this stuff, but again, I'm not your advisor.  If you want professional help, look for a CFA that charges by the hour.  Get them to make you a plan and go from there. 

Edited December 7, 2015 by nunya

[scoobs]

7 hours ago, bluedevil said:

TSP Gurus,

Looking for some advice on allocation for TSP contributions. 

Background: 1st Lt, 2.5 years in, current balance ~$10k, currently contributing 15% of base pay monthly (~$570)

Continuing to increase contributions with the plan of maxing by the time I hit the 4 year mark.

Currently all in Lifecycle 2050 fund.  Any thoughts/strategies 

Invest in the top performer and lowest fees.

Edited December 7, 2015 by scoobs

[SurelySerious]

Scoobs: Invest in the top performer and lowest fees.

It's all the TSP experience talking.

[mcbush]

On 12/7/2015 at 6:04 PM, nunya said:

As a 1Lt with a stable job and many, many more years left in your career, I'd be (and I was) very aggressive.  100% stocks.  S or C fund is the only question, and I'd do a mix of both.  (I get my international exposure via non-TSP funds because I want broader exposure than what you get in the I fund.)  Maybe 70/30 C/S, maybe 50/50.  The C is going to do better in some parts of the business cycle, the S is going to do better in others.  You're better off not timing it.  Read up, pick your allocation, and leave it alone.  I don't like the Lifecycle funds because I think they waste space.  L2050 right now has almost 10% in the G fund.  In your mid-20s, I consider the G fund a waste.  There's no reason to accept that low of a return when you can handle more risk.

You need to be maxing BOTH the TSP and an IRA when you're able.  Preferably both of the Roth persuasion, too, because your taxable income/AGI while in the military is about as low as it'll ever be.

Now, as to your comprehensive financial strategy:  Retirement is only one piece, under which you have your TSP, your IRA, eventually your 401K, etc.  You also need an emergency fund, savings, checking, etc.  Read up on those topics and decide how to allocate your assets across the entire spectrum.

This is excellent advice. Obviously allocations are ultimately determined IAW your individual risk tolerances, but nunya's right on the money here, in my opinion, especially for a young guy.

[matmacwc]

Get out of lifecycle, I'd do C,S,I, but this is the Internet.

[ThreeHoler]

Read lots of investing books. Four pillars, Bogleheads' Guide, Random Walk, Rich/Poor Dad, etc. Check out www.tspallocation.com too.

[Fud]

On December 7, 2015 at 7:04 PM, nunya said:

Read up, pick your allocation, and leave it alone. 

This is the best piece of advice that anyone can follow in investing.  I invest in TSP in the C fund at 100% and have never looked at it except once a year.  I max out a Roth IRA every year as well, until I hit the top of the salary limit (next 10 years, maybe).  Everyone's financial decisions will be different, and it is a good thing to have a somewhat diversified strategy.  

My investment rules:

1. Max out whatever your company/service is matching

2. Live below your means

3. Read "Millionaire Next Door"

4. Stay the fuck away from whole live insurance scam investments

[pcola]

On December 7, 2015 at 4:04 PM, nunya said:

TSP isn't a managed fund at all.  TSP is a plan housing several index and target date funds.  You could say the Lifecycle funds are "managed" because the weightings were set by a manager, but the underlying funds are index funds, so even that's a stretch.  That's part of what keeps the expense ratios incredibly low.

bluedevil, I think your question though is about asset allocation.  We'll assume we're only talking about your retirement assets - more about that later on.  You can google "asset allocation" and find months of reading if you desire.  I'll give you my OPINION.  I'm not a CFA or any other credentialed anything.

As a 1Lt with a stable job and many, many more years left in your career, I'd be (and I was) very aggressive.  100% stocks.  S or C fund is the only question, and I'd do a mix of both.  (I get my international exposure via non-TSP funds because I want broader exposure than what you get in the I fund.)  Maybe 70/30 C/S, maybe 50/50.  The C is going to do better in some parts of the business cycle, the S is going to do better in others.  You're better off not timing it.  Read up, pick your allocation, and leave it alone.  I don't like the Lifecycle funds because I think they waste space.  L2050 right now has almost 10% in the G fund.  In your mid-20s, I consider the G fund a waste.  There's no reason to accept that low of a return when you can handle more risk.

You need to be maxing BOTH the TSP and an IRA when you're able.  Preferably both of the Roth persuasion, too, because your taxable income/AGI while in the military is about as low as it'll ever be.

Now, as to your comprehensive financial strategy:  Retirement is only one piece, under which you have your TSP, your IRA, eventually your 401K, etc.  You also need an emergency fund, savings, checking, etc.  Read up on those topics and decide how to allocate your assets across the entire spectrum.

I love talking about this stuff, but again, I'm not your advisor.  If you want professional help, look for a CFA that charges by the hour.  Get them to make you a plan and go from there. 

Totally agree with the sentiment, but want to nitpick/clarify one point.  Did you mean to write "CFP that charges by the hour" vs "CFA"?  As you probably know, there is a wide gulf of difference between a CFA and a CFP.  The CFA designation is one of the most difficult credentials to obtain in the business world, and they are usually subsequently involved in corporate or institutional finance and aren't typically involved in personal finance.  My stepfather is a CFA and runs a $20B retirement fund.  I mention this because he often talks about how difficult it is to recruit talent, and the ones that obtain their CFA usually move on to higher paying jobs, so its difficult to keep CFAs on your staff.  In other words, it is a highly respected designation that draws a premium in the business.  I do know that occasionally a CFA will dabble in personal finance, but it is my understanding that it is the exception.  However, my knowledge of this arena is limited to what I hear my stepfather discuss, so maybe I'm out to lunch.  Is it more common than I thought to find a CFA working in personal finance?  

As for Nunya's advice, I'd have to agree...with some amplification.  One - Roth, Roth, Roth.  Your future self will thank your 25 year old self.  Two - remember that you get no match in the TSP; its good because the expenses are low, but you can find better funds with similarly low expenses in many IRAs.  To that point, I'd recommend investing in the Roth TSP, but make sure you have enough left over to max out a high performing Roth IRA ($5500/yr.)  I personally put 10% to TSP then use Morningstar to aid in choosing my IRAs/mutual fund investments.  Three - STAY THE FUCK AWAY FROM THE LIFECYCLE FUNDS.

Oh yeah, btw, in case nobody has explicitly given this advice yet - avoid un-leveraged consumer debt!  What I mean by this, its OK to assume consumer debt if you have the liquid assets to offset it, as long as those assets are producing a high-enough rate of return to offset the expense of the debt it is leveraged against.  Don't take on consumer debt if you are at a net loss to THE BANK.  Also, don't make the mistake of "investing" in a depreciating liability (i.e. cars, boats, planes.)  Liabilities are unavoidable, as is the depreciation of most of your "assets".  Be smarter than the average bear when making those choices and in the end you'll be richer than the average bear.

Finally, be wary of free advice...especially when financial, legal, or medical.

[MilitaryToFinance]

On 12/9/2015 at 2:07 AM, pcola said:

Totally agree with the sentiment, but want to nitpick/clarify one point.  Did you mean to write "CFP that charges by the hour" vs "CFA"?  As you probably know, there is a wide gulf of difference between a CFA and a CFP.  The CFA designation is one of the most difficult credentials to obtain in the business world, and they are usually subsequently involved in corporate or institutional finance and aren't typically involved in personal finance.  My stepfather is a CFA and runs a $20B retirement fund.  I mention this because he often talks about how difficult it is to recruit talent, and the ones that obtain their CFA usually move on to higher paying jobs, so its difficult to keep CFAs on your staff.  In other words, it is a highly respected designation that draws a premium in the business.  I do know that occasionally a CFA will dabble in personal finance, but it is my understanding that it is the exception.  However, my knowledge of this arena is limited to what I hear my stepfather discuss, so maybe I'm out to lunch.  Is it more common than I thought to find a CFA working in personal finance?  

You are correct that you would want to talk to a CFP not a CFA for this sort of thing. Getting your CFA is definitely a pain in the ass and is great signaling that you are talking to a competent person, just not the right person for this conversation. The CFA is focused on accounting details, financial statement analysis, hedging, ethics of managing money, etc. There are sections on portfolio allocation and risk management but with a focus from the standpoint of running a professional portfolio not your personal savings (you probably aren’t hedging the FX exposure of your international mutual funds in your IRA).

A CFP is better equipped to handle questions of estate planning, matching your personal goals with broad savings/investing plans, retirement questions, etc. I would also add, in addition to finding somebody charging by the hour rather than by commission is to ask what standard they operate under. You want an advisor who operates under the fiduciary standard rather than suitability. In the former the advisor is legally required to disclose conflicts of interest and to maintain on-going monitoring of your investments. For a suitability standard they just have to show that any investment advice offered is suitable for your needs and then there is no further obligation. This means that they can advise you to invest in a high cost fund where the advisor receives money from the fund even if there is a lower cost alternative available.

Edited December 10, 2015 by MilitaryToFinance

[nunya]

You're right, I meant CFP... A guy who's earned this: https://www.cfp.net/about-cfp-board/cfp-certification-the-standard-of-excellence

[Cavepilot]

What's with all the hate on the lifecycle funds?  They're made up of the other funds and are balanced by a professional.  Odds are very good unless you're carefully tracking the internals of each of the other funds that the allocation the lifecycle comes up with is going to be smarter than you are.  I'd suggest that if you put in regular time and energy to researching, studying, and then re-balancing your portfolio, that's of course best...but if you're not committed to and educated on how to do that, the lifecycles were custom-made for you.

The TSP 2050 is something like 85% made up of the pure stock funds you all are advocating (https://www.tsp.gov/InvestmentFunds/FundOptions/fundPerformance_L2050.html) and it provides just a touch of ready-made diversification against market crashes.  Diversification, within reason, is advocated in all of the books that are being touted above on this page in the thread.

If you're against it because you have a more aggressive mindset (more aggressive than 85% pure stock...), that's okay, but it's not the end of the world to use the things.  

One other point...several of you have mentioned that there are mutual funds for use in Roth IRAs with 'similar' expense ratios to TSP...the C-fund (S&P 500 tracker fund) has an expense ratio of .042%.  Vanguard's S&P 500 index fund expense ratio is .17%.  For those of you following along at home, that means that while Vanguard is one of the least expensive commercial companies, they still charge you *4 times as much*.  Their Admiral shares (which you can access after putting 10K or more into the fund, if I recall correctly) are a lot closer (.05%), but just keep in mind that the very best deal in the commercial sector struggles and still gets beaten out by TSP.  The difference in real dollars isn't necessarily huge, but it's something to remember.  Also remember that USAA and other non-Vanguard, non-TSP options are going to charge you even more.

Edited December 13, 2015 by Cavepilot

[bluedevil]

I appreciate the perspective fellas.  I think I'm pretty straight on my overall financial plan/goals, it's the most effective TSP allocation that I'm after.  My main question after reading some comments is why the heavy push on a Roth IRA that caps at $5500/yr?  In the long run, the compound interest on annual contributions of $17,500 in the TSP should beat out even the best performing IRAs... or am I missing something?  

[nunya]

11 minutes ago, bluedevil said:

My main question after reading some comments is why the heavy push on a Roth IRA that caps at $5500/yr?  In the long run, the compound interest on annual contributions of $17,500 in the TSP should beat out even the best performing IRAs... or am I missing something?  

"You need to be maxing BOTH the TSP and an IRA when you're able."

[bluedevil]

26 minutes ago, nunya said:

"You need to be maxing BOTH the TSP and an IRA when you're able."

Ahh touché.  Might take a little while.  Bought a bit bigger house than I should have.  Should make a pretty good flip but its got me squeezed for the time being.

[ThreeHoler]

"You need to be maxing BOTH the TSP and an IRA when you're able."

Ahh touché.  Might take a little while.  Bought a bit bigger house than I should have.  Should make a pretty good flip but its got me squeezed for the time being.

Your priorities are backwards, mate.

[nunya]

I couldn't max both until I was sr capt.  Other guys with dual incomes were putting away their entire paychecks as Lts.  The mindset/lifestyle choices are more important than the numbers.

The Roth IRA has some benefit as an emergency fund in dire straits.  The Roth TSP has the benefit of lower expense ratios.  Which is better depends on your situation.

[i.o.w.a]

Just putting this here to help out the crowd...

If you deploy and want to take advantage of the increased TSP contribution limits, it is a difficult process. I tried and failed to do so but bottom line is finance will still cap you at the normal annual limit even if deployed.  There is no easy/automatic increase to the contribution limit for the CZTE pay.  My advice is front load your contributions in the year you deploy, as you will probably miss out on some months as the paperwork goes through allowing additional contributions. 

Has anyone contributed beyond the usual $18,000 during a deployment? Please share how the process worked. 

Has anyone maxed out their $53,000 CZTE contribution limit? I assume you are an unmarried general on your 365 to Kabul.