The recession, followed by the unpaid federal furloughs and then the recent 16-day government shutdown, has made many TSP investors nervous about their investments.
The amount of money you have in your TSP account will determine when (if) you can retire, and where and how well (or poorly) you live in retirement.
For FERS employees, the TSP is expected to provide anywhere from one-third to one-half of the cash they will have to spend in retirement. Or not.
So far, federal investors are doing all right.
The average TSP account for CSRS investors is currently $98,416 and for FERS investors it is $99,056. That’s about $10,000 more than the average private-sector investor has in his or her company 401(k) plan.
Before last month’s shutdown, many experts predicted the stock market would react badly. Some nervous/cautious investors pulled $2 billion out of their TSP stock- market funds. They figured the G Fund (Treasury securities) was the safest place to ride out the likely stock market storm However, instead of tanking because of the shutdown, the market went up! So did the share price of the C, S and I funds, which are invested in the U.S. and international markets.
On the first day of the shutdown (Oct. 1) the C fund (which tracks the S & P 500 index) was worth $21.77 per share; the S Fund was at $31.42; and the I Fund was at $24.28. At the end of the shutdown, the C Fund was $22,28, the S Fund was $31.57 and the I Fund was $24.57.
On Oct. 9, 2007 the Dow Jones industrial average hit an all-time high. One year later (Oct. 6-10), the Dow suffered one of its worst-ever losses.
By March 9, 2009, the low water mark (so far) for the recession, the Dow was down 54 percent from its previous October 2007 high. Go figure.
Much of the news media predicted the shutdown would have a very negative impact on the economy and the stock market. Those predictions may yet be prove correct about the broader economy, but the stock market shrugged it off. One that got it right was Bloomberg, which posited that the shutdown might present a buying opportunity.
Arthur Stein, a Bethesda, Md.-based financial planner, says TSP investors need to be careful trying to second-guess the market because they will need all the money they can get in retirement. Jumping in and out of the market, he and others say, is a good way to reduce the value of your account. “Even average investors, who are not trying to time, underperform because they buy and sell at the wrong time, ” he said, citing recent column from The Wall Street Journal on the subject.
Stein says that for feds under both the CSRS and FERS retirement system, they must make sure that inflation doesn’t eat into their retirement nest egg. That means a portfolio that contains stocks for growth, rather than one parked only in the super-safe Treasury securities G Fund.
“The G Fund is not going to increase their purchasing power over time … and the loss of purchasing power is most important for retirees,” he said.
Be sure to tune in today 10 a.m. for our Your Turn radio show.
We’ll be talking with Mike Davis from Dominion Dental as part of our Open Season coverage.
Later in the show, we’ll be joined by Federal Times writer Andy Medici who will talk about what’s next for federal workers and retirees.
Listen if you can (1500 AM or online), and if you have questions email them to me at email@example.com or call in during the show at (202) 465-3080. The show will be archived here.
Retirement backlog continues drop as fewer feds file for retirement For the fourth month in a row, fewer federal employees than expected put in for retirement in October, allowing the Office of Personnel Management to continue cutting away at a longstanding backlog of claims. About 1,000 fewer employees than expected filed for retirement, according to new OPM data. The backlog fell by more than 3,500 cases.