7 Years Out - Fear of the Unknown

[PrairieWind]

Hello. I've been lurking on here for over a year now and surprised that there isn't much market discussion happening. So, I'm going to post a topic and see what folks are thinking. I'm 7 years away from REALLY wanting to retire. I've moved 25% into G and have the rest 50/50 C/S. The last 10 years or so, I was 100% C/S. Just looking at all the geopolitical uncertainty, division in the country, and just astounding federal spending on what I consider wasteful crap that actually hurts Americans and our interests. I fear impacts to my financial position, investments, and future changes to such things as our FERS and SS. No one can time the market, I get that, but it just seems like it's ignoring all of the negative indicators that are everywhere with the economy. Family of mine have lost jobs, been laid off, etc directly due to tarriffs. Folks I know are not spending money if they can help it. I just don't understand what's going on and I wonder how this bull market keeps marching on. I feel a little foolish missing big gains on 25% of my TSP investments, but I keep thinking 7 years isn't "that" far out and don't want to take a huge hit. Anyone else having doubts or is it just best to be on a glide path to year 7 and stick with it? 25% makes a huge difference in gains when sitting on the sidelines. Anyway...hello and be interested in your personal thoughts on current and short-term situation with TSP strategy. Thanks

[Aitrus]

Welcome to the forum and thanks for deciding to ask a question!

First, congrats on getting this close to retirement. The end is in sight!

One federal retirement guru I've been following the past few years has some thoughts on this exact concern that you've got. I'll post a couple of his articles that might help give some perspective.

Barfield Financial: Have I Won the Game? https://www.barfieldfinancial.com/new-b ... n-the-game

Barfield Financial: The Barbell Update 2026: https://static1.squarespace.com/static/ ... n+2026.pdf

My personal take: if the market falls, then stocks are basically on sale during the working years due to dollar cost averaging. A strategy you followed during your working years won't suddenly stop working in retirement. At a certain point, your TSP has grown enough that your contributions aren't really doing the heavy lifting any more, and it's compounding that's doing all the work.

Once I've reached the point where pulling 4-5% from my TSP will fill the gap (gap = living expenses - FERS - SSA supplement / regular SSA - whatever other income I will have coming in), then I can begin thinking about putting money in the G Fund to preserve value - and even then I still might not move more than about 40-50% or so.

I only lose when I sell, so in retirement the urge to sell might be overwhelming - but again, I only lose if I sell. If the market goes down in retirement, then the 4-5% pull will be less than normal. Maybe I pause withdrawals for a while and put whatever was in the G Fund into the market since prices are low. Once the recovery has happened and I'm back to where the 4-5% will cover the gap, then I can start pulling again. In the meantime, I'm living on the 6+ months of living expenses I have saved up just for this purpose.

If you read the sample scenario starting on Page 21 of the Barbell Update I linked to above, you'll read about a retiree who put a full 5-10 years of withdrawals (the amount he needs his TSP to provide to cover the gap) into the G Fund, and invests the rest in the C Fund and rebalances annually. To me, that seems like a decent approach - a balance of preservation of funds along with leaving the rest to keep doing what it was doing during the working years. Keep the gap filled, and the rest can be safely invested to keep ahead of inflation / build a cushion for when the market takes a hit.

As a result: once you know that gap number, the rest becomes easier to decide on because you have a target to aim for.

In the end, you're right - 25% in the G Fund feels too conservative to me 7 years out. But it's you who has to decide what your emotions and sleep schedule can handle. If 25% buys you a constant good night's sleep, then that's what you should probably do. You'll have 7 years of lost opportunity for the money to grow.

But consider this: the last time we had a market that crashed and didn't recover for almost a decade was the Great Depression. I guarantee that if we have another one of those, the last thing on your mind will be your retirement - you'll have a lot of other things to worry about that are a higher priority. That's the worst case scenario, and has only ever happened once in US history. Are you willing to have 7 years of lost opportunity for 25% of your TSP's compounding potential?

Remember: it's normal for the market to have 3 or 4 pullbacks of 5-10% every year, and every year has a 50/50 chance of a 20-30% pullback. That's absolutely normal, so if you experience that, it's not enough reason to pull everything out because that locks in losses. And locking in deep losses within 5 years of retirement is probably the worst decision a soon-to-be retiree can make.

As for the rest - a lot of us were having the same fears just after 2008, and again during the Obama years when there were big pay freezes and threats of layoffs. I had to train myself to get to the point where watching the news and obsessing over "what if" scenarios, and it's paid off in a huge way. This really helped me change perspective:

"We suffer more often in imagination than in reality." - Seneca, in a letter titled "On Groundless Fears" he wrote to Lucilius. Seneca’s message is not that pain, grief or hardship are imaginary. Rather, he argues that the human mind often multiplies suffering through fear, anticipation and exaggerated thinking.

This helped me reshape my view of the supposed importance of paying too much attention to politics in general, as well as investing.

[PrairieWind]

Thanks Aitrus for the thoughtful reply and resource links! Good stuff!

[PhilJohn]

I retire in 7 months. Hard to believe its almost here, yet it is. I am lucky enough to be in a position of not needing to withdrawal from my TSP right away. I plan on being every bit as aggressive as I was in my working years, and if and when the market drops, I will simply buy more and stay put. I figure it will take 7 to 10 more years to reach my investment goals. Ive always resisted modeling my investment strategies based on politics and misguided feelings. Focus on strong investing fundamentals and you will be much more profitable.

[PrairieWind]

Thanks PhilJohn! Congrats to you! Appreciate the perspective and hope retirement is good to you!

[azchev]

I’m in the same boat got a little less than 5 years left and 30 years on the book's and just hitting the million mark in TSP…my game plan is to move about 60 percent to the G fund and keep the other 40% in the C fund…I lost like most in 2008 and during Covid…i want something in the C and S funds cuz I have serious FOMO…my goal when I started 30 years ago was 500k which I’ve far exceeded and I come from a family where my parents only have social security so I’m pretty happy at this point…if I can do 4% off the 600k and 10% off the 400k in the C fund and my contributions I can be between 1.3 to 1.5…I’m good with that cuz I really feel like anything more for me I’m getting greedy but that’s just me…don’t stress about loses or gains…I just looked up my actual lifetime contributions and it’s 156k rate now so I feel like I’m playing with the houses money at this point…i had one math class in high school in 1988 that the teacher made us do a project on compounded interest and after that I learned…so basically I’m a millionaire from a 9th grade math teacher…cheers

[Scarfinger]

3 years 6 months from retirement. I was planning on being more aggressive up to and through retirement. But the closer I get the more I question that.

I was running a balanced 80/20 portfolio around 5 to 4 years out but I recently changed to the L2040 which is basically a 72/28 portfolio. The main reasons are that the 28% will give me the opportunity to delay SS, potentially more opportunities for Roth conversions and some protection from sequence of withdrawal risk.

Even after using Boldin which is telling my plan has 94% chance of success, there continues to be some fear of uncertainty that I feel. I have exceeded the minimum portfolio amount, so going more conservative than I originally planned has eased my fears.

Worst case scenario, I will claim SS at 62 when I retire. Best case, I have more than enough and will delay SS until 65 or 67.

Good luck

[jimcasada]

...I will claim SS at 62 when I retire. Best case, I have more than enough and will delay SS until 65 or 67...

You may not want to delay SS that long if you still have kids that you can still claim as dependents. I went into a SS office at about 65 and told the guy there that I was planning to start collecting at 67 to receive my fully entitled amount, and he told me that would be a mistake because I still had high school age kids. The way he explained it was that yes I would get more pay for myself, but I would lose out on a couple years of extra dependent pay, which when you figured it all out would take about 30 years to make up the deference. It all depends on your situation.

[Scarfinger]

Thanks Jim.

So many variables. There is also that time value of money thing. Money now is more valuable because you are younger and can use it vs more money later when you are old and can’t do anything. Plus it lets your portfolio grow.

[Jimmyk65]

Perhaps another aspect into thinking about how to invest the TSP portion of your 3-leg stool (TSP, SS, and pension) is figuring the present value of your pension. Having a pension worth $X in today's dollars shows you how much a pension is worth and may help make an informed choice on how aggressive or conservative you may want to be in your TSP allocations. Below is a simple calculator. If your pension is worth a million over your retirement and you have a million in TSP, that can certainly give you some more data in your planning. Perhaps allow you to be more aggressive or maybe you don't need to take that moonshot with a portion of TSP? Just a thought.
Best.

https://valueyourpension.com/life-expec ... alculator/

[Aitrus]

Jimmy, that's a fantastic calculator. I've been looking for something like that for quite a while. Thanks for sharing it!

[evilanne]

Prairieview,
Whatever works for you...if you are worried about the political situation and the market tanking the G-Fund will cushion the losses in the C/S funds. The fear of missing out on 25% will disappear if there is a major market drop and it will have been a wise decision instead or you may have wished you had put more in the G Fund. I find life is better if I limit my news intake.

Look at the bigger picture, you will have a pension, social security (you can start anywhere between 62 & 70), your TSP funds, and any other income sources you may have. How much money will you really need in retirement? Most financial advisors will say you should aim for 70% to 80% of your final working salary to maintain your normal lifestyle. I think this is a little high especially if you are maxing out TSP contributions, have paid off mortgage or have minimal debt when you retire. It really depends on your situation, living expenses and your plans/goals in retirement.

Knowing what I know now, if I was 7 years out, I would recommend contributing some if not all of your TSP contributions to Roth. Rather than trying to maximizing TSP contributions each year or using catch up contributions, I would put money in a taxable brokerage account each year in addition to funding outside Roth IRA. (Part 1)

[evilanne]

Prairieview & those still in the accumulation phase:
If you go past that $1M mark in TSP (particularly if it is all traditional TSP) you have a set of new things to worry about...at 65 whether to sign up for Medicare Part B and be subject to IRMAA at some point and at 73 or 75 (2033 on) you have Required Minimum Distributions (RMDs). How much to keep in TSP or rollover to a brokerage? You can now do conversions to Roth in TSP but I'd recommend a brokerage over TSP. The only way to avoid taxable income on withdrawals from pretax retirement funds is to do a Qualified Charitable Contribution (QCD) but you can only do QCDs at age 70.5 from a IRA, current limit is $111K/year.

I really miss the old calculators that TSP had for retirement that showed both life expectancy (LE) calculations as well as RMD calculations all in one place. You can calculate yourself based on factors in Appendix B of IRS publication P590 for distributions from IRAs https://www.irs.gov/pub/irs-pdf/p590b.pdf TSP uses basically the same method if you opt for LE payments. I like this method as it gives you that third leg of the stool and it automatically adjusts if you have a down year, you withdraw less based on your year end balance and age.

Take a look at this RMD calculator: https://www.calculator.net/rmd-calculat ... #calresult You can put your birth year, current traditional TSP balance, marital status and expected RoR. (I used $1M, single & 5%). Try increasing the RoR based on what you averaged over the last 5-10 years. It doesn't factor in current contributions but you can play with the inputs. I wouldn't wait until RMDs to start withdrawing from TSP (Part 2)

Good luck to those close to retirement, I highly recommend it!
Happy Trails

[Jimmyk65]

You are welcome Aitrus! Dumb luck I came across it.
Evilanne is laying down some sage advice! I do wish I had started a taxable brokerage account a while ago. It adds some nice flexibilities (like the ability to retire earlier had I been able to have an available cash stream). Have one now. I retired 1.5 years ago. Saving was the easy part! Still optimizing a strategy. Barfield financial mentioned above is good to follow. Good advice and shows real life examples that retiring is doable. The barbell strategy is smart in general. Leaving some money in G as a cash bucket if market gets tough is a decent safety net and makes more than a money market account in a brokerage account, although you could also put money in a G-like product in a brokerage (transfers are easier).

Have some mutual funds but mainly going with a dividend growth approach in my brokerage accounts following David Bahnsen's general approach in "The Case for Dividend Growth: Investing in a Post-Crisis World". Started this approach about 5 years ago with a handful of dividend growth stocks and reinvesting the dividend. This approach sits well with me. Targeted 4% dividend yield and with stock appreciation the strategy is working well. Just recently turned on some of the dividends to start collecting our dividends out of our Roth. Still reinvesting Traditional IRA.

Just need to figure out medicare, IRMAA, and RMDs down the road.

Also, just saw this video on long term capital taxes that may present an interesting strategy to Roth conversions. Still mulling this one over. Interesting approach.
https://www.youtube.com/watch?v=HzecukpTnOo

Best to all. Love this forum! great advice.

[PrairieWind]

Awesome stuff from everyone, thank you all for the insights, tools/calculators and other resources. I'd give a thumbs up on each post if I could. All the best to you.