Thrift Savings Plan: Why Volatility Isn’t Your Friend in Retirement

4.18.2025: Audio automatically transcribed by Sonix

4.18.2025: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement Show. I'm your host Val Majewski with American Benefits Exchange. And as always, I really appreciate you taking the time out of your busy schedule to view our content. It's not that long, right? We do a short form podcast here. Episodes are typically between 5 to 30 minutes in length and what we're trying to do. If this is your first time here and not familiar with our channel, with our podcast, with what we do, we're trying to give you the federal employee who's watching this, uh, honest and accurate information when it comes to your benefits and retirement situations. And I know everybody's different. Everybody has unique, uh, parts to their retirement. You work for different agencies, you're in different parts of the country. You're going to retire at different age. And depending on the agency you work for in your job, you might have different retirement requirements and hopefully somewhere in our 100 plus episodes that we have, and you can go back and view all of our content wherever you like to watch and listen to podcasts. There's something in here for you, and if there's not, I highly recommend you go to our website, Federal Retirement Show.com fill out the form. Uh, reach out to us directly and we can get your questions answered. Or maybe even have a future podcast episode, uh, based around your question, your situation. Because I think other people need to hear this.

Speaker1:
So that's similar to to what's going on also. So you might hear a questions that we're answering. You might hear just basic information. You might see current events and things that are going on. And that's where we stop today. You know I've gotten a lot of phone calls, emails, text messages from federal employees, federal employee clients, people that I've spoken with asking me about what's going on with, uh, with, say, the market or TSB because, you know, all of the, the positives that have been going on for for several years now. We're starting to see some of this volatility in some of these, you know, ways in which TSB can be a little finicky as well as, you know, the market in general. And I'm not here to give you stock market advice. I'm not here to tell you which funds to put your money in. I'm not telling you how to invest at all. I'm just telling you general concepts when it comes to nearing and entering retirement, when it comes to TSB and maybe other things that are out there, these are just general concepts. If I knew the the exact fund that was going to perform the best, yeah, I'd be talking on the TV to millions of folks telling them where to put their money because I have that crystal ball. I do not have that crystal ball. And I am not again, here to give you investment advice or tell you how to invest your TSB, but I'm just going to speak in general about things when it comes to nearing or entering retirement.

Speaker1:
So that comes to our title today. You know, volatility is not ideal for those that are nearing or entering retirement. And it doesn't mean that everybody, uh, doesn't use any kind of risk or things like that. Everybody has different risk tolerances. So again, that's why I'm not just giving some blanket advice, but just speaking in general with my experience is talking to federal employees just like you as you near and enter retirement. Volatility is typically not ideal. Now, if you're younger there's there's always a chance to take risk, right. Everybody's risk tolerance as I mentioned is different. And typically again this is just in general folks that are younger or have a bigger time horizon before retirement will take more risk with their TSB because they want to get greater returns. You know, within your TSB it's a risk reward type of thing. If you want to take risk off the table, you go to the G fund. But what's the problem? There's not a whole lot of reward if you want to see great returns, well, you got to be in the CHS or the I. Well what's the problem there? There's a lot of risk involved with that which we'll talk about today.

Speaker1:
So again volatility not ideal as we near or enter retirement but just just to refresh. If you're new with us and you're not familiar with what is what is PSP. What is the Thrift Savings plan? I'll go over this real quick. You can also view our episode called back to the Basics, which we've done recently. It was a whole series and we talk about all the different things, PSP being one of them, but it is the government version of your 401 K. It's one of your three retirement income sources. If you're a Fers employee, along with your pension and Social Security for CSRS. It's just backing up zero matching funds. But for Fers employees, you have up to 5% matching funds. In my opinion, this is one of the the best things that you can do is at least get up to 5%. It's actually one of the top ten mistakes that I talk about not taking advantage of the government matching. Why? Because that matching money is free money. I don't know everything there is to know about money, but I do know that free money is probably the best kind of money that you can get. So if you're not putting in at least 5%, that's something to consider. Doesn't mean you have to do it again. I'm not trying to give you advice on what to do with this, but it's something to consider because it is free money.

Speaker1:
And then there's six different letters we should call it, that you can invest in when it comes to TSP. Six different fund options. There's actually more than that. And if we have time at some other point you go over you can look at the mutual fund window. It's something totally different than these six different fund options. But there's six different letters right. There's the G, F, S I then L funds, which each L fund is a combination or a mutual fund, if you will, of the other five funds. So it doesn't matter which l fund you have, you're going to have a little bit of the G, C, s and I made up within that elephant. And each L fund will have a different breakdown. Now what can you do to check this out. You can go to TSP. Gov. This is your resource and I mentioned it and people are like, Val, duh, I get it. I know tsp gov. I mean, I live there, I go there, but there have been numerous federal employees that I talked to that have never once logged into their TSP account, and they've worked for the government for 20 plus years. So I'm just saying this to say here, you can check out your account information, you can change your allocations, you can move stuff around. You can see fund performance. There's different calculators that you can use.

Speaker1:
It is a great resource for you. Tsp gov contributions. Just go into the basics here. With TSP there are two different buckets you can put money into. There's the traditional bucket which is the pre-tax bucket. This is where you put money into TSP. It does not get taxed today. You actually get a tax deduction on that. And in the end it grows. Hopefully with interest. You earn positive money as you go through your working career. But in the end, when you start to withdraw money from this portion of your TSP, every dollar plus all the interest that you've earned is taxable as ordinary income. If you want to avoid tax, meaning you want to maybe lessen the tax, or you want to pay up the tax up front and not get a deduction for it, you want to put money into the Roth account. There's the Roth bucket. And that's where you pay the tax on the dollars today. The money goes in after tax. But now every dollar of you that you've put in plus the earnings that you've accumulated, because hopefully you see positive interest will come out tax free in the end. So what do you want to pay tax now or later that determines which bucket you're going to put money into. There's annual maximum contributions. So the current annual maximum is 23,500. That went up an extra 500 bucks starting in 2025. Um there's catch up contributions of 7500 for those that are 50 and older.

Speaker1:
So if you've maxed out 23,500, once you're 50 and older, you can put an additional 7500 in catch up contributions. And going forward now in 2025, we're new with this super catch up, right. For those that are age 60 to 63. In that window you could put your ketchup is not 7500. Your ketchup is actually $11,250. You could put in addition to that, 23,005 just for that period, between 60 and 63. Your catch up contributions a little higher. Beyond that, it goes back down to the normal catch up of 7500. I mentioned agency matching monies. You can get matched up to 5%. All agency matching monies go into the traditional bucket. Okay, so you might put 100% of your money into the Roth. You will still get matched. That's a misconception that I've heard over time is hey, I have to put money into the traditional bucket in order to get the matching. Nope. You can put 100% of your money into the Roth. Just understand that 100% of the matching money will go into the traditional bucket. Okay, so now let's get to my point today right. Talking about volatility and why I think volatility is not ideal as you near or enter retirement, I think TSP is a great tool for you to have. You probably heard me talk about this before. I think it's awesome for accumulation.

Speaker1:
And while you're in that accumulation phase, that's from when you get hired until you near retirement and nearing retirement is anywhere between, you know, 1 to 5 years out. Some people think nearing retirement might be ten years out, but from the time you get hired until you're in that nearing retirement age, you can accumulate a ton of money, you can take a lot of risk and things like that, depending upon, again, your risk tolerance. It's great for accumulation. It's a long term investment strategy. The 5% matching opportunity. Get some free money from the government that the government doesn't give you much for free. They want to give you some free money. Then there's a lot of different investment options for you depending upon your risk tolerance. Great for accumulation. You can build up this big nest egg, but it's not so awesome when it comes to preservation or conservation. Now what does that mean, preservation or conservation? Well, I'm going to preserve or conserve my TSP funds. What does that mean? Again, I'm taking some risk off the table if I want to preserve it means I'm holding on to write. I'm making sure I can't lose it. I'm taking risk off the table. Not so awesome when it comes to that, because one of the only things that you can do with your PSP, if you want to preserve or conserve it, if you want to take risk completely off the table, you have to put it into the G fund.

Speaker1:
And as I mentioned before, you can look at the past performance history of the G fund. It's the only fund that is guaranteed not to lose any money, but because of that, you take risk off the table. It's not paying out a whole lot either. Average about 2.5% over the past ten years. So and it's also for distribution. But we had a totally different, uh, you know, talk. We've had a totally different episode on distributions. Uh, as you near or enter retirement with your TSP, you can go back and view that episode when we talk specifically about distributions. But today I'm just talking about volatility preserving and conserving your TSP as you near or into retirement. Because volatility is not ideal for those that are nearing or entering retirement. I said that earlier. That's a title of our episode. Now, why is that? Well, there's a there's a couple of things that I'll get into before I get into the volatility side. But what does volatility mean. Volatility for me is is just there's market risk. The market is volatile. I've got my money in a place where it can lose. And if that thing or that investment strategy whatever it is that can lose if it's if it's acting up and it's going downhill. Well it doesn't take too long for, for your account balance to drop.

Speaker1:
And that's why I've been getting a lot of phone calls and emails and text messages like, have you seen this? Do you see what's going on with TSP? What should I do? What are the the the options for me if I want to do this, that or the other thing? So people are concerned about the fact that the market right now is volatile. People are concerned that, you know, they can lose money. When it was looking so great over the years and people were gaining, you know, ten, 15, 20, 25% returns. It looks awesome while that's happening. But just understand that is not locked in that money can go down to. Your account balance can go down right. Your chips are still on the table. They can still be lost. So just just understand that's what I mean by volatility. Right. The the uh angriness if you will, of the market. And we can see that it can. Can be awesome. It can be a delight. People are happy but it can turn. So what are some of the other things though. When it comes to retirement and making people happy. Before I get into some of this volatility. Thing I want to talk about, you know as you near rent of retirement your happiness. Is going to rely on a couple of things happiness and retirement okay. And this is what we guide.

Speaker1:
Federal employees through when we talk to you all, whether it's at a presentation I'm giving at an event or at a at a conference, or just doing a local benefit training or a one on one, or even talking here through this podcast, through the federal retirement show. Our job, or at least my job, is to help guide you so you can make the right decisions. You have all the information possible so you can make the right decision as you're near to retirement so you can retire. And you've heard me say this before how you want, when you want, with the lifestyle that you want in retirement. That's happiness. For most people, your happiness might be a little different, but happiness for most people in retirement, they want to retire when they want, right? They don't want to work longer than they have to. They want to work. They want to retire how they want, right? They want to be able to have the money and the income and the earnings and those things. And they want to retire with the same lifestyle that they're living now. They don't want to be necessarily downgraded, putting all this time in and then having to live a lesser life, which is not very happy in retirement. Some may love it, you never know. But everybody's situation is different. But the lifestyle that you want, you want to be able to have the income, the earnings to live that.

Speaker1:
So happiness and retirement revolves around two things securing enough lifetime or guaranteed lifetime income in retirement. That's the living how you want and living the lifestyle that you want. Having enough income, right? Can you do that when you want? Are you planning so you can retire when you want with the income, the guaranteed lifetime income that you need to retire how you want with the lifestyle you want. That's that is usually the biggest thing. Am I going to have enough money in retirement? Huge question that we get asked, right? Am I going to have enough money in retirement? There's a lot of factors in there, but we try to figure that out through our benefit analysis, through our retirement reviews. And what does that mean? That means with your pension, Social Security and maybe your TSP. Because some people can live on their pension and Social Security comfortably. But if that's not it, then maybe your TSP, which I've highlighted, will be a third factor in there for retirement income. We roll back the tape. That's one of the three retirement income sources. Pension social security TSP for a Fers retiree. All that together. Is that going to be enough for you to live comfortably? Live how you want. And then the second thing is have you taken the risks off the table when it comes to retirement? Have you taken the appropriate risks off the table? And before I just get into the one we discussed earlier, what are the risks in retirement? What are the risks in retirement? There's a number of things.

Speaker1:
Okay. And we've talked about these before. But one of the biggest ones is longevity risk. Longevity risk. People are living longer. You want to make sure that your money's going to last longer. You want to make sure your money's there for you, but the longer you live, the more likely you're going to see a lot of these other things. Right. There's deflation risk. Now people are like, well, we know inflation is bad, which is underneath that, right? Inflation is bad. The cost of goods go up. My dollar doesn't go as far. But when prices and things go down, that can also be a problem, right? Because prices can go down. But the market demand might not be as high, which can cause the economy to go low. Right? Or or businesses not to thrive because people aren't spending as much money. And that's where we we saw that in the Great Depression, saw that in the Great Recession in 2008. Okay. That was a deflation risk. That that can happen. Um, withdrawal rate risk. Am I going to be withdrawing money from my accounts in retirement? Not just TSB, but maybe other accounts. Is it going to last forever? What about sequence of returns risk? What if I'm.

Speaker1:
I'm taking too much of, uh, maybe market risk with my investments, but I'm also now drawing money out of that account. It could be a double whammy if things go down. I'll talk about that here in a second. Long term care risk. The longer I live, the better chance I'm going to be in a long term care situation. I don't want anybody to have to go through that. But if you had a relative or family member that has gone through that, how do they how do they plan to pay for that? Right. How do you plan to pay for it? What kind of, uh, solution do you have in place in case you're in a long term care type situation? Obviously there's there's risk of dying the longer you live. I mean, you know, you're just going to get less healthy. You're closer and closer to the end. Have you planned properly for that so you're not a burden on your loved ones? Taxation risk. You know which way? I asked this all the time when I give talks and lessons and and briefings. Which way do we think taxes are going to go up, down or stay the same? And most people say up. A few people will say stay the same. I've not heard anybody tell me in recent history that taxes are going to go down. So, you know, we want to we want to try to take some of those risks off the table.

Speaker1:
And then regulatory risk, you never know what government comes up with and regulations that come about that can can hurt you in retirement. You know, things get done with or without your say in a lot of cases. Uh, we've seen that with different benefits and different, uh, you know, things that have come out. So those are some of the main risks, right? In retirement there could be others, but the longer you live, the more likely you are to see some of these risks. The longer you live, the more likely you are to see deflation or inflation, or have a long term care scenario or see regulations come about. But what we're talking about today is the last one I've listed is called market risk. And this is with your TSB and what we're seeing now and why we're having this conversation. So happiness and retirement. Am I going to have enough income. Great. Have I taken the risks off the table. And as you near or enter retirement, taking market risk off the table can be huge for you. It can be huge for you. Why? Because I said with TSP as you near enter retirement, most that I talked to, most that I talked to will want to conserve or preserve their TSP funds. They want to make sure most federal employees want to make sure that their money is there for them in retirement, that they can utilize it properly.

Speaker1:
If you're taking too much risk, there is no guarantee that that money is going to be there because it can go down in an instant. We've seen that, you know, we saw it in Covid where it lost 30% in one month, 30% in one month. If you were in the CFA, it did rebound and come back, but there's no guarantee of that. It's like saying, you know, I lost some chips, but I'm going to earn it back. I'm going to get it back. Well, there's no guarantee. It's great if you do and you're happy if you do. You get that that that kind of, uh, excitement. Hey, let's come back. That's awesome. But we've seen how finicky, how volatile things can be. And taking that risk off the table could be a part of your retirement plan. So what am I talking about? This. What do I mean by market risk? Right. The market can go down. That's what I mean by it. In order to get great reward, you have to take some risk. And the greater the reward, the greater the risk. There is not a whole lot of investment choices out there in any area, not just TSP in any area where they can provide ridiculous returns with a very low risk. Right. They coincide together. The greater the reward, usually the greater the risk.

Speaker1:
And let me share with you what how does this work in investing? How does this work in our in our TSP. Right. Why would I want to take some of this market risk off the table? Because as you near or enter retirement, you don't have the time to recoup that back. If things go bad, if things go down. And how does the math equation work? Well, tell me if these things make sense. So when does negative ten plus 11.2 equals zero. What about -20 plus 25 equals 0 or -30 plus almost 43 equals zero. When do these math equations make sense. How does this even possible. Right. We are taught this is this is not how this works. This is not how math works. Well, if you if you're taking too much risk and let's say you lose 10% in your TSB, you don't just gain 10%, you can't do minus ten plus ten and be back to even. And what I mean by zero is even right? Getting back to your dollar amounts, let's say you had 100,000in your TSB and you lost 10%. What are you down to 90? What if you gained 10%? What are you up to 99,000. So you have to go above and beyond to get back to even. Okay. Same thing. I have 100,000. You lose 20. You're down to 80,000. You gain 20. You're up to 96,000. So you have to go up 25 to get back to that 100.

Speaker1:
Same thing. -30. Right. I'm down to 70,000. If I gain 30, where am I up to? I'm up to 91,000. I have to go above and beyond almost 43% to get up to zero. So if I lose 30% of my TSB, I have to go up to 43% in gains to get back to my 100,000. In these examples, that's where people don't realize, hey, when it goes down, when you're trying to do simple math and and see how you know the numbers work, it's not that easy. Okay. We have to go above and beyond to get back to even if we lose and all the numbers are relative, if you lost 5% or 15 or 25 in these gaps, but just want to share with you that it does take longer to get back to even once we lose. And what happens a lot of times is people panic and they take chips off the table when it goes down, and now it's even a greater uphill battle to get back. But what if the chips weren't even on the table to begin with? Right. You just accept the fact that, hey, you've done a great job in your TSB and you're willing to take some of that risk, pull those chips back, hold on to them, put them in your pockets to secure them and keep them safe so that you don't need to worry about the market risk.

Speaker1:
Right. And I said nearing or entering retirement is different for everybody. And I don't want you to take this as just, hey, everybody needs to do this. But as I as I've had conversations with federal employees, I just want to share with you that it's easy to get caught up in everything. The market's doing well, the market's doing awesome. And I'm looking looking forward to retiring. And I'm letting this ride until I get to the end because everything's been great. Up up up up and up. Then things happen unforeseen that are out of our control. That affects your retirement, right? We don't know what's going to happen. We don't know what's going to be going on with different countries, or if a war is going to break out, or if trade deals are going to fall apart or whatever, whatever, whatever those things are out of our control. We don't control that. What we can control is how many chips we have on the table. That is our control mechanism. And I don't say you have to pull all the chips off the table, but I've seen a lot of federal employees as they get near or entering retirement. We'll pull some of those chips back. And we've talked about different distribution options and ways that you ways that you can do that. But with NTSB you have one choice.

Speaker1:
With NTSB it's moving money towards the G fund. Why? Because if you were going to go conservative or if you were going to preserve your money, the only place with NTSB that you can guarantee that you cannot lose anything is in the G fund. Right. Just stating a fact. It doesn't mean, hey, tomorrow you have to do that. But again, that's your only option. There are other options outside of TSB that you can utilize, but with NTSB, if you want to take some of that risk off the table and not fall into any of these math equations of thinking, I got to go above and beyond now. Or what happens if in gambling, this is effectively a way to gamble with your retirement a little bit, right? What is the better thing? Hey, I lose some money, I'm going to go above and beyond in my next bet. I'm going to be positive. Oh, I lost that again. I'm going to go above and beyond. And next thing you know, they're digging this hole. And I'm not saying that's exactly what you're doing. But there is some gamble in there if you're leaving your money at risk as you enter into retirement, especially if you're going to utilize that money in retirement. So it may be wise if you are risk averse, if you you don't want to have as much risk, uh, your risk tolerance is less as you near enter retirement.

Speaker1:
Pull some of those chips back, put them in your pockets. Secure them, keep them safe. You've done a great job of building up your nest egg and ensure guarantee that your money is going to be there for you when you retire. So today we're talking about volatility, and it's just coincides with a little bit of current events. With the market being as as volatile as it has been. And we've seen the ups and the downs recently. There's been some good days and bad days. Just check out the performance history for yourself. Go to TSP gov. You can see how each of the funds are doing. You can check out your account. How are you allocated? Um, if you're willing to take the risk? Then maybe you're moving money towards those stock funds. But if you don't want risk if you're nearing or entering retirement. And again, that definition is different for everybody, whether it's one year, three year, five years from retirement, maybe you want to take some of the chips off the table, but have an idea of what's going on and combine it with your overall risk tolerance and your investment strategy within TSB. So it suits you if you need to talk to to an expert or talk to somebody, um, and answer some more questions, go to our website, Federal Retirement Show.com. Uh, fill out the form.

Speaker1:
Somebody will be in touch with you to go over your specific situation, answer your questions, give you some free information and some benefit retirement reports. So I really as always, I appreciate you taking the time out of out of your schedule to view our content, to see what we have to say when it comes to benefits and retirement information. If you have questions, I mentioned going to the website Federal Retirement Show.com. Um, if you have future episode requests, things we had not talked about yet in 120 plus episodes. Reach out to us. I love hearing that too. I love answering your questions with during the show during our FAQ episodes that we have periodically. It's awesome to hear from you! I've been been overwhelmed with excitement, with joy, knowing that people appreciate the information that we give out during the show. I hear that there are so many avid listeners out there. People view all the content either while they're driving, while they're at work, when they just need a, you know, a break from things. So thank you for that. Tell somebody else, tell a coworker because they need this information too. That's why we're putting it out. It's not just for me to talk here and and stare into a camera. No, it's for you. The federal employee looking for some guidance, some information when it comes to benefits and retirement. So thank you all for what you're doing. Thank you all for being avid listeners and look forward to seeing you on a future episode.

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