TSP Rollovers: A Scandal in the Making?
TSP Rollovers Make Bad Press
Lately, there has been a splash of negative articles about feds choosing to roll their TSP accounts over to IRA’s.
45% of federal retirees take their money out of the TSP, causing a reduction of about $10 billion per year from the $420 billion it currently holds.
So What’s All the Fuss About?
The fuss is about vacating the well-performing and low-cost TSP index funds. Why would anyone want to mess with that?
Index Funds and the Shoeshine Boy
Although its authenticity is questionable, just about everyone knows the famous story of Bernard Baruch and the shoeshine boy. A very brief version goes like this:
Someone asked the famous financier how he knew to pull out of the market before the crash of 1929. He said his shoeshine boy was giving him stock tips.
Everyone is a genius when the stock market continually goes up. Index funds are perfect for just such an occasion. It’s what they do best. They ride the wave.
When the tide is high everyone is surfin’ safari. But what do you do when the tide is out to sea, especially when you are retired and you don’t know when the next big wave will come to your TSP?
What if your TSP base jumps like it did in 2008?
G Fund It!
There’s really never an unkind word to say about the tried and true G Fund, but…wait for it…growth.
Remember the saying, “A man does not live by savings alone”? (Okay, I just made that up.) But the point is, most people can’t save enough money for retirement by stuffing it under the mattress or into the G Fund. The money has to grow at least enough to beat inflation. Obviously, I wish gasoline was still $.30 a gallon. Or that I could buy a Krispy Kreme for less than $.50. But what can you do?
Does The Shoeshine Boy + The G Fund = An L Fund?
Market crashes and inflation: how do you beat both? Does the answer lies in the L Funds, with index fund mixes that change as you get older?
Penny Stocks and Suave Brokers
TSP rollovers may happen because slick brokers entice people to buy penny stocks or index funds that have very little difference than the TSP. But many people leave the TSP because they want a professional to actively manage their account and personally lead them through retirement.
So you call a plumber to fix a pinhole leak in your copper pipe, but getting through retirement is a do-it-yourself activity? Hmmm, I’m not sure about that one.
Warren Buffetts and Financial Advisors
Warren Buffett is probably the greatest stock picker in the history of mankind. A good retirement strategy might be to simply put all your money in Berkshire Hathaway and go back to bed.
On the other hand, you could find a financial advisor who couples reasonable retirement objectives with reasoned investment choices, and work with them to build your investment strategy. The choice is yours.
Want to learn more about the TSP? Download our free resource, 7 Steps To Getting A Grip On Your TSP