Thrift Savings Plan Discussion

[Drake Tungsten]

I love that something as important as a major change to the retirement plan of all federal employees was tacked onto the Family Smoking Prevention and Tobacco Control Act, a bill that put tobacco companies under FDA jurisdiction. Is there any purer example of our dysfunctional government in action?

http://news.google.com/news/url?fd=R&sa=T&url=http%3A%2F%2Fwww.federalnewsradio.com%2Findex.php%3Fnid%3D20%26sid%3D1724169&usg=AFQjCNEESUthH4Z8i6VtQEa-Cbdf5bRudg

Anyway, is there any reason I shouldn't take the Roth option once it becomes available?

[KrazyHorse]

I can think of a couple of reasons:

1) If you believe that your marginal tax rate will be lower in retirement than currently
2) If you believe that the government might, in the future, weasel out of its obligations under Roth contributions and tax the returns

(2) is a huge concern to me, due to the fact that international roth recognition is actually very, very new, and doesn't feel particularly secure.

[Drake Tungsten]

****. 2) scares me, also.

[Drake Tungsten]

This is why I'd prefer to have some bonds in my portfolio even at my relatively young age...

http://www.tsp.gov/rates/history-summary.html

[Zkribbler]

This is the first I've heard of the TSP. It sounds a lot like the Universal Savings Accounts (USA-accounts) proposed by President Clinton but shot down by Congress because they feared it would divert too much money from consumer spending over into savings.

My educated guess on TSP is that it has at least two main objectives: First, get Americans saving again, and second, get those savings invested in the American economy. Therefore, it will not provide for emerging-market investments.

It wouldn't provide for investment in real estate either because, for the middle class, their biggest investment is in their home. The govt wants you to diversify. (However, I do agree it'd be nice if there were investments in REA, which act more like stock than like real estate.)

Of course, the government is going to want you also to invest in it. That's the reason for the emphasis on govt bonds. But, as has been pointed out above, government bonds are not the best idea is a tax shelter because they are already tax sheltered. What you need are corporate bonds.

[Drake Tungsten]

It sounds a lot like the Universal Savings Accounts (USA-accounts) proposed by President Clinton but shot down by Congress because they feared it would divert too much money from consumer spending over into savings.

It's actually quite similar to the "private" Social Security accounts that Bush proposed and people like you claimed would put the retirement savings of workers at undue risk while lining the pockets of fatcats on Wall Street. Fortunately, I'll get to take advantage of the benefits of such a program while the majority of the country is still stuck with inferior 401ks and the mirage that is Social Security.

[Felch]

401K was a decent option, but many companies have stopped matching, which makes it less attractive. Unless the company matches, why do it?

It's pre-tax. My employer gives 3% without needing to match, and I put in 17%, because every dollar I put in costs me about 60 cents or so. I haven't actually done the math, but I know that cranking up the 401(k) contribution has had a minimal effect on my take home pay.

Is the consensus here against index funds? I'm heavily into them (~85%) because I like the low administrative fees. My funds range from .55% to .65% in fees (I guess that's 55-65 basis points, but I don't know the lingo like you cool cats do). I figure the managed accounts are just crapshoots anyways, so you're better off limiting the costs than trying to maximize returns.

[rah]

If the company stops matching it ceases to be a no-brainer. (the asshats at our company reduced the matching on the first 5% to 50% from 100% basically because other companies are doing it so they thought they could get away from it. But 50% is better than 0% like some companies have done)
It depends on your retirement plan. If you're planning on retiring before age 59, you're better off using after tax contributions to a roth stye ira vs a traditional 401k so you can avoid the penalties associated with withdrawal prior to 59.

[Felch]

I plan on working til I'm 80 in order to finance your social security.

[rah]

In all fairness, I've already contributed over 100k into SS which with any reasonable interest rate would be worth well over half a million today. I doubt I'll be seeing any real percentage of that half mil, so I really have no pity for you.

[Felch]

I'll be contributing my entire career, and I'm unlikely to see any of it.

[rah]

Now you can't blame me for that. I'm in the same boat. Maybe they'll fix it by the time you get that old.

[Felch]

I don't blame you, I'd just appreciate it if you were a bit more reckless in your driving. Maybe if you took up vigilantism in the south side as a hobby after retiring. That would help a lot.

[rah]

that is so wrong on so many levels but it's hilarious.

[Imran Siddiqui]

Should additional fund options be introduced to the TSP?

Yes. Though knowing my fellow government employees, it may not change their investing strategy (if they have one), but if added to the Lifecycle funds, may be worthwile.