Federal workers like fun, flash and excitement as much as the rest of us. Like most investors they enjoyed the 1990s, when 20 percent and 30 percent returns were not uncommon.
But when it comes to driving their retirement savings vehicle, many feds, military personnel, reservists and retirees prefer safety over a rocket-mobile.
Their 401(k) plan, the Thrift Savings Plan (TSP), offers a variety of ways to save for retirement and — until recently — a slight majority favored higher-risk, higher-reward stock index funds. It has pushed the value of their optional savings plan to more than $225 billion. But after hitting what many consider to be major bumps in the road to retirement, things may be changing.
Thanks to a series of stock-market nose dives and despite good performance earlier this year, nervous investors have yanked more than a billion-with-a-B dollars out of their TSP stock-market accounts. They have parked the money in the supersafe but decidedly unflashy G-fund made up of Treasury securities.
After the markets turned sour last week, workers shifted more than $500 million from the stock funds to the G-fund.
The G-fund, which had been running in second place behind the once high-performing stock funds, now holds more than 50 percent of the total TSP balance. That’s a result of market losses and of investors bailing out of the C, S and I funds. The C-fund tracks the S&P 500 (the 500 largest U.S. companies), the S-fund is indexed to the 4,500 mid- and small-cap companies and the I-fund mirrors much of the international market.
When it comes to saving for retirement, feds over the past 20 years have outpaced their private-sector counterparts. This is in spite of a guaranteed system which provides them annuities (pensions) that are fully or partially indexed to inflation.
In fact, the average account balance for TSP investors in their 40s now stands at about $113,000 while those for older workers (ages 55 to 65) average out at $160,000.
Most investors are under the “new” Federal Employees Retirement System. FERS provides a total 5 percent match for those who themselves invest at least 5 percent. About 200,000 FERS employees, who have invested nothing themselves, still have accounts thanks to an automatic 1 percent match from Uncle Sam.
The minority of workers who are under the older and more generous Civil Service Retirement System don’t get any match from the government.
Federal officials — who maintain a hands-off stance when it comes to advising workers how to invest — are privately worried that so many people reacted so dramatically to the recent stock-market downturn. Financial advisers, who get paid to manage people’s money, are generally less shy. Most of them think that as long-term investors, the feds should stay the course and not jump out of the market when it drops (thus perhaps selling low) and waiting until the market starts going up to get back into the C, S and I funds.
Allan Roth, a financial adviser and TSP watcher based in Colorado Springs, says too many people get emotional about investing.
“People know better, they know the buy-low-sell-high principle, but when the going gets rough, fear and greed can take over,” he says.
So what’s a nervous investor to do? Most pros say to remember this is a long-term investment. They say people should pick an asset allocation strategy they can live with, rebalance it from time to time and not get giddy or depressed by what may be temporary ticks in the market.
Mr. Roth says the TSP is the “best” 401(k) plan in the country.
So does John C. Bogle, founder of the Vanguard group and the godfather of the index fund. Mr. Bogle says the low administrative fees of the TSP (about 30 cents per $1,000 invested), and the government-backed G-fund make it a winner.
Like many investment experts, both recommend that people invest broadly in the stock market — to the extent they can sleep at night and, as Mr. Roth said, “Let inertia be your guide.”
• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.
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