Why TSP Is The Way To Go by David Chan

September 8, 2017 /by David Chan

Why TSP Is The Way To Go

By David Chan

Thrift Savings Plan aka TSP, is similar to a 401(k) but one that the government provides to all the federal employees. The TSP plan is a perfect fit for people who want to save but don’t like the hassle other ordinary savings plans possess. Let’s take a look at why exactly it is what you might be in need of:

The Quick Breakdown

Diversification:

TSP has a diverse choice of funds. Through it, you can get your hands on government bonds, various indexes and even the S&P 500.

Low Fees:

Many of the funds have a low cost attributed to them and have become a great choice over many other funds in the marketplace. However, there’s also room for alternative options.

Roth option for IRA:

In 2012, the Roth feature was added for TSP accounts. Roth TSPs are a great option when considering your entire investment strategy. There are options for tax-free withdrawals and after tax investments. Of course, always consult with a professional first before you take any withdrawals.

Summary

The TSP is a great retirement vehicle. It is one of the most popular investment programs you have available as a federal employee. Of course, don’t discount the help and advice of a professional you can trust. Whether it is to ask questions about your investment options or if you are now preparing to retire, a planning professional who knows and understands your options are vital.

Contact David Chan:

Phone: (510) 440-7110

Email: [email protected]

Finding the Balance with TSP Contributions with David Chan

August 19, 2017 /by David Chan

Finding the Balance with TSP Contributions
By David Chan

When you work for the federal government, there are all sorts of advantages you can enjoy and receiving a matching TSP contributions is only one of them. The Thrift Savings Plan (TSP) allows a certain amount of money to be paid your way after choosing to retire. However, there are still thousands who don’t choose to contribute into their TSP because of one main reason; it is not mandatory. With FERS, Social Security and the FERS Annuity are an automatic part of the federal employee’s retirement package, whereas the TSP option is something federal employees can opt out of.

With your FERS annuity, nobody can avoid the 0.8% payment from your salary just as he or she can’t prevent the 6.2% charge for Social Security. Regardless of how close or far away you are from retirement, these two outgoings will remain for years to come yet there isn’t such a demand on you to pay into your TSP…but should you be contributing anyway?

If we use an example, let’s say a female employee works for a federal agency for 30 years with a salary starting at $60,000. Each year, she experiences a 1% increase in salary for the entirety of her career. For the first ten years of her career, she chooses not to pay into the TSP. For the next twenty, she changes this to 5% of her earnings (which is then matched by the government). If we use the TSP Calculator available through TSP.gov, this comes to over $250,000 at retirement. Considering no contributions were made during the first ten years, this is quite impressive.

On the other hand, her friend and colleague contributes 5% from the very first day and continues on this path for thirty years; with the same salary. Pl ugging the different numbers into the same calculator, it comes to just short of $460,000. As you can see, this is a huge difference, and it increases to over $900,000 with a simple change in contribution from 5% to 15%.

From this, we hope you see that the best retirement is always made in the early years. If you start investing now, no matter how far away your retirement may seem, you will have earned a fantastic nest egg by the time the magical date comes. Feel free to check out the TSP Calculator online where you can play around with different contribution percentages to see what you need to save to reach your goal by retirement!

Contact David Chan:

Phone: (510)440-7110

Email: [email protected]

How to Utilize the Soaring TSP by David Chan

August 1, 2017 /by David Chan

How to Utilize the Soaring TSP

By: David Chan

As we start to get comfortable with the summer of 2017, we reach a landmark; eight years of current market expansion within the US. Compared to the global financial crisis we all experienced in the years before this, it’s perhaps surprising that we’re all enjoying the third-longest period of expansion in nearly 250 years; if it lasts until 2019, it will surpass the only two standing above it.

Furthermore, unemployment is now back to the numbers we saw before the recession which is good news once again. If we break it down in a little more detail, the amount of US citizens employed currently stands at 60%; this is three percentage points fewer than in 2007, but it shows definite signs of improvement. However, we all know that the employment rate doesn’t always tell the whole story.

In other news, the stock market within the US is also performing very well. All adjusted so we can compare throughout history, the price to earnings ratio on the S&P 500 is actually at its second-highest point since the second world war; the only time this was higher was during the ‘dot com bubble’. With all of this taken into account, the US is in a sound financial position, but we should never take anything for granted.

According to Warren Buffet, we should always be fearful when others are greedy and vice versa. Therefore, we want to provide you with some good housekeeping tips so you can utilize the good times while being mindful of what could happen in the years to come.

Calculate Your Debt/Income Ratio

Firstly, we highly recommend calculating your debt to income ratio. In terms of the US, we currently sit at around 80% with debt to GDP, and this is well below the 95% seen during the recession. However, it wasn’t always this high as it only went above 40% for the very first time as we entered the 1960s. Compared to other countries around the world, we can be found somewhere in the top half; although others are enduring worse, there are certainly many doing better.

In the most recent proposed budget from the White House, all federal employees will end up paying more into the system if it goes through because they plan to remove the cost of living adjustments with the FERS system. Although this hasn’t been set in stone just yet, federal employee compensation is likely to be hit the hardest.

Considering we’re in a bull market, now is the best time for you to improve your debt to income ratio. If you can lower this somewhat now, you’ll be in a great position if another recession were to strike in the near future. Therefore, you can start with an audit of all your finances to see whether you can pay off any short-term loans while the money is available.

Of course, we aren’t saying you should clear every single source of debt you have because some will be keeping your credit rating afloat. By having a variety of different debts in your history, it shows you are responsible and can pay what you owe (assuming you’re paying all bills on time and in full).

Diversify Your TSP

Next, we want to prevent you from falling into the trap many beginner investors tend to make. As soon as the market is enjoying good times, they decide to invest before then selling as the decline comes. An alternative to the all-or-none approach may be to consider TSP L Funds. If you’re unaware of what these are, they stay balanced to keep your portfolio diversified. When the market falls, stocks are bought, and bonds are sold and vice versa.

When you choose this option, you’ll have an opportunity to select your retirement age, but you don’t need to pick the one that matches your retirement. Although it hasn’t been confirmed, many believe the long-term funds to be too conservative so assess your goals and think about your current situation. If you like to have money in equities, now is a good time to invest in L Funds because equities account for over 80% of the fund; this is within the 2050 L Fund (the most aggressive fund).

If you already invest in L Funds or want to look elsewhere, we also recommend checking the rest of your portfolio balance. If your C, S, and I Funds have all improved, they will all be holding a higher balance so you might need to reassess and spread the risk a little more. For example, you might need to realign with your target by investing some into the TSP G Fund or consider options outside of the TSP if you’re older than 59 1/2.

Despite billions of dollars in investment, there has (and never will be) a guide showing the ‘best’ way to diversify so the main thing to consider is your goals. Depending on when you retire and how much longer you have left in employment, you might choose to spread your money differently to someone who has just started their career. As an impartial service and one that would never choose one technique over another, we’re only saying that chasing markets never seems to end well. If you want to see real progress, you should set up with your goals in mind and then rely on the cyclical nature of the market to help. It is also recommended that you always consult with your chosen investment professional prior to making any investment decisions.

Boost the Emergency Fund

If we’re to listen to the Congressional Budget Office, the debt ceiling is likely to be hit by the federal government in October 2017. If Congress cannot come to an overall agreement, there could be potential furloughs or various other measures, so you need to be prepared for some form of change at the very least.

Often, we don’t need a cash reserve in the good times but, as we’ve said many times, you can’t just think about what’s happening right now. If you don’t prepare cash reserves when you don’t need it, it won’t be there when you do need it. In life, it’s important always to have some form of liquidity, and you can build this when all is well with the financial world. If you have any high-interest debt or multiple sources of debt, it’s now time to pay this off or consolidate it all into one, so you only need to pay one lot of interest.

If we’re predicting correctly, your next question is ‘how much do I need?’. Unfortunately, there is no definitive answer we can provide here, but you should always consider your own circumstances including your children, mortgage, sources of liquidity, job security, etc. Furthermore, you could also ask yourself how long you would survive if you were suddenly forced to take some time from work. If your money ran out in less than one week, we would suggest this probably isn’t enough. If you have between 3-6 months plus enough to cover unexpected costs, this is a much stronger position.

Summary

For now, we can all enjoy the good financial times in the U.S., but we should never be naive enough to think they will last forever. Therefore, now is the perfect time to get your finances in line, so you aren’t left worrying when times do change. As well as doing this yourself, please feel free to share this information with your friends and colleagues so they can do the same!

Contact David Chan:

Phone: (510)440-7110

Email: [email protected]

Utilizing Your Thrift Savings Plan: 7 Tips by David Chan

July 28, 2017 /by David Chan

Utilizing Your Thrift Savings Plan: 7 Tips

By David Chan

For all Federal Employee in the US and all over the world, you should be preparing for retirement regardless of age. The earlier you start, the more comfortable you’ll be when it comes to that magic day. Nowadays, this can take place in many forms, but the Thrift Savings Plan (TSP) is perhaps the most common. Today, we want to provide you with some amazing tips that ensure you’re making the most of your plan.

In fact, we’re actually going to break this down into sections depending on your experience within the industry, and it starts with those who have only recently gained their first job in the public sector.

New Federal Employee?

First and foremost, welcome to your new job and we wish you all the luck in the world moving forward. If you’re unaware, you are now eligible for the Federal Employees Retirement System (FERS). As a part of this, you can make tax-deferred contributions into a Thrift Savings Plan (TSP) which will also be helped by payments from the government.

For example, all contributions of up to 3% of your salary will be matched entirely by the government which is quite impressive. After this, they’ll contribute 50% of all your contributions between 3-5% of your earnings. If you decide to invest more than this on your future, you’ll be on your own, but this is a great starting point regardless of your age.

If possible, we advise (free tip before the seven main tips!) you to invest 5% of your salary into your TSP otherwise you’re missing out on what is essentially free money. If you’re new to the industry, we have four more fantastic tips below;

#1 – Consider Your Retirement – Although it sounds early, we urge you to think about retirement now and what you want to achieve from this period in your life. Are you looking to downsize into a smaller home? Travel with your partner? Maybe even upsize to enjoy retirement in style? Once you know this critical piece of information, you’ll know an estimate of how much you need to contribute.

If you’re still young, this is great because you have more time to build your nest egg and you won’t have to contribute so much. Luckily, the government has a TSP tool on their website, and this shows how much you should be saving for retirement to achieve a goal figure. If you haven’t yet decided, feel free to play around with the numbers and find what works for you.

#2 – Start Saving Early – If you’re researching a number of different guides right now, you’re likely to find this tip on every single one (if it isn’t, it should be!). The more you save when you’re young, the more time this money has to grow and the less pressure you’ll face in your advancing years. No matter how small, compound interest will increase this figure over time so always put some away when you can.

If you’re struggling to do this right now, consider consolidating all of your debts (credit cards, student loan, mortgage) into one with a low-interest rate. This way, you’ll only be paying one lot of interest rather than three or possibly more. Once you reduce your debts somewhat, you can start investing in your retirement account.

#3 – Don’t Forget the IRS – Regardless of what contribution type you choose, you will be taxed somewhere along the line, so it’s all about working out how to pay the least amount possible. With traditional payments, you won’t pay any tax (even while growing) until you withdraw. If you choose Roth contributions, you’ll pay the tax at the point of contribution.

If you’re still young, we highly recommend paying all taxes now because this leaves you free to enjoy the withdrawals without a worry and you can plan a little better. When it’s time to retire, you’ll probably find yourself in a higher tax bracket which means the more expensive route is usually with traditional contributions.

#4 – Invest, Invest, Invest – When you’re younger, you don’t want money just sitting anywhere doing nothing. Although it may sound like a risk at first, you should work with your advisor and consider a mixed portfolio of stocks or mutual funds, because you should be investing for years to come and the market is cyclical. Since your money will be invested for maybe even decades, the short-term fluctuations will matter less than for older investors and for traders who rely on making short-term profit.

Firstly, this will allow you to get a much higher rate of return when compared to bonds and other investment types. Secondly, you have more time to recover from a poor market when you choose a balanced investment approach. If you do choose this option, don’t panic if there’s a sudden downturn in the market. If you want to see the best results, you shouldn’t be worrying about the next few weeks or months but instead concentrating on the long-term game.

Have Some Saved Already?

Next up, we have some tips for those who have already been saving for a few years. Perhaps you started saving at 25 and haven’t stopped in the 30 years since? If so, this is great news but now isn’t a time to rest on your laurels and fall into the traps of many before you.

#5 – Get Started Now – If you chose not to invest when you were younger thinking you would contribute when your earnings increased, there’s no point dwelling on the decision because you can’t go back and change anything. Sadly, you probably realized other things in life make this even harder such as having children, sending them off to college, helping parents, and more. However, it’s never too late to start so don’t get yourself into this mindset.

Even now, it might seem as though your budget is too tight for retirement contributions so start by sitting down and assessing every single outgoing from your bank account. From here, weigh them in terms of importance and see whether there’s anything you could drop. Remember, nobody is ever going to help you after leaving the workplace; help can be attained in putting your children through college and in other areas so keep this in mind.

#6 – Ask Questions – As you get older, you shouldn’t just assume everything is going well, and you’re on for a comfortable retirement. Instead, you need to be asking questions all the time while reassessing your position. For example, are my expenses going to change over the next year? Can I prevent withdrawing from my TSP immediately after retirement? Is my desired lifestyle during retirement going to be supported? Can I retire fully or will I need to hold down some sort of part-time role? Has everything been budgeted correctly?

By staying on top of these questions, you won’t be left with any nasty surprises when it comes to retirement itself. Unfortunately, we’ve seen plenty of people reach retirement only to find they hadn’t been saving enough or that they didn’t factor in their increased expenses on medicine or any other factor.

#7 – Review Often – Continuing from the previous tip, we also advise you to check in on your investments every so often. Once you reach the age where retirement is upon you, you can start to pull out of your investments while the market is strong. In the last five years, you haven’t got the knowledge that the market will pick up again after a downfall so it could be worth contacting a finance professional; they can help you pull all investments in the right way.

If your salary has increased since you began, you can also look into increasing contributions for the last few years while you still have the chance to access the government’s matching contributions. Once again, there are some really useful tools on the TSP section of the government website where you can calculate how much you can contribute and have matched before the tax-deferred feature no longer applies.

Summary

As long as you pay attention to these seven tips, you can enjoy the retirement you deserve with no nasty surprises. If you have any questions or want to utilize the government tools, simply head over to their website now!

Contact David Chan:

Phone: (510)440-7110

Email: [email protected]

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