Workers with the federal government are relatively well off, but many may be worried about their economic situation as they are about the ongoing coronavirus pandemic. The current market crisis has impacted virtually everyone, so in this article, we take suggestions from experts who have helped federal employees who expected to take retirement this year stabilize their financial status.
The ongoing market crisis takes us back to the stock market crashes of 1987 and 2008, making us believe that things go up and down on a historical timeline. In 1987, a family visited the Santa Caterina Monastery at Mount Sinai. That place has a fantastic vibe. At that time, they were enjoying their time and had no clue of the news. A monk told them about the stock market. He kept updates of the secular world. He was a former New Yorker who checked the Yankees’ scores, and he was well-aware of the crash.
To get more practical financial advice on the ongoing investment situation, we turn to Anthony Bucci, the founder of Mission Point Planning and Retirement of Troy, Michigan. He runs a company that specializes in the steps to retirement. He has rigorously worked on the complexities of the Thrift Savings Plan.
For unprecedented times like these, Buccia advises clients to avoid taking “Sequence of Returns Risk.” According to Investopedia, A Sequence risk is a danger that says the time of your retirement account withdrawal will harm the overall return rate available to the investor
Investopedia further added that Sequence risk for most is a matter of luck. If you are retiring when the stock market is a bull market, your account will grow large enough to bear an unexpected downturn, but if you are retiring in a bear market, you may never be able to recover your losses.
Bucci said that when you are selling your shares when the market is low, you are reducing the base share that may benefit from the upturns. It is just like the reverse of the buying process when you buy a stock on a dollar-cost averaging basis. If you buy, keep your base share up, Bucci advised.
For many employees who are taking retirement or have already retired, the primary question is all about their required minimum distribution (RMD) that they will take every year. The stimulus checks billed by the House today may help people in these hours of crisis, and they won’t touch RMDs at all this year.
The revised TSP withdrawal rules came into effect in September. They are much more flexible when you take the single (or portions thereof) lifetime partial withdrawal and take portions of your RMD each year. Bucci said the bad news for retirement withdrawals in downturns, or as we say, a period of stock market volatility is that they do not allow you to take and choose the type of investment within your TSP account that the money comes from.
As an example, if half of your money is in the aggressive C Fund, and the remaining half is in the sedate G Fund, whatever portion of your money you withdraw, the portion should equally come from both sources. Taking money from the C fund puts you in a series of returns risk that forces you to sell off the weak shares. In case you had 100 shares when the stock market was at the peak, you’ll end up keeping 100 when the market returns.
He further added that over a period of time, this strategy could play a major role or eroding factor in analyzing how long your money will last.
Bucci explained your options in detail and said there are a few but limited things that you can still do. And there are some things that you must do once this financial crisis is over.
Bucci said the new TSP rules allow participants to stop, start, and change or transfer money on a monthly basis. If your personal balance sheet isn’t allowing you to continue, and you need to take a month or two off, then you can do that without any hassle.
Perhaps you can reduce your expenses and wait for the crisis to pass, hoping that you can hold your funds’ withdrawals until the C, S, and I Funds take an upturn. For some workers, this should not be tough, though you may not be able to take a European vacation or a fancy cruise or go out with your family for dinner. Costco has started senior mornings, Tuesdays and Thursdays, where you can enjoy fresh air following social-distancing and get some Charmin.
Of course, when you do start withdrawing, you’ll need to plan to make up for the losses because of the minor tax penalties for withdrawing too little in the running year.
Bucci asked, do you like tinkering? If yes, you could get a withdrawal from a mix of C and G funds but put some of the (after taxes) money back into the C, the next day only. But when the market is going through extreme ups and downs, that strategy won’t work.
Bucci advised everyone that in the long run, when the stock market comes to some stability, you can reassess your assets and find ‘What really should be mixed up?’ as compared to the savings you need.
He further added that everyone should avoid chucking in the towel and selling everything at low and save what you have. It is better to mix up your funds and make the right decision to keep the right element of your account in aggressive funds as compared to your age and retirement eligibility.
Your advisor should be able to help you mix your funds so that you can grow financially despite ongoing inflation that the G Fund may not be able to keep up with. But that will be discussed in another story.