TSP, Tax Reform, Plan B

Republicans claim that regardless of which variation of the tax reform becomes law, everything in our country will change for the better. They claim that there will be a surge in the economy and that there could be a severe cutback in overseas jobs, and that America can be great again.

Democrats claim that any version of the GOP tax reform plan will decimate our country. They believe that this plan will only be good for the rich while it buries the middle-class in taxes, putting us further in debt.

Since the 2016 election, there has been an influx in job hunters, unemployment rates have been lower than in the past 17 years and the U.S. stock market is up 25%. However, there have also been more electronic substitutes for human workers, like the self check out aisle in your local grocery store. Though there’s been an increase in available jobs, that’s not always good for job seekers. In addition to increases in all primary funds of the Thrift Savings Plans over the past year, many of The Treasury’s funds have also had significant increases. The international stocks fund has increased 27.9%, the securities G fund has increased 2.33%, the small-cap S fund has increased 19.8%, the bond F fund has increased 3.49% and the big-cap C fund has increased 22.8%.

The Thrift Savings Plan will provide anywhere from 35%-50% of money that most of federal workers under the FERS retirement plan will spend in retirement. The TSP is necessary for FERS employees and a blessing for CSRS employees. This means that the cost of future purchases will continue increasing, although the shares you currently possess are worth more than usual. However, this won’t last forever. After a while, the shares you own can decrease in worth and be available for purchase by others.

Experts estimate the the market needs to be adjusted by 20-30%. This last occurred between 2007 and 2009, during what was known as The Great Recession, several hundred thousand retirees transferred their money from I, S and C funds into the G fund, which they believed was the safer option. However, this didn’t work out entirely as planned. Many of the retirees and feds who made the switch bought at high prices, sold at low ones, stayed out of stocks, but then missed the recovery period. They continued buying shares at cheap prices for many years.

The bottom line is, borrowing money to lower tax rates, rather than stopping other tax breaks to do so, can be detrimental. Robert J. Samelson of The Washington Post warns in his latest article that if we’re headed towards an economic boom, history has shown that the economy’s natural response is a large bust. Make sure that, no matter your strategy, you have a plan B.