UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev | Next
Author: kaudrey Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 83  
Subject: Re: New Lifestyle funds Date: 7/25/2006 11:05 AM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 0
It will take 23 years for you to pay out the $59K in taxes that you are saving in the Roth (even assuming the TSP continues to earn 8% per year).

----

That wasn't worded quite right. But I'm sure you knew what I meant. With the Roth, you are starting out with less money, but no taxes. With the TSP, you have to pay taxes, but the reduction in your net TSP dollars will take a long time for the advantage of the Roth to show up.

Does that make sense? Clear as mud...

Anyway, on to the allocation. This is a personal thing as to how much risk you are willing to tolerate, but here's my two cents.

Just so you know a little about me so you can see where I am coming from. I am 37, been with the feds for 15 years, and plan to retire early at 52 with 30 years in.

I have about 85% of my portfolio in mutual funds and stocks.

The reasoning is: I have a long time horizon (and yours in even longer); I have a high risk tolerance (I see dips in the market as buying opportunities - how about you?), and I am a buy and hold investor. I DCA and don't try to time the market.

But, the biggest reason for federal employees (again, IMO) to be heavily invested in stocks is our PENSION. A pension is like a bond or an annuity. You can figure out an approximate "worth" of a pension by using the "safe withdrawal rate" idea:

The SWR is generally considered to be 4% of your portfolio each year. So, if you have a $1M portfolio, you can withdraw $40K a year (and adjust upward for inflation). In other words, $40K a year is "worth" 25 times that, or $1M.

If your pension will be, say, $20K a year, then it's "worth" $500K. This $500K is pretty much like having a $500K bond or annuity that is earning 4%. If you "add" that $500K to your portfolio, and recalculate your allocations, you are now heavily invested in "bonds", instead of stocks.

Now, since nothing is absolutely guaranteed, I wouldn't count on the pension until you are fully vested, and I wouldn't count on the amount you think you'll get if you stay in until your MRA. Nonetheless, I know in my mind how much I would get if I left today, in 5 years (when I hit 20 years), and if I stay until I hit 30 years (since the rules are different at these points). And knowing these amounts, I am OK with my high stock allocation.

I hope this makes some kind of sense. When I talk to my DBF like this, he tells me his head is going to explode. :)

Karen


Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (14) | Ignore Thread Prev | Next

Announcements

Post of the Day:
Macro Economics

U.S. Stable, Europe Stalling
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement