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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. :)


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