Federal Diary Live
With Stephen Barr
Washington Post Staff Writer
Wednesday, April 23, 2003; Noon ET
This is the season when civil service, military and postal employees adjust their retirement contributions. With the war with Iraq near its end, what should employees do with their accounts in the Thrift Savings Plan? Just as importantly, the government this summer will offer flexible spending accounts to employees. What do you need to know to take full advantage of this tax perk?
Paul A. Yurachek, a certified financial planner, took questions and comments on Federal Diary Live, which is hosted by Stephen Barr, the Post's Federal Diary columnist.
Yurachek is a cofounder of Dennis M. Gurtz and Associates, a division of American Express Financial Advisors Inc., in Bethesda, Md. Yurachek began his professional career as an Internal Revenue Service agent. He later worked for an accounting firm before helping form Gurtz and Associates in late 1982.
Yurachek received his bachelor's degree from the College of William and Mary and a law degree from George Mason University. He has been admitted to practice before several courts, including the U.S. Tax Court and the Supreme Court. He speaks on financial and tax planning to numerous federal agencies and professional organizations, including the FBI, the Federal Executive Institute and the American Society of Association Executives. In 1991, he served as president of the National Capital Chapter of the International Association for Financial Planning.
The transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Stephen Barr: Many thanks to all of you taking time to participate in this discussion, especially Paul Yurachek of American Express Financial Advisers in Bethesda. Paul, to get to this discussion rolling, let me ask you for an overview on the stock market. The market was down for about three years; stocks are volatile now; where do you see things going?
Again, thanks for making time in your busy schedule to provide some insights into the Thrift Savings Plan and its funds.
Paul A. Yurachek: Now that the war with IRAQ is winding down, the focus turns back to the economy. While stocks do not seem to be overpriced, they also are not underpriced. For prices, the first number in P/E ratio to go up, we need earnings to go up. Once we see a sustained period of increasing earnings then we should be in good shape for seeing things start to rise again.
Washington, D.C.: Hello Paul, I'm a second-year Presidential Management Intern with the Forest Service and my question is about good strategies to use with my TSP investments. I am 29 and just beginning what I hope will be a career with the Federal government. I am putting the maximum amount of my paycheck (13 percent) all into the C fund. I started on 9/10/2001 and it has not been doing very well. Would you recommend disbursing the 13 percent amongst a number of the other funds or is an "all-in-one" C fund investment appropriate for someone thinking long term? Which other funds do you recommend and what percentage amounts do you recommend?
Paul A. Yurachek: The first thing you are doing well is minimizing your deferral. The fact that the C Fund has not done well recently is virtually irrelevant to you since you won't be touching it for 30 years. The tougher question is whether it should all be in C. That depends on how comfortable you are. Over the long term, it should do quite well. As to allocation it depends on what other assets you have and can't be answered here. My next favorite fund, for someone your age, if you wanted to go conservative would be to put 20-25 percent in the G Fund.
Washington, D.C.: With the potential rise of small cap stocks and the current position of the C fund my strategy is to keep my 8 percent C fund and 20 percent G split but change my new contributions to 10 percent each in the I and S funds. Is this a good plan?
Paul A. Yurachek: That seems like a good strategy. Don't forget however that you are getting some international exposure through the large companies in the C Fund.
Alexandria, Va.: I have almost 10 years Federal service. I just upped my percentage in the C Fund to 13 percent. Should I continue to ride the ups and downs of the market, or should I split my contribution with the government securities fund?
Paul A. Yurachek: See my first answer. A lot depends on your age and your goals. resubmit your question with that data and I'll try to answer it
Washington, D.C.: When do you predict we'll see the new era of "sustained earnings"? Thanks for taking questions.
Paul A. Yurachek: I don't predict. We have had sustained earnings all along. The real question is when will there be a period of sustained increasing earnings? That won't happen until companies and people feel better about the economy.
Chicago, Ill.: If you're within five years of retirement and making the maximum contribution to the Thrift Savings Plan, what should the allocation be?
Paul A. Yurachek: That's a tough one because the real question is not when you will retire but when will you begin spending the money. If that's within five years, then perhaps a 60-40, C/G allocation could work. If your not spending it for more than five years then you may (emphasis added) want to be more aggressive.
Washington, D.C.: If we've not been in the F Fund before, is this the time to start buying bonds? Or did I miss the window? Thanks, Paul.
Paul A. Yurachek: You missed the window. Interest rates are more likely to rise than fall and thus bonds could get hurt. The G Fund is an excellent alternative since it only goes up as rates go up and does not ever go down in value.
Salisbury, Md.: I am a postal worker with 15 years left I contribute 5 percent to my thrift saving plan I have about 100,000 there now I have 50 percent going to the C fund 25 percent going to the S fund and 25 percent going to the I fund. Is this good for me or should I do something different. What would you do if it was you?
Paul A. Yurachek: If it were me, I would have at least 25-40 percent in the G Fund and about 10 percent max to each of S and I. Thus if you wanted to go 75 percent to stocks, it would be 55C, 10 S, 10 I and the remainder in G.
Washington, D.C.: Why the lack of enthusiasm from you re: I and S Funds?
Paul A. Yurachek: My reasoning is quite simple. Historically, the S& P beats managed funds about 70 percent of he time. The S and I indices beat managed funds about 20-25 percent of the time. Thus, if you have a choice (emphasis here), I would use managed funds for my small cap and international funds. Some people don't have that choice as the TSP represents all of their investment money. In that case, I would have some in S and I.
Washington, D.C.: About the F Fund and missing the window, should I move out of the bond fund or just leave my small amount there to say I'm diversified?
Paul A. Yurachek: I'd move it to G
Alexandria, Va.: I'm 48 years old and am a retired E-8 from the Air Force. Like I said, I currently have 13 percent going to the C fund? Should I continue until I'm closer to retirement, or should I split it with the G fund now? Any help is appreciated.
Paul A. Yurachek: I would have at least 30-40 percent in G. The reasoning -- most pension plans have an allocation of about 60 percent stocks and 40 percent bonds and cash. Since TSP is a pension plan, that's how I would recommend investing it.
Chantilly, Va.: At the other end of the process, what are financial advisers recommending to retirees as a percentage of current take home they should try and achieve for retirement in the situation that they have become accustomed to? And, is it a good idea to take a TSP distribution monthly while leaving the balance in a mix of C, F & G funds to continue earning $ vs. an annuity?
Paul A. Yurachek: If you could get about 80 percent of your gross, you would be in good shape. I do like taking a monthly distribution while leaving your money invested vs taking an annuity. That's a very good choice.
Rockville, Md.: Flexible spending accounts--what are they?
Paul A. Yurachek: FSA's are coming in about a month. They allow you to defer some dollars to an account that is "use or lose". The new rule will be 3k for medical and 5k for child care. Thus you can pay for these on a pretax basis, reducing the out of pocket cost by about a third due to tax savings. The only issue is that if any is left in the account at year's end, you lose it. So be conservative in the amount you defer.
Leesburg, Va.: What are the key considerations for TSP upon retirement? For example, would it be prudent to consider taking all of the funds in TSP and moving into a tax deferred account assuming we dont need the money at retirement?
Paul A. Yurachek: Many people transfer their TSP accounts to IRA's. the key question is" Are you an investor". If you like to do this or have a good advisor, you may want to transfer the funds to an IRA. On the other hand if you are just seeking simplicity, the TSP offers several good options at a very low cost/.
Washington, D.C.: My wife and I are retired federal employees--70 and 65. We don't need funds from TSP except mandatory withdrawals. Present split is 50 percent C, 30 percent G, and 20 percent S. Should I invest in I Fund? Is anything wrong with keeping only 30 percent G?
Paul A. Yurachek: I would not add I to the mix. I would probably increase G to 40 percent but that would depend on what other investments you have.
Washington, D.C.: Is it your advice to move the portion of one's portfolio from the F fund to G fund, regardless of when the money was put in F? Or are you just referring to not putting new contributions into F?
Paul A. Yurachek: I would move all from F now.
District of Columbia: Please answer!! I'm a total ignoramus about investing. I am over 50 I only have 3 years of government employment. (I spent the rest of my time in private industry.) I would LOVE to retire in 12 years. What should my TSP strategy be?
Paul A. Yurachek: This is a tough one. It is truly dependent on what other assets, pensions you might have. TSP is an integral part of your pension so you have to tread the fine line between being too risky and too conservative. I would have at least 60 percent in stocks and perhaps a little more.
LaPlata, Md.: I'm 30 years old, with a ways to go before retirement. Does the 60 percent stocks 40 percent bonds ratio apply to me or should I be more aggressive with stocks?
Paul A. Yurachek: I would have at least 70 percent in stocks at your age.
Montgomery Village, Md.: Mr. Yurachek, I'm a separated 15-year federal worker who hopes to return to the government. My entire TSP is in the C Fund. Should I allocate otherwise? Thanks. This online discussion is invaluable!
Paul A. Yurachek: Give me more data. How old? How many years to retirement? Do you have other investments?
Columbus, Ohio: Will retirees be able to use flexible spending accounts?
Paul A. Yurachek: I believe the answer is no at the outset, but I've got someone checking
Fort Washington, Md.: I retired from the U.S. Postal Service May 31, 2002. I had money in TSP, and since I could no longer contribute, I moved it out of C Fund and put it in G & F Funds. I am leaving it there because I don't know what to do with it right now. Is that a good decision, to just leave it there and let it grow? Do you have any suggestions to what I can do so it would not affect me tax wise?
Paul A. Yurachek: If you leave it all in F and G, it won't grow much. I would put it 60-40 C and G or if you really want to get conservative 50/50.
Annapolis, Md.: I am 52 with a retirement goal of age 59 and 35 years of service under the civil service retirement system. Could you explain a bit further what you meant by a "more aggressive" TSP investment plan?
Paul A. Yurachek: I meant more than 60 percent in stocks. If you're comfortable you could go say to 70 percent or 2/3, 1/3
Alexandria, Va.: As you start to get near the time when you need to use the TSP money, at what point and how do you go about protecting the TSP money, (i.e., moving the money from C fund to G or F fund) to ensure that it is there when you need it -- say 5 years out, 2 years out, and then one year out?
Paul A. Yurachek: The closer you are to spending it, the more you should have in the G fund as there is not enough time to recover should something bad take place in the markets. We start moving things around about five years before it is to be spent.
Ashburn, Va.: Is it fair to say that the proposed Advance Child Tax Credit is dead due to the lower tax cut?
Paul A. Yurachek: I am not knowledgeable about this
Alexandria, Va.: I'm 53, CSRS, contributing 7 percent to TSP, all in the C Fund. It sounds like you think I should diversify some of that (40 percent?) to the G Fund. How should I think about the fact that that would mean "selling my shares at a loss" or "locking in my losses"?
Paul A. Yurachek: Don't worry about the past. That's history. You need to see what you have now and how you should be allocated going forward. Don't forget also that you may not have losses. The C fund has earned over 9 percent per year for the last ten years. What you are really saying is that you have less than you had at the high water mark. That was a fictional value because you don't make or lose money until you sell.
Washington, D.C.: Any possibility of getting additional investment choices in the TSP anytime soon? Don't you think our choices are very limited in this day and age?
Paul A. Yurachek: I think the choices are fine and I know of know plans to add more choices.
In the Midwest: I am a pretty new fed, and during the last open season, believed an e-mail I received about the maximum amount I could contribute for this year to maximize the matching amount. Now that I understand how this all works a little better, I redid the calculations and determined that I am underwithholding. This matters now because I am also over 50 and was planning to take advantage of the catch-up provisions. I am a high-earnings type, too, so the simple percentage election was not an option. How do I fix this now?
Paul A. Yurachek: This takes long answer and my hand is tired. The simple answer is- See how much you have put in so far this year. Figure out how much you need to add to reach the 12k max. Divide that by the number of pay periods you have to put it in. Then restate your contribution as a $ amount rather than a percentage. When the catchup is available- do the same exercise.
Gaithersburg, Md.: I retired 3 years ago and will need the TSP funds in approximately 3-5 years. What would be your recommended allocation at this time? Currently, I am 80 percent G, 5 percent C, and 15 percent F. Do I have to take my funds out at age 70-1/2 or roll over to another plan?
Paul A. Yurachek: I would have at least 50 percent in C and the remainder in G. At 70 1/2, you have to either buy an annuity or roll them over. I believe you are not allowed to keep the funds there past that age but I may be wrong. Please check at TSP.gov.
Washington, D.C.: I hope to retire five to seven years from now. I am in the CSRS. As I watched my TSP funds drop steadily, I took everything out of the C fund and distributed in F & G funds. Is this a worthwhile plan at this point? Thanks!
Paul A. Yurachek: See my last answer.
Washington, D.C.: I'm a 32 year old GS-14 who has been contributing to TSP for about 2 years (at the maximum 13 percent) -- current TSP balance approximately $22K. I also am fortunate enough to have about $200K in other bank accounts and investments. Here's my question: It's my understanding that the G fund is superior to most widely-available (non-TSP) managed low-risk funds in terms of risk/reward ratio. In light of this, does it make sense for me to have 100 percent of my TSP money in the G fund and devote most of my non-TSP investments to stocks? Or should I diversify within TSP, as well as across the whole portfolio? Thanks much.
Paul A. Yurachek: You have understood me well. The G fund is truly unique, so if you have a healthy allotment ofstocks outside of the TSP there would be nothing wrong with having the whole TSP in the G fund
Washington, D.C.: When the TSP first started, we were advised at an in-house assembly to invest 30 percent in C, 30 percent in G, and 30 percent in F. In retrospect that was wrong. If C is based on the S & P, and G is government bonds, what are F bonds, and why did they perform so poorly over the past 15 years?
Paul A. Yurachek: That was bad advice- It only adds up to 90 percent. F bonds are high quality bonds, both corporate and government -- long term. They have not performed poorly however. they have done quite well although I don't have the numbers right before me. they have beaten G but are considerably more volatile.
Fairfax, Va.: My wife currently has 100 percent of the TSP in the G fund and wants to change the allocation to 70 percent G and 30 percent F -- she is a fers employee and expects to retire in two years. What do you suggest regarding the F fund? Thank you.
Paul A. Yurachek: That would be buying high- You want to buy low. Do not switch G to F now.
Severn, Md.: I am 56 (30 yrs in government, GS-8/10) and plan on working 4 or 5 more years. I do plan on taking advantage of the catch up allowed for the over 50 crowd. Where would you suggest I put the $2,000 extra? I have 8 percent deposited in the C Fund every 2 weeks and have been in the TSP since July 1995. I am a CSRS employee. Thank you for your advice.
Paul A. Yurachek: At your point in life I would put the entire catchup in G Fund.
Omaha, Neb.: Mr. Yurachek, I am 26 and have been with the federal government for just over a year. I currently make a 12 percent contribution to the G Fund. I was considering moving at least a portion of this contribution to the F Fund. How would you suggest a new federal worker contribute to the TSP in the next year to maximize long term benefits?
Paul A. Yurachek: At your age, you are being far too conservative- You should have at least 70 percent in stocks and the remainder in G. Unless you have a lot of other money you didn't tell me about, you should have stocks. You can't touch it for 33 years.
Bethesda, Md: The S fund is closer to the Wilshire 4500 than a true small cap fund, so I don't understand how it doesn't compare to the 70 percent of funds that don't beat the S&P. If it was truly a small cap, I might agree. Wouldn't a combination of C and S funds actually equal the Wilshire 5000?
Paul A. Yurachek: Yes- this would approximate the Wilshire 5000. I don't understand your first statement. Please clarify.
Falls Church, Va.: The TSP's stock choices should be improved. The C and S Funds are both growth-oriented, and have suffered significant losses during the bear market. Value funds, on the other hand, have held up better. A domestic, value-oriented index fund would be desirable. Conversely, the I Fund is limited to the mature foreign markets of the EAFE Index. With emerging markets holding more long-term potential, an emerging markets index fund would attract more long-term investment than the I Fund. Your view?
Paul A. Yurachek: I disagree. The S&P contains both value and growth stocks. Value funds have done well recently but over the long term will do about the same as growth funds. Thus, over the long term the question is are they good companies. Don't forger, value stocks are only value stocks for a while and then they get fully priced. Emerging markets funds are much riskier than mature markets and have historically been poor performers.
Montgomery Village, Md.: Original Question: Mr. Yurachek, I'm a separated 15-year federal worker who hopes to return to the government. My entire TSP is in the C Fund. Should I allocate otherwise?
Additional Data: I am 46 years old. I am currently on federal worker's comp and being "rehabbed" by the Dept of Labor. I don't know if my years on worker's comp count towards my retirement years' calculation or not. I plan to work until I have at least 30 years in the fed government. I don't have any other investments at this time.
Paul A. Yurachek: Your worker's comp years do not count towards retirement. You should have about 60-65 percent in C and the remainder in G. You could have a little in S and I if these are the only investments you have.
Alexandria, Va.: I have heard that it is best to be invested across the market at all times -- stocks, bonds, and cash -- in the percentages you chose and then as the markets go up and down to rebalance the accounts which drives you to sell high and buy low. Also, you would be invested somewhere where you would making a gain. How does this fit with your earlier answer to a question by recommending that the government employee move all money out of the F fund.
Paul A. Yurachek: You are correct but I view a move from F to G as a move within bonds. The basic categories are stocks, bonds and cash and there are many subsets of each. Long bonds are at risk as to principal in our current interest rate environment.
Washington, D.C.: Similar to the first person you responded to, I have worked for the federal government for three years and have been contributing near the maximum since first began contributions. Since the C fund has been performing so poorly, I moved all my existing and future contributions to the G fund. Once the C fund started improving, I had planned on moving my contributions back to the C. Your recommendation to the first person was to put 20-25 percent in the G fund and I assume the remaining 80 odd percent was to remain in the C or some other fund. Since the C has been in the negative, are there any long term benefits to keeping 80 percent in the C instead of temporarily moving all funds out of the C? I was thinking a year from now I would reevaluate whether to move funds back into C.
Paul A. Yurachek: You are on the right track but missing one big fact. The markets move in spurts and waiting for the stocks to start rising is waiting too long. You want to invest when things are cheap. The long term benefit to remaining in C is that you will be there when the ship sets sail.
Washington, D.C.: Paul, as you know, many federal employees are eligible for retirement now but are holding off, in part because of the economy and the stock market and in part because we all love our jobs. Put yourself in our shoes: what factors do you look for to "time a retirement" so that all your financial stars align? Thanks for coming on Stephen's program!
Paul A. Yurachek: You need to know that you are ready. Then whatever you do in your afterlife is gravy. The job market is incredibly bad right now unless you have the right connections and security clearances. You should be thankful that you have such a secure job with such good benefits. I have several unemployed clients who would love to be in your shoes now.
Bethesda, Md.: You wrote: "My reasoning is quite simple. Historically, the S& P beats managed funds about 70 percent of he time. The S and I indices beat managed funds about 20-25 percent of the time. Thus, if you have a choice (emphasis here), I would use managed funds for my small cap and international funds."
My point is that the S fund is NOT a small cap fund as usually defined by Morningstar and others. Instead, it's the Wilshire 4500. So, how can you compare to small cap mutual funds when it's not the case? I think the S fund has the wrong name.
Paul A. Yurachek: I agree- it is a mid-cap or broad market index fund but I would still use a managed fund for those categories.
Silver Spring, Md.: I have a general question. What is the best way (most yield) to invest $50,000 for 15-20 years? I am in my late thirties. Thanks in advance.
Paul A. Yurachek: Get a good advisor.
Steve tells me time is up. Thanks for all your questions- I hope you have learned something.
Stephen Barr: Paul, thanks so much for joining us today. A great session with lots of pointers for our TSP investors. My thanks to all of you who take time to read this transcript. We'll be back at noon next Wednesday.
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