Military Saves 4th Quarter Theme: Retirement
Take the Pledge, Become a Military Saver...Military Saves is a social marketing program to persuade, motivate, and encourage military families to save money every month. The campaign is a growing network of organizations and individuals committed to helping and supporting military members and their loved ones build personal savings arsenals to provide for their immediate and long term financial needs. Check out our Quarterly Retirement Resources at
www.militarysaves.org. Send us your savings tips and your success stories! Email us at info@militarysaves.org,
Our membership is expanding--join 400+ members in our Military Saves social networking community...Find us on Facebook & Twitter!
Reasons Why You Should Save for Retirement
Courtesy of www.choosetosave.org
- Because you don't want to work forever, and you will ultimately be responsible for paying for your retirement: If you want to stop working one day, you are going to have to think about how much income you will need to live. Social Security provides a basic "floor" of income that you will have to build on for a comfortable retirement. Pensions have provided about 1/3 of retirees with some added income each month. Look for a job that comes with a pension. Others have a savings plan at work. Use it.
- Because you want to have enough money saved for a comfortable retirement:
Many people assume that expenses will go down in retirement, but frequently that is not the case. Inflation means you will need more, not less. Higher property taxes could cause your housing costs to be more. You might spend less on clothing, except you'll have more time to do it! Many other expenses may arise: increased medical costs and health insurance premium costs; financial help for children/grandchildren, or even elderly parents; more free time that could result in more money being spent on traveling and entertainment.
- Because you don't know how long you will be able to work: The 2007 Retirement Confidence Survey found that 37 percent of current retirees retired earlier than planned due to an unexpected event such as health problems or changes in their company such as downsizing. The earlier you start preparing for unexpected events, the better.
- Because you don't know how long you will live: People today are living longer. Retiring at age 65 today? A man would have a 50% chance of still being alive at 81, a woman 85. A 25% chance of living to nearly 90. A 10% chance of getting close to 100. How big a chance do you want to take of living longer than you savings lasts?
Diversifying Your TSP Account: Let the Lifecycle (L) Funds Do It for You
By Miriam Darden Settles, CFP®, Communications, Federal Retirement Thrift Investment Board
The August newsletter article addressed how to determine which of the TSP individual funds (G, F, C, S, and I) are right for you. But if you feel that you don't have the time, interest, or experience to determine how best to use those funds in your TSP account, no need to worry. The TSP Lifecycle Funds (L Funds) were designed with you in mind.
Recall that diversification of your retirement account is important because when you spread your money around, you can reduce the amount of risk in your TSP account. You should also consider your time horizon, or how many years remain until you want to start withdrawing your money. You certainly wouldn't want the majority of your retirement assets in riskier investments at precisely the time you need to access those funds.
How Do the L Funds Work?
The TSP currently offers five L Funds: L Income, L 2010, L 2020, L 2030, and L 2040. Each is a professionally determined mix of the TSP's individual funds that is targeted to a specific retirement year. The funds take into account when you'll need your money and diversifies your account accordingly - shifting your allocation among the individual funds as time goes by so that it becomes more conservative as you approach your target date. So if you are invested in one of the L Funds, you will notice that as you get closer to your target date, your allocation to the riskier TSP funds (C, S, and I) will get smaller as your allocation to
the more conservative TSP funds (G and F) gets larger.
The assumption underlying the L Funds is that participants with longer investment time horizons are willing and able to tolerate more risk while seeking higher returns. The overall objective of the L Funds is to strike an optimal balance between the risk and reward associated with each fund.
What Happens When an L Fund Reaches Its Target Date?
When an L Fund has reached its target date, it will be rolled into the L Income Fund.
The L Income Fund:
- Is the most conservative of the L Funds.
- Focuses on safeguarding your account while providing a small exposure to riskier assets (C, S, and I Funds) in order to reduce inflation's effect on your buying power.
- Is designed to produce current income for you as you start withdrawing from your account.
- Has a set asset allocation.
The progression from the target date L Fund to the L Income Fund is automatic - you don't have to do anything.
New L Funds will be added for distant target dates as they are needed. For example, the L 2050 Fund will be introduced in January of 2011.
What Are the Risks of Investing in the L Funds?
When you invest in the L Funds:
- You are subject to the investment risks associated with the G, F, C, S, and I Funds.
- Your account is not guaranteed against loss. The L Funds can have periods of gain and loss, just as the individual funds do.
What Are the Rewards of Investing in the L Funds?
The L Funds simplify fund selection for you. You choose the fund that is closest to your target date (or if your target date falls between the target dates that are offered, you can split your account between the two closest funds).
When you invest in the L Funds:
- You can be sure that your TSP account is broadly diversified.
- You don't have to remember to adjust your investment mix as your target date approaches - it's done for you.
- You don't have to monitor your account to be sure you are not straying from your investment strategy - the L Funds keep you on course.
How Can I Use the L Funds in My TSP Account?
Use the L Funds if you are looking for a simple, low maintenance way of investing money in your TSP account. The L Funds make the investing process easy for you because you do not have to figure out how to diversify your account or how and when to rebalance.
The L Funds are designed so that 100% of your TSP account can be invested in the single L Fund that most closely matches your time horizon (or in the two L Funds closest to your time horizon).
How Do I Invest in the L Funds?
Determine the date when, after leaving Federal service, you will need the money that is in your TSP account. Then identify the L Fund that matches your target date:
Choose: If your target date is:
L 2040 2035 or later
L 2030 2025 through 2034
L 2020 2015 through 2024
L 2010 2010 through 2014
L Income If you are already withdrawing your account in monthly payments or planning to withdraw your money this year.
To invest in the L Fund of your choice, you can go to the Account Access section of the TSP website, www.tsp.gov or you can call the ThriftLine at 1-877-968-3778. Outside the U.S. and Canada, call 404-233-4400. You can also ask your service for an Investment Allocation form (TSP-U-50) to complete.
Next month: Planning to Retire from the Military Soon? Don't Forget the TSP.
Military Saves was made possible in part through the generous support of the FINRA Investor Education Foundation. Please visit www.SaveAndInvest.org.
Military Saves is also supported by Wells Fargo Bank, Chase Bank, and Dave Ramsey's Financial Peace University Military Edition. Together, we can build wealth, not debt. | 
