How (Not) to Manage Your TSP During a Pandemic

Not surprisingly, given the recent performance of the stock market, there’s been a lot of activity lately in the Thrift Savings Plan. 

“We have had a spike in inter-fund transfers,” said Kim Weaver, the TSP’s director of external affairs, on the TV show Government Matters this week. “But that has been from 5% of our participants. Ninety-five percent of participants have done nothing. But what we would like to urge people is to consider what their plan was ... and stick with their plan." 

It is natural to be a little jittery right now with the volatility of the stock market due to the coronavirus pandemic, and to be concerned about retirement in general. Here’s an email I received earlier this week:

I am under the Federal Employees Retirement System and submitted my retirement paperwork back in December 2019. I’ve worked for 22 years in the federal government, and am retiring on March 31, 2020. I decided on that date long before all of this happened and I also applied for Social Security and will be receiving my Social Security starting in May 2020.

However, as you know, the third leg of our FERS retirement is our TSP, which I pulled out last September and placed in the trust of a very reliable financial adviser to manage for me. I also have some remaining funds in the TSP that have accrued since Sept 2019. I have been aggressively saving in my TSP since I started with the government and even contributed to the catch-up contribution. Now I am watching my life savings for my retirement decline a little more every day, and I don’t have the time to make it up, like I did the last time the market dropped drastically.

It is my understanding that all of my paperwork has been reviewed and approved; however, I still haven’t received the estimate of my annuity due to the software that our agency uses for computing our retirement being down. So I don’t even know how much I will be receiving monthly. I am in the middle of the checkout process, which now has to be completed electronically, rather than face to face. Hopefully, that goes as planned. I really think it’s too late for me to stop and delay my retirement at this point, so I’m at a loss here as to what to do. It looks like I am going to have to get a part-time job after retirement—which I hadn’t planned to do—if I can find one.

My response: If you don't feel financially ready to retire, it’s not too late to rescind your retirement application. This is a voluntary action, and you haven’t left yet. According to this guidance is from the Office of Personnel Management, “an agency must permit an employee to withdraw an application before the effective date of separation” unless “it has a valid reason and explains that reason in writing to the employee.”

You can expect that retirement processing will move more slowly during this period of national and world crisis. If this worries you or if you don't have a three to six month emergency fund in place, you should consider delaying your retirement until you feel more certain and life returns to normal.

You mentioned that you withdrew most of your money from the TSP and put it in the “trust of a very reliable financial adviser.” When a financial professional asks you to move your money from the TSP prior to your retirement (or after your retirement), they should provide a very clear reason for doing so. 

I hope your financial adviser recommended that your investments be rebalanced to correspond with your plans to retire this year. That doesn’t mean you’d be immune to volatility in the markets, but you should have some of your savings allocated to a more stable investment you can withdraw from for income in retirement without being exposed to changes in the market. 

It’s common for financial advisers to reach out to their clients and assure them during times of uncertainty like this. I hope yours has done so. 

Here are a few more tips and resources for those who are planning to retire this year, or who have recently retired. :

• In an article titled 8 Ways Coronavirus Will Drastically Alter Boomer Retirements, Janet Novack of Forbes writes that in times like these, a “bucket strategy” of disbursing retirement savings can work well. For example, someone nearing or in retirement could keep three to five years’ worth of money for necessary expenses (over and above what Social Security and any pensions provide) in cash or cash equivalents—say, laddered CDs, or Treasury bonds. 
• According to Josh Scandlen of Heritage Wealth Planning, the bucket strategy enables you to separate your immediate income needs into their own stand-alone account. That way, you don’t need to worry about selling a portion of your holdings when the market is getting crushed to put food on the table. 
• Mark Keen addressed many TSP issues for employees as well as retirees in a Feb. 27 NARFE Federal Benefits Institute webinar, The archived version is now available for free to NARFE members. 
• Micah Shilanski notes that TSP participants who have a long-term plan for their investments are not as worried about the current market volatility. He says employees in it for the long haul should look at this as a buying opportunity, since stock prices are low. He and I will be recording two short videos on March 27 and 31 that will address retirement planning during this current crisis situation. 

Finally, this reminder from the TSP is relevant during this time of uncertainty: By the time you react to the situation, the market may be moving in the opposite direction. If you miss one or two brief upswings in a decade, your investments may underperform the average market return for the entire period. So stick to your plan.