Thread: Dave's Account Talk

In order not to clutter my returns page, I'll just note here that in 1997 I borrowed a little from my account. I paid it back over four years, so from 1997 to 2000 inclusive the percent change in account value will be contaminated by these pay-backs. For instance that 29% change in value for 1999 looks great, butpart of it is due to repayments.

For this reason the numbers for 2001-2-3-4 are more representative. They show a steady 17-18-19% increase, with my contributions remainingfairly steadyat 1/3 of the total.

The dollar-value of my contributions has changed over time, and of course my G-F-C-S-I fund allocations have changed too, but the percentages remain fairly steady, don't they. Interesting.

At home I have a graph showing the account over time. Using basic curve-fitting techniques I have derived equations for three different time periods, the early middle and recent domains. Theseshow the linearchange, althoughexpressed in raw dollars sonot includedhere.To "sanitize" them, I will have to re-scale ornormalize them.

I hit The Wall in 2010 which is my planned retirement year. I extrapolated my line of best fit to that time to arrive at an estimate of the value of the account, under the present return scenario. (This compares closely with the result I get at the TSP returns calculator.) Then I constructed a "high" scenario which would intercept 2010 at a higher value, and carried it back to the present. The slope of this new line represents the returns I must get in order to achieve that "high" result.

Given the returns of the last two years, if continued, I will cross over to the "High Line" within two more years (2007), and hence exceed the "High" result by 2010.This sort of calculation shows me I am on a very good track and I should be happy with my 18%.

Dave

The last two days have me trepidatious. This evening I parked it 100% in G and will wait and see for a week. I only lost a few thousand, still plenty of profit left to protect.

The market needs to settle down, or maybe just receive some good news. I don't see a great big upswing, so I won'tmissthe big opportunity. I just want to stop the bleeding for now.

Dave

In the last seven tradingdays,the 6th through the 14th, even though the market has been kind of erratic the funds have shown a net increase. This tells me that I should not try so hard! Getting cute and going all-G in hopes of avoiding a loss cost me a few $$.

Therefore I am going back to my intended distribution for the next six months or so: 40G 30C 30S -- 60% in the market. I'll never reach my goal if I stay away.

I will do thistomorrow but it will not be acted upon until Tuesday and will probably take effect Wednesday. Then I am going to pay very little attention to the day-to-day market!

I contribute 14% of my salary to the TSP at present. In April at the next -- and last -- Open Season I am going to boost that to 15%. Then I am going to wait a couple months to see how my personal economy is doing. If all is well, I am going to get into Catch-Up Contributions as I am over 50.

Counting the 15%, the5% match, and the catch-up, they alladd up to about25% of my base pay which isalso about 12% of my fund balance. (Right now my fund balance is equal to about 2 years base pay.)

My goal for the year is a 25% increase in the fund balance. I'm shooting high! That means I need a return of 13% on the total invested. The40G I intend to maintain will give about 2% (5% times 0.4 = 2%) That means the 60% in the market must do the heavy lifting.

After 12% contributions and 2% G-earnings, that leaves11% to be earned by the 60% of my fund balance which is in the market. To do this, the C and S funds will need to increase by 18% on the calandar year (18% times 0.6 = 11%).

18% is well within the range of annual increases shown by these two funds. It would be a good year for all of us if it came out that way! Half that would still be very nice.

Dave

Thanks Dave. I appreciate that you are explaining why you are doing what you are doing. It helps othersto understand the thought process of deciding onan allocation.

When I went to Employee Express today, I saw I was already at 15%, waddya know. I guess I changed that a while back but it only now kicked in. So I went ahead and implemented catch-up contributions, $150 per pay period which will add up to something just shy of the $4000 annual maximum allowed.

Then I went to TSP and restored my 40-30-30allocations. So I am openfor business tomorrow!

Dave

Dave a better ideal with the catchup money might be to open a roth account ?

I just belive I will be in a higher tax bracket when I retire,and would like that extra roth tax free money .... Ask a FPlaner in your local area for advice....You might want to invest some of the extra $$$$ in realestate...

JMHO

Skip

Thanks for reading, Skip. You must have a real bundle in the TSP if you think you will have more income after you retire than now!

My calculation goes something like this. I take the basic FERS annuity, years of service times estimated high three;add to it 5% of my projected TSP balance -- an amount which oughtto be about equal to the fund's earnings and which would therefore leave the principle intact; and then take a wag at what SS will be. (SS is only partly taxable, remember.) These add up to about 80% of my current base pay.

On this basis I should still be in the samemarginal bracketwhere I am at present. The assumption is that the tax code remains essentially unaltered, and who knows about that? Anything is possible! SoI am content to defer the taxes today -- take the sure thing -- and meanwhile work as hard as I can at increasing my fund balance which is my only real means of affecting that 80% figure.

I am currently invested in real estate here in the Keys, which is unlike any market I have ever heard of. My home tripled in value withinfive years of buying it. For every thousand I pay in I get two thousand back; I feel like I am making deposits in a saving account,not making mortgage payments! But I am reluctant to figure it as an asset in my retirement economy. In the end, I think an equity line of credit maybe the easiest way to get my hands on some of that dough, heh.

Dave

Hi Dave, Do you mind if I ask you what kind of real estate investment do you have. I just want to network with people that are doing the same thing that I am doing...

Pyriel

Hi Mr P. As I implied with "mortgage payments" etc, my investment is my home.

I have lived in KW just about six years. When I moved herethe max loan amount for which I was qualifiedenabled me to purchase a small town home in a 4-plex. Six years later my income is up about 50% but the max loan amount for which I would qualify today would cover only about 50% of the market price of my own home. Get it?

In other words I caught the wave at just the last possibletime. New guys in our office are priced out, so they must rent. It's a problem.

If you can get up the down, I would recommend investing in a second home here, a condo perhaps. Taxes are low but insurance is high. Rent it and it will practically sustain itself, then it will be there for you when you want it. Hell, there are lots of people heremakingtheir livingflipping real estate. Buy -- rent it out for a year -- sell and make 25%. It is a full time job though, and I have a full time job of course. (My own feeling is I have the best job in KW: weather forecaster.)

There are two options as I see it. I can sell, make a nice capital gain, then move somewhere else where housing is more affordable. ("Back home") Or I can stay here in paradise but in that case how do I make good on a gain which exists only on paper?

Dave

There is another way to increasethe 80% figure I mentioned above but it means working two more years. I will qualify for immediate retirement in 2010 when I reach age 60. If I wait until age 62 then I will have the two additional years of service, a 7% increase; the multiplier goes up from 1.0% to 1.1%; my high three will advance 5-7%;and I will have had two more years for growth in the TSP. That all adds up to about a 25% increase inmy projected bottom line and will makeit not 80% of my current pay but 80% of my then-current pay, up in2012.

I will have to wait and see on that. Twoyears is a heavy burden but they will be my most remunerative years by far. It will be a difficult choice. To make it easier I'm shoveling as much money into the future as I can, into the TSP. If I have a million bucks, I'm outta here!

Dave