JPCavin turned me on this site: Backtest Portfolio Asset Class Visualizer
For the purpose of our discussion it is obvious that the numbers quoted on the TSP site are CAGRs (or IRRs if you wish). CAGRs are generally less than average annual returns, but they attempt to take contributions into affect. They are generally a truer return than a simple average. I will use 1987 onward to match the above example - my numbers came very close the the documented number on the TSP site for late Jan 1988 on. So here are three portfolios using my example GS07:
This Guy/Gal invested in 60% C / 40% F and let it ride:
CAGR (Compound Annual Growth Rate): 9.16%/year
Initial contributions (including gubmint contributions); $2,570.12
Growth of Contributions: 2.5% (to match above example)
End Result:
Projected Assets in 2028: $1,296,876
Annual Disbursement till age 85: $40,148
Annual Disbursement till age 95: $33,874
This Guy/Gal invested in 100% C and let it ride:
CAGR (Compound Annual Growth Rate): 10.27%/year
Initial contributions (including gubmint contributions); $2,570.12
Growth of Contributions: 2.5% (to match above example)
End Result:
Projected Assets in 2028: $1,729,858
Annual Disbursement till age 85: $57,661
Annual Disbursement till age 95: $49,857
This Guy/Gal invested in 100% F and let it ride:
CAGR (Compound Annual Growth Rate): 6.50%/year
Initial contributions (including gubmint contributions); $2,570.12
Growth of Contributions: 2.5% (to match above example)
End Result:
Projected Assets in 2028: $672,788
Annual Disbursement till age 85: $17,162
Annual Disbursement till age 95: $13,455
Now, compare that to the actual asset value in this chaps pension as invested by the gubmint (only in the G Fund):
CAGR (Compound Annual Growth Rate): 5.43%/year (no way we will see the that average hold - but smiles all around)
Initial contributions (including gubmint contributions); $2,570.12
Growth of Contributions: 2.5% (to match above example)
End Result:
Projected Assets in 2028: $525,272
Annual Disbursement till age 85: $12,309
Annual Disbursement till age 95: $9,294
Finally, the Gubmint promises:
Pension: $21,688/year
Consider that any employer - to include the Feds - will actually incorporate ALL of the costs incurred by employment into the budget before hiring someone. Thus they cost out their contributions to your pension. My point is this: If this fictional employee could have invested the 14% of gross salary going to the pension in a 60/40 split than he/she WOULD NOT need to invest a dime in TSP. And, his/her income in retirement would be 150% of the Gubmint pension.
Finally, as to your point about the stability of the pension. Pensions are failing everywhere. Unions (ours included) force politicians to over-promise pension investment returns. It is a game public sector entities play. It keeps the cost of employment down and pushes the expenses to future politicians. Well, the future is now. Talk to Detroit city employees about the safety of their pension. Talk to the auto workers (heard what the union finance pensions are starting to demand). Talk to airline pensioners. All a pension is is an investment account. All it is is a 401(k) that tries to keep up with a promise based on some odd calculation rather than what is actually in the account. I, personally, think the pension is 'safe' because it is a rather small line item in the Federal budget (something like $5 Billion) - but, I am only going to count on about 75% of the promised benefit.
I can count on my personal assets - of which my TSP/401(k) is an example. The gubmint grubbers can only grab those asset indirectly (like President Clinton did when he initiated income taxes on Social Security). They cannot jigger pension computations to ease things up on themselves.
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