The past several months have been terrifying times for some TSP investors. The most likely target for this terror to strike: employees who were planning on retiring later this year or even in the next couple of years. On second thought, perhaps the most terrified are those who retired last year and were planning on using their TSP investments to meet expenses during retirement.

The reason is the rapid drop in the TSP stock funds. Consider how the C fund has changed. It went down 4.2% in November; another 0.66% in December; and sank almost 6% in January. For the year to date, the C fund is now down almost 9.5%. The I fund is down more than 12% for 2008 so far.

From emails that we have received, and from the data compiled by the TSP, a number of federal employees are cashing in their stock funds and stashing their cash within the safe confines of the G fund. My best guess: Those that are fleeing the stock funds are thinking "I am retiring soon. Why should I go through the pain of watching my retirement funds continue to go lower when I am going to need that money soon?"

Here are a couple of observations that may help.

First, you should keep a reserve of cash on hand. Depending on your income, spending habits, and your current point in your career or your life, you may want to have as much as one year's worth of living expenses set aside in cash. If you have to sell your stock funds after they have dropped dramatically, you are locking in your losses. You will never get that money back once the fund has been sold. Having a supply of cash will enable you to have a better chance of getting through the market drops.

Second, you will need enough money to last for the rest of your life. If you are 60 years old today, you can expect to live approximately another 23 years if you are female and 20 years if you are male. If you are healthy, keep your weight under control, do not smoke, exercise regularly, and have regular medical check-ups, you can expect to live much longer than that. If you are a CSRS employee, perhaps your federal annuity will give you enough to live on for the rest of your life...or perhaps it won't...but plan carefully for decades into the future.

Third, stocks almost always provide better returns than keeping your money in cash or the the security offered by the G fund. Over long periods (think about how long you will live during retirement), the difference in performance between stocks and cash or bonds is dramatic.

Fourth, investors make money when the stock market is down. Here is a relevant quote cited by commentator (and a former economist at the Department of Commerce) Ben Stein: "You make money in bear markets. You just don't know it until later."

Keep this in mind and it may help you sleep better at night.

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