Need your thoughts --

Top of the morning.

A brief introduction



I am retired federal service 1/3/06 (35.5 years service age 56) and my wife
received an incentive and retired early from a major grocery chain (24 years
service age 60). I also receive a small VA pension (Disabled Viet Nam Vet).
Both are in fairly good health, I had prostate cancer and surgery 1999 and
have been getting good health reports since surgery.



Both will receive total pensions of approximately $53,000 per year. I
elected to maintain survivor annuity for my wife and that way she could keep
group health insurance from my Federal retirement and draw 55% of my
retirement in case of my death. She will draw her Social security that will
begin in approximately 18 months. I will have to pay in 4 additional
quarters to Social Security in order to be eligible at age 62. No debt
other than the usual utilities, Tax, and Insurance about $1100 per month.



The Federal Govt has what amounts to 401K called the Thrift Savings Plan
(TSP) I have approximately $55,000 divided as follows:

75 % C Fund matches the S& P 500

25 % G Fund Govt Securities (earned 4.3% last year)

25 % F Fund matches Lehman Brothers U.S. Aggregate (LBA) index.

My wife's 401K approximately $75,000 is as follows:

4 % Merrill Lynch Basic Value Fund (MABAX)

24 % Merrill Lynch Equity Index Trust 1 (matches the S& P 500)

9 % Templeton Foreign Fund (TFFAX)

63 % Fixed Income Fund (4.8% earnings for past 3 years, 5.3% for past 5
years)

Both the TSP and 401K have addition Investments available.



Other accounts:

Roth IRA Oakmark Select ($9,000)

Roth IRA Oakmark Global ($8,000)

CD's $15,000 @ 4.3% -- $10,000 @ 5.13%

Liquid Cash $35,000 (Checking and Savings)



Here is where I need your thoughts. Currently I don't see where we will
need to take income from any of the IRA's or TSP in the near Future. My
wife is CONSERVATIVE and wants to takes her 401K to CD's and I could do with
the TSP what I wish, I would want to make it more aggressive since hers will
be CD's. What do you recommend we do? Also do we continue to fund the Roth's?



Thanks so much and Hope all have a great Valentines Day.

cil

Re: Need your thoughts --

Cil,

It sounds like you really need to sit down with a finanical advisor.
That would allow you to 1) clarify and define you and your wife's
goals, 2) prepare a more detailed net worth and cash flow statement, 3)
review your asset liability exposures, 4) run capital projections, 5)
develop an investment policy statement, 6) implement/structure any tax
minimization strategies, and 7) prepare your estate plan. It is
through this collabrative process that you should find the answers to
your questions.

Best of luck,


Gary Brolis

Re: Need your thoughts --

CIL wrote:

> Here is where I need your thoughts. Currently I don't see where we will
> need to take income from any of the IRA's or TSP in the near Future. My
> wife is CONSERVATIVE and wants to takes her 401K to CD's and I could do with
> the TSP what I wish, I would want to make it more aggressive since hers will
> be CD's. What do you recommend we do? Also do we continue to fund the Roth's?

Not sure exactly what you mean when you say your wife want's to take
her 401K to CDs. You mean withdraw it all and put it in CDs? Or just
do fund exchanges within her 401K plan to more conservative options?
Someone correct me if I am wrong, but 401K withdrawels are treated as
ordinary income, so if she takes it all out in one year she is going to
bump you guys up into a very high tax bracket.

As someone else advised, you should probably hire a financial planner
on an hourly basis to educate you on your options and constraints. Or
you could put some time in and educate yourself over a number of
months.

That being said, it seems to me that your government pensions (assuming
they get adjusted for inflation) combined with social security are
probably enough to live on all by themselves, and that your 401 and
other savings are a nice extra. Given this situation I think you could
look at it two ways:

(1) Since your retirement savings are not needed for survival its ok to
invest them in relatively high risk ways and see if you get a big
payoff that you can then use on luxuries. Worst case you will lose a
chunk of money but still survive just fine; best case you will get
substantially richer.

(2) Since your pensions will take care of your needs you do not need
to get a high rate of return on your savings in order to survive, so
why gamble with them? Put your retirement savings in conservative
investments, draw them down on a fixed schedule and you will never need
to worry about the stock market and always know exactly how much money
you will have to spend.

Since your pensions pretty much take care of you I think the choice of
how aggressive or conservative to be with your savings is really just a
matter of personal perference regarding risk; there is no one right
answer.

Andy

Re: Need your thoughts --

> The Federal Govt has what amounts to 401K called the Thrift Savings Plan
> (TSP) I have approximately $55,000 divided as follows:
>
> 75 % C Fund matches the S& P 500
>
> 25 % G Fund Govt Securities (earned 4.3% last year)
>
> 25 % F Fund matches Lehman Brothers U.S. Aggregate (LBA) index.

For those of you who aren't federal employees, it's important to note that
the G Fund is a unique animal.

It's a bond fund that invests in specially issued Treasuries. The rate of
return is calculated using some average of current rates on outstanding
Treasuries of longer duration. So the yield on the G Fund is similar to an
intermediate term Treasury bond fund.

HOWEVER -- By law the net asset value of the G Fund can never decline.

SO -- The G Fund has a stable net assert value (share price) like a money
market fund. But it's yield like an intermediate term bond fund. (To lapse
into bond trader geekspeak, the G Fund's average maturity (last I checked)
was about 12 years, while the duration is measured in days.)

Pretty neat, yes?

> Wife is CONSERVATIVE and wants to takes her 401K to CD's and I could do with
> the TSP what I wish, I would want to make it more aggressive since hers will
> be CD's. What do you recommend we do? Also do we continue to fund the
Roth's?

In my view, it's a mistake for a married couple to think about "my"
account and "your" account. And it's an even bigger mistake for the
spouses to have different investment philosophies. The first thing you
need to do is to calculate the FAMILY'S asset allocation. This can easily
be done using a spreadsheet program like Excel. Heck, I've done it using
the simple spreadsheet function in Word Perfect. If you don't want to do
this yourself, find a "fee based" planner to do it for you.

Once the FAMILY asset allocation is undestood, the original poster can sit
down with his wife and hash out a new asset allocation as they enter their
senior years. If she wants to argue for a more conservative approach, with
more devoted to fixed income, that's fine. But that's one of those spousal
"negotiations" we should stay clear of.

If, upon reflection, this couple decides to increase their fixed income
holdings -- THEN they should serious consider the G Fund. I think it has
attributes that are almost impossible to come by in a private bond fund
and it makes an excellent core fixed income holding for retired federal
employees.