Daily charts for the TSP and some educational facts to consider.

I just want to put out an update on two TSP charts because, I need to show you we still have room for higher prices and the other, I made a mistake about the buy signal. It is still a work in progress. The S&P 500 and Bonds are just rolling along with no worries, so there is nothing to speak about.

The Small Cap is not making new highs yet like the S&P 500, so we still have room for more upside. Yes we are closing in. Another 9 points to go before I expect that we might pause for a bit and then the fight begin to see who is going to win, buyers or sellers. We have reached this level twice before and got rejected, so it is a level that we will have to watch. $1064

I made mention that the International on the daily chart was firing buy signals and then failed in last weeks post. But that is not exactly true. To get a true buy signal using the daily charts, price has to break above the green CBL and price has to be above the 50 day moving average. Last Monday we broke the green CBL, so step one is complete. Price is still below the 50 day moving average and the 50 day is also still falling. So the International index is still a watch or sell based on the daily chart only.

Someone asked me some specific questions about withdrawals from the TSP and I went looking for a spreadsheet to help me explain the problem.

One of the most simplistic ways to withdraw money is the 4% rule.Google 4% retirement, you’ll find it.  Multiple your entire TSP account by 4%, then divide by 12, and you have your monthly withdrawal amount for year 1. Not only is that required, but you must also figure in inflation and how it affects your buying power. Lastly and most important is the rate of return you get on the money you have invested that you are not spending yet.

I know some folks that retired and threw their money in the G-fund and started making withdrawals and decided it was to risky to put their money any where else. I’m ok with that. But if you have a chance, you need to take the 12 times a year make moves to earn a good return. Learn how to make these decisions now with big money so you can do it when you are retired.

Ok, the G-fund pays 2% a year. Inflation is currently 2% but on average 3%. Let me show you what happens with a draw of just 4% a year in an account no matter what the value is. So get those numbers in your head,  4% withdrawal of the account value each year, earning 2% with a 3% inflation rate.

See the bottom Green Line? That shows a steady decline in your account value because you are withdrawing more than it is being replenished. What it doesn’t show is this. Each year your withdraw amount is smaller and smaller because your account value is going down. So the first year you might withdraw 1166 a month but by year 30 your monthly withdraw would reduce to 266 a month. That’s not a pretty picture because most folks are going to withdraw the same amount or more each year, not less. So throwing all your money in the G-fund might not work out for you.

Playing with the numbers it was easy to find that magic return rate. So if we withdraw 4% annually out of our account and there is a 3% inflation rate, we need to earn 7.5% annually to maintain the ship with no increase to our monthly withdrawals. If you can manage to make 8% average return per year, it will actually grow. This not a perfect science because we all will do something a little different in retirement. Some will not even touch their TSP the first few years. Some will not touch it until 72.5 years of age when the IRS forces us to. Some will tap it from day one. The rate in which we withdraw it will also vary but what is clear is this. Looking at the chart above with a 3% inflation rate, a 2%, 4%, 6%, and a 7% percent return in the market will not make our account grow or keep up with a 4% withdrawal rate. Something to think about for sure.

So the moral of this story is learn now while you are still working to manage you TSP account so you can make those same decisions when you are retired. Your goal is to earn 7.5% a year or just keep your PIP at of above 7.5%. If you can pull that off while working, then retirement should be a relaxing calm adventure for you. The monthly method will help you here. Learn it.

Let’s go September!!