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marcb  
#1 Posted : Saturday, January 07, 2012 11:03:06 PM(UTC)
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Have any of you retired folks done an analysis of the returns of the TSP, Vs putting a percentage/or all into IRA CD's?
 
For example, the Pentagon Federal Credit union has 7 year IRA CDs offering 2.75% whereas the TSP has a YTD of 2.45%; they were 3% last year.
 
Have you found a safe place whith higher interest rates?
 
Thank you

marcb2012-01-08 07:14:37
Best Regards,.......Marc
Tryno  
#2 Posted : Sunday, January 08, 2012 1:11:23 AM(UTC)
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My brother buys church bonds, he's never lost a dime.  Most pay 8% and up.  I don't know all the details but it's a long term investment, not something you can move in and out of easily. 
Fed1969  
#3 Posted : Sunday, January 08, 2012 2:56:11 AM(UTC)
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Tryno wrote:


My brother buys church bonds, he's never lost a dime.  Most pay 8% and up.  I don't know all the details but it's a long term investment, not something you can move in and out of easily. 

Can these church bonds be part of an IRA?
Fed1969  
#4 Posted : Sunday, January 08, 2012 2:58:03 AM(UTC)
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marcb wrote:


Have any of you retired folks done an analysis of the returns of the TSP, Vs putting a percentage/or all into IRA CD's?
 
For example, the Pentagon Federal Credit union has 7 year IRA CDs offering 2.75% whereas the TSP has a YTD of 2.45%; they were 3% last year.
 
Have you found a safe place whith higher interest rates?
 
Thank you


Some retirees transfer all or part of their TSP to IRA's.  If interest rates are higher, go for it.
MMOB  
#5 Posted : Sunday, January 08, 2012 3:17:31 AM(UTC)
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Fed1969 wrote:
Some retirees transfer all or part of their TSP to IRA's.  If interest rates are higher, go for it.

I disagree strongly with this advice.  With the G fund you have the advantage of long-term rates without being locked into a specific rate or a specific time period.  Once Treasury interest rates start to rise, the G Fund will go up immediately.  With a 7-year CD, you're locked into that rate for the full 7 years unless you pay a penalty to get out of it early. 

 For a measly 0.3% difference, I wouldn't lock up my money for 7 years.

JimEli  
#6 Posted : Sunday, January 08, 2012 5:52:48 AM(UTC)
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marcb wrote:
Have any of you retired folks done an analysis of the returns of the TSP, Vs putting a percentage/or all into IRA CD's?
 
For example, the Pentagon Federal Credit union has 7 year IRA CDs offering 2.75% whereas the TSP has a YTD of 2.45%; they were 3% last year.
 
Have you found a safe place whith higher interest rates?
 
Thank you
 
 
I’m not trying to persuade you one way or another, however, it appears you are about to make one of the most basic investment mistakes by making a choice based upon historic returns. Furthermore, you are comparing the past 1-year return of the G-Fund with a 7-year CD; different time periods and different investment vehicles. Be careful.

 

JimEli2012-01-08 13:58:52
Fed1969  
#7 Posted : Sunday, January 08, 2012 7:39:18 AM(UTC)
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I agree that in the long run, the G fund may provide a better return.
FlatBroke  
#8 Posted : Sunday, January 08, 2012 9:14:15 AM(UTC)
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marcb wrote:
For example, the Pentagon Federal Credit union has 7 year IRA CDs offering 2.75% whereas the TSP has a YTD of 2.45%; they were 3% last year.
The G Fund returned 2.45% in 2011, 2.81% in 2010, and 2.97% in 2009. Are you trying to compare the TSP or the G Fund to your typical CD?
Tryno  
#9 Posted : Sunday, January 08, 2012 12:32:56 PM(UTC)
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Fed, I'm sorry I don't know.  Here's the firm's website.  My brother and I both use Vance Brandt's financial services.  Looks like they do have some church bonds available now, they didn't have any 6 months ago. 
 
Side note- the G fund is a great tool for LONG term investments but doesn't suit the needs of everyone.  Same could be said about the rest of TSP, CDs, and any other investment method you want to name.  No one method works best for everyone.  All investments need to be tailored to the individuals financial condition, goals, and risk acceptance. 
marcb  
#10 Posted : Sunday, January 08, 2012 8:24:46 PM(UTC)
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Looking back a few years, I found the following:
 
Average 5 year CD rates Vs TSP rate:
2005- CD: 4.957/TSP: 4.49
2007- CD: 5.526/TSP: 4.87
2009- CD: 3.332/TSP: 2.97
Now I realize we're looking at locking in your money for 5 or more years, but if you ladder the CD's, you could have access as needed.
I'm not saying CD's are better, but for the past 6 or so years in a declining interest rate environment, CD's appear to have an edge. The concern is we are at very low interest rates now, and as rates climb, CD's could miss out; however, if laddered properly, they could work to be an advantage.
I'm not looking to chase short term results, and am interested in increasing savings rates safely in retirement. The simple data above is just that; simple. I was hoping some of you financially smart guys have done an analysis of long term CD Vs TSP rates, or if anyone has talked this over with their financial planner.
 
Thank you


marcb2012-01-09 04:45:05
Best Regards,.......Marc
Fed1969  
#11 Posted : Sunday, January 08, 2012 8:47:32 PM(UTC)
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marcb,

Thanks for the info.  It gives us something to consider.
dhacker56  
#12 Posted : Sunday, January 08, 2012 8:53:14 PM(UTC)
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5 Year CD rates  right now at 2.25%

Tryno  
#13 Posted : Sunday, January 08, 2012 11:30:43 PM(UTC)
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marc, a financial advisor might suggest a certain amount of CDs in some cases but they normally  recommend some type of bond fund to protect against large losses in a portofolio.  I know you said the numbers you showed were just simple data and I agree.  I think we all agree that as interest rates rise both the G fund and CDs become more attractive.  I'm wondering if we won't also find that as interest rates rise, inflation will also.  Say CD rates go up to 5% but inflation jumps to 6 or 7% have you real gained anything by sticking with CDs?  Would you maybe have been better off accepting more risk to get returns that equaled or exceeded the inflation rate?  Just questions I think an individual needs to ask themselves before getting locked into anything long term. 
JimEli  
#14 Posted : Monday, January 09, 2012 12:59:48 AM(UTC)
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marcb wrote:
Looking back a few years, I found the following:
 
Average 5 year CD rates Vs TSP rate:
2005- CD: 4.957/TSP: 4.49
2007- CD: 5.526/TSP: 4.87
2009- CD: 3.332/TSP: 2.97
Now I realize we're looking at locking in your money for 5 or more years, but if you ladder the CD's, you could have access as needed.
I'm not saying CD's are better, but for the past 6 or so years in a declining interest rate environment, CD's appear to have an edge. The concern is we are at very low interest rates now, and as rates climb, CD's could miss out; however, if laddered properly, they could work to be an advantage.
I'm not looking to chase short term results, and am interested in increasing savings rates safely in retirement. The simple data above is just that; simple. I was hoping some of you financially smart guys have done an analysis of long term CD Vs TSP rates, or if anyone has talked this over with their financial planner.
 
Thank you
 
As I said earlier you are comparing apples to oranges (were the rates trending up or down during your comparison period?). Consider ease of access to your money, risk to principle and interest, FDIC coverage limits, active management vs. convenience, and currently the biggest risk to long-term CDs: Interest Rate Risk (which the G-Fund virtually avoids).

 

There are some provoking arguments favoring 5-year CDs right now. An overly simplified synopsis can be found here:

http://thefinancebuff.com/what-would-happen-when-interest-rates-go-up.html

 

But most importantly, once you pull your money out of the TSP, there's no going back.
JimEli2012-01-09 09:11:44
Hankz  
#15 Posted : Thursday, January 12, 2012 6:58:53 AM(UTC)
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marcb wrote:



Looking back a few years, I found the following:
 
Average 5 year CD rates Vs TSP rate:
2005- CD: 4.957/TSP: 4.49
2007- CD: 5.526/TSP: 4.87
2009- CD: 3.332/TSP: 2.97
Now I realize we're looking at locking in your money for 5 or more years, but if you ladder the CD's, you could have access as needed.
I'm not saying CD's are better, but for the past 6 or so years in a declining interest rate environment, CD's appear to have an edge. The concern is we are at very low interest rates now, and as rates climb, CD's could miss out; however, if laddered properly, they could work to be an advantage.
I'm not looking to chase short term results, and am interested in increasing savings rates safely in retirement. The simple data above is just that; simple. I was hoping some of you financially smart guys have done an analysis of long term CD Vs TSP rates, or if anyone has talked this over with their financial planner.
 
Thank you



What about the the fees?  I'll bet the TSP has the lowest fees by 10 fold.
marcb  
#16 Posted : Thursday, January 12, 2012 7:26:00 PM(UTC)
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"What about the the fees?  I'll bet the TSP has the lowest fees by 10 fold."
I'm not aware of any fees on CD's.

Best Regards,.......Marc
Fed1969  
#17 Posted : Thursday, January 12, 2012 8:34:39 PM(UTC)
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Credit Union and Bank Fees for CD's and taken into account when the rate is established. I am not aware of fees other than early withdrawal penalty.
Knight  
#18 Posted : Thursday, January 12, 2012 10:23:11 PM(UTC)
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It all depends on your risk tolerence. If I retire at 55 (or even 60) I am not moving my money to the G fund or Cd's. Don't you want more then 2 or 3 percent growth?
kcman  
#19 Posted : Friday, January 13, 2012 12:08:40 AM(UTC)
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Knight wrote:
It all depends on your risk tolerence. If I retire at 55 (or even 60) I am not moving my money to the G fund or Cd's. Don't you want more then 2 or 3 percent growth?


Excellent point.  Too many people get overly conservative once they retire and don't consider when they will begin pulling their money out of an IRA/TSP.  If you need the money in the next 5 years, then that money should probably be conservative, i.e., CD or G Fund in TSP.  However, if you will not be touching the money for 10 plus years, then you can take more risk.  As for me, I am currently 57 and see no reason why I will need to access the money I have in IRA or TSP accounts so I have about 75% of that money in stock funds and the other 25% in safe funds, i.e., G fund for the TSP.  As I get closer to the age when I will need to pull money out (70 1/2), I will get more conservative.  One technique I really like is the "buckets of money" where you put the money you will need in the next 5 years in a very conservative fund, then money from 5-10 years out in a fund with more risk and so forth.  Each year, you take money from the more risky funds and place it in the conservative fund (to keep enough money to fund about 5 years out and not have to worry about big fluctuations in the market).  Unfortunately, unless the rules changed and I missed it, the TSP falls short on this idea since you cannot dictate which area to take the money you want to withdraw.  If you take out 4%, you can not say, take it all from the G Fund.  Instead, if you have 25% of your money in the G fund and 75% in the C fund, they will take 3/4 of the withdrawal or 3 of that 4% from the C fund and 1/4 or 1 of the 4% from the G fund.  In other words, the buckets of money approach will not work with TSP unless they change the rules on withdrawals.  Again, this rule may have changed and I missed it.  If anyone knows if this rule still exists or has changed, I would appreciate an update.  Happy New Year to All

<br />"The problem with socialism is that you eventually run out of other people's money." - Margaret Thatcher<br />
marcb  
#20 Posted : Friday, January 13, 2012 4:04:45 AM(UTC)
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kcman wrote:
Knight wrote:
It all depends on your risk tolerence. If I retire at 55 (or even 60) I am not moving my money to the G fund or Cd's. Don't you want more then 2 or 3 percent growth?

I've had all our TSP savings in the G fund for some years now, and in looking at the returns on the TSP site, I'm glad I did.

Ten year compound:

C: 1.42%

G: 4.26%

Best Regards,.......Marc
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