When it comes to financial advice there are some pitfalls to avoid.
I have noticed that when soon-to-be retirees have a lower TSP balance and are limited in their options for their retirement funds, a lot of times it is because they took some sort of “general” financial advice at some point in their career.
This kind of advice can come from a variety of different sources. Some of the most popular forms of general financial advice come from: online articles and blogs, colleagues, and social media.
So where do you get potentially reputable financial advice? Specifically what type of financial advice should you potentially take and what financial advice should you avoid?
Let’s first look at sources of potentially harmful advice and then cover some things to look for to help accomplish your retirement goals.
Online Articles & Blogs
The internet can be a great resource for understanding the basics as far as what each of the funds that make up the TSP are comprised of. It also has articles from creditable financial minds that can give you an idea of what the market forecast looks like.
What it cannot do, however, is take your individual needs and goals into account and give you a plan specific to you and your investment horizon.
I see so many articles and blogs putting out information as if they knew the future. Covid was a perfect example. It seemed like everyone was saying, “Get out of the market! This is a financial apocalypse!” At first, they looked smart, but then the market quickly rebounded sharply.
There is no crystal ball and no one investment or investment philosophy that is going to work for everyone at the same time.
Colleagues
This form of advice is one of the most common that we run into and for good reason. Of course, someone’s immediate sphere of influence is going to have an impact on their thinking. The problem is much like the problem of taking advice from an internet article; everyone’s situation is different.
For example, Susy was doing what a colleague was telling her to do and investing in the C and S Funds because he was doing great with his returns in his TSP account, but then 2008 happened. How did his account do? I am sure you can guess.
But the big key here was this colleague had a military pension, a large federal pension, and Social Security, and his wife had a pension as well, so he didn’t need any money from his TSP and could weather the storm comfortably having other investments as well.
How did it go for Susy? She still had a decent income from her pension having a long FERS (Federal Employees Retirement System) career, but she needed to take a monthly distribution from her TSP to make up the difference she needed per month. She was also planning on taking money out of her TSP once per year to go on vacation.
She was in a completely different financial situation than her colleague. He could afford to let his TSP be more aggressive because he did not need to pull from it anytime soon, whereas she should have been more conservative in her fund choices needing to withdraw from her TSP in the immediate future. Withdrawing from retirement assets when the market was down meant that she was solidifying losses and depleting her TSP much quicker, especially since she could not contribute any more or get an agency match being retired.
On the flip side, some have had long government careers but heard early on to put everything in the G Fund so they would not lose anything. They missed out on many up years in the market that really could have made a positive impact on their retirement.
Social Media
There are a lot of “gurus” on Facebook, Instagram, LinkedIn, etc., that have pages that guide people on their TSP allocations. While these pages have done some good for getting younger government employees with long careers ahead of them out of the G Fund, they can also be problematic for those looking at retiring soon who will need to start pulling from their TSP account soon.
These kinds of pages at times make blanket statements like, “Everyone should be in the C, S and I Funds” without considering anyone’s risk tolerance, investment horizon, or retirement goals.
Can you imagine if a doctor put a post out there saying, “Everyone who is turning 60 needs to start taking high blood pressure medication, high cholesterol medication, and go ahead and take some insulin because there is a likely chance of being diabetic when you are over 60.” You might not be diabetic, and if you took their advice, you could be taking a lot of medication for ailments you do not have.
It sounds like a crazy analogy, and it might be a bit ridiculous, but it is just as ridiculous to say, “Anyone who is over 60 should be 100% in the G Fund” or “Everyone should be 80% in the C Fund and 20% in the G Fund,” etc. Everyone’s financial situation is as unique to them as their medical diagnosis.
What To Do And Where To Go
One of the first steps to take when considering how to invest for your specific situation is to look at your investment horizon or timeline (when you may potentially need to access your funds). That is going to dictate a lot about how you should be investing.
Your risk tolerance is another big one. Can you afford to take a big loss?
An additional consideration is your retirement goals. What are your goals for your retirement funds? Is it to leave for beneficiaries? Is it for additional income? Is it a “rainy day” fund? When considering your goals try and block out any outside noise from sources previously mentioned, extended family, neighbors, etc.
So who should you get advice from and what should you look for when trying to find someone who can properly guide you?
I believe that every federal employee should have two relationships to help in their retirement planning.
Your first relationship is to establish a connection with somebody in your benefits department, or your HR department. Now before you say, “I don’t even know my HR because it is regional,” or, “It is impossible to get a hold of those people,” you do have a benefits department somewhere, and the earlier you seek someone out and establish a relationship the better. Get to know who they are and how to contact them. If you have a good relationship with someone in your benefits department or HR, later when you need to apply for retirement or have a question about your benefits it will be a lot easier to get information.
Your second relationship to help you plan for retirement is to have a good financial advisor that knows the federal retirement system. You can tell quickly if they know the federal system by asking them questions like, “When am I eligible for my FERS pension?” If they do not know, that could be a red flag that they do not know how the government retirement system works.
Another great question is “What are the five funds available in the TSP.” These are basic questions that any advisor who knows the federal system should easily be able to answer.
On top of your financial advisor knowing the federal system, they should also be a “fiduciary.” A fiduciary is someone who is going to put your needs above their own and act in your best interest.
Whether you ask or it says on their website, make sure they are a fiduciary. Work with somebody who knows the federal system and is a fiduciary because even ethical, great financial advisors who do not know the federal system can put federal retirees in irreversible situations by not knowing what they were doing as it pertains to the TSP and FERS system.
Something else to look for when working with a financial advisor is making sure they are asking you what your goals are.
Before they set up a plan for you, they should know some key things. They need to know how much income you will have in retirement and from what sources (pension, Social Security, spouse income, etc.) and if that will be enough to keep the same quality of life without touching your assets.
What do you want/need your TSP to accomplish for you in retirement? Does your TSP need to supplement your income, or can it sit for the foreseeable future? Are you planning on moving when you retire or paying off debts?
These are just a few questions that should be asked by an advisor to make sure they are putting a plan together to suit you specifically. Then, based on your information, they can build a financial plan specific to you and your goals.
A red flag would be any advisor who immediately tries to move your TSP or other retirement assets without first asking what your retirement goals are. Make sure you are working with an advisor and not just a “salesman.” I have heard people over the years say, “I spoke with someone who just wanted to roll my TSP without asking me one question.” Realize that there are a lot of times when it makes sense to just stay in the TSP. It all depends on your specific goals.
Think of Your Specific Needs First
To sum it all up, make sure you are not blindly following general financial advice. If you are researching and taking responsibility for your federal retirement that is great. I applaud you for that and that is a healthy thing to do. Just make sure you are framing all information you are receiving around what your personal goals are and not around what someone who has no idea what your financial situation is thinks you should do.
Take the time to try and connect with an advocate in your benefits department, and if you are speaking with a financial advisor, make sure they are asking you questions about your specific goals and that they know the federal retirement system.
Investment advisory services offered through Integrity Advisor Solutions, LLC (“IAS”), an investment adviser registered with the SEC. Integrity Wealth is a marketing name for IAS. FedSmart Retirement and the above firms are not affiliated. FedSmart Retirement does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstances. Not associated with or endorsed by the Social Security Administration or any other government agency.
