The Easiest Way to Figure Out Your Optimal TSP Investment Plan
If you invest in the Thrift Savings Plan (TSP), you need to come up with a plan for how you are going to invest. Here is the easiest way to come up with that plan.
Step 1 – Figure Out Your Asset Allocation
In the TSP, you can only invest in two broad asset classes – stocks and bonds. Because of this, the first decision you need to make is how you are going to divide your TSP among these asset classes.
To figure this out, take this Vanguard survey.
At the top of the page it will give you a suggested allocation, such as 80% stocks and 20% bonds. Jot this down somewhere.
Step 2 – Find the TSP Lifecycle Fund That Most Closely Matches This Asset Allocation
Here are the current broad asset allocations of the TSP Lifecycle Funds as of 13 OCT 2019:
| FUND | STOCKS | BONDS |
| L Income | 21% | 79% |
| L 2020 | 26% | 74% |
| L 2030 | 60% | 40% |
| L 2040 | 72% | 28% |
| L 2050 | 82% | 18% |
Pick the one that is closest to your suggested asset allocation from the Vanguard survey. For example, if the survey said you needed 80% stocks and 20% bonds, I’d pick the L 2050 fund because it is closest.
Step 3 – You’re Done
Seriously, it is that simple. I’m not saying this is the best strategy, but it is the easiest and in all honesty, if someone MADE me do this, I’d be fine with it. It is very reasonable way to approach saving for retirement, which is why I’m telling you about it.
Why do I make you take a Vanguard survey instead of just picking the Lifecycle fund that is closest to the year you want to retire? Because the Lifecycle funds are a little too conservative for my tastes and when you compare them with other target date funds. For example, the Lifecycle 2040 is 72% stocks and 28% bonds. The Vanguard Target Retirement Date 2040 is more aggressive at 83% stocks and 17% bonds, which I think is more appropriate.
Finance Friday Articles
Here is the article of the week:
Improving the Odds of Your Portfolio’s Success
Here are the rest of this week’s articles:
5 Money Myths that Explain Why Doctors are Bad With Money
Active vs Passive Real Estate Investing
A man who retired at 43 says he made 2 important money decisions before leaving work
Balanced Funds – The Mild Salsa of Personal Finance
Bond Investors Should Not Fear Rising Interest Rates
BRS Basics: It’s Never Too Late to Be Smart About Retirement
Disney Renews Armed Forces Salute for Another Year
Physicians Are Turning to Side Hustles Now More Than Ever. Why?
Spend Money On What Makes You Happy
Top 5 Reasons to Exceed 25 Years of Expenses Before Retiring
Top 5 Ways a Virtual Assistant Improves My Life
Vanguard’s Impersonal Advisor Service
Vanguard’s Upcoming “Digital Advisor” Program
Yet Another Reason to Use Index Funds
Throwback Thursday Classic Post – FY20 CAPT Board Statistics and Basic Promotion Board Math
The FY20 Staff Corps O6 promotion board basic statistics are here. Let’s go over the basic stats for Medical Corps so that everyone understands them as they can be very confusing.
According to page 2 of the convening order, the promotion opportunity was 81%. The number of people in zone was 96. In order to find the total number of officers they could select for promotion, you take the promotion opportunity x the size of the zone:
(81% promotion opportunity) x (96 officer zone size) = 78 officers could be selected for promotion
As you see in the stats, they selected exactly 78:
- Above Zone – selected 24 of 134 or 18%
- In Zone – selected 49 of 96 or 51%
- Below Zone – selected 5 of 162 or 3%
As you can see, even though the promotion opportunity was 81%, the chance you got selected in zone was only 51% because selects came from above and below zone.
NMCSD Director of Medical Services Position – O5/O6
All of the details of this position are in this document, with applications due 25 OCT 2019:
Congressman and Veteran Seth Moulton on Mental Health In the Military
Here’s a link to this very powerful article:
Congressman and Veteran Seth Moulton on Mental Health In the Military
TSP Fund Deep Dive – The Lifecycle Funds – Hitting the Easy Button
Target date funds are popular. You just pick the approximate year you want to retire, and you invest in the fund that has a year close to that in its name. Nothing could be easier!
Let’s take a look at the Thrift Savings Plan’s (TSP) target date funds – the Lifecycle Funds or L Funds.
Inception Date
1 AUG 2005
Fund Management
The L Funds are invested in the five individual TSP funds based on professionally determined asset allocations.
Investment Strategy
To provide professionally diversified portfolios based on various time horizons, using the G, F, C, S, and I Funds. The objective is to strike an optimal balance between the expected risk and return associated with each fund.
The L Funds’ strategy is to invest in an appropriate mix of the G, F, C, S, and I Funds for a particular time horizon, or target retirement date. The investment mix of each L Fund becomes more conservative as its target date approaches.
The strategy assumes that:
- The greater the number of years you have until retirement, the more willing and able you are to tolerate risk (fluctuation) in your TSP account value to pursue higher rates of return.
- For a given risk level and time horizon, there is an optimal mix of the G, F, C, S, and I Funds that provides the highest expected return.
Each quarter, the L Funds’ target asset allocations change, moving towards a less risky mix of investments as the target date approaches. So if you are invested in one of the L Funds, you will notice that as you get closer to your target date, your allocation to the riskier TSP funds will get smaller while your allocation to the more conservative G Fund gets larger.
The rate of change in the target asset allocation is small when the L Fund target dates are in the distant future. The rate increases as the funds approach their target dates.
When an L Fund has reached its target date, it will be rolled into the L Income Fund. The L Income Fund:
- Is the most conservative of the L Funds.
- Focuses on capital preservation while providing a small exposure to the TSP’s riskier assets (C, S, and I Funds) in order to reduce inflation’s effect on your purchasing power.
- Is designed to produce current income for participants who plan to start withdrawing from their TSP accounts in the near future and for those who are already receiving monthly payments from their accounts.
- Has a set asset allocation that does not change over time.
- The progression from a target date L Fund to the L Income Fund is automatic.
New Lifecycle funds will be added for distant target dates as they are needed.
What is the Risk?
Investors in the L Funds are exposed to all of the types of risk to which the individual TSP funds are exposed. Your account is not guaranteed against loss. The L Funds can have periods of gain and loss, just as the individual TSP funds do.
What is the Benefit?
The L Funds simplify fund selection, and investment risk is reduced through diversification among the five individual TSP funds. You choose the fund that is closest to your target date (or, if your target date falls between the target dates that are offered, you can split your account between the two target date funds closest to your time horizon).
When you invest in the L Funds:
- You can be sure that your TSP account is broadly diversified.
- You don’t have to remember to adjust your investment mix as your target date approaches – it’s done for you.
If you want to see the historical performance of the five L Funds or a visual representation of how the asset allocations change over time, go to this page and click on the tabs:
Types of Earnings
The L Funds earn the weighted average of the earnings of the underlying G, F, C, S, and I Funds calculated in proportion to their L Fund allocation.
Expenses
The net expenses paid by investors is 0.04% or 4 basis points, which like all the TSP funds is ridiculously low and is a major benefit of the TSP. It costs $0.40 for each $1,000 invested.
How Should I Use the L Funds in my TSP Account?
Use the L Funds if you are looking for a simple, low maintenance way of investing money in your TSP account. The L Funds make the investing process easy for you because you do not have to figure out how to diversify your account or how and when to rebalance.
The L Funds are designed so that 100% of your TSP account can be invested in the single L Fund that most closely matches your time horizon (or in the two L Funds closest to your time horizon). Any other use of the L Funds may result in a greater amount of risk in your portfolio than is necessary in order to achieve the same expected rate of return.
Determine the date when, after leaving Federal service, you will need the money that is in your TSP account. Then identify the L Fund that matches your target date:
| Choose | If your target date is: |
|---|---|
| L 2050 | 2045 or later |
| L 2040 | 2035 through 2044 |
| L 2030 | 2025 through 2034 |
| L 2020 | 2019 through 2024 |
| L Income | If you are already withdrawing your account in monthly payments or expect to begin withdrawing before 2019 |
Advice from One of My Favorite Short Investing Books
Here is what one of my favorite investing books, The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)
Target-date funds can be an excellent choice, not only for investors who are just getting started with their investment programs, but also for investors who decide to adopt a simple strategy for funding their retirement.
MCCareer.org – The Book – Chapter 2 – Pathways to Becoming a Naval Physician
Note: The views expressed in this chapter are those of the author(s) and do not necessarily reflect the official policy or position of the Department of the Navy, Department of Defense, or the United States Government.
Special Thanks to Drs. Jami Peterson and Brett Chamberlin for their revisions of this chapter.
Introduction
The military has two programs that provide financial support for medical students and one that supports residents. The Health Professions Scholarship Program (HPSP) and Health Services Collegiate Program (HSCP) are used to attend a civilian medical school. The Family Assistance Program (FAP) provides financial assistance to current residents. Each program provides various benefits in return for a contract serve as an active duty physician following completion of medical school or residency. Additionally, students accepted to the military’s medical school, the Uniformed Services University (USU) can earn their medical degree while serving on active duty. Alternatively, board certified physicians can apply to be a Direct Commission Officer (DCO) and begin service immediately upon commissioning.
Uniformed Services University (USU)
Established in 1972, USU trains future physicians in the unique aspects of military medicine while meeting all requirements for general medical licensure in the United States. Application to USU is through the American Medical College Application Service (AMCAS). In addition, applicants must also meet all requirements for active military service, including a medical screening examination and background security investigation prior to being unconditionally accepted into USU. Detailed information is available at https://www.usuhs.edu.
Each of the four uniformed services is represented at USU – Army, Navy, Air Force, and Public Health Service (PHS). While attending USU, Navy students are commissioned on active duty as an Ensign and receive military pay for that rank. All tuition, fees, medical supplies, and books are provided.
In addition to meeting all the requirements for medical education, a USU student is exposed to both life in the military and military medicine. Classes are given in military medical history, chemical and biological warfare, wound ballistics, deployment medicine, as well as many other military topics. At least two field exercises are conducted over the 4-year curriculum, giving the student a concentrated and intense introduction to medical support during simulated combat operations.
Following graduation, the new Navy physician is obligated to serve in the Navy for seven years in a non-training status following completion of the PGY1 (internship) year. Any commitment previously incurred through either the Reserve Officer Training Corps (ROTC) or any of the military academies is added to this obligated service and served consecutively.
Health Professions Scholarship Program (HPSP)
As a recipient of a HPSP scholarship, the military pays full tuition, all fees, reimbursement for required books and equipment, and a stipend of approximately $2300 per month. Participants get 45 days of active duty for training each year and are paid full entry-level officer pay and allowances during that time. At the present time, a signing bonus of $20,000 is offered. Time in the program does not count for retirement or pay purposes.
In exchange for financing the participant’s medical school education, an obligation to serve on active duty for the number of years of scholarship benefit or a minimum of three years (whichever is greater) is generated. HPSP eligibility requires that the applicant be a U.S. citizen (dual citizenship is not permitted), physically qualified for a commission in the military, and accepted into an accredited school in the U.S. or Puerto Rico. The minimum undergraduate GPA required is 3.2 and the minimum MCAT score is 500. Applicants must not have reached the age of 42 at the time of commissioning on active duty. Here is a link to the Navy HPSP website.
Periods in which officers are in a training status (such as internship, residency, or fellowship) do not count towards fulfillment of the military contract but count towards military retirement.
Health Services Collegiate Program (HSCP)
HSCP is very similar to HPSP, but with a different benefits package. Rather than commissioning into the Inactive Ready Reserve (IRR), students receive pay and benefits (including health insurance, basic allowance for housing, etc.). Medical school tuition is not reimbursed, however the time spent in HSCP does count towards the 20-year requirement for retirement eligibility. This pathway is most often used by prior enlisted students with families who attend a relatively inexpensive medical school, although having previously served is not a program requirement.
Family Assistance Program (FAP)
FAP is similar in concept to HPSP, with the exception that it applies to residency. Individuals can apply once they have been accepted to an accredited US residency program. The only caveat is that the types of residencies for which scholarships are offered may vary. Not all residencies and specialties will have a recruiting goal, so it is possible that the Navy does not offer the FAP scholarship to applicants in certain specialties.
Officer Preparedness Training
All medical officers attend 4 to 6 weeks of “Officer Development School” (ODS) located in Newport, Rhode Island. For USU students, this occurs prior to the first year of medical school. For HPSP students, this can occur at any time prior to graduation or immediately upon graduation. These courses are designed to give the new medical officer an orientation to military life as well as military customs and courtesies.
Graduate Medical Education
The typical pathways to residency training in the military are inservice programs at military treatment facilities (MTFs) or deferment and outservice programs that are completed at civilian residency training programs. For any given specialty, a graduate medical selection board is convened either in late November or early December to determine the program selection and the number of years of training for every applicant. Selection board results are published in mid-December.
Inservice Residency Training Programs at Military Treatment Facilities
Various Army, Navy, and Air Force MTFs around the country sponsor inservice residency training programs. They are all fully accredited by the Accreditation Council for Graduate Medical Education (ACGME). While in a dedicated post-graduate training program (internship, residency, or fellowship), payback towards the initial service obligation is on “hold.” The service commitment resumes upon graduation from training. Inservice training counts toward retirement, but generally incurs additional obligated service time that may be served concurrently with medical school and undergraduate educational obligations.
Navy Active Duty Delay for Specialist (NADDS) Programs for Residency Training Programs in Civilian Institutions
Some graduating medical students are selected for deferment for their entire residency, called the Navy Active Duty Delay for Specialist (NADDS) program. This means that the student can match as a civilian intern/resident and complete his/her training in a civilian program. Upon such completion, he/she then enters or returns to military service as a civilian residency-trained physician. In some cases, a similar deferment of service obligation is permitted for Medical Corps officers who are already in the process of completing or have completed an internship, called Release from Active Duty to NADDS or “RAD to NADDS.”
Other graduating students are, however, granted only a one-year deferment to complete an internship in a civilian program. They are then expected to serve in general medical practice as General Medical Officers (GMOs), Flight Surgeons, or Undersea/Diving Medical Officers (UMOs/DMOs) for 1-3 years before applying for further in-service, out-service, or deferred training. Once completing this tour, they can apply for residency training through the military or finish their military obligation in this role and separate from the Navy.
Application to this program follows the normal civilian “match” guidelines after approval from the Navy. Using the NADDS route to post-graduate training incurs no further obligation but it does not count toward payback for the initial obligation. USU students are now eligible for deferment training programs.
Full-Time Outservice (FTOS) Programs for Residency Training at Civilian Programs
Full-time outservice (FTOS) training allows Medical Corps officers already on active duty the opportunity to train at a civilian institution while remaining on full-time active duty status. Unlike members in a deferment program, FTOS trainees continue to draw their military pay. In addition, like inservice training, time served in FTOS training counts toward retirement.
The number of FTOS training slots awarded each year varies depending on the particular need for residency or fellowship trained specialists. Graduating medical students are generally not eligible for FTOS training.
Summary of Graduate Medical Education Options
As detailed above, there are many different options available for GME. The following chart summarizes the programs available to the different programs:
| Program/Status |
Inservice GME |
NADDS | FTOS |
RAD to NADDS |
| HPSP/HSCP |
Eligible |
Eligible | Not eligible |
Not eligible |
| USU student |
Eligible |
Eligible but rare | Not eligible |
Not eligible |
| GMO/UMO/Flight Surgeon |
Eligible |
Not eligible | Eligible |
Eligible but rare |
Unique Opportunities in Military Medicine
The military offers unique opportunities not normally available in civilian medical practice and training. There is the opportunity to practice medicine in a variety of geographic locations spanning the globe. Military physicians can readily take part in both combat and humanitarian medical missions. In addition, the military offers unique training for physicians in undersea/hyperbaric, flight, tactical and wilderness medicine and other non-traditional fields. The practice environment is vastly different from civilian medicine, with near universal healthcare coverage of the patients you treat as well as significant protections of the individual physician from malpractice and litigation. Finally, there is a significant financial benefit and security to be gained from a military retirement pension with an automatic annual cost-of-living adjustment.
