Q. I retired a year ago last June from the federal government. With my Civil Service Retirement System retirement and my husbands’ Social Security we have enough money to live on. I also saved in the Thrift Savings Plan, expecting to use this money for travel.
The problem is you can only take a one-time partial withdrawal. I took that withdrawal for travel this year. Now I have a decision to make. What is the wise thing to do at this point? Should I roll the remaining money over into an IRA or take a monthly payment until it is used up. I'm a little concerned that if I take a monthly distribution, there might be a problem if we had a financial emergency and needed cash. I am 63 if that makes a difference.
If I roll it over to an IRA, can I take withdrawals before I am 65? Do you have any suggestions about an IRA that would be fairly safe? —V.H., by email
A. Your Thrift Savings Plan (TSP) assets are what many call "the third leg" of retirement security— liquid financial assets that supplement your Social Security and pension income. You are entirely correct in your concern about converting your TSP assets into a lifetime income. You already have that. What you need is flexibility, so rolling to an IRA is a good alternative. And after age 59 ½ you can take withdrawals without penalty or limit.
You will be hard pressed to find an IRA Rollover with investment choices that will be as inexpensive to run as the choices in the TSP plan, but you can avoid a major shock (and waste of money) by using low-cost index funds, such as the mutual funds or exchange traded funds that are used in my Couch Potato portfolios.
If you want to keep it simple and do one-stop shopping— the choice many people prefer— then Vanguard Balanced Index fund Admiral shares (Ticker: VBIAX) are a good choice. Admiral shares require a minimum investment of $10,000.
The fund invests your money in a 60/40 mix of domestic equities and fixed income— a traditional balanced fund. It does this for 0.10 percent a year, a fraction of the cost of managed funds, yet has quite consistently done better than the majority of managed funds. Over the last 3 and 5-year periods the fund has provided a higher return than 89 and 93 percent of its managed competitors, respectively.
Will it perform so well forever? Probably not, but history suggests that it will do better than about 75 percent of the alternatives you might choose. You can invest in this fund by opening an account with Vanguard. You can also invest in it, for a small commission fee, by opening an account at Schwab, Fidelity or TD Ameritrade. All three of these firms have physical offices in major cities. Many people feel more comfortable visiting an office.
Q. With the recent droughts and continuous population expansion, do you think that water, or water rights, should be considered to be a precious commodity, similar to that of oil and gas resources or gold? Do you have any suggestions of how to efficiently invest now in this asset class? —S.S., Dallas, TX
A. In America we think a water shortage is when we are told to reduce automatic lawn sprinkling. But the reality is a lot tougher than that, particularly outside the industrialized world.
Yet even in the United States we face a major collision between water supplies and population growth in the Southwest, witness Philip L. Fradkin's "A River No More: The Colorado River and the West" (paperback edition, University of California Press, 1996). Water is in short supply in Florida and I have been in Rockport, Massachusetts during a water shortage when neighbors with views of miles of ocean reported on other neighbors who watered during a ban.`
Other fairly recent book titles include "Water Wars," "Last Oasis," "Blue Gold," and "Whose Water Is It?” just to name a few. This is an issue that is well researched and documented. Whether that translates into water being an investment is another question. PowerShares, for instance, offers two exchange traded funds that focus on water.
PowerShares Water Resources Portfolio ETF (ticker PHO) and PowerShares Global Water Portfolio ETF (ticker PIO) have expense ratios of 0.66 percent and 0.75 percent, respectively, which makes them relatively expensive for ETF shares but a good indication that lots of people are thinking about water scarcity.