Heavily shifting to the G Fund when you retire shouldn’t be automatic - retirement is just a date, it’s not necessarily when you’re going to start spending. Image: gcpics/Shutterstock.com
By: Tyler Weerden, CFEAs a federal employee, your financial life includes some unique features – steady paychecks, eventually a cost-of-living adjusted pension, the Retiree Annuity Supplement (if eligible for an immediate unreduced pension), employer sponsored health insurance, and access to the Thrift Savings Plan (TSP). What’s not unique to feds is the need to come up with an appropriate asset allocation for the investments held in your TSP, IRAs, and taxable brokerage accounts.
With some recent market volatility, now is a good time to reassess whether your current mix of stocks, bonds, and cash still fits your personal situation.
This doesn’t mean a major overhaul or an emotional, reactive decision. Instead, take a moment to ask yourself: How do I feel about my current investment setup? If market fluctuations are keeping you up at night, making you anxious, or sending you into a doom scrolling spiral, your current asset allocation might not be right for you. Maybe you’re too heavily invested in stocks for your comfort level.
You’ve likely heard of “risk tolerance” before – it’s your willingness to handle market ups and downs. However, asset allocation isn’t just about feelings. It’s about your time horizon and complete financial picture, including your risk capacity. Unlike the feelings associated with risk tolerance, risk capacity is your subjective financial ability to handle market volatility. Risk tolerance is saying, “I’m not bothered by market swings.” Risk capacity is saying, “Market swings don’t affect me financially”. As an example, if someone needed distributions from their portfolio to cover their basic living needs (food, shelter, clothing) and they were invested 100% in a single stock, their capacity for risk would be low. If that stock dropped 20%, it could significantly affect their present and future financial situation.
So, how should you go about structuring your asset allocation?
Income Planning for Federal Retirees
When planning for retirement, you’re essentially solving a math problem: how much of your income will come from fixed sources (e.g., pension, Social Security, annuities, etc.), and how much needs to come from your portfolio (e.g., TSP, IRA, brokerage accounts)?
If your pension and Social Security fully cover your living expenses, you may have the capacity to invest more aggressively. But then again, should you? If you don’t need the higher return that stocks have historically provided, do you want to expose your portfolio to unnecessary volatility? It’s a classic debate. As Dr. William Bernstein once said, “When you’ve won the game, why keep playing it?”
For others who do need consistent income from their investment accounts, it may make sense to set aside a few years of spending in lower-risk assets like cash or short-term bonds and then allocate longer-term money to stocks. That way, you’re not forced to sell investments during market downturns.
Think of each dollar you’ve saved as having a job and a “use by” date. The money you plan to spend in the next few months shouldn’t be invested the same way as money you won’t need for another 5–10 years. This concept goes by many names – bucketing, asset-liability matching, time segmentation—but the idea is the same: Align your investments with when you plan to spend them. This is why heavily shifting to the G Fund when you retire shouldn’t be automatic. Retirement is just a date, it’s not necessarily when you’re going to start spending.
Adjusting Your Allocation? Don’t Rush
If this recent market volatility has you rethinking your asset mix, resist the urge to act impulsively. Stress clouds judgment. Before making any big portfolio changes, give yourself time to really evaluate what allocation works for your goals, your lifestyle, and your psychological comfort level.
It’s tempting to think of cash or bonds as “safe” right now—and in some ways they are—but less volatility doesn’t mean less risk. Especially for retirees, inflation is a hidden danger. It can quietly eat away at your purchasing power over time.
Remember the famous “4% Rule”? It came from research by William Bengen, who found that a 50/50 U.S. stock and intermediate treasury bond portfolio historically allowed retirees to safely withdraw 4% per year, adjusted for inflation, over a 30-year retirement.
Interestingly, the worst year to retire in wasn’t during the Great Depression or during World War I. Instead, it was 1966, thanks to high, persistent inflation. The silent portfolio killer known as inflation can do just as much damage as a market crash.
For Feds Holding Extra Cash
Many federal employees recently stockpiled extra cash due to job uncertainty. If you’ve since received written notice that your position is exempt from layoffs, you may be wondering what to do with that excess cash now that the immediate threat has passed.
Should you invest it all at once? Wait until things settle down? Drip it in slowly over time (known as dollar-cost averaging)? The answer depends on how you feel and how emotionally reactive you are to market movement.
Statistically speaking, lump-sum investing usually wins over the long term. Since 1928, the S&P 500 has ended the year with a gain about 73% of the time. So, odds favor investing it all now.
That said, if a market dip shortly after investing would send you into panic mode, then dollar-cost averaging can be a great behavioral strategy. Maybe invest half now and the rest over a few months. Or divide the amount into equal parts and invest once a month. The key is to get the money working, not to obsess over timing perfection.
There’s no “wrong” answer. Whether you invest it gradually or all at once, the most important step is taking action and aligning with your long-term goals. Years from now, this will just be a footnote in your financial journey.
Create Your Own Investment Policy Statement (IPS)
Want to avoid future stress during market drops? Write your own Investment Policy Statement—a personal rulebook for how you manage your investments.
Your IPS might include:
(1) Your target asset allocation (e.g., 60% C Funds, 30% G Fund, 10% cash)
(2) Why you chose that mix
(3) What you’ll do during market downturns
(4) What you won’t do (e.g., invest in high-fee funds, use leverage)
(5) When and how you’ll rebalance (e.g., on a set date or when your portfolio crosses a threshold out of alignment)
This doesn’t need to be a complex document. It’s just a written promise to your future self. Like a checklist for a pilot, it helps you stay calm and make informed decisions when turbulence hits.
Final Thoughts for Federal Employees
You have tools and income sources that many in the private sector don’t—use them to your advantage. Whether you’re adjusting your allocation, investing excess cash, or writing an IPS, the key is to stay calm, stay thoughtful, and make decisions that align with your version of financial security.
Tyler Weerden, CFE is a financial planner and the owner of Layered Financial, a Registered Investment Advisory firm. In addition to being a financial planner, Tyler is a full-time federal agent with 15 years of law enforcement experience on the local, state, and federal level. He has served in both domestic and overseas Foreign Service assignments. Tyler has experience with local, state, and federal pension systems, 457(b) Deferred Compensation, the federal Thrift Savings Plan (TSP), Individual Retirement Arrangements (IRAs), Health Savings Accounts (HSAs), and invests in rental real estate. He holds a Bachelor of Science degree, a Master of Science degree, passed the Series 65 exam, and is a Certified Fraud Examiner (CFE).
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