Q: I have always heard that if one invested over $100,000 they should expect to get an annual return of between 8 and 10 percent. If this is correct, where does one invest to get that kind of return?

L.M., via e-mail

A: It’s not so much the amount of money invested that predicts rate of return, says Jeffrey R. Schulte, a chartered financial consultant in Plymouth Meeting, Pa. It has more to do with the specific investment category.

Print this story Email this story Post a Comment ADVERTISEMENT

Stocks have historically returned around 10 percent on a long-term average that can have significant variance from year to year. To attempt to achieve a 10 percent return, an investor should build a well diversified portfolio across multiple asset classes. That would include stocks as well as both corporate and government issued bonds.

A portfolio invested to try to achieve a high growth rate is susceptible to inherent risks, says Schulte. The 2008 economy is more than emblematic of those risks. To help guard against the risks, a proportional allotment to the various global market segments will add diversification. In theory, when one segment declines another rises, thereby adding consistency to a portfolio.

Who backs civil servants’ retirement?

Q: When civil servants retire and they have been promised a retirement by the federal or a state government, where will the funds come from? Were those funds invested in the stock market? If so, is an additional bailout in order to keep our retirement promises?

S.J.W., via e-mail

A: Evan Welch, a certified financial planner in Concord, Mass., has analyzed retirement programs for a number of civil servants and has these observations:

• Most federal employees participate in the Thrift Savings Plan (TSP), a retirement program that includes employee deferrals – they’re subject to the same limits as 401(k)s – and often federal government contributions as well. TSP has various investment options ranging from U.S. government bonds to aggressive stocks.

• These portfolios are managed by the Federal Retirement Thrift Investment Board, an independent government agency. They’re at risk is the same as with a private 401(k) plan because only the contribution is guaranteed.

Federal civil service employees have access to a traditional pension under the the U.S. Office of Personnel Management’s Federal Employees Retirement Plan (FERS), provided they have at least 20 or 25 years of service, depending on the agency. 

FERS and state defined-benefit plan payments are guaranteed by the sponsoring governments so if they lose money on one investment, they’ll have to make up for it elsewhere. That responsibility could ultimately fall to taxpayers.

I’m a federal worker who needs to retire early

Q: I am a U.S. State Department employee who plans to retire at age 53. My parents are not well and I need to care for them. I will be penalized immediately if I try to take advantage of my Thrift Savings Plan (TSP) money unless I take a lifetime annuity, which works out to my disadvantage because the payment never changes over my entire lifetime. My insurance agent told me there is something called a 72(t) payment for employees who wish to retire before age 55. I spoke with TSP people and they have never heard of this. What I found out on the Internet was so complicated it just confused me. Would you know anything about 72(t)s?

D.R., via e-mail

A: Under 72(t) “equally substantial distributions” may be elected if you roll the TSP money into an IRA, says Evan Welch, who answered the previous question. But, in order to avoid potential IRS penalties your selected income stream must continue either until you are 59½ or for five years, whichever takes longer. Your income stream can be calculated via one of three methods: required minimum distribution (RMD), fixed amortization or fixed annuitization. Remember, too, normal income taxes will apply to distributions.

Welch says he has never come across a client who elected 72(t) from the TSP, as all have rolled their money into IRAs. Still, he says if you can lay your hands on a TSP-70 form, you’ll find instructions on how to accomplish this task.

Got a question? Submit it to Steve Dinnen at money@csmonitor.com. Dinnen’s Financial Q&A column appears the first and third weeks of each month.