As a growing number of private firms drop defined-benefit retirement plans and shift the pension burden to employees, the federal government as an employer looks better and better.

Congress designed the federal Thrift Savings Plan and most members of Congress, and many congressional staffers, participate in it. That’s a very practical explanation for why it is such a good program. Congress told the folks who run the TSP program to keep it simple and cheap. As in the lowest- administrative-fees-in-the-business cheap.

Because of the CSRS and FERS retirement plans (which includes Social Security for FERS employees), individuals can estimate what sort of income they will have in retirement. But the unknown factor is the income they will have from investments in the Thrift Savings Plan, Uncle Sam’s aforementioned generous 401(k) plan. That depends on when they begin investing, how much they put in to the TSP and how those investments pan out over their work lifetime.

Last week’s Your Turn radio show featured Allan Roth, a Colorado-based financial planner/adviser. He is also a columnist for CBS MoneyWatch. If you missed it, or would like to listen again or refer a friend, you can do so by clicking here.

We got a lot of responses to the show. One of them was an email from an employee at OPM. Because it touches on so many points of interest to federal investors we asked Roth to comment. His responses are in green (Happy St. Patrick’s Day).

The letter begins with the TSP investor saying: “I work under the assumption that stocks will outperform any other investment vehicle over a 10- year+ period.

Roth’s response was:

So far, for the first 14 years and 2.5 months of this century, bonds are still outpacing stocks.

Then the questions begin:

Q: What do you see as the biggest risks to investing in the stock market over the long run? What can I do to mitigate these risks?

A: Expenses and emotion – beware of these risks and never underestimate either.

Q: I have heard some people advise having a portion of your nest egg in low risk, low return investments, as a “just in case.” Do you think that is a good idea? About what percentage of the nest egg would you recommend? (for this exercise assume TSP is my only savings for retirement, and I don’t plan on touching it until retirement).

A: Some always needs to be in low risk but I have no idea of this person’s need or willingness to take risk.

Q: Also considering all the above, my current TSP contributions go to C, S and I funds, one-third each. How do you feel about this distribution for long term growth? Should I be more or less invested in any one of those funds?

A: I hope he has some low risk money somewhere else. The U.S. market is roughly 75 percent C and 25 percent S.

Source: Federal News Radio