Marcus is 55, works at a federal agency in Denver, and has $640,000 in his TSP. Last March he watched the balance drop by about $90,000 in a few weeks, and he called his brother-in-law, who told him to move everything to the G Fund and sleep better. Then the market bounced. Marcus was left with two uncomfortable questions. Did he panic too early? And what should the number actually be?

If you are 55, you are probably asking a version of the same thing. The honest answer is that there is no single correct percentage. There is a sensible range, and where you land in it depends on a few things you can actually measure.

Why 55 is a pivot point

At 55, you are close enough to retirement that a big loss hurts, but far enough away that you might need this money to last 35 or 40 years. Both facts are true at once.

Federal employees have a particular wrinkle. If you separate from service in or after the calendar year you turn 55, you can take TSP withdrawals without the 10 percent early withdrawal penalty (the age is 50 for certain public safety roles). Many people in your position are quietly planning to leave at 56 or 57, which means the clock on withdrawals may start sooner than you think.

That matters because of sequence of returns risk. A bad market in the two or three years around your retirement date does far more damage than the same bad market ten years in, because you are selling shares while prices are down. Averages don't capture that. Timing does.

The rules of thumb, and where they fall short

You have probably heard "100 minus your age in stocks." At 55, that gives you 45 percent. A newer version uses 110 or 120, which gives you 55 to 65 percent. These are fine as starting points and poor as final answers, because they ignore your pension.

A FERS employee with 25 years of service has a guaranteed annuity, and likely a Social Security benefit down the road. That is a floor. Someone with no pension, or a spouse with no income, has no floor, and the TSP has to do all the work. Those two people should not hold the same allocation just because they share a birthday.

A framework that works better: floor first, then growth

Start by asking what your essential spending is, meaning housing, food, insurance, taxes, and the basics. Then add up the income that arrives no matter what the market does.

  • Your FERS or CSRS annuity
  • The FERS special retirement supplement, if you qualify (it generally applies to immediate unreduced retirements, and it ends at 62)
  • Social Security, once you claim it
  • Any military retirement pay or other pension

If that guaranteed income covers most of your essentials, you have more room to hold stocks, because a market drop will not force you to sell at the bottom to pay the electric bill. If it covers half or less, the TSP needs to carry more of the load, and a more cautious mix makes sense.

Three realistic profiles at 55

These are illustrative ranges, not prescriptions.

Strong floor, flexible plans. Say your pension and expected Social Security cover 80 percent of your essentials, and you have no plan to touch the TSP for years after you retire. A stock allocation of 65 to 80 percent is defensible. You are investing for a 30-year horizon, and that is a long time.

Moderate floor, retiring in two to five years. This is Marcus. His pension will cover about 60 percent of his needs. A 50 to 65 percent stock allocation is a reasonable zone, with the rest in the G Fund and perhaps some F Fund.

Thin floor, need the money soon. If the TSP will fund a big chunk of your living costs starting at 56 or 57, something like 40 to 50 percent in stocks may be wiser. You give up some growth to protect against a bad sequence.

What a drop actually looks like

Numbers help. Take a $600,000 balance and a 35 percent stock market decline, roughly what the C Fund experienced in 2008 (the exact figure varies by measure and date range).

  • At 80 percent stocks, you lose about $168,000, or 28 percent of the account.
  • At 60 percent stocks, you lose about $126,000, or 21 percent.
  • At 40 percent stocks, you lose about $84,000, or 14 percent.

Now ask yourself honestly which of those would make you sell. The right allocation is partly math and partly the one you can hold through a rough year. A portfolio you abandon at the bottom is worse than a modest one you keep.

Using the TSP funds well

The G Fund is the anchor. It carries no risk of principal loss and pays an interest rate tied to Treasury securities. Its long-run returns trail stocks, but that is the cost of the stability.

For the stock side, most people use the C Fund (large U.S. companies), plus smaller slices of the S Fund (small and mid-size U.S. firms) and the I Fund (international). A simple split might be roughly 60 to 70 percent C, 10 to 15 percent S, and 15 to 25 percent I, but nothing magic hides in those numbers. The F Fund, which holds bonds, can sit between G and stocks, though it can lose value when interest rates rise.

If you would rather not manage it yourself, the L Funds do it for you. Pick the one nearest your target retirement year, and the fund shifts gradually toward G and F over time. Some people find the glide path a little aggressive or a little conservative for their situation, so check the current mix at tsp.gov rather than assuming.

A practical middle path: the cushion

Many retirees in your shoes use a simple buffer. Keep two to three years of expected TSP withdrawals in the G Fund, and invest the rest for growth. In a downturn, you draw from the G Fund and give stocks time to recover. In a good year, you refill the cushion.

This is not a guarantee, and it does cost you some growth. But it addresses the exact fear behind Marcus's phone call.

Keep it from drifting

Whatever mix you choose, it will wander. A strong stock year can push a 60 percent allocation to 68 percent without your doing anything. The TSP lets you set up automatic quarterly rebalancing, and interfund transfers are unlimited, so there is little excuse for neglect. Check once or twice a year. Do not check every week.

What Marcus did

He settled on about 60 percent stocks, with two years of planned withdrawals parked in the G Fund. It was not a dramatic change. It was a decision made while the market was calm instead of during a panic, and that, more than the exact percentage, is the point.

Run your own numbers before you copy anyone else's. Contribution limits, catch-up rules, and withdrawal options change from year to year, so confirm the current details at tsp.gov and irs.gov. And if your situation is complicated, with a spouse, a survivor annuity decision, or a possible early retirement, an hour with a fee-only planner who understands federal benefits is money well spent.