Thrift Savings Plan Funds – A World of Options?
Federal Employees with a Thrift Savings Plan (TSP) have five different funds to choose from.
From the ultraconservative G Fund, which invests in short term US Treasuries; to the relatively aggressive I Fund, an investment in a stock index fund that tracks large companies in developed countries.
I don’t think too many people are biting their nails about the safety of their investments in Germany (unless they’ve put their money in spaetzle futures).
As you can see, there is nothing really racy under the TSP hood. A Federal Employee who wants a more exciting and risky investment portfolio will have to look beyond the TSP.
Some three decades ago, the public at large was upset that Federal Employees were getting a defined benefit pension in retirement with regular cost of living adjustments, while the corporate-managed pension plans all seemed to be imploding for one reason or another.
Eventually, public pressure and the sheer cost of maintaining the federal retirement system led Congress to fear the political volcano that would erupt if adjustments were not made.
So, beginning in 1984, new Federal Employees were enrolled in what looked very much like the 401(k) of the private sector today.
Funds Were Made
For new hires, the G Fund is the default TSP fund. It may be sufficient for those already nearing retirement, but often is not the best choice for younger employees.
It is an overly cautious aversion to risk, and Congress has finally recognized it as such, with a proposal to have new hires automatically enrolled in the L Fund instead.
The L Fund is essentially a mix of the five TSP funds.
If you are currently invested in the L Fund, your mix is dependent on your retirement window. The further away you are from retirement, the more your L Fund mix lies in the TSP funds geared toward investments in stocks.
However, as you get closer to your retirement date, it is weighted more toward government-backed securities. This is all well and good, but the problem lies in this one-size-fits-all approach.
Sure, you aren’t forced to simply put your money in the L fund for someone else to control, but if you decide to go it on your own with the TSP, there is not much room to be creative.
Is There More Out There?
Of course, there isn’t a lot to complain about from a performance perspective. TSP assets exceed $400 billion and have performed well just like the rest of the market.
In my opinion, the TSP Board should develop some way to allow self-initiated Federal Employees to have access to the plethora of financial investment possibilities beyond what the TSP provides.
We certainly must give credit to the Board and to Congress for their altruistic concerns about altering the current approach, but the case for providing more choices to Federal Employees really should not suffer continued delay.
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
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