TSP
A conversation with TSP Executive Director Ravi Deo
Dear Participant,
This year, I decided to do something a little different with my annual letter to you. I sat down with a member of our editorial staff for an interview in which we talked about the TSP’s mission, our achievements over the past year, and best practices for keeping your TSP account productive and up to date. I hope you enjoy the results.
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Q: What is the TSP’s mission and how does the FRTIB carry it out?
Our mission is to run the TSP solely in the best interest of our participants. And that’s a great mission because it means we’re focused on one thing—participants’ financial well-being. It is unique within the federal government that we have one mission, one purpose, for a narrowly defined group of people. And that makes us really efficient, really effective.
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Q: What improvements has the TSP made over the past year?
In July 2024, we added a new L Fund, the L 2070, for participants who were born after 2004 or plan to begin withdrawing from their TSP account in 2068 or later. Each of the eleven L Funds is tailored to when you think you’ll need your money and reduces your exposure to investment risk as your expected retirement date approaches.
In August, we transitioned to a new I Fund benchmark index to further diversify I Fund investments and give participants access to more markets and companies. The new index includes more than 5,000 large, medium, and small companies from more than 40 developed and emerging market countries. Based on a thorough analysis, we expect the new index to offer opportunities for higher returns without a significant increase in risk, as compared to the old I Fund index.
In the fall, we launched our “Grow with the TSP” campaign to highlight how time is your greatest ally when investing. The earlier you invest, the more your money can grow. You can visit our webpage to see how $1 can increase over different time periods. Plus, we’ve included six key points for early-career participants to keep in mind.
L 2070 Fund
>>> https://www.tsp.gov/funds-lifecycle/l-2070
I Fund tracking new benchmark index
>>> https://www.tsp.gov/plan-news/2024-09-03-I-Fund-tracking-new-benchmark-index
Grow with the TSP
>>> https://www.tsp.gov/grow
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Q: What do you think people get wrong about the TSP?
There are three things. First, when you retire, you don’t have to leave the TSP. The TSP has advantages that an IRA does not have, and not everybody is aware of that. You can leave your money in the TSP after you leave federal service, and that means your savings can keep earning interest and gaining value while you continue to benefit from the TSP’s low expenses. As of July 2024, the TSP’s expenses are lower than 99% of investment options.
Second, many participants may not know how much they can do online with their TSP account, especially once securely logged in to My Account on the TSP website. For example, with My Account access, you can complete and submit many forms online with your electronic signature, view and manage your investments, and add your bank information for direct deposit to help you get your money faster and more safely. You can also use the TSP Mobile App, which offers the same functionality as logging in to My Account online.
Third, it’s best to avoid borrowing from your TSP account to cover unexpected expenses. While it may seem convenient to borrow from yourself, taking money out of your account means those funds can’t benefit from compounding interest until they’re paid back. It’s better to build up an emergency fund separate from the TSP and draw on that to weather life’s unexpected bumps. Saving starts with retirement, but it shouldn’t end there.
Expenses and fees
>>> https://www.tsp.gov/tsp-basics/expenses-and-fees
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Q: What message would you give people just starting to save for retirement?
Start now. That’s the most powerful thing you can do. It doesn’t have to be a lot; as long as it’s at least 5% of your basic pay, you’ll get the full matching contribution from your agency or service. You can always contribute more, but if you contribute less than 5%, you miss out on the free money available to you. That could mean losing out on thousands of dollars by the time you retire.
Investing strategies
>>> https://www.tsp.gov/investing-strategies
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Q: What would you say to participants getting ready to retire?
In addition to reminding participants they can keep their money in the TSP when they leave, I would also say they could consider lower-risk investments. You can change your investment mix yourself, or one of the Lifecycle Funds can do it for you. When you’re first starting out with your TSP account, choosing riskier investments—which offer the opportunity for higher gains—can be OK because you have time to recover from losses before you retire. But if you’re at retirement or close to it, you don’t have 20 or 30 years to recoup your losses because you are going to start spending that money soon. And stocks don’t always go up. Risk is real.
Lifecycle Funds
>>> https://www.tsp.gov/funds-lifecycle
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Q: And what hopes do you have for your own retirement?
I hope I can use my TSP to enjoy time with my kids, and to do the things that my wife and I hope to do when we have lots and lots of time, with no need to get up in the morning and come to work.
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Q: Any final thoughts?
Yes. It’s good to do a wellness check on your TSP account at least once a year. There are a few housekeeping issues you can take care of to ensure your TSP account is up to date.
If you haven’t logged in to My Account since June 2022, you need to set up a new login on tsp.gov. It takes less than 10 minutes to get online access to your TSP investments, verify your contact information, and help protect your account from fraud.
Add your bank account information to your My Account now so that when you need money later, you can get it quickly and safely through direct deposit.
Lastly, always make sure your contact information is up to date so we can notify you of important information about your account. Being able to reach you helps us carry out our mission: helping you fulfill your financial goals and live the best possible version of the life you want in retirement.
And reach out to us anytime. If you have general questions or concerns, you can use AVA, the TSP virtual assistant on tsp.gov, to get answers. To ask AVA account-specific questions and connect with a ThriftLine representative during business hours for a live chat session, log in to My Account and select the icon found on the bottom right of the page. To speak with one of our representatives by phone, call the ThriftLine at 1-877-968-3778.
We’re here to help
>>> https://www.tsp.gov/contact
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Wishing you a happy and prosperous 2025,
Ravi Deo, Executive Director
Federal Retirement Thrift Investment Board
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Important TSP information
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* Rates of Return: https://www.tsp.gov/fund-performance
* TSP Expenses: https://www.tsp.gov/tsp-basics/expenses-and-fees
* TSP Funds: https://www.tsp.gov/investment-options
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Stay connected
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* Twitter/X: https://x.com/tsp4gov
* YouTube: https://www.youtube.com/user/tsp4gov
* TSP webinars: https://www.tsp.gov/webinars
* Contact us: https://www.tsp.gov/contact
* Privacy: https://www.tsp.gov/privacy-policy/participant-outreach-emails
* TSP website: https://www.tsp.gov
ThriftLine Service Center
C/O Broadridge Processing
P.O. Box 1600
Newark, NJ 07101-1600
January Update of The Wealthy Captain Now Includes the Crush the TSP Guide
The January update of The Wealthy Captain now includes the Crush the TSP Guide as part of Chapter 6 – Invest Aggressively.
TSP Completes I Fund Transition to Broader Index
I don’t use the TSP I Fund because it was only invested in developed international countries and excluded the developing countries (where much of the growth potential resides), but not anymore according to this TSP release! Here is an article that details the change:
TSP Outlines Strings Attached to Upcoming Investment ‘Window’
This link explains the rules for the forthcoming “window” that will allow some TSP investors to invest in funds outside of the traditional TSP funds. Personally, I think this is a bad idea as you really don’t need anything beyond the funds that are already available and there are a bunch of fees you will be paying, as you can read here. If you want to invest in other things, do it in your IRA, other retirement accounts you have access to, or taxable brokerage accounts at Vanguard, Fidelity, etc.:
Throwback Thursday Classic Post – Will the Government Ever Get Rid of the “Free Lunch” of the TSP G Fund?
They say there’s no free lunch, but in the Thrift Savings Plan there is a free lunch, and it’s called the G Fund. Will the government get rid of this free lunch?
The G Fund Free Lunch
What is this free lunch? You can read about it on this page in the Fees & More Info section:
The G Fund Yield Advantage—The G Fund rate calculation results in a long-term rate being earned on short-term securities. Because long-term interest rates are generally higher than short-term rates, G Fund securities usually earn a higher rate of return than do short-term marketable Treasury securities.
The government is paying you a higher interest rate than it should. That is the G Fund free lunch.
Why is the Free Lunch at Risk?
The government periodically considers getting rid of it. For example, you can read about it in this article, which is discussing the President’s FY19 budget plan/request. Here’s the relevant portion:
The plan also proposes reducing the statutorily mandated rate of return for the government securities (G) fund to be based on either the three-month or four-week Treasury bill, at a projected savings of $8.9 billion over 10 years.
“G Fund investors benefit from receiving a medium-term Treasury Bond rate of return on what is essentially a short-term security,” the White House wrote. “The budget would instead base the G-fund yield on a short-term T-bill rate.”
TSP spokeswoman Kim Weaver said changing the G Fund’s yield, which is currently 2.75 percent annually, would have a disastrous effect on participants’ ability to save for retirement. If Congress changed the G Fund to track the three-month Treasury bill, the yield would decrease to 1.46 percent, and for the four-week bill it would drop to 1.43 percent.
“Such a change would make the G Fund inadequate and ineffective from an investment standpoint for TSP participants who are saving for retirement,” Weaver said in an email. “More than 3.6 million TSP participants (69 percent) have all or some of their account balance invested in the G Fund. Of those with money in the G Fund, 2 million (39 percent) hold the G Fund as their sole investment choice.”
For a TSP participant who has just retired and is invested entirely in the L Income Fund, which is designed for people who have begun taking annuity payments, they would run out of money at age 84 instead of the current projected age of 92, Weaver said.
Jessica Klement, staff vice president for advocacy at the National Active and Retired Federal Employees Association, said the change would make G Fund investments “useless” and likely force TSP administrators to divest from it entirely.
“[The new rate] would not even keep up with inflation,” she said. “So if you wanted to keep your money in a mostly secure fund, you would not be getting any return, and you’d actually be losing money. And if you took your money out, there would be no other safe, secure investment for those nearing or in retirement.”
What Does This Mean For You?
Right now, it means nothing. This is all just discussion about something that might happen in the future.
What you do need to understand, though, is that the G Fund serves a specific purpose in your portfolio. As the TSP site says:
Consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss. If you choose to invest in the G Fund, you are placing a higher priority on the stability and preservation of your money than on the opportunity to potentially achieve greater long-term growth in your account through investment in the other TSP funds.
It is alarming that Ms. Weaver from the TSP said, “Of those with money in the G Fund, 2 million (39 percent) hold the G Fund as their sole investment choice.” Those 2 millions people are sacrificing long-term growth for the safest and most conservative investment available in the TSP.
There’s nothing wrong with that if you’re doing it because you are very conservative, near retirement, or the G Fund serves as the bond portion of a larger, more diversified portfolio that has more risky assets like stocks or real estate.
The sad reality is that most who are solely invested in the G Fund are that way because it used to be the default option for those starting a TSP account, and they never switched it to a more aggressive investment option. Under the new Blended Retirement System, the default investment switched from the G Fund to an age-appropriate Lifecycle fund.
What’s the Bottom Line?
The G Fund gives you a free lunch, paying you a higher long-term interest rate while you are investing in short-term securities. The government periodically talks about getting rid of that free lunch.
If you are invested in the G Fund, make sure you are doing it purposely and are aware of its conservative nature. Its emphasis is on preserving wealth rather than growing wealth.
Throwback Thursday Classic Post – A Simple and Military Specific Summary of How to Save for Retirement
I’m a huge fam of Jim Lange. He’s a noted expert in financial management, saving for retirement, and estate planning. He’s written a number of books
He sends out a monthly newsletter that I get via snail mail, and it usually has a useful article in it. If you want it, you can get it here.
A previous edition had a section called “Jim’s Point-by-Point Summary of the Whole Retirement & Estate Planning Process.” It was simple but extremely useful. Below in bold are each of the points he lists for people who are still working, which is most of my readership. Let’s take each bolded point and militarize it for you so it is specific to those of us in the military.
Contribute at least the amount to your retirement plan that your employer is willing to match or partially match.
For those under the legacy retirement plan, this is not an option. For those under the new Blended Retirement System (BRS), you need to contribute 5% of your basic pay to the Thrift Savings Plan (TSP) to get the pull 5% DoD match:
You also need to make sure you contribute 5% every month and don’t fill the TSP too early. If you max it out in October, you won’t get a match in November or December.
If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match.
This is $19,500 in 2021. You can do an extra $6,500 if you are 50 or over. You can even do more if you are in a combat zone.
Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it.
If you are able to fill your TSP account, next you’ll need to open an IRA at an investment firm. Vanguard is the obvious choice due to their across the board low investment fees and unique non-profit structure, but you can do this anywhere (Schwab, Fidelity, etc.).
If you make too much to contribute to a Roth IRA, you just use the back door Roth IRA option.
Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
With a traditional plan, you take a tax deduction now and pay taxes later when you take the money out. With a Roth plan you pay the taxes now and the withdrawals are completely tax free.
The general principle is that if you are in a lower tax bracket now than when you are retired, you do the Roth. If you are in a higher tax bracket now, you use the traditional.
No one really knows what the future holds, though, making this decision tough. Here are some resources for you to check out when making this decision:
Traditional and Roth TSP Contributions
Roth vs. Traditional IRAs: A Comparison
Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
While the TSP allows loans, I refuse to link to any information about it. Once you put money away for retirement, you don’t borrow from it unless it is an ABSOLUTE EMERGENCY.
Period.
The Bottom Line
Here are the point-by-point summary of steps Jim Lange suggests you take if you are saving for retirement:
- Contribute at least the amount to your retirement plan that your employer is willing to match or partially match, which is 5% of basic pay in the BRS.
- If you can afford to, contribute the maximum allowed to your retirement plan even if your employer does not match, which is $19,500 in the TSP ($26,000 if you’re 50+).
- Once you have maximized contributions to your plan at work, contribute the maximum you can to an IRA, even if you cannot take a tax deduction on it. Use a back door Roth IRA if you need to.
- Consider your personal tax bracket when trying to decide if you should contribute to a Roth or a traditional IRA/retirement plan.
- Do not take loans against your retirement plan. Allow the tax-deferred or tax-free status of the account to maximize the growth of your money.
Throwback Thursday Classic Post – Do the TSP Target Date Funds Miss the Mark?
Blooom is an on-line financial advisory service that will manage your Thrift Savings Plan (TSP) and other retirement accounts for pretty low fees. On another blog I wrote an article about them and some readers got into a Twitter dialogue with them. During this dialogue it was suggested that an investor doesn’t need to pay for an advisor because you can always just use target date funds if you don’t want to manage your investments yourself. Blooom’s response pointed to a blog post of theirs about target date funds and all the problems associated with them. Let’s take a look at their post and see if the points they raise are valid when compared to the TSP’s target date funds, the Lifecycle Funds.
What’s a Target Date Fund?
According to Investopedia, a target date fund is:
A fund offered by an investment company that seeks to grow assets over a specified period of time for a targeted goal. Target-date funds are usually named by the year in which the investor plans to begin utilizing the assets. The funds are structured to address a capital need at some date in the future, such as retirement. The asset allocation of a target-date fund is therefore a function of the specified timeframe available to meet the targeted investment objective. A target-date fund’s risk tolerance become more conservative as it approaches its objective target date.
The Lifecycle or L Funds are the TSP’s version of target date funds. You can read my deep dive on them if you like for more information.
Are the Lifecycle Funds Too Conservative?
They used to be too conservative when compared to other target date funds, but that was recently adjusted. In 2019, the most aggressive you could get with the L Funds was the L 2050, which was 82% stocks and 18% bonds. If you wanted less than 18% bonds, you couldn’t do that with any of the L funds, but now you can get as aggressive as 99% stocks and 1 % bonds with the L 2065 fund.
If you look at the L fund targeting the year you want to retire, though, and you think it is still too conservative for your liking, to compensate you can always just pick a L fund that targets a later year. For example, if you want to retire in or around 2030 you would normally pick the L 2030. Instead you could pick the L 2035 or L 2040 to get more aggressive.
Do the Lifecycle Funds have High Expense Ratios?
This is a definitive no. While other target date funds can have high expenses, the L funds are composed of funds with the lowest expenses you will find anywhere. You probably cannot find a target date fund with lower expenses than the TSP L Funds.
Do the Lifecycle Funds Lack Personalization?
Yes, they do. There’s no way around this one. You can personalize them a little bit by adjusting the target date you invest in, as described above, but they are by definition standard for all investors.
I would argue that these standard asset allocations are good enough for just about everyone to come up with a reasonable investment plan. If you want a personalized plan, though, you may have to get some help or use a financial advisor.
The Bottom Line – Do the L Funds Miss the Mark?
I think it depends. They are definitely low cost, so they hit the target there. They used to be too conservative, but that was fixed and you can also just adjust that by using a fund with a target date that is further off. They are definitely not personalized, but I don’t think they need to be. The asset allocations they use would do for 99% of the people investing, including myself.
Throwback Thursday Classic Post – Does the TSP G Fund Count as a Bond or Cash in my Asset Allocation?
A reader wrote in and asked the following question:
Hi there. I thoroughly enjoy your website! When determining what my current asset allocation is, should I consider the TSP’s G Fund as “cash” or as a bond fund? I have a Vanguard account, and their website shows you these great “pie charts” reflecting one’s asset allocation. But what’s the best way to think of the G Fund in this context? Thanks a lot!
The Answer – It’s a Bond Fund
I can see why people might consider the G Fund a cash equivalent in their asset allocation, but I think it is best considered a bond because it is not liquid and is paying intermediate-term interest rates.
What is a cash equivalent? Here’s what Investopedia says:
Cash equivalents are one of the three main asset classes, along with stocks and bonds. These securities have a low-risk, low-return profile and include U.S. government Treasury bills, bank certificates of deposit, bankers’ acceptances, corporate commercial paper and other money market instruments.
The G Fund invests in “a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP.” That makes it sound like a Treasury bill, which is listed as a cash equivalent above, but remember that the G Fund offers you a free lunch. It is a short term security but the interest rate it pays is:
based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially a short-term security. Generally, long-term interest rates are higher than short-term rates.
In other words, it is really a hybrid between a short and long-term Treasury.
The other aspect of the G Fund that makes it a bond and not a cash equivalent is that it is not liquid. In other words, because it is in a retirement account you can’t sell it and use the proceeds to buy a car, deal with an emergency, or whatever else you need it for. Cash equivalents like CDs, money market accounts/funds, checking/savings accounts, or cold hard cash are all accessible and could be used for these purposes. Unless you are retirement age and withdrawing from your TSP account, the only way to get to the G Fund would be to take out a TSP loan, which I would not recommend.
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