We'll keep you motivated with information, advice, tips, and reminders to help you reach your savings goal. Think of us as your own personal support system. Written by Cloud Spurlock, Federal Retirement Thrift Investment Board October 2, When we talk about retirement planning, we tend to focus on the time we spend accumulating savings during our working years. Flexible withdrawal options The recent changes to withdrawal options add long-term value to your TSP account.
After you separate from service, you can take multiple post-separation partial withdrawals. You can choose whether a withdrawal should come from your Roth balance, your traditional balance, or a proportional mix of both. If you made tax-exempt contributions from combat pay, your withdrawals will still include proportional amounts of taxable and nontaxable money. If you're a separated participant, you can take monthly, quarterly, or annual installment payments.
You can stop, start, or make changes to your installment payments at any time. If you find yourself joining the military or federal government after a career in the civilian sector, you can roll your k and individual retirement accounts into the TSP. Like civilian plans, you can access the money penalty-free at age Each individual will have different RMDs, so please consult a professional.
There are several options if you need to access that money before you turn You can make a financial hardship withdrawal, draw a loan on your balance, or just liquidate altogether. There are far more scenarios than I can cover here, so please refer to this guide provided by the TSP if this applies to you.
Many members, both federal and military, can usually elect to contribute during the onboarding process or during basic training. You literally have to do nothing besides be an employee for this to happen.
There is a vesting period or time you have to wait until that money is actually yours. For federal employees that is three years, but in some cases depending on your employment type, it is two, consult your employer to learn yours. Put another way: if you can't hack it in a uniform for at least two years, then that money goes back to the government. If you do choose to invest, they will match a portion of your contribution. Below is a helpful chart from the TSP to illustrate this dynamic.
A special note here: Anybody in the military is probably familiar with things such as "Hazard Pay," "Hardship Pay," "Separations Pay," and all the other "Pays. The government won't match this, but it is a good way to juice your contributions if you find yourself deployed or away at training. If you hit that amount, your contributions for the year stop automatically. So now we know what the TSP is and how we can contribute to it. Let's learn where our money actually goes.
Your principal is guaranteed unless of course the United States government defaults. There is virtually no risk, but the return is low. This fund is exposed to market risks unlike the G Fund, and duration, default, and inflation pose the greatest risks as the returns are tied to interest rates. This is a "low-risk" investment, however, and as such returns are not as high.
Like the "C" Fund, the chief risk is from the market, but it also enjoys higher returns than the bond funds. This one is also open to market risk, but with international investments, the term "market risk" can take on more meaning. The "L" Fund is the Lifecycle Fund. The funds inside the "L" Fund are Income, , , , and Each one of these funds takes on different risk and portfolio construction depending on what you choose.
Each different fund is made up out of the other five funds so you remain fully inside the TSP. A breakdown for each can be found here. A simple way to see the lifecycle products or target-date is that the further away from that date, the more aggressive the investments will be. For example, if you're invested in the fund, you'll own a lot of equities and not a lot of bonds.
As that date draws near, the bonds will overtake the equity portion to help preserve your principal. The expense for each fund is 0. Each fund besides the "G" has additional expenses, but the most they get up to is 4.
More information on fees and everything else with these funds can be found here. The performance for each fund can be found on the TSP website , below is a simple chart they provide with annual returns. Because each fund is meant to track an index, I've found the iShares BlackRock ticker equivalent for the enterprising individuals who would like to build a model portfolio outside of the TSP or calculate correlation and covariance or whatever else.
In some cases, they aren't perfect, but they're really close. With those tickers, I did a quick correlation backtest through the Python programming language going back to January 1, This is the result.
The good news is even inside of your TSP you can build a quality portfolio with these five funds. What you do now is up to you. Personally, I really wish I had this information when I started my military career. Unfortunately, they "taught" us about the TSP in the middle of boot camp and the class was pretty much a guy yelling at us that we can lose a piece of our paycheck that goes to the government and is invested.
We weren't worried about ten years from that moment, or ten minutes, we just wanted to survive another ten seconds without getting dragged out of the classroom and destroyed in a sand pit. All this is to say that I did not elect to contribute to the TSP. As I close my time out, it wouldn't make any sense to contribute anything so I hope to educate others. Also keep in mind you aren't paying commissions when you purchase "shares" in the TSP.
Getting this stuff on your own can be much more expensive. The employer match is generous as well. The TSP is also simple and just a big enough pain to access that you likely won't mess with it much after you set it up. Something can be said for a simple portfolio inside a complicated system.
Lifecycle funds only focus on one aspect of your investment management: you time horizon. As we discussed a moment ago, the amount of time you have left to invest is only one piece of the investment management puzzle. The date you retire is the only thing you have in common with the other individuals in the Lifecycle fund, so the plan administrators need to make some assumptions about your personal wants and needs.
They assume that the average investor is fairly risk averse, which means that they do not wish to take on very much risk. To accommodate this average investor, they put a very conservative tilt onto the portfolio. The TSP. Gov website allows us to view the investment strategy of the Lifecycle Funds over the lifetime of the fund.
With the medical advances of recent years, most people should plan to have a 30 year retirement. The G Fund returned 2. Money invested in the G-Fund lost 0. Over the long-term, low returns from government securities will either shorten the life of your portfolio or drastically reduce the amount you can withdraw each year. In the next few years, interest rates will most likely remain low. Interest rates are now at record lows and the Federal Reserve plans to keep rates low for the next several years.
This pressure by the Fed will help keep interest rates on government securities in the G Fund incredibly low, which will make it difficult for your portfolio to keep up with inflation. The TSP administrators say that Lifecycle funds are a smart and cheap way to manage your money, but this lofty goal falls short of its mark. The ultra conservative allocation that these funds will ultimately reach can hamper the survival of your portfolio throughout retirement.
If you have a question about the TSP, investing or planning for retirement, please contact me. I am a 35 year old pvt in the army. Married and have no retirement started. I feel like being this late in the game. I should take a lot of risk, to catch up. Need help or advise. Hopefully this will get my wife off my back, making her feel better about our future!
In regards to the TSP, when you are younger you can focus more on the I, C, and S funds, which are the equity funds in the account. But for younger investors you can typically add a small-value tilt to your portfolio to help enhance returns over time. So when you invest outside of the TSP it may be wise to take advantage of those aspects of stock market returns.
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Skip to Content. Leadership Voices Podcasts. Events About Newsletters. Featured eBooks. Dallen Haws November 16, By Dallen Haws. The L funds have two main attributes: Simplicity. Many times, investing gets overcomplicated. The L funds were created to help simplify TSP investing and allow federal employees to have all their money in a single fund that changes automatically as they approach retirement. A better default option. Before the L funds became the default for all new employees, the default was the G fund.
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But as people approach retirement, the best investment strategy starts to change depending on the situation. Even two people retiring at the same time will probably need to have different investment strategies, depending on personal circumstances. Some people have very high retirement savings compared to their retirement needs and others have smaller retirement savings.
Some people retire in New York City; others in rural Oklahoma. The best TSP investment strategy will depend on the personal elements of your retirement. The L Funds get more conservative over time and eventually all become the L Income fund the most conservative L fund. Since , the L Income Fund has grown 4. With inflation averaging anywhere from 1. In my experience, the L Income Fund is too conservative for most retirees.
With lifespans and retirements lasting longer, many people will rely on their investments to ensure that they can maintain their standard of living while fighting back rising prices caused by inflation. When people blindly assume that the L funds are perfectly suited for their situation, they may be disappointed. But again, I want to say that the L funds are not always bad. The important thing is that you understand what the L funds are designed to do and if that makes sense for your situation.
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If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page. A cookie is a small piece of data text file that a website — when visited by a user — asks your browser to store on your device in order to remember information about you, such as your language preference or login information.
Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website. From a volatility point of view, these "safe" funds did not plunge and rally and so were less volatile and considered less risky in mainstream thinking.
The Lifecycle funds yellow to brown provide a perfect picture of how diversification works. Most of these funds hold high level of equity funds with some of the two safe funds. The more safe funds the less the Lifecycle fund plunged with the least being the Lifecycle Income fund for retirees that is prodomently in the TSP G fund. With the Income fund it was the equity funds that took it down a bit in Once the bear market was over and the riskiest funds had finished plunging, they started what is called a bull rising market but it was not until around that all the equity funds broke-even with the TSP G fund.
All the funds heaviest in equities and lighter in the safe funds outperformed on the way up. The level of diversification mainly determined amplitude on the way up and down. And thus they all broke even about the same time.
But we are getting ahead of ourselves here. When you hear about diversification the academic definition includes buying several diversified funds in equities and bonds. So these two funds are basically the total US stock market. Note: To diversify into the total US market balance, you have to allocate 3 parts C fund to 1 part S fund, otherwise you are over-weighting small caps. This is how the Lifecycle funds does it. The Lifecycle funds today are allocating LESS in the stable funds than they did during the bear market seen in the chart above.
This means most Lifecycle funds will more closely track the losses of the TSP C fund during the next bear market. They are also capturing more of the gains during the bull market phase. Again, you lose less in a bear market, but you gain less in a bull market when you diversify and hold long term. Meaning price wildly outran revenue growth. It will have to revert in the next bear market. Because in the long run, the 1 determinate to the performance of your retirement fund is avoiding those heavy losses, period, dot.
Every long term stock chart is misleading. So avoiding part of the last two bear markets could easily have doubled your returns even while holding less risk in your portfolio during the bull markets. They all came back, but after many years.
The real point is the market DOES cycle. The SP revenue growth is pretty steady over time, but you would not know it looking at the charts of the SP index price. And we know that in the long, long run the two have to move together therefore we have bear markets declining markets to re-connect them. Spoiler alert: We have never had a flat stock market waiting for revenue and earnings to catch up. We have had a series of cyclical bull and bear markets reconnecting the two and this is called a secular bear market.
We are due for a secular bear market. Meaning you can't buy and hope anymore. You are going to have to work for gains the next decade or so. I provide this next chart to show the relative performance of the 3 TSP equity funds since the top of the last bull market in Over the 13 years presented, we see the two US funds performed about the same but with different levels of volatility on the way up. I have not recommended the TSP I fund this cycle and I will get to the reasons later, but it has most definitely underperformed the US counterparts.
This is how the TSP Lifecycle funds work. And by geographically, we are talking location of the company's stock market listing not where they do business. Does geographically diversifying based on valuations provide a smart portfolio? Academia and marketing does not seem to question it. But you can look a tad deeper into what you are really buying in terms of sectors, and where the revenue comes from or valuations you are getting.
We will do this. Let's look under the hood of these 3 TSP equity funds and see if we can find reasons for their different performance at different times. Here are common strategies I see from new investors: 1 No strategy, no decisions especially if balances are low 2 Buy and Hold then Hope then Panic sell at the bottom, 3 Rearview Mirror Strategy - chasing the best returns by looking at 3 to 5 year or even 3 to 5 week returns, 4 Seasonal strategies but on a weekly basis and ignoring all other factors, 5 Follow others online, 6 Lifecycle funds - which is really a buy and hold strategy.
Guess what? Most of these strategies can work pretty good Everyone is a good investor in bull markets and they all become geniuses in bubble markets. As long as the market keeps bouncing back and moving higher investors become even more embolden and often take on more risk more equity funds as time goes by. We know from history that retail investors are the most allocated to stocks at bull market tops and the least allocated at bear market bottoms.
Funny how that works out You can't time the markets? Hmmm, how do you think wall street makes money. I do NOT advise trading weekly or monthly with retirement funds. So speculating can be hazardous to your retirement. Missing out on gains is not the same as losing your savings near retirement.
I hate missing gains too, but it is the losses that devastate accounts. If you had a crystal ball, the best TSP investment strategy would be easy. Invest in the best performing fund during bull markets and sit in safest funds during the bear market. But many investors have followed the opposite strategy - buy, hold, then panic, then delay re-entry. You can not time the top of a bull market rising or the bottom in a bear market falling , but you can save yourself a lot of heartache and stress by being close and allocating based on the changing market risk - the risk of large losses.
Mainstream investment strategies will tell you to take on "more risk" to get better returns. For short term speculation - maybe. But I have found that you increase your nest egg substantially more by reducing or avoiding market risk at the right times. Unlike mainstream advice, I do not define risk as static throughout time. I've warned about risk of large moves down that were foreseeable and led to us telling our members to exit equities completely in late January for example and several other times recently.
So it is not impossible to observe risk and see the signs of it about to be released on the stock market. Only eighty percent because that is how much of the time the market has spent in bull rising markets. I also do not believe in Bogle's advice of holding international bond funds as part of your diversification since you would be the sucker holding Europe's negative interest bonds today. Note: TSP does not invest in international bonds. We will look at strategies that reduce real risk - large market losses - while capturing most of the market's gains.
No, not a crystal ball, but the best strategies we found that can be employed in TSP for long-term investors not traders. Which will lead us back to the question "What is the best TSP fund to allocate to? Okay, we are about to transition to looking under the hood of each equity fund to understand why they perform differently. Historical TSP performance charts and fund characteristics. This website provides a commercial service and is not affiliated with the Thrift Savings Plan administration.
What investment options are available in the TSP and how do they work? the option to invest in the Thrift Savings Plan (TSP) to help. How to Survive the Holidays Financially is a minute course designed to help service members plan for the added expenses of holidays and special events. What's an appropriate amount to have invested for retirement I predict that the G funds rate of return will be close to %.