Options For Allocating Within the TSP

While working with the Federal Government, you still have quite a bit of control of the funds in your retirement savings account, the Thrift Savings Plan (TSP). You can choose what funds and risk to take, whether to invest pre- or post-tax dollars and even take withdrawals and make rollovers. This article will get you started in understanding your options to prepare for retirement while still working.

The Official TSP Funds

The TSP funds are often referred to by the first letter in their names. Here they are, in order of risk from generally safest to generally most risky:

The G Fund- This fund invests in US Government securities and bonds, and while its growth percentage is historically low, it has always retained investors’ money.

The F Fund- This is a Fixed Indexed fund that follows the bond market in general via the Bloomberg US Aggregate Bond Index. Similarly to the G fund, this low-yield fund is relatively safe. It can, however, register losses.

The C Fund- This fund is where your options begin to enter the US stock market. The “C” or Common Fund is fixed to the performance of the S&P 500, and the risk/reward ratio is the same as the US stock market.

The S Fund- The S Fund is still within the US stock market but is fixed to the Small-cap Dow Jones Industrial Average. Typically a good option for longer-hold timetables, this fund is one of the highest-risk funds offered but has historically gone up over long periods.

The I Fund- The I Fund is fixed to the EAFE Index, investing in the stocks of foreign countries in Europe, Australia, and the Far East. This fund has been historically the most volatile.

The L Funds- You’ll see a variety of L funds available for you. The trick to finding the best one for you is finding the one that corresponds to your planned year of retirement. For example, if you plan to retire around the year 2045, you would opt in for the fund named L2045. The L Funds are best for people not well-versed in managing their own portfolios. The people managing the TSP will automatically allocate increasingly for safety as your retirement year approaches. This fund can lose money.

In general, our clients get the best results from beginning their investments in higher-risk areas, slowly moving to lower-risk funds as they approach retirement. This decision should be based on your risk tolerance, proximity to retirement, and the advice of your retirement professional.

Roth vs. Traditional

Another option is to invest in a Roth TSP or a traditional one. In the conventional TSP, retirement savings and investment money is taken from your paycheck before you pay taxes. This reduces your current tax liability and allows you to immediately put more money toward growing your portfolio. Remember that taxes will need to be paid on this account any time your money is accessed and on any growth you experience once you retire.

A Roth TSP lets you put money into your investment account after it has already been taxed. While you have less to work with upfront, you will have no further tax liability on your principal once you retire. Many people concerned about the possibility of rising tax rates in the future choose this option, but the decision, in the end, is a personal one based on your unique circumstances and goals.

If you are considering a Traditional to Roth conversion, please be aware that taxes will not be removed from the principal you roll over. You would realize the taxes on your year-end tax return, and the amount would need to be paid out of pocket.

Mutual Fund Option

OPM has recently added an option to roll over into a mutual fund. Choosing this option gives you more control over your portfolio but requires you to be subject to fees that do not occur within the TSP funds. These fees can significantly erode your nest egg over time.

Early Withdrawals/Rollover

Once you reach the age of 59 and a half, you become eligible to withdraw or roll over your TSP money into another qualified investment vehicle without tax liability, penalties, or fees. This method gives you the ultimate control over your TSP wealth as you approach retirement.

Our retirement coaches are ready and trained to help you navigate your TSP allocations and rollovers. We will walk you through every step, help you get your paperwork in order, and ensure you have all the information you need to make the best choice for your retirement goals. Fill out this form for an appointment, and a scheduling coordinator will be with you right away.

< Older Post

Newer Post >

More Featured Articles

Potential Changes to FERS Benefits - Stay Informed & Proceed with Caution and Guidance

December 6, 2024

Federal employees, especially those nearing retirement age, should be aware of potential changes that could impact their retirement benefits. While details are still emerging, a new Department of Government Efficiency (DOGE) is being discussed, which could have implications for federal operations and retirement benefits. According to recent reports, this new department aims to increase transparency and efficiency in government operations. However, the full scope and implications of this initiative remain unclear. As with any significant change in government structure, there may be unforeseen consequences that could affect various aspects of federal employment, including the Federal Employee Retirement System (FERS) benefits.

thumbnail of magnifying glass over money and calendar

Discover When You Can Retire with Full Benefits

November 15, 2024

Federal employees often ponder the critical question: "When can I retire and receive full benefits?" Understanding the eligibility criteria under the Federal Employees Retirement System (FERS) is essential for making informed retirement decisions.

The FERS Supplement Earnings Test: What Federal Retirees Need to Know

October 25, 2024

The Federal Employees Retirement System (FERS) Supplement, also known as the Special Retirement Supplement (SRS), is a valuable benefit for eligible federal employees who retire before age 62. However, many retirees are surprised to learn that this supplement is subject to an earnings test, which can reduce or eliminate the benefit based on post-retirement income. Understanding how this earnings test works is crucial for federal retirees planning their financial future.

Federal Employees Face Steep Health Premium Hike in 2025

October 9, 2024

Federal workers are bracing for a significant increase in their health insurance costs come 2025. The Office of Personnel Management (OPM) has announced that Federal Employees Health Benefits (FEHB) program premiums will rise by an average of 13.5% next year. This marks the largest increase in almost two decades and comes on the heels of already substantial hikes in recent years.

thumbnail image of retired woman holding social security check

Maximize Your Social Security Benefits with Expert Guidance!

September 25, 2024

Social Security benefits play a crucial role in the financial security of millions of Americans during retirement. However, navigating the complex system of rules and regulations surrounding Social Security can be challenging. This guide aims to help you understand the key aspects of Social Security and provide strategies to maximize your benefits.

thumbnail of a couple holding map together

Navigating Your Path with a Retirement Coach and a Free Guide

August 30, 2024

Insights and Strategies for Federal Employees

How Can I Use Indexed Universal Life (IUL) as an Investment Tool?

August 5, 2024

So, what exactly is Indexed Universal Life (IUL) insurance? Well, it's a type of permanent life insurance that offers a cash value component in addition to a death benefit. Unlike traditional whole life insurance, which offers a fixed interest rate, IUL insurance allows policyholders to potentially earn returns based on the performance of a market index, such as the S&P 500. This means that your cash value has the opportunity to grow at a faster rate than with a traditional whole life policy. Pretty cool, right?

Understanding Federal Service and Age Requirements for Retirement

July 19, 2024

What are the age and service requirements to retire from the federal government? Read this blog to understand the latest federal employee retirement requirements.

How Inflation Can Impact Your Retirement

June 7, 2024

For a long time, inflation was an afterthought when it came to retirement planning. People often focused on saving a specific nest egg, diversifying their investments, and estimating future expenses, paying little attention to inflation. This once-overlooked economic factor has taken center stage, commanding the attention it deserves. The average inflation rate over the last century in the United States has hovered around 3%, demonstrating that inflation is a persistent force that can’t be ignored. When planning for retirement, individuals often create spending plans based on their anticipated expenses. They calculate how much they will need each year to maintain their desired standard of living. What many fail to account for is the corrosive effect of inflation. Higher non-transitory inflation rates can swiftly erode the purchasing power of retirees’ savings. In a matter of a few years, the dollars they saved diligently over decades may lose a significant portion of their value. This can force retirees to make difficult choices, such as cutting back on essential expenses or dipping into their principal savings, both of which can have dire consequences for the sustainability of their retirement funds. To protect a retirement plan from the ravages of inflation, it’s essential to incorporate inflation-adjusted strategies. This may involve investing in assets that historically outpace inflation, like stocks or real estate, and considering annuities or other financial instruments designed to provide reliable income streams that can grow with the cost of living. Additionally, it is crucial to periodically reassess your retirement plan to ensure it remains aligned with your evolving needs and the changing economic landscape. By acknowledging the real threat of inflation and adapting your retirement plan accordingly, you can enhance your financial security and maintain a comfortable lifestyle throughout your retirement years. Find other ways to cut costs in retirement to mitigate inflation's impact. Consider moving to a state with no income or sales taxes, paying off your mortgage, or downsizing to a smaller home. Reducing your debt now, while the US Dollar maintains its current buying power, will significantly lessen inflation's effect on your finances. Plan Ahead for a Comfortable Retirement When preparing your retirement plan, make sure to account for inflation's effects on your portfolio and budget. The steps you take now can help you achieve the retirement of your dreams. If you need personalized advice, our retirement coaches are available to assist you. Federal Retirement Experts offers a 3-Step Retirement Plan for federal employees. We'll work with you to create a personalized strategy that helps you navigate separation and sail smoothly into a financially secure retirement. We provide federal employees aged 50 and older with our free Federal Employee Benefits Analysis . This report is your tool to plan ahead and help you to better plan for retirement. To get connected with one of Federal Retirement Experts’ retirement coaches, schedule a no cost, 30-minute consultation . Our expert coaches will answer your CSRS, FERS and TSP questions, explain how your federal benefits work in retirement, and calculate a projected retirement income.