Keys to the TSP

Managing your Thrift Savings Plan account requires education and preparation.

As you might expect, questions about the Thrift Savings Plan are common at retirement planning seminars, whether those sessions involve new employees, mid-career feds or people who are about to retire. Even federal employees who have already retired must manage their TSP accounts and make key decisions about how to withdraw their funds to provide income during retirement.

Managing a retirement fund is an ongoing process which requires not only knowledge of how much to contribute and where to invest, but an understanding of how to react when the returns on your investment do worse (or better) than you expected. Developing and following an effective withdrawal strategy is also very important. And tax implications of your investment strategy have to be factored in. 

TSP participants are, on the whole, likely to be very happy with the performance of their 2019 investments. All the TSP’s funds ended the year with positive returns, ranging from 2.24% in the G Fund to 31.45% in the C Fund. The well-diversified Life Cycle Funds had returns of 7.6% (L Income) to 23.33% (L 2050) for the year.

The gains came despite a few rough months. May and August  2019 were especially difficult for the stock funds (C, S, and I). This should be comforting, because January 2020 didn’t start off with positive returns for the C, S and I Funds, either. 

If you’re not aware of how your TSP funds performed last year, you can view your annual participant statement by logging into your account on the TSP website

Knowing when and how to rebalance your funds and reallocate to a more aggressive or more conservative mix of investments can be tricky. It can be tempting to put all of your eggs in the same basket that has shown wonderful returns in the past and ignore the fact that past performance may not predict what will happen in the future. 

Many questions about federal retirement, such as those involving eligibility, annuities and insurance benefits, are fairly straightforward and have direct answers. Not so with the TSP. 

Managing your TSP account involves evaluating factors that can change rapidly and be difficult to predict. TSP investments come with tax consequences and are subject to the ups and downs of the investment performance and your ability and willingness to save. You may need to become a more educated financial planner to properly manage your investments—or hire a professional adviser to help with complicated financial situations.

The TSP provides tools to help simplify your decisions, such as the L funds, which are rebalanced and reallocated on a professionally determined investment mix based on your specific time horizon. The TSP also provides calculators to help you analyze your situation and plan for a comfortable retirement. 

Most people retire once in their lives and many spend an entire career preparing for it. They organize their information, plan for what they want to do and calculate whether or not they have enough money to retire. Even those who plan well may still face a nagging question: “Is there something I don't know, or didn’t plan for?”

If that question is on your mind, tune in on Feb. 26 to Missing Keys to the TSP, a live webinar I’ll be hosting with professional financial planner Micah Shilanski. We’ll provide and overview of the TSP and take your questions.