Leland Bobbe/Getty

No, Your Retirement Investments Aren’t Insured

Planning for your post-work future involves managing risk.

As financial institutions like Silicon Valley Bank and Signature Bank have gone under, and uncertainty swirls around the operations of other banks, you may have started to wonder and worry about your retirement savings.

Recently, a reader asked me this question:

Have you written an article with information about whether Thrift Savings Plan accounts are insured? As you can imagine, this is a huge concern for me and I can't seem to find the answer anywhere. I was hoping you might be able to help. 

It may surprise some of you to learn that none of the money in your TSP account is insured by the Federal Deposit Insurance Corporation, like your bank deposits are. When you invest for retirement, you take on varying levels of risk, depending on how you allocate your investments. 

These include risks associated with stock markets, credit and inflation. There’s also the longevity risk of outliving your money. Although risk can’t be eliminated—even if you hid your money in your mattress it could be stolen or be lost in a fire—it can be managed.

Diversification is one way to manage risk. It involves spreading your investments over various types of investments, such as different types of mutual funds, bonds, and cash. Another risk-management strategy is dollar-cost averaging, which involves buying stocks in smaller amounts at regular intervals, regardless of the price, rather than investing all at once at a particular price point. While this won’t eliminate market risk, it can help you ride out ups and downs in the market, taking advantage of periods of both low costs and high returns. It is also important not to deplete your retirement investments by taking large withdrawals too early in your retirement. 

Even the G Fund (which invests in government securities) isn’t protected by the FDIC. But under federal law, the payment of G Fund principal and interest is guaranteed by the U.S. government. For example, as of Jan. 23, the U.S. Treasury was unable to fully invest in the G Fund due to the statutory federal debt ceiling. But G Fund investors remain fully protected, because G Fund earnings are guaranteed by the federal government. G Fund account balances will continue to accrue earnings and will be updated each business day, and loans and withdrawals will be unaffected.

As of the end of February, the G Fund showed a 3.33% one-year rate of return—its highest one-year average since 2008. Rising interest rates are good for G Fund rates of return. Of course, the current inflation rate is 6% for the 12 months ending in February 2023.

The TSP’s F Fund, which includes investment-grade securities, is exposed to the possibility that principal and interest payments on the bonds that make up the index will not be paid. The F Fund is also vulnerable to market risk, because its returns move up and down with returns in the bond market. But the overall risk is relatively low.

The C, S, and I Funds are exposed to market risk because their returns vary with the prices of the stocks that make up each of the funds. For the C Fund, that’s the companies in the S&P 500 Index. The S Fund invests in a broad range of small-to-medium U.S. companies not included in the S&P 500. The I Fund is focused on overseas markets, and its returns rise and fall as the value of the U.S. dollar decreases or increases relative to the value of the currencies of the countries in which it invests.

Many investors are not comfortable with risk of any kind. But trying to avoid it can lead to poor decisions, such as buying when the market is high and selling low.The key to managing risk is education. It’s important to know the facts so that your emotions don’t get in the way of a secure financial future.