TSP: Is it risky to play it safe?

The Treasury securities G-fund is one of the best features of the Thrift Savings Plan, Uncle Sam’s in-house 401k plan. It is probably the safest investment available because Uncle Sam guarantees it. The G-fund never has a bad day, which is the good news. The bad, sometimes, news is that the G-fund also never has a really good day. When the stock market is falling and the stock-indexed C, S and I funds are in meltdown, the G-fund keeps rolling along. Many investors figure that a very tiny return is better than a loss. Arthur Stein, a Bethesda, Maryland, based financial planner has lots of federal worker/retiree clients. And he’s studied the TSP. Stein thinks that too many people are too conservative with their TSP investments. He’s not a fan of the self-adjusting L (lifecycle) funds, because he thinks they are too conservative. He thinks they invest too heavily in the G and F (bond) funds. Over time, he says, inflation and taxes can overtake the returns of the G and F funds. Kim Weaver, spokesperson for the Federal Retirement Investment Board disagrees that the L-funds are too conservative. She said the asset allocations in the L funds “are designed specifically for federal employees who will receive a FERS defined benefit and Social Security. We have balanced the risk and return in the asset allocations to yield sufficient growth for a TSP participant. It’s certainly possible that someone would want to increase their return, but in so doing, they are increasing their risk. ” Stein says the average annual return over the last 10 years, based on data from the TSP, the G-fund has returned 3.2 percent, the F-fund 4.9 percent, the C-fund 7.7 percent, the S-fund 9.4 percent and the I-fund, 4.6 percent. Over the past four years, the L fund returns ranged from 4.7 percent for the present income fund to 11 percent for the L-2040 fund, which is heavily weighted toward the C, S and I funds. Stein was a guest on last week’s Your Turn radio show. He covered the waterfront, including talking about the pros and cons of a Roth IRA in the TSP. One listener to the show, MaryLeone from Western Michigan, said she retired after 35-years. She wanted to know how to make her TSP last. Her question was “If someone had $100,000 in the TSP and wanted to draw out $250 to $500 per month, what would he suggest?” Stein said withdrawing $250 per month would be 3 percent of the balance. Which would probably be OK. But withdrawing $500 (or 6 percent) would be “very aggressive,” he said, “and may not be sustainable.” Especially, if all the money was invested in the G-fund. Over time, he said, taxes (which are likely to increase) and the cost-of-living (inflation) will eat into the TSP retirement nest egg. The fact that CSRS and FERS feds have a lifetime annuity indexed in whole or part to inflation, is a very, very big deal. A benefit not available to most private sector workers or retirees. But as far as the TSP goes, Stein and many others, think feds are too conservative when they invest, and especially when they retire. To listen to the entire show, click here. So where”s the money invested: According to the Federal Thrift Investment Retirement Board, the balances (millions of dollars) looked like this as of Dec. 31, 2014. All of the funds are in the billions:

  • G-fund, $191,269
  • F-fund, $24,022
  • C-fund, $140,706
  • S-fund, $50,605
  • I-fund, $33,068

So whether you have a long way to go, are close to retirement or are retired, the question is are you playing it too safe?


NEARLY USELESS FACTOID: Compiled by Michael O’Connell. Smith Island Cake became the State Dessert of Maryland on Oct. 1, 2008. Source: Maryland Manual On-Line


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