Helping Federal Employees and Annuitants Understand Their Benefits
Federal Employee's CSRS & FERS TSP Fund Choices
Caution Verses Risk & Reward - There is much to consider for retirees in order to preserve their assets and to live comfortably in retirement. Retirees must conserve their cash to ensure they have the funds needed to live comfortably in retirement unless they are independently wealthy.
A number of financial experts suggest subtracting your age from 100 and investing the difference (in percentage) in stocks and higher risk investments. All remaining funds should be invested in cash or cash equivalent safe high rated bonds, CDs, money market accounts and the like. For example, at age 60 you would keep 60% of all of your assets in government bonds and cash equivalents and the remaining 40% could be invested in higher risk stocks, real estate, etc.
You shouldn't risk what you can't afford to loose and if you are depending on the TSP to improve your standard of living in retirement, it's best to be conservative, from my perspective, and keep the majority of that money in the G fund or in the L Income fund. The G fund is the only fund that is guaranteed not to decrease in value. Approximately 75% of the L Income Fund is invested in the G Fund, with a mix of the other funds to provide some growth to hopefully keep up with inflation.
Their is also a Fixed Income Index Investment (F) Fund available. However, you have to be careful with commercial bond funds because as interest rates go up medium to long term bond funds tend to go down in price along with stocks. The G fund or L Income fund are no brainers for the person who will need their TSP cash in retirement.
So, what do we do to protect ourselves? The TSP funds offers a number of life cycle and one income fund that has only a small percentage of risk adverse investments. The closer you are to retiring the more conservative the Life Cycle Funds become until you reach the target date and the fund then becomes basically an income fund invested mostly in the G fund, a good thing. The income funds investment in funds other than the G fund are meant to try and match or slightly beat inflation.
Getting back to basics, the life cycle funds automatically adjust your investment portfolio every quarter and the closer your target date the more conservative mix in your portfolio. Many like the life cycle funds because the fund makes the decision each quarter to rebalance your account and participants have little to do other than visit the TSP occasionally to check their balances.
Others like to be more active and play with their fund mix. If you are well versed in investing that may the way for you to go, however, no one can time the market successfully and you can experience huge fund value swings when trading in and out of funds based on tips and unreasonable expectations.
Take a look at all of the fund offerings and determine what is best for you and your personal situation.
The TSP offers you two approaches to investing your money:
The L Funds are designed for participants who may not have the time, experience, or interest to manage their TSP retirement savings.
The five L Funds are:
The assumption underlying the L Funds is that participants with longer investment time horizons are able to tolerate more risk while seeking higher returns. The funds automatically adjust to reflect a lower tolerance for risk as the investment time horizon approaches. Each L Fund invests in a mix of the five individual TSP funds. The mix is chosen by experts based on each fund’s time horizon.
The L Funds are designed to achieve the highest possible rate of return for the amount of risk taken. If the time horizon is a long time from now, the L Fund will be more heavily weighted toward stocks (C, S, and I Funds). As that fund’s time horizon shortens, the allocation will gradually shift toward Government securities and bonds (G and F Funds). The L Income Fund is designed to preserve your account balance while protecting against inflation.
Continue on to the G,F,C,S, & I Funds