By Kisha A. Taylor, Writer/Editor, Federal Retirement Thrift Investment Board
September 10, 2013
You’ve elected to enroll in the TSP and you’ve started making contributions. At first your money will be invested in the Government Securities Investment (G) Fund, the TSP’s default fund. You will never lose your principal in the G Fund, but it also won’t grow much. Once money starts going into your TSP you can make a contribution allocation or an interfund transfer, that better meets your investment goals.
Individual TSP funds — the Fixed Income (F) Fund, Common Stock (C) Fund, Small Capitalization (S) Fund, and International (I) Fund , as well as the Government Securities (G) fund— are available if you want to create your own mix. But what if you just want to “set it and forget it”?
The TSP Lifecycle (L) Funds offer automatic diversification using a combination of the five individual TSP funds (G, F, C, S, and I Funds). Pick the L Fund that’s most closely associated with the year in which you’ll need to withdraw your TSP money. You can see exactly how that money will be invested now and in the future. Under the pie illustration there is a bar that you can slide. The beginning of the bar is now, as you slide the pointer the pie changes to show how your funds will be allocated later. If you decide that the fund for your projected retirement age is too conservative or too risky, you can choose a different fund that better matches your risk tolerance.
Why invest in the L Funds?
The good thing about investing in the L Funds is that you are not putting all of your eggs in one basket. You are spreading your money and your risk into the five individual funds. That’s important whether you plan to start withdrawing your TSP account 30 years from now or 3 years from now. The mix is automatically predetermined and rebalanced.
For example, if you won’t need your money for another 20 years, you might choose the L 2030 Fund. In the L 2030 Fund, more of your money will be allocated to the stock funds (C, S, and I Funds) than will be allocated to the bond funds (F and G Funds). Because of the number of years you have until retirement, you may be more able to ride out the ups and downs of your investments while seeking the growth you want. However, as the year 2030 draws near, you’ll see your TSP account shift to a more conservative allocation — gradually increasing its concentration in the G Fund. That way, you are better protected should there be a market downturn right when you need to start withdrawing your money.
But you should also be aware that all of your money will never be 100% invested in the G Fund. Remember, you’ll need your TSP money for years after you permanently retire from the workforce. This will give you the opportunity to benefit from market upswings that may take place during those years. Even if you decide to invest in an L Fund where the contribution allocations are predetermined, you should periodically reassess your decision by reviewing your TSP statements to ensure that the L Fund you selected is the investment choice that best fits your needs and goals.
What’s the risk?
All investments have risks. It’s true whether you’re talking about the L Funds or even the G Fund. Generally, the G Fund is thought to have the least amount of risk because principal and interest payments are guaranteed by the U.S. Government. However, there is still a risk that your investments will not grow enough to offset inflation. So while you’ll never lose money in the G Fund, it may not help you maintain your buying power.
Investing in the L Funds is not a guarantee against loss and does not eliminate risk. The L Funds are subject to the risks inherent in the underlying funds, and can have periods of gain and loss.
How do I invest in the L Funds?
Once you’ve determined when you think you’ll start withdrawing your money, choose the L Fund that matches the date you plan to begin using your retirement savings:
Choose: If your target date falls in or between:
L 2050 2045 or later
L 2040 2035 through 2044
L 2030 2025 through 2034
L 2020 2015 through 2024
L Income Withdrawing now or withdrawing soon
To move money that’s already in your account into the L Fund of your choice, you’ll have to do an interfund transfer. To direct new money to an L Fund, you will have to do a contribution allocation. Visit our website (tsp.gov), call the ThriftLine at 1-877-968-3778, or watch our video, Contribution Allocations and Interfund Transfers, on YouTube channel, TSP4gov.
- Written by Guest Blogger
- Category: Blog
- Published: 10 September 2013