Previously, recommendations have been made for changes in the Thrift Savings Plan (TSP) funds. Here are some of the highlights of these earlier recommendations:
- The L 2060 Fund and beyond will begin glide paths with 99% stock instead of the former allocation of 90%. There will also be an L 2065 fund that will come out in July 2020 along with the L 2060 fund.
- L Income Fund stock allocation will increase to 30% from 20% over a period of up to 10 years.
- International stock will increase to 35% of overall stock allocation from the former level of 30% for all Funds.
- Total stock allocation for the L 2030, L 2040, and L 2050 Funds will be frozen at Q4 2018 levels for periods of years to facilitate the transition to the new L 2060 glide path. No overall stock levels will be increased for existing Funds, with the exception of the L Income Fund.
The Thrift Investment Board is continuing its steps to bring about some of these changes. Here are the latest recommended actions:
- Maintain 92.5% as the ultimate weight of the G Fund in each L Fund’s fixed income allocation.
- Move the S Fund’s share of each L Fund’s U.S. equity allocation to 16% (currently 22-25%) over a five year period.
- Maintain 35% as the I Fund’s share of each L Fund’s overall equity allocation.
- Create the L2055, L2060, and L2065 Funds.
- Continue the transition plan established in 2018 which called for temporary freezes in the overall equity allocations of the L2030, L2040, and L2050 Funds until they intercept the same glide path as L2055, L2060, and L2065.
Some actions have already been taken and are reflected in the TSP’s Lifecycle Funds. Here is a quick summary of these changes.
- The assumption of the first withdrawal was increased from 62 to 63 starting in January 2019.
- The amount in the lifecycle funds allocated to international funds was increased from 30% to 35%. (This is the ratio of the I Fund to the C+S+I ratio.) This new allocation was implemented in a one-time trade on January 4, 2019.
- A higher allocation of equity funds in the L Income Fund was increased from 20% to 30%. The transition to this new ratio was initiated in January 2019 and will be completed in July 2028. As of January 2020, the L Income Fund has a target of equity allocation (i.e., stock funds) of 21.50%.
- As a result of the blended retirement system for military personnel, more younger investors are now in the TSP Funds. With the belief that younger investors will benefit from a higher allocation in stock funds, there is an initial equity allocation of 99% until an investor is 35. This will be reduced to an equity allocation of 60% by the time an investor is 58 and further reduced to an allocation of 30% by the time an investor is 63 when an investor is enrolled into the L Income Fund. Transitioning to this new allocation will take place gradually. L2030, L2040 and L2050 allocations will be completed in 2025, 2028 and 2032.
Allocation in Lifecycle Funds
As of the end of February, 21.4% of TSP investments were in the Lifecycle Funds. 33.4% of participant allocations were in the G Fund and 27.8% in the C Fund.
We will watch the actions of TSP investors with the rapid drop in stock prices in the last few weeks to see how much has been transferred to the safety of the bond funds and the lower volatility in some of the Lifecycle Funds compared to the stock funds.