Hi readers, we are back with part 2 in my series on making the decision to leave money in TSP or move it out.
If you say that you are mine / I’ll be here ’till the end of time.
~ The Clash – Should I Stay or Should I Go
Following our Clash lyrics, maybe this is a little overly dramatic, but you get it. In this article, I will deal with the seven points from my overview that, in my opinion, support leaving your money in the Thrift Savings Plan (TSP) after retirement or upon reaching age 59.5, and number one is:
1. Relatively Low Cost
In my opening article, I touched on the point that TSP still has relatively low costs. For example, the core funds feature the following expense ratios:
- G Fund: .057%
- F Fund: .078%
- C Fund: .059%
- S Fund: .090%
- I Fund: .064%
Additionally, the lifecycle funds range between .060% and .069%.
These are pretty low, and that is a good thing. But as I mentioned in my opening article, both Fidelity and Vanguard now offer index funds with lower expense ratios.
Remember! I am NOT advising that you move to one of these companies!!!!
If you are an active federal employee under the age of 59.5, you can rest comfortably in the knowledge that your TSP has low expenses. So that is reason number one. Let’s head to reason two which is:
2. It’s Easy
Echoing my initial comments, this point is twofold.
With only 5 core index funds and 10 Lifecycle funds (each a mix of core funds), you don’t have hundreds of options to study or review (mind you I am not considering the mutual fund window in this statement). So that makes the options pretty easy to understand.
Additionally, if you are already in the plan and have no need for withdrawals, staying put requires nothing on your part. This fits my definition of easy.
And while we are on the subject of the Lifecycle funds, let’s explore reason three:
3. Target Date Funds (Lifecycle Funds)
A target date fund can be a self-contained asset allocation. If you’ve followed my writing, you know I believe in asset allocation and will know how important I believe it is.
Within all of the Lifecycle funds from L Income to L 2065, you will have some mix of all five core funds. The core funds represent asset classes. C Fund is US large. F fund is US Bonds. G Fund is fixed or Short term government securities. I fund is the EAFE index (Basically Europe, Japan Australia etc.) and the S fund Is the Willshire 4500 (Small and midcap with some large). So, with an L Fund, you will have diversification across the asset classes and further you will have one that will automatically rebalance between them.
That being said, I do not consider the L Funds to be a set-it-and-forget-it solution. I do have some issues with the percentages allocated but I will share that in my final article of this series “Stay or Go an Advisors Perspective.” But since I mentioned the G Fund here it makes a good segue to reason four:
4. The G Fund
The G fund is a truly unique offering within TSP. Utilizing short-term government securities that are not subject to market pressures, it can never “lose” money in the conventional sense of investing. It has had a very good run over the last decade delivering an interest rate above that of cash.
Now in my final article, I will share why that can be problematic for a long retirement. So, this offering speaks well to benefit number five which is:
5. The FRTIB
The Federal Retirement Thrift Investment Board (FRTIB) was created as an independent agency by the Federal Employees Retirement System Act (FRSA) of 1986 (5 U.S.C. 8351 and 8401-79). The act charges six named fiduciaries: the five Board members and the Executive Director with this responsibility.
The FRTIB “is charged by law to administer the TSP solely in the interest of the participants and beneficiaries.”
Additionally, from the FRTIB website: “FRTIB’s mission is to help current and former civilian employees and members of the uniformed services prepare for their retirement years via the TSP.”
The FRTIB functions as an independent organization; the rationale here is for the agency to be outside of the influences of political currents. For the most part, I feel they have succeeded (there have been some political onslaughts that I will cover in my next two articles) in attempting to stay focused on delivering a low-cost accumulation vehicle for federal employees to build up retirement assets. FRTIB has garnered some criticism and litigation for its recent efforts and that brings us to benefit number 6:
6. Modernization efforts of 2019 -2022
This may stir up some strong feelings being placed as a benefit due to the challenges faced by TSP participants last year with the record keeper changeover. To be clear, I am not saying that these initiatives have gone off without a hitch (no one wants two-hour wait times). Rather, I am speaking from the perspective that allowing increased withdrawal options, mobile applications, and selective withdrawal for ROTH and traditional TSP balances are welcome (if overdue) improvements.
Additionally, I see adding the mutual fund window (additional costs notwithstanding) as an improvement on the whole. If you find yourself shouting at your screen right now, shoot me an email and I’m happy to talk it through.
And this brings us to benefit number seven:
7. Automatic RMDs
Depending upon when you were born, you are required to begin making withdrawals from tax-qualified plans (TSP) between the ages of 70.5 and 73. Failure to do so (and failure to correct it in a timely fashion) can lead to some onerous tax penalties.
If you reach your required beginning date (age) and do not request your RMD, TSP will send it to you automatically. This is a nice failsafe feature.
Please understand that as an advisor I strongly believe in having a plan for such things and following it. But if you decide to go it alone, it’s nice to have a backup should life intrude or an error occur.
So, we have covered stay. I will stress again; I am not attempting to give advice with this article series. Rather, I am hoping to share some points and insights from my career serving feds to help you make the best decision with your TSP assets.
Thanks for reading, I hope I gave you some good information and I will be back with article three…. GO!
Until then.
**Any opinions are those of Wes Battle and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. The information contained in this material does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance may not be indicative of future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
