Financial Literacy Month: Making the Most of Your TSP as a Federal Worker

During Financial Literacy Month, it is essential to remind Federal Employees Retirement System (FERS) covered workers of their retirement benefits and investment options. Retirement income for these workers typically comes from three sources: the FERS basic retirement benefit, Social Security, and the Thrift Savings Plan (TSP).

The TSP is a defined contribution plan that offers retirement income for federal employees and uniformed service members, much like a 401(k) plan offered by private employers. It provides several investment options, including the G Fund, F Fund, C Fund, S Fund, and I Fund. The G Fund invests in short-term U.S. Treasury securities, the F Fund invests in fixed-income bonds, the C Fund invests in large U.S. company stocks, the S Fund invests in small and medium-sized U.S. company stocks, and the I Fund invests in international stocks.

The TSP has become an increasingly important component of retirement planning for federal workers, given that many are not covered by traditional pension plans. It offers a range of investment options that cater to a range of investor preferences and risk tolerances.

Over the past decade, TSP participants have become savvier investors, with many choosing to diversify their investments. One popular strategy is the “S&P 500 sandwich,” which involves allocating funds to both the C Fund and the S Fund. This approach provides the opportunity to benefit from the growth potential of both large and small and medium-sized U.S. companies.

Currently, the S Fund holds 11% of investments, while the I Fund holds slightly more than 8%. Additionally, an increasing number of participants are choosing the hands-off approach by selecting the life cycle (L) funds. These funds adjust the investment mix to become less risky as the expected retirement date approaches. The L 2050 fund is a popular choice, with over 1.3 million participants and a total investment balance of $30.4 billion. Diversifying investments is an excellent way to manage risk and potentially increase returns.

It is important to note that investing in the TSP involves risk, and past performance does not guarantee future results. Therefore, workers should regularly check their TSP account to ensure they are on track with their retirement savings goals and consider reallocating their investments based on their age and financial situation. For instance, as workers approach retirement age, they may consider shifting their investments to the G Fund, which has less risk and is designed to preserve capital.

In conclusion, as a federal worker, you have access to a range of retirement benefits, and it is important to make informed decisions about your retirement savings. Speaking with a federal benefits specialist might be one of the best things you can do to help plan and prepare for a successful retirement. Specialists act as a guide, helping you navigate the unique retirement benefits available to you as a federal worker, and provide valuable assistance to help you make informed decisions about your retirement savings. With the right plan and support, you can enjoy a financially secure retirement and start a new chapter in your life with confidence.