Your TSP Took a Hit? Here’s What to Do Before You Lock In the Losses

Missy E
November 14, 2025

Key Takeaways

Selling your TSP investments during a downturn can permanently lock in losses that could otherwise recover over time.
Strategic rebalancing and understanding your investment options in 2025 are critical to protecting your TSP and future retirement income.

Why Selling in a Down Market Can Be a Mistake

Market downturns can be emotionally unsettling, especially when your Thrift Savings Plan (TSP) account appears to shrink with each quarterly statement. It’s natural to want to act when faced with losses—but acting too quickly may turn a temporary dip into a permanent financial setback.

When you sell investments in your TSP while prices are low, you lock in losses that may have reversed with time. The TSP’s lifecycle and index funds are built to weather volatility over the long run. In 2025, with market cycles continuing to show fluctuation due to global events, inflation control measures, and economic shifts, staying invested through downturns can be the difference between long-term growth and short-term loss.

Assess the Damage Before You React

Before making any changes to your TSP allocations:

Log into your TSP account and compare your current balance to the previous year, not just the previous month.
Check the fund performance: Was the drop uniform across all funds, or isolated to a particular one?
Review your contribution allocations: Are you too heavily weighted in the C Fund or S Fund during a high-volatility period?

Understanding the root of the loss can help you decide whether to ride out the market or make a change.

Understand Your Investment Options in 2025

As of 2025, your TSP offers several core funds:

G Fund (Government Securities)
F Fund (Fixed Income Index)
C Fund (Common Stock Index)
S Fund (Small Cap Stock Index)
I Fund (International Stock Index)
L Funds (Lifecycle Funds)

Each fund reacts differently to market forces. For instance:

The G Fund is stable but grows slowly.
The C, S, and I Funds tend to fall harder in downturns but often rebound more strongly.
L Funds automatically rebalance based on your target retirement date, offering a hands-off approach.

By 2025, the TSP has also improved its interface and planning tools, allowing better insight into your personal risk exposure.

Rebalancing: A Smarter Response

Rather than selling, consider rebalancing your TSP allocation. Rebalancing involves adjusting your investment percentages to return to your original or updated risk tolerance. If stocks have fallen, they may now make up a smaller portion of your portfolio—this may be a good opportunity to buy low and restore your target allocation.

Steps to rebalance:

Review your current TSP allocation.
Decide your desired mix based on age, retirement timeline, and risk comfort.
Use the TSP website to update your Interfund Transfer (IFT) or Contribution Allocation.

In 2025, TSP participants are still limited to two IFTs per month (with unlimited transfers into the G Fund). Be strategic about when and how you rebalance.

Age and Retirement Timeline Matter

Your age plays a significant role in how you respond to a TSP downturn:

Under 50: Time is your ally. You can generally afford to wait out volatility and benefit from eventual market recoveries.
50–60: Start reducing risk gradually. You still have growth potential, but preservation becomes more important.
60+ or near retirement: Avoid panic selling. Instead, consider shifting some funds into more stable options like the G or F Fund while keeping some exposure to growth.

Remember: the TSP is a long-term retirement vehicle. Most federal retirees continue drawing on their accounts for decades after separation.

Consider Diversifying Within TSP

While the TSP doesn’t allow outside investments within the plan, you can still diversify internally. Even within the TSP funds, mixing asset types—stocks, bonds, and international exposure—provides a buffer during downturns.

As of 2025, L Funds remain one of the best tools for diversification if you prefer a hands-off approach. These automatically adjust asset mixes as you approach your retirement target date.

Watch for Retirement Triggers

Your proximity to key TSP withdrawal ages should influence your strategy:

At age 55: If you separate from service, you can take penalty-free withdrawals.
At age 59½: You can take withdrawals without penalties regardless of employment status.
At age 72: Required Minimum Distributions (RMDs) begin, unless you’re still working for the federal government.

If you’re nearing any of these milestones in 2025, a market dip might suggest delaying withdrawals rather than converting losses into actual reductions in your retirement income.

Avoid Emotional Decision-Making

2025 has seen continued market volatility driven by interest rate shifts and international developments. The worst time to make changes is when you’re afraid. Consider these principles:

Don’t time the market—it’s rarely effective.
Don’t make permanent changes based on temporary conditions.
Don’t let media headlines drive your investment decisions.

Instead, base your decisions on facts, your timeline, and your long-term retirement goals.

Consider Professional Advice

Your TSP is one part of a larger retirement picture. If you’re unsure whether to rebalance, sell, or change your strategy, talk to a professional.

Many government employees in 2025 work with financial planners who understand TSP rules and public sector retirement timelines. Getting the wrong advice—or acting without guidance—can mean higher taxes, penalties, or missed opportunities.

Monitor TSP Legislative Changes

Public sector benefits are not static. In 2025, Congress continues to propose changes that may affect the TSP, including:

Potential changes to contribution limits
Reforms to fund access during emergencies
Proposals impacting tax treatment of withdrawals or Roth TSP conversions

Staying updated helps ensure your strategy adapts with the rules.

Don’t Forget About Roth TSP

If you’re contributing to the Roth TSP, your investment strategy may differ from traditional pre-tax contributions. Since Roth TSP withdrawals in retirement are tax-free (if rules are met), growth is especially valuable.

When markets are down, Roth contributions allow you to buy more shares at lower prices—amplifying long-term tax-free gains. If you’re under 50 and contributing regularly in 2025, this could be a major advantage.

Stay Consistent with Contributions

The 2025 elective deferral limit remains high, allowing up to $23,500 in contributions—or more if you’re in the 60–63 age group using catch-up limits.

If your TSP took a hit, one of the best decisions you can make is to continue contributing. This allows dollar-cost averaging—buying more shares when prices are low and fewer when prices are high—potentially lowering your average cost per share.

Secure Your Future with a Long-Term Mindset

Market corrections are part of the investment journey. While they may rattle your confidence, they also provide opportunity for strategic decisions that support your retirement goals. As a government employee, you have access to one of the strongest defined contribution plans available—use it wisely.

The worst thing you can do is abandon your strategy out of fear. The best thing? Stay informed, review your goals, and act with purpose.

Talk to a Professional Before You Make a Move

Retirement security is built on a series of smart, well-timed decisions. If your TSP balance has dropped in 2025, take a step back, assess, and then act—with guidance.

For support that’s personalized to your age, retirement plans, and tax situation, connect with a licensed professional listed on this website. You don’t have to go it alone.