Not affiliated with The United States Office of Personnel Management or any government agency

Not affiliated with The United States Office of Personnel Management or any government agency

Seven TSP Fund Adjustments That Could Help Federal Workers Achieve Long-Term Financial Goals

Key Takeaways

  1. Optimizing your Thrift Savings Plan (TSP) funds now can set you up for financial security throughout retirement.

  2. Diversifying your investments and periodically reassessing your allocations are key strategies to adapt to changing markets and personal needs.


Why Adjusting Your TSP Funds Matters

Your Thrift Savings Plan (TSP) is one of the most valuable tools in your retirement arsenal. It offers federal employees and retirees a range of investment options to grow their savings over time. As you approach retirement or settle into your post-employment years, fine-tuning your TSP allocations can make a significant difference in achieving your long-term financial goals. Here’s how you can make thoughtful adjustments to your TSP to maximize its potential.


Understand Your TSP Fund Options

Before making any changes, ensure you’re familiar with the five core TSP funds and lifecycle (L) funds:

  • G Fund: Government securities offering steady returns with no risk of loss.

  • F Fund: Tracks the performance of the U.S. bond market.

  • C Fund: Invests in large-cap stocks, representing the S&P 500 index.

  • S Fund: Focuses on small-to-mid-sized U.S. companies.

  • I Fund: Invests in international stocks from developed markets.

  • L Funds: Lifecycle funds automatically adjust asset allocations based on your retirement timeline.

Each fund has unique characteristics, risk levels, and potential returns. Understanding these options is the first step in optimizing your TSP portfolio.


Assess Your Risk Tolerance

Risk tolerance plays a significant role in deciding your TSP allocations. As retirement nears, you may prefer a more conservative approach to protect your savings. Consider these factors:

  • Age: Younger retirees may tolerate higher risk for potentially greater returns, while older individuals may prioritize stability.

  • Financial Goals: Are you aiming for steady withdrawals or leaving a legacy? Your goals dictate how much risk is appropriate.

  • Market Conditions: The economic climate can influence your willingness to take risks.


Strategy 1: Diversify Across Funds

Diversification reduces risk by spreading your investments across various asset classes. A well-diversified TSP portfolio typically includes:

  • G Fund for stability

  • C Fund and S Fund for growth

  • F Fund for income

  • I Fund for international exposure

While diversification doesn’t guarantee profits, it can help balance potential losses in one area with gains in another.


Strategy 2: Rebalance Periodically

Market fluctuations can shift your asset allocation over time. For example, if stocks perform exceptionally well, your portfolio might become overly weighted in equity funds. To maintain your desired risk level, consider rebalancing every 6-12 months:

  1. Review Current Allocations: Compare your actual allocations with your target percentages.

  2. Adjust Contributions or Transfers: Realign your investments to reflect your goals.

  3. Stick to a Schedule: Avoid frequent changes driven by short-term market trends.


Strategy 3: Use Lifecycle (L) Funds Wisely

Lifecycle funds simplify investment management by automatically adjusting allocations based on your expected retirement year. However, they may not align perfectly with your specific needs. You can:

  • Use L Funds as a Baseline: Start with an L Fund and tweak allocations to suit your risk tolerance.

  • Review Periodically: Ensure the glide path aligns with your financial objectives.

  • Consider Alternatives: Mix L Funds with individual funds for greater customization.


Strategy 4: Increase Contributions When Possible

Maximizing your contributions can significantly boost your retirement savings. For 2025, you can contribute up to $23,500 annually, with an additional $7,500 catch-up contribution if you’re over 50. To make the most of this opportunity:

  • Automate Increases: Schedule annual contribution hikes.

  • Use Bonuses or Windfalls: Direct extra income into your TSP.

  • Max Out Early: If financially feasible, reach the limit early in the year to benefit from compound growth.


Strategy 5: Optimize Withdrawals in Retirement

Once you’re retired, how you withdraw from your TSP can impact its longevity and your tax burden. Follow these tips:

  • Understand Withdrawal Options: Choose between monthly payments, partial withdrawals, or annuities.

  • Minimize Taxes: Opt for Roth TSP withdrawals if you anticipate higher future tax rates.

  • Maintain Flexibility: Avoid locking into rigid schedules that may not suit changing needs.


Strategy 6: Monitor Fees and Expenses

While the TSP is known for low fees, additional costs can arise if you transfer funds to external accounts or choose managed options. Keep these points in mind:

  • Compare Costs: Ensure any external investments offer value for their fees.

  • Stay Informed: Monitor updates to TSP fee structures.

  • Avoid Unnecessary Transfers: Retaining funds within the TSP can save on management fees.


Strategy 7: Leverage Professional Advice

Retirement planning can be complex. Consulting a financial advisor familiar with federal benefits can provide personalized insights. A professional can:

  • Analyze Your TSP Portfolio: Identify gaps or opportunities for improvement.

  • Create a Withdrawal Strategy: Minimize taxes and maximize income.

  • Provide Market Guidance: Help navigate economic changes and adjust allocations accordingly.


Timing Your Adjustments for Maximum Impact

Adjustments to your TSP aren’t a one-time event. Here’s a suggested timeline:

  • 5 Years Before Retirement: Shift toward a balanced portfolio, blending growth and stability.

  • 2 Years Before Retirement: Gradually reduce exposure to high-risk funds like the S and I Funds.

  • In Retirement: Reassess annually to ensure your allocations align with withdrawal needs and market conditions.


What’s Next for Your TSP?

Fine-tuning your TSP isn’t just about securing your finances—it’s about ensuring peace of mind. By diversifying investments, rebalancing periodically, and staying informed, you can create a portfolio that supports your retirement dreams. Whether you’re planning for travel, family, or relaxation, taking control of your TSP today can make those goals achievable.

Mark, a lifelong Tulsan graduated from Westminster College, Fulton, Missouri with a Bachelor of Arts in Accounting. Mark served in the United States Army as a Captain in the 486th Civil Affairs BN. Broken Arrow, Oklahoma and retired in 1996. Mark is married to his high school sweetheart Jenny and has four beautiful children. Mark's passion for his work, which includes over 25 years in the Financial Industry started as an Oklahoma State Bank Examiner. Mark examined banks throughout Oklahoma gaining a vast knowledge and experience on bank investments, small business and family investments. Mark’s experiences include being formally trained by UBS Wealth Management, a global investment firm where he served as a Financial Consultant specializing in Wealth Management for individuals & families. Mark is a licensed Series 24 and 28 General Securities Principal and an Introducing Broker Dealer Financial Operations Principal. Additionally, Mark is a Series 7 and 66 stockbroker and Investment Advisor focusing on market driven investments for individuals, businesses and their families.

Mark specializes in providing financial knowledge, ideas, and solutions for federal employees, individuals, families and businesses. We serve as your advocate, and assist you in the design and implementation of financial strategies while providing the ideas to maximize your security and wealth. Our goal is to give you maximum control of your financial future. We provide the expertise to help you with personal issues such as: practical tax Ideas, risk management, investment solutions, and estate preservation.

Additionally, we've counseled hundreds of employees on their transitions from careers in federal government, and private industry to their next life stage, whether that is retirement or a second career. We specialize in devising strategies that roll your TSP, 401(k), pension plan, to a suitable IRA to meet your objectives.

Disclosure: Securities offered through Chelsea Financial Services, 242 Main St., Staten Island, NY 10307 Phone: 718.967.8400 Fax: 718.967.1222

Securities cleared through Hilltop Securities, Inc. 717 N. Harwood Street, Suite 3400 Dallas, TX 75201

Member FINRA www.finra.org / SIPC www.sipc.org

Broker Check http://brokercheck.finra.org/

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