Is a Recession on the Way? Is Your TSP Ready? Sponsored by: RICARDO VIADER

rick viader
May 27, 2020

Although it’s something we don’t like to think about, it’s essential to consider the financial ramifications of a potential recession. Historically, we know they happen every so often, and experts are always predicting when the next one will come…but are you ready?

Based on service length and salary, both postal and federal workers have a lifetime annuity (with survivor benefits) thanks to their defined benefit plan. What’s more, the majority of workers have and collect Social Security benefits. Indexed to inflation, they rise with inflation and plateau when deflation comes. For existing feds, their employer makes a 5% contribution every year into a TSP (Thrift Savings Plan) similar to a 401(k).

This is all well and good, but let’s not forget the many retired and active civil servants who were forced into withdrawing money from the C and S stock funds. Instead, they opted for the G fund and a sense of security. The good news? It never has a terrible day. The bad news? It never has an amazing day, either. Over time, most investment options outperform the G fund.

We understand that the G fund is attractive for anybody in the FERS program (where annuities stop inflation increases once past 2%) and for retirees. For everybody else, those in the G fund have missed out on huge gains in the stock market since the last recession.

Despite the potential gains elsewhere, some remain in the safer G fund. For one fed worker, they admitted to sticking with the G fund since the 1990s after losing $60,000. At the time, they liked to trade and keep tabs on the ups and downs. Suddenly, the room for maneuverability was removed when trades in the TSP were limited to twice a month. Despite the TSP not set up for day traders, the worker still made most gains from this technique.

According to this worker, this has been one of the main reasons for pulling funds in recent years, alongside previous withdrawal limits. Now at 72 years of age, the worker believes their G fund will protect them until they’re 90.

Of course, withdrawal methods have improved in recent times, so this shouldn’t be ignored. For some workers, they’re now able to pay off high-interest loans and debts thanks to one-time withdrawals. By doing this, they lose a big debt while only reducing payout by a handful of months. In some cases, this is negated anyway by the Civil Service Retirement System.

For the worker in question, they had extensive experience with these systems. Actually, they worked as a financial analyst and underwriter, which shows that it’s not just people panicking who choose to pull their funds and prioritize a safer G fund.