The Thrift Savings Plan (TSP) is a one-of-a-kind retirement plan that provides significant benefits to participants who join the program, use its features, and do their best to plan for their financial future.
Some may see its simplicity as a disadvantage; however, it makes managing one’s retirement very simple for the average person.
The TSP’s use of only five essential proprietary funds poses a problem. This means that there are only five primary funds to choose from; as a result, you cannot invest in your preferred company, no matter how much you like Apple, Disney, Ford, or any of the thousands of other companies. You cannot even consider investing in energy or retail mutual funds.
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The fact that you can only choose from five different funds makes it simple to invest in the market and build a comfortable nest egg for your golden years. Unfortunately, the government does not make things as easy as they appear.
Your payroll deductions will be deposited into the TSP G Fund, as directed by the government. If you keep your money in the G Fund, it will not earn any interest or profit. It is a highly conservative bond fund to keep pace with inflation. You won’t be losing money, which is good, but you won’t be contributing to a retirement fund, so even if it keeps up with inflation, you won’t have enough money to live comfortably when you’re older.
What options do you have for your TSP?
The other four funds are as follows:
F Fund
The F Fund is similar to the G Fund in that it invests in bonds, but it offers a higher potential return than the G Fund, meaning that your capital will experience more growth.
C Fund
The objective of the C Fund is to replicate the performance of the most significant component of the S&P 500 market index, comprising the 500 largest companies.
S Fund
The S Fund is an investment vehicle that attempts to model its investments after the largest U.S. companies in the Dow Jones group.
I Fund
The I Fund is a group of different international funds that work together.
There are additional Life Time funds known as L Funds. These funds adjust the proportion of their holdings in each of the five primary funds based on when you plan to retire. The disadvantage of these funds is that government administrators assume everyone is the same and will have the same financial needs, goals, and challenges during their investment years and after retirement. This could be challenging since no two people are alike.
You may be able to increase the size of your account to accommodate your goals if you use a personal investment program. A few mutual and exchange-traded funds (ETFs) accurately replicate the TSP funds. However, because the government does not release day-to-day data, investment software cannot analyze and make decisions using the government TSP funds. However, several other mutual funds and ETFs are exact duplicates of the TSP funds. You will be able to know the best time to move your money from one fund to another by entering these funds into a program and developing back-tested strategies. Alternately, you can consider your personal preferences when building a portfolio of investments to maximize your return and get the most for your money.
There are a few precautions to take and a general strategy to follow to implement a good TSP management plan successfully:
- According to the TSP trading rules, investors can only make two trades (transfers) per month unless they invest in the G Fund.
- The best way to handle payroll deposits is to direct them to the F Fund, where they can be traded or transferred the following month.
- Use personal investment management software as a guide to help you decide when and where to move your money within the various TSP funds.
Putting money in your retirement account to work for you rather than against you will result in a larger retirement nest egg and less stress about your finances. Establishing your TSP strategies should only take 20 to 30 minutes every few weeks.
You Could Borrow from Your TSP Account
TSP loans allow you to borrow money from your TSP account. In this case, you essentially act as your own lender, making payments to your account with interest that varies depending on the average yield of all U.S. Treasury securities with at least four years to maturity.
Loan Caps
A TSP loan has a $1,000 minimum borrowing amount. The following rules govern the maximum amount you can borrow:
- You can’t borrow more than you’ve put into the account plus your earnings.
- You cannot borrow more than 50% of your account’s value or $10,000, whichever is greater.
- You cannot borrow more than $50,000 minus any TSP loans taken within the past year.
Given the median home price in the U.S. of $355,900, a TSP loan will not buy you a decent home in most areas. But you can still use your loan to pay for closing costs or even your down payment. This can help you buy a bigger home than you might be able to otherwise.
Your TSP plan administrator handles all the back-end work, such as sending out loan funds and depositing them back into your account as you repay them over time. However, remember that the interest rate you’ll pay yourself is likely lower than what you could earn elsewhere, such as in the stock market or another interest-bearing account.
Contact Information:
Email: [email protected]
Phone: 9568933225
Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve.
In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes.
His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.
