[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]In 2013, approximately 62,000 people retired, and between 2000 and 2013, over 40,000 federal employees retired each year. To look into this further, last July, 14 % of all federal employees were eligible to retire. That number is expected to skyrocket by up to 30% by the year 2023. Because of the vast number of federal employees who are expected to enter retirement quickly, the Thrift Savings Plan (TSP), which is a 401(k)-style savings plan available to federal employees, was created to encourage employees to maintain their balance that they invested in their TSP when they retire.
The administrative board in charge of the Thrift Savings Plan has showcased some of its advantages, like the freedom to stay with the plan in retirement, the ability to transfer funds into the plan, and straightforward choices. However, these advantages can also create some investment setbacks that most federal employees are not aware of.
1. Insufficient Financial AmenitiesÂ
While the administrative board for the thrift savings plan insists that federal employees should keep their funds invested in their savings plan accounts during retirement, there are some disadvantages to doing so, including lack of critical investment management guidance, limited withdrawal options, and lack of financial planning support. Come September 15, all thrift savings plan participants will have increased flexibility due to a new law governing withdrawals. That being said, even with these new changes, all participants will still have relatively limited access to their funds. Investors with a financial advisor can call to request a distribution; however, for most people, you still need to provide notarized signatures and other important documents in paper form for any changes or withdrawal requests.Â
Also, participants of the thrift savings plan are on their own when making any critical investment decisions because the savings plan board does not provide any investors with financial or investment management planning advice. Because of this, participants may be unaware of gaps in their financial plan because they do not have a professional financial advisor actively looking into their plan for any weaknesses that could leave them exposed to future problems.
2. Few Investment Opportunities
Even though federal employees have the advantage of having access to the cheapest employer-sponsored retirement plan in the United States (with the average cost on a balance of $1000 only being 30 cents), the plan only provides a small selection of five basic investment opportunities. Because of this, there is a significant lack of exposure to important asset classes, such as emerging markets, alternative investments, and medium-sized companies. Even though this keeps costs low, the benefit here does not outweigh the cons. By getting rid of asset classes, it leaves investors unprotected against fluctuations in the marketplace.Â
Another way the administrative board for the thrift savings plan makes their plan so inexpensive is by making all available funds index funds, except the G Fund. Investors should be wary of having only index funds regardless of their positive attributes. In 2017, there were just six companies that were responsible for 25% of the S&P 500 return for that year. In 2018, there were only three companies that were responsible for almost half of the positive returns for the index. Due to such a limited number of companies having such a significant portion of your portfolio and then blindly following a market index while lacking professional guidance leaves investors exposed to greater market instability, particularly in negative or unpredictable market climates.
3. Inadequate Consolidation
One of the best pieces of advice I can give is to consolidate your investments within one financial institution with a financial expert. The advantages of consolidation include straightforward total returns for the portfolio, ease of estate planning administration, and simplified statements. Unfortunately, those who have thrift savings plans can only consolidate their retirement assets, which forces them to spread out their assets into different financial institutions.
To have the best financial consolidation, you should include all of your investment accounts and not just your retirement accounts. In doing so, you can build a comprehensive financial plan that will be much more beneficial. When weighing the options of investment accounts alone, investors might be exposed to estate and investment planning dangers. This risk is significantly reduced when consolidating all of your assets within one institution, as you can access all of them with ease. Consolidation brings feelings of peace and ease that can allow investors to feel empowered to spend time pursuing their passions or being with loved ones rather than being heavily involved in numerous financial relationships.Â
Even though the thrift savings plan has some advantages, federal employees are not getting what they pay for. Due to the complicated nature of financial planning, investors are advised to go to a professional financial advisor to create a fully encompassed financial plan that includes all of the investor’s goals. Integrated wealth management has some advantages over the thrift savings plan, which include professional financial planning and investment advice, true consolidation, and expansive investment choices.Â
Your thrift savings plan may not be the best choice for you, so consult with a financial expert to see if consolidating your savings plan account is an excellent option to help you and your family meet your needs and goals.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”36954″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
