Helping Federal Employees and Annuitants Understand Their Benefits


TSP Fund Choices

A Retiree's Dilemma!


Federal Employee's CSRS & FERS TSP Fund Choices

Caution Verses Risk & Reward - There is much to consider for retirees in order to preserve their assets and to live comfortably in retirement. Retirees must conserve their cash to ensure they have the funds needed to live comfortably in retirement unless they are independently wealthy.

A number of financial experts suggest subtracting your age from 100 and investing the difference (in percentage) in stocks and higher risk investments. All remaining funds should be invested in cash or cash equivalent safe high rated bonds, CDs, money market accounts and the like. For example, at age 60 you would keep 60% of all of your assets in government bonds and cash equivalents and the remaining 40% could be invested in higher risk stocks, real estate, etc.

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TSP Fund Choice Menu


You shouldn't risk what you can't afford to loose and if you are depending on the TSP to improve your standard of living in retirement, it's best to be conservative, from my perspective, and keep the majority of that money in the G fund or in the L Income fund. The G fund is the only fund that is guaranteed not to decrease in value.  Approximately 75% of the L Income Fund is invested in the G Fund, with a mix of the other funds to provide some growth to hopefully keep up with inflation.

Their is also a Fixed Income Index Investment (F) Fund available. However, you have to be careful with commercial bond funds because as interest rates go up medium to long term bond funds tend to go down in price along with stocks. The G fund or L Income fund are no brainers for the person who will need their TSP cash in retirement.

Mixing it Up

So, what do we do to protect ourselves? The TSP funds offers a number of life cycle and one income fund that has only a small percentage of risk adverse investments. The closer you are to retiring the more conservative the Life Cycle Funds become until you reach the target date and the fund then becomes basically an income fund invested mostly in the G fund, a good thing. The income funds investment in funds other than the G fund are meant to try and match or slightly beat inflation. 

Getting back to basics, the life cycle funds automatically adjust your investment portfolio every quarter and the closer your target date the more conservative mix in your portfolio. Many like the life cycle funds because the fund makes the decision each quarter to rebalance your account and participants have little to do other than visit the TSP occasionally to check their balances.

Others like to be more active and play with their fund mix. If you are well versed in investing that may the way for you to go, however, no one can time the market successfully and you can experience huge fund value swings when trading in and out of funds based on tips and unreasonable expectations.

Take a look at all of the fund offerings and determine what is best for you and your personal situation.

Fund Choices

The TSP offers you two approaches to investing your money:

  • The L Funds — These are “lifecycle” funds that are invested according to a professionally-designed mix of stocks, bonds, and Government securities. You select your L Fund based on your “time horizon,” which is when you will need the money after you leave Federal service. Depending upon your plans, this may be as soon as you leave or further in the future.
  • Individual Funds — You make your own decisions about your investment mix by choosing from any or all of the individual TSP investment funds (G, F, C, S, and I Funds). These investment options are designed so you can choose either the L Fund that is appropriate for your time horizon, or a combination of the individual TSP funds that will support your personal investment strategy. However, you may invest in any fund or combination of funds. Because the L Funds are already made up of the five individual funds, you will duplicate your investments if you invest simultaneously in an L Fund and the individual TSP funds.
  • TSP Changes – The Mutual Fund Window & RMD Update - The TSP now offers participants the ability to opurhcase over 5000 mutual funds through their new Mutual Fund Window.

The L Funds


The L Funds are designed for participants who may not have the time, experience, or interest to manage their TSP retirement savings.

The five L Funds are:

  • L 2040 — For participants who will need their money in the year 2035 or later.
  • L 2030 — For participants who will need their money between 2025 and 2034.
  • L 2020 — For participants who will need their money between 2015 and 2024.
  • L 2010 — For participants who will need their money between now and 2014.
  • L Income — For participants who are already withdrawing their accounts in monthly payments.

The assumption underlying the L Funds is that participants with longer investment time horizons are able to tolerate more risk while seeking higher returns. The funds automatically adjust to reflect a lower tolerance for risk as the investment time horizon approaches. Each L Fund invests in a mix of the five individual TSP funds. The mix is chosen by experts based on each fund’s time horizon.

The L Funds are designed to achieve the highest possible rate of return for the amount of risk taken. If the time horizon is a long time from now, the L Fund will be more heavily weighted toward stocks (C, S, and I Funds). As that fund’s time horizon shortens, the allocation will gradually shift toward Government securities and bonds (G and F Funds). The L Income Fund is designed to preserve your account balance while protecting against inflation.

Continue on to the G,F,C,S, & I Funds


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