“By playing it safe, these federal employees are taking a different kind of risk—that their savings may not keep up with inflation, and lost market growth, potentially resulting in insufficient funds for retirement income.”
Many people like to play it safe. That is a big reason why the conservative G Fund is still the most popular fund among federal employees invested in the government’s Thrift Savings Plan (TSP). This fund is invested in short-term U.S. Treasury securities, which are specially issued to the TSP. The principal and interest payments are guaranteed by the U.S. government.
This makes a TSP feel like an especially comfortable and secure investment. Up until 2015, this was also the default for employees who failed to select an asset allocation, when they signed up for the TSP.
Kiplinger’s recent article asks “Federal Workers: Are You Playing It Too Safe with Your TSP?” The article says that the urge to use only the G Fund is a very common misconception that many federal employees make. Some also merely modify the entire balance and contributions to the G Fund, when market volatility hits.
While it can be smart to secure your retirement savings from loss when close to retirement, it also can be a great time to use your future contributions to buy in a downward-moving market. However, federal employees aren’t given much guidance about asset allocation, risk and reward, and how their choices will impact their retirement income.
It is not usually wise to place your entire balance into one fund and forgo potential gains in others.
This same advice can be used with any of the plan’s other four funds, including the C Fund: 100% exposure to one fund is rarely a good move.
The TSP now offers plan participants target-date Lifecycle Funds (L Funds), the default choice since 2015.
If you’re a federal employee and your office isn’t giving you enough guidance, ask a professional who’s knowledgeable about federal government retirement programs.
Reference: Kiplinger (May 21, 2019) “Federal Workers: Are You Playing It Too Safe with Your TSP?”