What is unique about the TSP's "G Fund"?
What is the TSP?
The Thrift Savings Plan (TSP) is the retirement plan for federal employees and members of the uniformed services. Similar to a 401k and 403b plan, it is a defined contribution plan, meaning that the amount of money you receive in retirement will depend on how much you (and your agency, if there are matching contributions) contribute during your working years.
The TSP’s Investment Options
The options available in the TSP are broad, low-cost, index investment options. There are 5 individual funds and a series of Lifecycle Funds.
C Fund - Stocks of large and medium-sized U.S. companies
S Fund - Small to medium-sized U.S. companies
I Fund - International stocks from more than 20 developed countries
F Fund - Government, corporate, and asset-backed bonds
G Fund - Government securities that are specially issued to the TSP
Lifecycle Funds - These are target-date funds that comprise of each of the 5 individual funds above. Participants can select the fund based on the year that they are planning to retire. For example, the L 2045 Lifecycle Fund is for those planning to retire in 2045.
What is unique about the G fund?
All of the individual funds listed above have comparable funds that are available to the public, except for the G Fund. The G Fund is specifically issued by the Treasury Department for TSP participants and it offers the following benefit - the principal is guaranteed, but it earns a higher return than cash. This is how it works:
The G Fund’s principal is guaranteed and never goes down. This is similar to cash or a money market, but unlike a Treasury Bond.
Despite this principal protection, the G Fund earns a rate that is in-line with longer-term Treasury Bonds.
In addition to the principal protection and a higher return than cash, the G Fund has also shown to keep up with inflation over the long-term. The TSP’s stated objective for the G Fund is to “produce a rate of return that is higher than inflation while avoiding exposure to credit (default) risk and market price fluctuations”.
This benefit of earning a return in-line with longer-term treasuries but without principal or default risk, makes the G Fund unlike any other publicly available fund.
Work with an Advisor that is familiar with the TSP.
There were 2 recent changes to the TSP which made this good plan even better.
In the past, the Lifecycle Funds had an overly conservative allocation.
These allocations were updated in 2020 to be more in-line with the industry standard, including a higher percentage of the stock allocation being invested internationally.
The withdrawal options in the TSP used to be much more restrictive.
That changed with the TSP Modernization Act of 2017, which was implemented in 2019. The TSP is now more similar to a 401k and 403b plan.
Stay in touch to learn more.
If you are able to save to the TSP, you should be taking advantage of it. With a good lineup of low-cost investments options, target-date funds, and access to the G Fund, the TSP can help you meet your retirement goals. Stay in touch to learn more.
Linda Rogers, CFP®, EA, MSBA is the owner and founder of Planning Within Reach, LLC (PWR). Originally from New Jersey, Linda services clients throughout San Diego county and nationwide. She leads the design of PWR's investment portfolios which utilize broad, low-cost investments that integrate environmentally, socially, and governance (ESG) factors.
Planning Within Reach, LLC (PWR) is a fee-only and fiduciary wealth management firm offering one-time comprehensive financial planning, ongoing impact-focused investment management and tax preparation services in San Diego and nationwide. PWR is a woman-owned firm that specializes in busy professionals and impact investors. Planning Within Reach, LLC and their advisors do not receive commissions and do not hold any insurance licenses or brokerage relationships.