I speak with federal employees all the time from all around the world. I get questions about the FERS pension, Social Security, FEHB, and much more. But the one topic that I get the most question about has always been the TSP.
Many TSP questions are straightforward to answer. For example, how much can I contribute this year (2020)? $19,500 or $26,000 if you are over 50. Simple and straightforward. Or can I move money from the traditional TSP to the Roth TSP? No, you can’t. Simple and straightforward.
But there are many TSP questions that aren’t as simple. For example, how should I invest my TSP? I get this question all the time and for people that aren’t my clients, my answer is generally, “I don’t know”. I answer this way not because I am trying to hide something but because at that point, I legitimately don’t know.
Even if someone hires me as their financial advisor, I don’t give advice on their TSP until I understand their situation extremely well. That means that I don’t even touch their TSP until we have planned basically every other area of their financial life. This includes their retirement plans, their spouse’s retirement plans, their pension, Social Security, FEHB, life insurance, Medicare, long-term care, their tax situation, and their estate plan. Only after all these areas are covered am I confident that I know how the TSP plays into their retirement plan and how it should be invested.
Now, I am not trying to make TSP investing sound more complex than it is. All I am saying is that your TSP is not independent of the rest of your life. The best TSP allocation for you will be one that is tailored to your needs.
This is why I am not a fan of the L funds. The L funds can make you think that you should be investing the exact same way as everyone else that is retiring at the same time as you. While the L funds are not inherently bad, most people don’t understand what the L funds are designed to do. For example, all L funds get more conservative over time and eventually become the L Income fund (as the L 2020 just did). Right now, almost 80% of the L income fund is in either the G fund or the F fund which is far too conservative for many retirees. And being too conservative is actually one of the reasons that people run out of money in retirement.
Again, the L funds are not bad. You just have to understand what they are designed to do and if that makes sense for your situation. Just like the advice you get from your co-workers, the L funds are generic advice based on when the government thinks you will retire. That is why you should be wary when a financial advisor (or anyone else for that matter) tells you how to invest your TSP before they know your situation really well. If you don’t want to hire someone to help you, make sure you are very familiar with your retirement situation and are confident in your knowledge of the TSP funds.
So if you book a phone call with me through my website, I will share as much helpful information as I possibly can but I refuse to give advice before I know that the advice makes sense for you. I actually decided to write this article after a phone call with a federal employee who was frustrated that I wouldn’t give him the “magic” TSP allocation that would solve all of his problems. My hope is that this article will help us all come to know a little better that just like our goals, desires, and retirement dreams, our TSP is a very personal thing.
