Archives for May 2022

With inflation running at 8.3% year-to-year many federal-military Thrift Savings Plan investors are looking for a safer haven both for their current account balance and future purchases.

After a record long run, the stock market has been acting funny. A European war, worldwide pandemic and broken supply chain will do that. Both to stock markets and our mental wellness.

The price-at-the-pump, which the media and politicians love to track, has never been higher. And an 80-1 odds late starter won the Kentucky Derby. Go figure!

Each time there is an economic bump in the road, and this one is more like a sink hole, some people panic. And feel they need to do something. Anything, but something. And sometimes they are correct. Which is where the super-safe, never-has-a-bad-day G fund comes in. Of all the options in the TSP, it is the only one that doesn’t have a government guarantee that it will not lose money. While stock indexed funds like the C, S and I options have by far the best track record, they can and do tank — and currently have. So in that sense the G fund looks good to many with its recently increased 3% guaranteed return. The highest in decades. It fits the definition of a safe haven. But…

Many financial planners say that depends on what the definition of safe is. If it’s not losing money, bingo! But if it is also not keeping pace with inflation that also means that overtime your nest egg will shrink in value. A 3% return, over time, isn’t much comfort if your available funds shrink in value. Federal CSRS retirees get full inflation adjustments each January, like Social Security. But for FERS retirees, which includes most current workers, there is a diet COLA feature. Over times of high (3% or more) inflation that diet offset can reduce the buying power of retirees dramatically. So I asked Arthur Stein, a well-known Washington area financial planner for his thoughts on the G-fund. Most of his clients are active or retired feds. Several are TSP millionaires. And he’s a frequent guest on FNNs Your Turn radio show on Wednesdays. Here’s what he said:

There are two advantages to the G Fund: Zero volatility and all holdings are guaranteed by the government.

However, G (and F) Fund investors need to recognize that, historically, long-term investments in the G and F Funds lost purchasing power. G Fund annual returns have gradually declined since it was introduced in April of 1987. In 2021, the return was 1.4%, 84% lower than in 1988. The cost of living (inflation) more than doubled over this period.

That leaves TSP participants with a dilemma. Should they invest for:

• The lower volatility and lower chance of losing principal (“safety”) offered by the G and F (bond) Funds and accept the higher chance of declines in purchasing power; or
• The higher potential growth historically offered by the stock funds, accepting higher volatility and market declines for the opportunity to increase purchasing power.

Nearly Useless Factoid

By David Thornton

Surgeons perform better when listening to music; in one study, AC/DC led to better performance than the Beatles.

Source: National Library of Medicine

Despite tremendous interest (and some dread) over the coming investment expansion for six million federal Thrift Savings Plan investors, fewer than 30 took the opportunity to make formal comments, suggestions or to criticize the proposed changes.

Sometime this summer the TSP, Uncle Sam’s in-house 401(k) plan on steroids, will offer investors — from Senators and Cabinet officers to national park rangers and IRS auditors — the option to invest in 5,000 new funds. The TSP is worth about $750 billion. It is the optional retirement nest egg for current workers and retirees. For most employees it offers a generous total 5% agency match for those who invest 5% or more. By some estimates TSP accounts for current FERS employees will supply one-third or more of the money they have to spend in retirement.

Right now, TSP investors are limited to a handful of options: the stock-indexed C, S and I funds, the bond-based F-fund and the special G-fund invested in Treasury securities. Because of the market downturn the G-fund’s 3% return leads the investment pack.

When the changes are made, investors will be able to transfer some of their current TSP balances (with a minimum deposit of $10,000) into any of the new fund options. They can transfer up to 25% of their total balance. Those who do make the change will pay special administrative fees. Investors who remain in the TSP will continue to pay fees that are among the lowest in the business.

While many of the changes are likely to catch many investors by surprise, the Federal Retirement Thrift Investment Board has published them, in detail, in the Federal Register. To read them, find a comfortable chair and click here.

Some retirement investment experts opposed the investment options expansion. They say that the current menu allows investors to invest in both the large cap (S&P 500) market via the C-fund, and to be in the rest of the U.S. market plus a limited international option via the S and I funds. There are also half a dozen self-adjusting target date investment options. Plus the bond and special Treasury fund options. Giving the average person — which is most of us — more choices will only confuse people. Or permit them to put money in funds-with-a-cause goals that will pay little or nothing over the long haul. But most pros who have eyeballed the pending changes say they are well conceived and thought out. And that the low-fees (which can add tens of thousands of dollars to your available retirement cash) will continue for those who stick with the regular program.

For a sneak preview, listen to today’s Your Turn radio show. My guest is Kim Weaver, director of external affairs for the board that runs the massive TSP operation. The show is live at 10 a.m. EDT over at federalnewsnetwork.com or at 1500 AM in the Baltimore-Washington area.

After a drop almost across the board for the Thrift Savings Plan during April, participants will see a few more weeks of change coming up for the TSP.

All TSP transactions will become temporarily unavailable between May 26 and the first week of June, as the Federal Retirement Thrift Investment board updates its database and adds a mobile app for users.

D.C. area financial planner Arthur Stein said participants “need not be concerned about the downtime.”

“The new money that goes in will be invested according to their current specifications, and the money that’s already in the TSP will just continue to earn money. They’re not going to be penalized in any way,” Stein said in an interview with Federal News Network.

Stein said there is no reason to make changes because of the upcoming transition. But participants who want to make changes should do so prior to the scheduled downtime.

“The only thing would be a concern is if someone thinks that they would want to make a change because they’re worried about the stock or bond markets going up or down sharply in the future,” Stein said.

The Federal Retirement Thrift Investment Board, in charge of the TSP, said in a May 2 press release that the transition period will start May 16 and end the first week of June, but the downtime will only occur in the second half of that period. Current TSP investments will remain active during the transition.

“Unless you make a change to your investment elections, your current TSP investment choices will remain the same for both future contributions and current allocations,” FRTIB said. “Most TSP participants won’t need to take any actions to prepare for the transition.”

FRTIB Director of External Affairs Kim Weaver told Federal News Network in an interview what to expect leading up to the transition and how participants should prepare.

“Let’s say you had been planning on taking a withdrawal for a specific purpose. We want to make sure that people are aware that there’s a timeframe on that,” Weaver said. “If they are planning on taking out a loan, May 16 is the last day to do that. Similarly, May 16 is the last day to complete a withdrawal request until after the transition.”

The changes to TSP during the transition period include a new mobile app, an updated interface for My Account, a 24/7 virtual assistant and electronic signature options. For an additional fee, FRTIB will also add an option to invest some TSP savings in a mutual fund window, an account that allows users to access a selection of more than 5,000 mutual funds.

TSP participants should consider whether this transition period will affect their retirement planning and review their current investment choices to make sure they still align with individual retirement goals, FRTIB said.

“For retirees who are receiving money from their TSP account on a regular basis, any payments they were going to receive during the downtime will actually be made before the downtime,” Stein said.

Weaver said FRTIB is planning to be back up and running on June 1, but that participants should plan for the transition to potentially last through the full first week of June.

Transitioning to a new record keeper as part of the TSP update is a big lift, Weaver said. The transfer will move over all TSP participants’ data, including name, account number, address, contributions, earnings, employer contributions, loans and withdrawals.

“We have to clear the queue out. May 16 gives us enough time to process all the pending loans and withdrawals, disperse the funds and then cut over to the new record keeper with a fresh slate,” she said.

After the transition period ends, FRTIB said participants will need to create an account under the new system to get access to all the new features.

“You will need to take some steps to set up a new login to the new My Account after the transition is complete in June. We’ll let you know what you need to do when the new My Account becomes available,” FRTIB said.