To TSP or not to TSP? That is the question

So you’re planning for retirement, even though it may be 10 or more years down the road. One of the questions on your financial checklist is this:

Should you keep the nest egg you’ve built up, your in-house 401(k) plan, in the federal Thrift Savings Plan. Or should you hand it over to a financial planner, a bank or your brother-in-law, the free-lance dog walker?

The TSP offers lots of choices: Most of the U.S. stock market (the C and S Funds), an international fund (the I Fund), bonds (the F Fund) and the unique G Fund invested in special, steady, safe U.S. treasury securities. It also offers self-adjusting target funds that automatically rebalance and get more conservative as you get close to the time when you will start spending them.

The TSP also has the lowest administrative fees in the business. John Bogle, father of the index mutual fund and a founder of low-fee Vanguard, says the TSP has the best (as in lowest) fees. Period. Allan Roth of CBS MoneyWatch says he wishes he could get into the TSP!

But there are people who think they can do better with outside help, or on their own. They can’t wait to be free of what they see are the constraints of the TSP. Once they retire, or otherwise leave government, many of them plan to take their money and let somebody else, maybe even themselves, handle it. Here’s a question/comment from a 50-something Social Security employee:

…I am going to be 55 this year and the bank wants me to take my money out of the TSP. I used to not have the problem of going to someone who was going to make money off me. But my former financial planner, my Dad, is no longer able to help.

Have you heard of people taking their money out of the TSP and reinvesting it in money markets? I know that you are a government guru but I don’t know about your financial skills. I don’t trust anyone to confide in except probably you. I am not asking for stock advice per say, but the practice itself. As the bank employee looked at my TSP, he was ‘very pleased.’ I don’t want to mess it up.”

Answer: If it came to making a living, I would probably do better off teaching figure skating or physics than as a financial adviser. But I know some people who do just that for a living. First I ran the question by the Federal Retirement Thrift Invest Board’s director of external affairs, Kim Weaver. She provided a document explaining “that we are a very low cost plan and that you can keep your money in the TSP for your lifetime,” she said. “Once you’ve retired, you can’t contribute any more, but you can still manage your money and make transfers between the funds.”

A less constrained person who is knowledgeable in financial planning and the TSP put it less diplomatically:

“I’m sure the bank was ‘pleased’ at the size of your reader’s balance — they can roll his money over to an IRA and charge him a lot more to handle that money. Unless the bank can give him concrete reasons why moving his money to an IRA is in his best financial interest, he shouldn’t go down that road…”


Compiled by Jack Moore

John Harvey Kellogg ran a sanitarium before he invented corn flakes cereal. Charles C. Post, the father of Grape-Nuts, also worked in a sanitarium. Really puts the phrase “cuckoo for cocoa puffs” in a whole new light.

(Source: Smithsonian magazine)


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