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The new TSP: Loving or loathing it?
The new, expanded TSP is only a few weeks old. And it's getting lots of attention, good and bad, from its 6 million investors.
The new, expanded TSP is only a few weeks old. And it’s getting lots of attention, good and bad, from its 6 million investors. For many of them, their TSP investments will provide anywhere from one third to as much as one half of the money they have to live on in retirement. Among other things, the TSP-on-steroids now offers participants a significant jump in investment options. Last month, civilian and military participants in Uncle Sam’s in-house 401(k) plan had 15 choices: three major stock market indexed funds, a bond and treasury securities fund plus 10 self-adjusting target date funds. Fast forward to now: the number of funds available for TSP investors has jumped to 5,000. And it covers the investment waterfront from giants like T. Rowe Price, Vanguard and Fidelity to much more focused funds including some with social or environmental interests. The TSP is considered so good by so many outside investors that many, if not most, elected and appointed officials coming into government, often from high-paying corporate or legal jobs, transfer their 401(k) and retirement funds into the TSP. In part to get the 5% government match, low administrative fees and congressional oversight by people with a very vested interest.
Nobody has to invest in any of the new funds being offered. And only those who do invest part of their optional retirement fund will pay new fees. The rollout — involving 6 million accounts — has been rocky for some. Smooth for others. The new choices are a blessing to many investors while confusing to others. An early 80s retiree from the Nuclear Regulatory Commission said, “If I were younger, I would object to so many because some of them could be weak and go under. Adding another 10 or so would be good. However, I have been withdrawing from the TSP for years, so don’t much care anymore… I sold most of my fund holdings in December, which turned out to be near the top of the market.”
The rollout of the TSP has been bumpy as reported by Federal News Network’s Drew Friedman. So what’s next? Should you embrace the new investments, stick with what you know, or what? For the for-what answer, we turned to, Abraham Grungold. He’s a long time fed, recently retired to a new career as financial coach. He’s a member of the TSPs self-made Millionaire-plus club. Here’s what he said to the complicated question, is the new TSP right for you?
I have been a TSP participant since the beginning. I have taken advantage of all the benefits that the TSP has to offer. And the TSP has made me successful beyond my wildest dreams. The TSP has a track history of over 30 plus years and it has made many millionaires. The TSP members have desired more investment options and great flexibility.
What are my thoughts on the new TSP? For me I like no frills. What makes me happy is quality, a good price and performance. It reminds me of the car that I drive, a Toyota Camry. It starts up every morning, requires little maintenance and I purchased it a great price. That is how I want my TSP website to work for me. The ability to log in every morning with ease, require little effort on my part to keep up and I want my expenses to remain the lowest in the retirement industry.
The 5,000 new mutual funds offered by the TSP reminds [me] of when my daughter would ask me to get her the new Oreo mint or double fudge cookie. I go to the supermarket and view all the Oreo selections and find that there are 20 different Oreo flavors. And every time I buy the new flavor, she tries it and never finishes the bag. She always goes back to the original cookie.
The new TSP website needed an overhaul, a fresh look. Now the categories jump out at you. The website has now presented those main categories in a distinct way so as you age you can find what you are looking for. As you drill down into the sub-menus it still takes some effort to find a particular TSP form and some sub-menus such as the beneficiary page do not load with ease. OK, there are some bugs to work out. Don’t worry, the TSP board will correct all these issues.
So, what about the 5,000 new mutual funds? The TSP fund already offers a Government Fund, a Bond Fund, a Stock Fund, a Small Cap Stock fund and an International Stock fund. And they offer ten targets balance funds. So how much more variety do you need? Well, my friend, if you have your heart set on investing in a fund that specializes in electric vehicles or cannabis. Go for it. But it will cost you. I wanted to simply view the 5,000 available mutual funds. The agreement for the Mutual Fund Window requires me to pay the annual fee to open the account just to view the list of available funds and possibly pay the maintenance fee up front. To stop those fees, you have to permanently close your Mutual Fund Window account.
Let us compare the C Fund versus Vanguard S&P 500 Index. They are basically the same type of investment. However, if you invest 10,000 dollars in another fund you will be paying the following:
An annual fee – $55
An annual maintenance fee – $95
A transaction fee – $28.75
Other fees – I am interpreting these to be front load and redemption fees.
The C fund will cost you a 40 cents per $10,000 of investment. Yes, the Vanguard fund has low expense but that is only if you buy it directly from Vanguard. In the TSP, you have to go through the TSP third party vendor, Mutual Fund Window, who is assisting you with that investment. And that convenience will cost you and decrease your rate of return.
On a $10,000 investment transaction, you would be incurring approximately 2% in fees. If your C Fund investment is earning 10% per year. Your investment in the Vanguard S&P Fund would have to earn 12% to compete with the C Fund. Let’s look at another hypothetical example. You invest in the JP Morgan Research Market Fund; you have a 3.51% front load fee and a defer 1% load fee. To compete with the C Fund earning 10%, you would need to generate a 16.5% rate of return. That includes the TSP fees and the sales fees for the JP Morgan fund that is mentioned. Many of the other available funds may have a load fee so you have to read the fine print before you invest.
As a financial coach, many federal employees contact me regarding their retirement, their TSP and their assets outside of the TSP. As a TSP investor, if I want to purchase another fund for whatever reason, I can still do that through a brokerage account or an IRA. But if you want to do that through the TSP there is a surcharge.
Financial success can easily be achieved; it only takes a little effort.
Nearly Useless Factoid
Italy produces half a billion metric tons of artichokes a year.
Source: San Francisco Chronicle
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Mike Causey
Mike Causey is senior correspondent for Federal News Network and writes his daily Federal Report column on federal employees’ pay, benefits and retirement.
Follow @mcauseyWFED
