Life after government: Where’s the best place for your TSP nest egg?

Most feds are smart enough to invest enough in their in-house 401k plan to get the government match. Many long time feds on modest salaries have become Thrift Savings Plan millionaires. The vast majority did it by investing in the TSP’s stock-indexed C, S and I funds.

But when they retire or leave government for another job, most transfer their TSP to an outside IRA. Good idea or bad idea? The TSP is considered one of the best, most heavily monitored and lowest-cost funds in the business. But many people believe it lacks flexibility and doesn’t offer as many investment choices as most outside plans.

Most government officials you see on nightly TV — whether elected, appointed or regular civil servants — belong to the government’s in-house 401k plan. Many are the best in their fields. And while they may not be financial gurus, they are smart. And busy trying to guide the nation through the current pandemic, watching foreign adversaries and the once-again spiking coronavirus cases nationwide. For some — millionaire politicians — the TSP is a nice option. For most civil servants, it is their primary retirement nest egg, along with Social Security and a civil service annuity based on salary and length of service, for life. Longer if they designate a survivor benefit.

When the federal Thrift Savings Plan was created, it was designed to be a low-fee, easy-to-use investment vehicle for active and retired civil servants ranging from NASA rocket scientists to letter carriers. It is monitored by several federal watchdogs, all of whom have employees who are participants. It was designed so that the fees to users would be among the lowest in the investment business. And with 5 funds covering the U.S. and international stock markets (C,S and I), a bond fund (F fund) and a special Treasury securities fund (G fund), available only to feds. It in theory covers the investment options waterfront. It doesn’t have some of the bells and whistles options, which are nice, but add to administrative fees workers and retirees pay. The people who run the TSP don’t get commissions because they are part of it. Combined with the government-matching contribution, the TSP, to many private sector investors, seems too good to be true. And yet…

When they leave government, either for other jobs or to retire, more than half of all TSP investors take some, most take all, of their money with them. They invest it elsewhere for a variety of reasons. Even though, in some cases, they pay more for the privilege. How come? Today’s comments are from a recently retired TSP investor who made it to the millionaires club and said he couldn’t wait to leave the federal 401k plan. And here’s why:

I just wanted to follow up with you. I retired 30 April 2019 as a FERS employee, and I don’t miss federal service one bit.

I was in the seven digit TSP club. However, after careful research I moved 90% of my TSP balance to Fidelity investments. I kept the other 10% in the TSP because I’m not 59 1/2 and didn’t want to give the IRS the 10% early withdrawal penalty.

The TSP needs a wake-up call. I discovered there are much better options than the TSP funds. The reason retirees sprint out of the TSP. The TSP funds are so limited. I’m a huge believer in exchange traded funds (ETFs). The additional cost around .07 is offsetted by the higher returns and less risk. I back tested the TSP funds vs some ETFs for 5 and 10 years. I found that ETFs were so much superior.

The TSP doesn’t have a technology fund. I found that VGT is so much superior than the C or S fund. BLV, BND or VGLT BLV, BND or VGLT BLV, BND or VGLT exceed the F fund.

If I were a current federal employee, I would take the 5 percent match. Then I would open up a discount brokerage account with any of the big companies, (Vanguard, Fidelity, Schwab or Merrill Edge etc). Then invest the delta into ETFs. With no trade fees now, it makes a win-win situation.

-Dave “The Dummy,” Retired US Army TACOM Employee

Nearly Useless Factoid

By Alazar Moges

The nails on a human’s longest fingers, usually the middle finger is the longest, grow the fastest, and nails grow fastest during the day and in summer.

Source: American Academy of Dermatology

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THRIFT SAVINGS PLAN TICKER

Sep 23, 2021 Close Change YTD*
L Income 23.2309 0.0506 4.43%
L 2025 12.0462 0.0547 8.33%
L 2030 42.6536 0.2591 10.54%
L 2035 12.8283 0.0853 11.50%
L 2040 48.6127 0.3527 12.46%
L 2045 13.3343 0.1035 13.28%
L 2050 29.2474 0.2426 14.12%
L 2055 14.4235 0.1515 17.18%
L 2060 14.4234 0.1514 17.18%
L 2065 14.4234 0.1514 17.18%
G Fund 16.6681 0.0006 0.88%
F Fund 21.0203 -0.1166 -0.55%
C Fund 66.9143 0.8046 21.56%
S Fund 85.8330 1.2015 16.31%
I Fund 39.5371 0.2834 11.70%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.