If you are a Federal employee you are likely well-versed in the Thrift Savings Plan (TSP) which has the purpose of giving you a long-term retirement savings and investment plan. There are several advantages to the TSP, and one that is upcoming in 2024, is that the TSP L Fund is switching to a broader index.
Not sure what that means? That’s ok! Our team at The Federal Educators is here to help you choose which TSP is right for you.
Advantages of Your TSP Account
As a Federal employee, you have many advantages as you save for and ultimately begin retirement.
Some of the best advantages include:
- Automatic payroll deductions
- A diverse choice of investment options
- Different tax treatments for your contributions ( pre-tax/Roth after-tax contributions, etc.)
- Low admin and investment expenses
- Access to funds while you’re still an employee of the Federal government (under certain circumstances)
- Death benefits for your spouse if you pass away
- Several distribution options in retirement
The government makes it easy for you to maximize your retirement; you spent your career in service to our country after all.
TSP I Fund Index
In 2024, the TSP has plans to switch its international stock I fund to an index that reflects the stocks of a wider range of countries and companies.
This change replaces the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) index that has been in use since the I fund began.
So, what’s the difference? Well, let’s break it down.
- The MSCI EAFE index includes 798 large and mid-cap stocks in 21 developed markets and represents around 55% of the value of non-U.S. stocks.
- The I Fund Index will include 5,621 large, middle, and small capitalization stocks in 21 developed markets and 23 emerging markets, which represent more than 90% of the value of non-U.S. stocks.
This move occurred after several years of back and forth on whether the TSP fund should be expanded. In 2020, it almost adopted a border index, but it was suspended after the Trump Administration and several members of Congress objected to the fund because it would include Chinese stocks from companies that were linked to the Chinese government.
The TSP believes that the new index will outperform the current one over time.
Note: The I Fund is the second smallest of the five core funds that the TSP provides.
TSP Funds
There are ten L funds that are diversified over five core funds:
- G: Government Securities Investment Fund
- F: Fixed-Income Investment Index Fund
- C: Common Stock Index Fund
- S: Small Cap Stock Index Investment Fund
- I: International Stock Index Investment Fund
Each fund has its advantages and specializes in a different asset class or market. It is important to understand your retirement goals when choosing, though you can also choose a mix of funds.
Considerations for each:
- The G Fund is the least risky of all five, though it also offers the lowest rate of return. This is the only one that guarantees the return on your investment principal.
- The F Fund is the next step up in risk. It does not guarantee the return on your investment principal.
- The C Fund is the most conservative fund of the five. It also has greater volatility than other funds but with risk comes reward as it offers higher returns over time.
- The S Fund has the greatest risk of any fund in the TSP and is highly volatile, though it does outperform the C fund.
- The I Fund also has greater risk, but offers a higher annual return than the C Fund. It is also the only fund that invests in companies outside of the United States.
As you can see, you can choose a plan that fits your goals. If you want to risk a little more with greater returns, the C, S, and I Funds could be great options. While the G and F funds offer a little less risk. It all comes down to what you want to invest in, how much risk you want to take, and where your interests lie.
Contact The Federal Educators
Not sure which TSP Fund to invest in? That’s where we come in. Our team at The Federal Educators is here to help you make the best-informed decision to fully optimize your Federal retirement.
Get started by calling us today at (813) 755-7037. We’re ready to help!
