by: Kate Welker, CFP®
In honor of Veteran’s Day we want to take a moment to thank and appreciate the service given by our veteran’s and active military members. We are incredibly grateful for your sacrifice and protection of our freedom. We also like to remember the families of those serving.
In light of the remembrance I thought today I’d discuss one of the benefits offered to our military members and federal government employees: the Thrift Savings Plan, or TSP. Keep in mind this is a brief overview of a system that can be complex.
The best definition of the Thrift Savings Plan comes right from the tsp.gov website. “The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. It was established by Congress in the Federal Employees' Retirement System Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans.” (https://www.tsp.gov/PlanParticipation/AboutTheTSP/index.html)
The TSP is similar to other employer sponsored retirement plans where you receive a tax deduction for the contributions you make and you pay tax when you withdraw the money.
The investment options have a bit of an alphabet soup going on, following is the breakdown of the different funds listed in order of least risk to most risk:
The G Fund - This fund invests in treasury securities backed by the U.S. Government. This means the fund can not lose money, but will generally have a low rate of return. The
F Fund - This fund is composed of other types of bonds that could be government, corporate, or mortgage backed.
The C Fund - In this fund you will find stocks of large and medium sized U.S. companies. It is structured to reflect the S&P 500 index.
The S Fund - This fund invests in the stocks of small to medium sized companies.
The I Fund - Here is where you will find the stocks of International companies. Currently there are stocks of more than 20 developed countries.
The L Funds - These are the Lifecycle Funds. Each of these funds is tied to a specific year, generally this would be your year of retirement. The investments would contain a blend of all of the above funds and managed to become more conservative as your get closer to retirement.
If you need an easier way to remember this like I do, here is what I’ve come up:
G for Government.
F for Fixed Income.
C is for Considerable sized Companies.
S for Small Companies.
I for International
L for Lifestyle