Thrift Savings Plan: What you should know as a Service Member
By Jonathan Snyder, USAF, Contributor, inmilitary.com/inmilitary
If you have been in the service for any length of time, you know that the U.S. Armed Forces has quite an array of plans and perks that one can get. One important one that members are encouraged to participate in is the Thrift Savings Plan.
The Thrift Savings Plan is a tax-deferred retirement and savings investment plan which are offered to federal employees. It functions much like a 401(k) plan provided by private corporations for their employees. Though many servicemembers know what this is, it can be daunting trying to understand the best investment opportunities when they are only labeled with letters and numbers. Here is what you need to know to make some smart investment options. For this article, though, we will only be covering the core investment opportunities.
Before we continue, the TSP is only going to be useful for anyone who is presently an employee of the federal government. If you are in the military, you’ll need to be either on active duty or a Reservist to be able to make contributions to the program.
The first thing you should do is if you are not making contributions, you should start so immediately. This can be easily done from the Armed Forces MyPay. If you have issues accessing it, speak with your base’s finance group for assistance.
Once you have access the first thing that you will notice is that there are many different types of plans and sub-plans available to choose from. The standard fund that most people put their savings into is the G Fund.
The unique thing about the G Fund is that it is not invested in an index (which means its value is based on the perceived worth of a section of the stock market) and is instead invested in a special non-marketable treasury security issued specifically for the TSP by the U.S. government. It is the only one of the core funds that the government guarantees a return on and thus the safest to invest in. The interest rate is calculated on four years’ worth of securities maturity of the current market yield.
The F Fund or Fixed Income Fund is the next step in the Risk/Reward ladder provided by the TSP. The F Fund invests in a wide range of debt instruments, which is to say a contract from the issuing party which promises to pay the lender. Statistically, it has a better internet rate than the G Fund but is not guaranteed so a bad market shift could devalue the fund.
Small Capitalization Stock Index Fund or the S Fund is based upon the Dow Jones U.S. Completion Total Stock Market Index. This is to say that it invests in new, lower ranking companies like a traditional stock market and can be worth much more in the interest rates though poses one of the greatest risks of loss out of all the fund types.
The I Fund or International Stock Index Investment Fund is like the S Fund except it invests in Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. It is another high risk fund, but an average return investment.
The final core fund that TSP offers is the Lifecycle fund or L Fund. It is managed by portfolio managers and is for those who do not want to make their own asset investments. The L Fund is also seen as the best mix of risk to reward for members who invest in to it.
There is a lot to learn when it comes to the Thrift Savings Plan and it is something that any federal employee or military member should learn about, as it is presently a supplemental assistance along with the retirement benefits once a member reaches their 20-year mark. With the new Blended Retirement System set to debut in January of 2018, the TSP will become more important than ever. Your retirement is important and taking steps now to protect and invest in it will pay off in the end.