Posted on Monday, 6th April 2015 by

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(Updated 2/26/2023) In my article titled Have You Considered Hiring a Financial Advisor, I discussed professional investment assistance and the advantages and costs associated with hiring a financial advisor.  This article focuses on the Thrift Savings Plan (TSP), its benefits, and their very low management fees compared to other funds.  It also introduces you to various options that you have available within your TSP to grow and manage your retirement nest egg.

Many retirees contemplate moving their TSP to other firms that promise a more diverse basket of fund options, higher returns, and the ability to purchase individual securities.  Those who take the leap and leave need to be aware of the risks and costs involved beforehand.

Transferring to Another Firm

After retirement federal annuitants can transfer all or a part of their TSP account to a professional financial management firm or to a self-managed retirement account with companies like Fidelity and Vanguard where many more investment options are available. They can open a retirement account for you and assist with transferring all or a part of your TSP to a brokerage account where you can purchase any mutual fund, stock, ETF, and bond if desired.  If you elect to do this, be sure to have your TSP funds transferred direct to the new retirement account otherwise the transfer would be considered taxable by the IRS.

Federal employees can also make an age-based in-service withdrawal any time after they reach age 59½ as long as they are an active civilian federal employee or a member of the uniformed services. Some use the age-based withdrawal option to transfer a part of their TSP to a private retirement account that they can personally manage or to a financial planner to compare their performance and services.  A word of caution here; a friend of mine used an age-based withdrawal to pay for his daughter’s wedding and was surprised at the amount that was withheld for federal taxes.  If you withdraw the funds for personal use the entire amount will be taxable in the year withdrawn.

I have my company’s retirement account at Fidelity and the advantage for me is that I can pick and choose from a broad spectrum of investments.  My account is set up like any other brokerage account except it is tax deferred until I started withdrawing funds at age 70 ½. I actively manage my account and Fidelity’s fees are reasonable.

If you are an experienced investor, understand sound investment principles, and are willing to study and follow the market wherever it takes you, this may be the way to go.  Others, with limited investment experience or lack the time needed to personally manage their account could move funds to a fee based financial advisor that manages their accounts for them.

I’m not a professional investor however I did write a primer titled Dollars and Sense, Safe Investment Strategies for Small Investors back in the 1980s. The book was based on my personal investment strategies, and I’ve always leaned towards a very conservative approach to all things financial.  I have a personal interest in the TSP because I’ve invested in the THRIFT Plan from its inception in the 1980s. Even as a CSRS employee I was able to contribute 5% and over time, without any matching funds, my TSP account grew appreciably.  I retired 17 years ago and elected over the years to keep my TSP fund intact for a myriad of reasons.

TSP Advantages

The TSP funds have reasonable management fees that average 69 cents per thousand dollars invested for the traditional G, C, I, F & S funds and 64.8 cents for the Life Cycle funds. Indexed funds typically have the lowest management fees and in the private sector they have come down appreciably. The Fidelity 500 mutual fund only charges a .015% management fee or 15 cents per thousand invested! Stock funds average expenses are around .80%, considerably higher than indexed funds.

Expenses and fees matter and can make a significant dent in your long-term savings. For example, the Securities and Exchange Commission in their report titled “How Fees and Expenses Affect Your Investment Portfolio” reports that a 1% annual fee reduces an initial $100,000 portfolio, that earns an average of 4% a year over 20 years, by nearly $30,000! In this example the account would be worth $210,000 with a .25% annual fee to just under $180,000 with a 1% annual fee.

If you transferred your account to a financial planning firm, you would more than likely add another 1% to 1.65% for asset management to fully managed accounts plus transactions fees in certain cases on top of the fund fees that would further reduce your gains.  Managed account fees often start at or above 1.65% of the first $500,000 invested or an additional $1,650 per $100,000 in your account each year plus fund fees.  Financial advisors actively manage your accounts, and they strive to beat the market averages which if successful can significantly offset their management fees.  The key is finding a firm with a sound track record that can provide the services you need, and the investment results you desire.

TSP Funds

Federal employees and annuitants can research all of the funds in their account online at including the performance of each fund. There are also no transactions fees when you elect to rebalance your account or simply switch to a different fund allocation. Recently, the TSP added the Mutual Fund Window where you can now purchase funds through them for your account. However, the TSP’s mutual fund purchase fees are rather high considering that other companies like Fidelity and Vanguard don’t charge for fund purchases within their family of funds.

The TSP funds are not the typical mutual fund even though the C, F, I, and S index funds are currently managed by Blackrock and similar to their mutual fund offerings.  The G Fund assets are managed internally by the Federal Retirement Thrift Investment Board.  The G Fund is invested in nonmarketable U.S. Treasury securities that are guaranteed by the U.S. Government and the G Fund will not lose money.

The C Fund is designed to match the performance of the S&P 500 while the F Fund’s investment objective is to match the performance of the Barclays Capital U.S. Aggregate Bond Index, a broad index representing the U.S. bond market.  The I Fund’s investment objective is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index. The Small Cap S Fund’s objective is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index. The C, F, I and S funds are trust funds that are regulated by the Comptroller of the Currency, not by the Securities and Exchange Commission, and therefore do not have ticker symbols.

The F and C Fund assets are held in separate accounts and the S and I Fund assets are invested in Collective Funds. These trust funds are comprised of investments by tax-exempt institutions like the TSP, such as pension plans and endowments. Investing collectively in this way can be advantageous because it reduces trading costs. The securities held in these commingled funds are held in trust and they are not assets of BlackRock, nor can they be used to meet the financial obligations of BlackRock.

The Life Cycle funds are a combination of the primary funds mentioned above and they are adjusted to a more conservative mix as you approach the life cycle target date. These funds are good for those who are uncomfortable with making investment choices and when they time out you end up in the Income Fund which is about 69% invested in the G Fund. You still maintain a mix of the other funds to hopefully beat inflation and still grow your funds for when they are needed.

TSP Annuity Conversions

According to the Thrift Savings Board, “When you are ready to withdraw all of the money from your TSP account, you can do it all at once, over a period of time, or you can purchase an annuity that will make payments to you for life. For maximum flexibility, you can choose any combination of these full withdrawal options.”

The Life Annuity option can provide an additional monthly payment to you and your spouse for life if desired and there are many variations to consider. Visit the TSP Life Annuity online guide to learn more about all of the options available and to use their income calculator to help you determine if a Life Annuity is right for you. Before converting to a life annuity through the TSP you may wish to compare offers from other providers first and to do that you really have to read the fine print on the offers. There can be substantial differences between providers.

Before abandoning the TSP ship know why and where you are heading and if the destination you are targeting will be able to perform to your expectations.  Your TSP account can be a significant portion of your total retirement, especially for FERS employees. We all need to be good stewards of our retirement funds to achieve a secure and sound financial retirement.  Personally, I take my time with major financial decisions and try things out on a smaller scale first. For example, if I was considering moving my account to a personally managed retirement account or to a financial planning firm, I would only transfer a portion, maybe 25 to 50% tops, and give it a year or more to compare the results.

Helpful Retirement Planning Tools Distribute these FREE tools to others that are planning their retirement.

The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and financial information are subject to change. To ensure the accuracy of this information, contact relevant parties and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended, nor should it be considered investment advice and our articles and replies are time sensitive.

Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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