Which TSP Fund Should I Choose?

Last week, I talked with a group of military folks here at a nearby base.  While talking about the Thrift Savings Plan, (TSP) one participant asked which TSP fund she should choose.  I answered that there was no single answer to the question and that you had to look at TSP as just one part of the big picture.  I hope that my answer didn’t seem like a cop-out, because it wasn’t meant to be.

Which fund you should use for your TSP contributions is a very individual decision.  It depends on wide variety of factors, including whether you expect to earn a military retirement, what other assets you have (especially real estate, and that can go both ways), your age, your plans for employment after the military, your marital and parental status, your spouse’s employment, pension and retirement fund situation, and your general comfort with risk in your investments.

Overwhelmed?  Not surprising.  It is a lot to consider if you are a basic-level investor like me.  There are five TSP funds, and then are a selection of Lifecycle funds that hold portions of each of the other funds.  I’m not going to get in to a detailed description of the funds because there is an excellent chart available at the TSP website, and that’s not the purpose of this post.

The purpose of this post is to have you looking at TSP as just one part of your entire retirement portfolio.  Don’t be scared off by the fancy word, portfolio, it just means all the different things you will be bringing together to fund your retirement.  This includes TSP, Individual Retirement Accounts (IRA), 401ks from jobs before or after the military, other investments, real estate earnings, military retirement, retirement benefits from other jobs, regular savings, and Social Security.  There is much discussion about using Social Security as part of your retirement planning and that decision is up to you.  I don’t include it because I feel confident that there will be changes made in the decades before I retire.  I figure it will be a bonus if I receive any Social Security benefits.

The other important thing to consider is how long it will be before you plan to retire.  Most retirement planning experts suggest that you put your portfolio into progressively more safe investments as you get closer to retirement.  Whether that is right for you depends, again, on your big picture.

Once you have an idea what things will be paying for your retirement, you need to consider your overall comfort with investment risk, and where your portfolio parts fall on the risk scale.  You are aiming for a balance between risk and growth.   Let’s say you expect to use TSP, an IRA, and regular savings to provide income during retirement.  Your regular savings account is nearly risk-free, but there is no growth occurring there.  That puts it at the low risk/low growth end of the scale.  So, where might you want your TSP?  I’d think somewhere in the middle, and I might even suggest a Lifecycle fund that automatically moves your TSP investments into progressively more conservative funds as you

What if, however, you’re including a military retirement pay as part of your portfolio?  This is an entirely different picture because military retirement funds are very secure and they include an inflation-based Cost of Living Adjustment each year.  If military retirement is part of your portfolio, it is also probably a large part, so your entire equation is automatically way more conservative.  To balance out the low-risk aspect of military retirement, you want to shift the rest of your investments a little bit more aggressive.

To some extent, this is a secondary question.  Don’t let indecision about which fund to use prevent you from contributing to TSP.  It is a great tool for saving for retirement, regardless of which fund you choose.  If you are utterly uncertain, I might recommend starting out with a L fund that reflects your anticipated final retirement date (not the date you expect to retire from the military.)

So, as usual, there’s no right answer to this question.  The answer for YOU depends on a wide variety of factors and should include all the various factors discussed above.  Start contributing, and then pick the fund that seems closest to right for you!  Even if it isn’t perfect, it is good and it will help you achieve your long term goals.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • guest

    Or if they are undecided, start small and put any tax free special pays (or tax free deployment money) into the new Roth TSP. You can’t beat tax free in and out.

  • Koejoe

    Hopefully some can answer my question, thanks in advance: Just wondering if anyone else’s TSP contribution, taken from their Nov. 1st LES, has not posted online in their TSP acct? Usually it posts the business day after payday (in this case yesterday- Friday Nov 2nd). To clarify, this is not a new acct & the first time I’ve experienced this. If anyone can check their TSP & has any insight Thanks!

    • Jermyn

      It sometimes does this it probably be on your account either Monday or Tuesday.

    • KateKashman

      Koejoe, I agree with Jermyn. I absolutely would not worry about this for at least a few days. In addition to being a Thursday payday, lots of systems across the country have been disrupted by the storm. I’m pretty sure it will post within a couple of days.

  • Koejoe

    Thanks all for your replies! Makes me feel better, I can always count on this site for good advice & info.

  • Domi

    Kate or anyone, if you retire from the military do you have to transfer your money out of TSP if you’re not at 59 1/2? I read if you leave the military and have $200 or less in your account it had to be immediately transfered but nothing about if you retire from the military. Thanks,

    • Jermyn

      If you have less than $200 dollars they will send you a check. If you have more then $200 you can leave it in their as long as you will like. Me I would leave it in the TSP it is the cheapest on charging you fees. Yes you can transfer over to another account but check the fees nothing out their bets the TSP low fees.

  • Koejoe

    Just wanted to update that my TSP contribution posted today. Thanks again for the advice! Much appreciated :-)

    • KateKashman

      KoeJoe, thanks for update. I’m glad that it was all OK>