Your TSP in The Time of Covid
Have you been watching the balance in your Thrift Savings Plan (TSP) fluctuate with the ups and downs of the stock market? During this pandemic-induced economic crisis, you may feel nervous about your investments and wonder if you should take some type of action.
Think Long Term | The TSP is a long-term savings program meant for saving for retirement. The TSP is like a private-sector 401(k) retirement plan savings account. Make sure you are contributing as much as possible and sticking with your long-term plan. Try not to be swayed by someone urging you to take money now to invest outside of the TSP. If you are in the Defense Department’s Blended Retirement System (BRS), contribute to take full advantage of the 5 percent matching contribution from the military. Not taking advantage of that benefit is leaving money on the table.
The Financial Industry Regulatory Authority (FINRA) does not give advice on what changes you should make in your retirement investment mix, but puts more importance on sticking with a long term plan. A lot of people think that if the stock market is falling, that they should sell. That is the worst time to sell because you are locking in your losses. Conversely, if the market is going up some people want to buy more. Again, not a great plan because you are buying stocks at their most expensive prices.
If you are interested in investing in stocks with your TSP as part of your long-term strategy, there are a number of options for you. The C Fund invests in the largest U.S. companies, the S Fund invests in small to medium sized companies, and the I Fund invests in foreign companies.
Consider having some percentage of your retirement savings in a traditionally less risky investment area, like bond funds. The G Fund is invested in U.S. Government securities. Many of your peers invest in the L Funds, which are paired to your targeted retirement date. The L Funds automatically re-balance their investments quarterly to stay diversified for risk reduction.
Here’s How The TSP Works | After you have served for 60 days, a TSP account is created for you and 3% deductions are automatically taken from your pay to go to your TSP account. You change the amount of the deduction but by law, you are re-enrolled annually at 3%. The Department of Defense contributes 1% automatically, and will contribute up to 4 additional percent each year to match your contributions. So, if you contribute 5%, the DoD contribution brings it up to 10%. The money you contribute is always yours, and the DoD contributions are yours after you serve two years.
Your financial plan should always include an emergency fund for such things as repair bills, reduction in family income due to spouse’s job loss etc.
Do Your Homework | Many service members believe that investing in an Individual Retirement Account (IRA) is better than investing in the TSP. Remember that the TSP provides a match, and low cost, diversified selections. Additional advantages include the ability to make contributions from tax-exempt pay, basic pay, incentive pay, special pay, and bonus pay.
You do have the ability to take out a loan from the TSP if you encounter a financial emergency. As a result of COVID-related economic struggles, Congress put provisions in the CARES Act to allow people to take out money from a retirement plan for a COVID-related issue with fewer penalties for early withdrawals and longer repayment periods. Be aware that some bad actors are using these CARES Act benefits to promote high-risk, high-fee investments.