If you’re contributing to the Thrift Savings Plan (TSP), you’ve probably at least heard of the Lifecycle Funds. But what exactly are they? And how do they work?
The Lifecycle Funds are target-date funds, meaning they automatically adjust as you get closer to the time you plan to retire.
Each of the Lifecycle Funds within the TSP is a mixture of each of the five core funds within the TSP: the G, F, C, S, and I funds.
The objective of the Lifecycle Funds is to strike the right balance between the expected risk and return associated with each of those funds. They are horizon-based portfolios, meaning there’s a moment in time in the future that we want an account to look a certain way, such as to be more conservative. As we get closer and closer to that time, or horizon, the account will automatically adjust.
As a result, the balance of the fund will be different over time. You won’t have an equal amount of G, F, C, S and I in each of these Lifecycle Funds, but instead the fund will shift and morph over time to look more like it needs to look based on when you need the money.
So, the question is, are the Lifecycle Funds right for you?
That’s a really hard question to answer, but the people who we see drawn to these funds may have no idea on how to invest. They either don’t know how much money they should have invested in each of the five funds, or they’re not really sure how they each perform, or at what point they should change their allocations or the distributions. As a result, they can get very confused. And when confused people approach decisions, they tend to take no action.
So the Lifecycle Funds allow employees to at least get a pretty good idea of the balance among all of the five funds that they should have in their TSP account.
How the Lifecycle Funds Change
The Lifecycle funds naturally change over time because that’s how they’re designed to work. But in 2020, a different kind of change happened within the TSP. There were only five life cycle funds: the L Income, the L 2020, 2030, 2040, and 2050. That was it. Then in July of 2020, the Lifecycle 2020 fund was retired, because we had reached that horizon. The next group of funds was created to replace it, which was the 2060 Fund, but also all of the five-year increments within. We now have Lifecycle funds 2025 through 2065
This choice of funds now allows you to get a little bit more dialed in, maybe not in a perfect way, but it at least allows you to get a little closer to that timeline of when you plan to first need money out of your TSP account.
If you like the idea of “setting it and forgetting it” when it comes to the TSP, you put the money there and leave it alone, and the Lifecycle Funds automatically rebalance and reallocate every quarter. As you move closer to that retirement timeline, you get a little bit more conservative each and every quarter. So, it’s not something you have to actively go in and make adjustments to, you just put it there, leave it alone, and it simply adjusts for you.
If you have never contributed to the Lifecycle funds before, you don’t have a financial planner to give you that guidance, or you feel like you’re all over the map with your investing, the Lifecycle funds can give you some direction.
For a deeper dive on this topic, watch the FedImpact Webinar on the TSP Lifecycle Funds.
About Chris Kowalik
Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed FedImpact Workshops, the FedImpact Podcast, and the FedImpact Webinars, she empowers employees to make confident decisions as they plan for the days when they no longer have to work. Chris’ candid and straightforward nature allows employees to get the answers they need and understand the impact these decisions have on their retirement.
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