Starting July 1, 2020, Thrift Savings Plan (TSP) will have ten Lifecycle (L) Funds to choose from instead of the five currently available.
The TSP is adding the additional L Funds so that the target dates will be separated by only five years instead of ten, allowing participants to more precisely target the time when they think they will need their retirement savings.
Six more L Funds will be added, and the L 2020 Fund, having reached its target date, will be rolled into the L Income Fund.
The TSP issued a fact sheet on June 1 (below) explaining the changes.
What Are L Funds?
Each TSP L Fund is made up entirely of the five core funds — G, F, C, S, and I—in different proportions. The L Funds are target date funds, meaning they automatically adjust as you get closer to the time you plan to retire.
When your target date is far in the future, you can take more risk, seeking greater reward, because you have time to recover from any market downturns before you’ll need your money. When your target date is close, you may want to be more conservative with your investments. To make that gradual adjustment on your own, you’d have to regularly shift the money in your TSP account from the more aggressive C, S, and I funds to the more conservative G and F Funds. The L Funds do that work for you.
So, for example, the L 2050 Fund today is 82% invested in the C, S, and I Funds and only 18% invested in G and F. That’s because its target date, the year 2050, is still 30 years away. But when we get within a year or two of 2050, the percentages will be close to the other way around.
It will still be called the L 2050 Fund, but it will have a completely different investment approach, all without your having to make changes on your own.
The current L Funds are L 2050, L 2040, L 2030, L 2020, and L Income. The years in the names are the target dates. The L Income Fund is for people who have already reached the target date. It’s always the most conservative of the L Funds.
Many TSP participants, especially those newer to the plan, were invested automatically into the L Fund most appropriate for their age.
Target Dates in Five-Year Increments
The TSP is adding more L Funds so that the target dates will be separated by only five years instead of ten. Say you plan to retire within a year or two of 2035. Without these additional options, you’d have to choose between the L 2030 Fund and the L 2040 Fund, or maybe split your account between the two. The new L 2035 Fund will allow you to more precisely target the time when you think you’ll need your money.
Goodbye L 2020 Fund
When an L Fund reaches its target date, as the L 2020 Fund is about to, it becomes identical to the L Income Fund, so it ceases to exist. If you have money in the L 2020 Fund on July 1, don’t worry; that money will roll automatically into the L Income Fund. You can always make an interfund transfer into any fund you decide.
The New L Fund Lineup
Starting July 1, 2020, there will be ten L Funds available: L 2065, L 2060, L 2055, L 2050, L 2045, L 2040, L 2035, L 2030, L 2025, and L Income.
See the table below to decide which one might be right for you.