Keeping Perspective: The TSP and Your Retirement Future   By Ralph Smith September 28, 2010 Click here for more articles by Ralph Smith

In response to a recent article entitled Do You Trust Congress With Your TSP Investment, the answer appears to be that readers do not trust Congress with their TSP investment, based on the numerous comments posted.

Several readers were moved to ask a variation of this question: "Should I cash out of my TSP now?"

The choice is yours, of course, as it is your retirement money. As an active or retired federal employee, I would leave my money in the TSP. Here is why.

First, the TSP is one of the best retirement investment vehicles available. In fact, it may be the best one available and, for most readers, it is superior to your other options. It is easy to understand, the government adds money to your investment and it is less expensive for an investor than your other options so that more of your money goes to work for you. That has not changed because a Congressmen introduced a new bill or that other Congressmen have issues they would like to be addressed by using the TSP in some way.

Second, as a TSP investor, you have a range of choices available ranging from the underlying TSP index funds to the lifecycle funds. While it is true you cannot trade frequently within the TSP as you may be able to do in other accounts, for most people that is not a major drawback. Some readers have written to us that they have made considerably more money by moving money in or out of specific TSP funds based on the movement in the financial markets. I have no reason to doubt their veracity but, for most people, trying to time the market in this way results in losing more money than if you diversify your TSP investments, rebalance your investments occasionally, and keep adding money to your investment each pay period.

Third, while I do not trust Congress to effectively manage money any more than our most cynical readers, the government does not move quickly. As noted in yesterday's article, a bill has been proposed to add a new fund to the TSP. This bill is similar to a proposal made in Congress more than three years ago. The proposal has not been implemented in the past three years and it is not likely to happen quickly this time around--even if the bill does eventually become law. There is no reason for anyone to move their funds out of the TSP right now if you are doing so just because of this new legislative proposal.

Fourth, the TSP is a excellent benefit for federal employees. Most private sector employees do not have a retirement option that is as easy-to-understand, as inexpensive, and as flexible as the TSP. Anyone who is eligible and not participating in the TSP is giving away money that the government will add to your account when you invest in the TSP.

Fifth, keep in mind that the management of the TSP has opposed the bill to add a new fund to the TSP options for the reasons outlined in that article. Their opposition to the bill is likely to carry weight with Congress. The result may be that the bill does not pass or, if it does pass, the bill may be altered in significant ways before it becomes law. We will keep our readers apprised of the progress of the bill or changes that may occur as it moves through Congress and how it may impact your retirement investments.

In short, the TSP is a significant financial and retirement benefit for federal employees. The safety and security of the TSP could be altered by Congress in the future and it is in your best interest to remain informed about potential changes that may impact your retirement future.  Generally, wise investment decisions are made with deliberation and based on your overall financial plan. The latest development in Congress is no exception and there will be opportunities to make your financial decisions before Congress acts.
 

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