2035 doesn’t seem that far away.
But- did you know, that by 2035, Europe will have banned cars with internal combustion engines? Futurists are already speculating that internet will be a completely different place 15 years from now.
While those seem like big changes, I’m sure none of these changes will be as big as those experienced by people invested in the TSP L 2035 Fund…
(The TSP L 2035 Fund is designed for federal employees who expect to retire on or near the year of 2035).
So if retirement is in your (not to distant) future, pull up a chair and let’s explore the future together.Get Gov Worker’s top 4 tips for federal employees!
Table of Contents
- What is the Thrift Savings Plan (TSP)?
- How do the TSP Lifecycle Funds work?
- What is in the TSP L 2035 Fund?
- Who should invest in the TSP L 2035 Fund?
- How does the TSP L 2035 Fund compare to private sector alternatives?
- Is the TSP L 2035 Fund right for me?
Please do not confuse my personal blog for financial advice, tax advice or an official position of the U.S. Government. This post may contain affiliate links. If you make a purchase after clicking on a link, I get a small percentage of the sale at no additional cost to you.
What is the Thrift Savings Plan (TSP)?
To help a lot of its employees plan for their retirement and save a little money along the way, the US government created a qualified retirement plan called the TSP that federal employees and members of the uniformed services can benefit from. Founded in 1986 through the Federal Employees’ Retirement System Act (FERS), the TSP operates in a similar manner to a 401(k) for government employees.
Federal employees can contribute up to the 401(k) maximum ($20,500 in 2022). They even receive matching contributions their first 5% of their salary they contribute each paycheck; most of it with no vesting period (free money).
When the TSP was founded, it was revolutionary for having low investment fees that were unheard of back in the 1980’s. The government could offer such low fees because they restricted employee’s investments to index funds regulated by the comptroller of the currency.
Currently, employees can choose between one of 5 index funds:
- G Fund– (short term government bonds, guaranteed to increase in value)
- F Fund– (medium term government and corporate bonds, similar to BND)
- C Fund– (“common stocks” i.e. S&P 500)
- S Fund– (small and medium cap stocks)
- I Fund– (international stocks, limited to certain countries that excludes emerging markets)
The L Funds, or Lifecycle Funds, are simply funds that are comprised of these 5 funds.
How do the TSP Lifecycle Funds work?
If you looked at the above list, you may be asking what the “L Funds” are all about.
The Thrift Savings Board came up with the “L Funds” or Lifecycle Funds in 2005. Each L fund is composed of the 5 core funds. The TSP board adjusts the mix of these 5 funds along a “glide path” so that you automatically have a portfolio that balances risk and expected returns in a way that makes sense for your age.
This means that you do not have to invest in these funds separately. One contribution to any Lifecycle Funds gets distributed into all five funds based on your preference for risk.
The only decision you need to make with the L fund is choosing which one you want to invest in. Each L fund has a number with it- these numbers are your corresponding retirement dates.
Let’s dive into details about the TSP L 2035 Fund.
What is in the TSP L 2035 Fund?
First, let’s cover the most obvious fact about the the TSP L 2035 Fund. The fund is targeted for investors who hope to retire between 2033 and 2037.
The Federal Retirement Thrift Investment Board has developed a glide path that specifies the mix of stocks and bonds that a federal employee with a FERS pension should hold at a given age. They then built L Funds in 5 year increments to help employees’ portfolios follow those paths.
People in the L 2035 Fund are about 15 years away from retirement. The current asset allocation (May 2022) contains:
- 33.89%: C Fund
- 26.84%: G Fund
- 23.08%: I Fund
- 8.97%: S Fund
- 7.22%: F Fund
This mix has a moderate level of risk. Still plenty of stocks to help you grow, but it also has about 1/3rd of the portfolio in bonds to smooth out your ride as you approach your golden years.
Who should invest in the TSP L 2035 Fund?
Any federal employee can invest in the TSP L 2035, but it is specifically designed as a contributory retirement plan for anyone who plans to start withdrawals from 2033-2037.
As I said before when talking about the “best TSP allocation“, your life may be totally different from what the TSP thinks your life is like. Therefore, even if you don’t plan to retire in 2035, you may find that the L 2035 find might be right for you.
For instance, if you think your pension will cover most of your expenses, you can be more aggressive with your money. In that case, even if you were planning on retiring in 2025 or 2030, you may wish to hold the L 2035 fund.
On the other hand, if you have a lot of debt or need to support aging parents or children with extra financial needs, you may wish to be more conservative with your TSP.
No matter which L Fund you select, try to avoid holding more than one L Fund in your portfolio. There is no advantage to mixing these funds.
How does the TSP L 2035 Fund compare to private sector alternatives?
You can find similar funds like the L 2035 with some private equity investment companies.
Is the TSP L 2035 Fund right for me?
Your TSP Portfolio is like a Smokey Bear saying… “Only you can know if the L 2035 Fund is right for you.”
However, as a run of thumb, if you’re planning on retiring around 2035, the TSP L 2035 Fund should have everything you need for a safe retirement. It’s an easy, no-stress solution for those people that don’t want to think about finances or investing. With a total expense ratio of 0.047%, it’s not only easy but cheap as well.
If you’re someone like me who eats, sleeps, and breathes finance, then you’re probably going to want to build your own portfolio. That’s okay too. The most important part of investing for retirement is that you are comfortable with your retirement plan.
Have questions about the TSP L 2035 Fund? Drop them in my Facebook Community or hit the subscribe button below and shoot me an email!Get Gov Worker’s top 4 tips for federal employees!
SamSam i.e. "Gov Worker" started working for the government at age 18 and loved it so much that he never left. He started GovernmentWorkerFI in 2019 to help fellow federal employees understand their benefits, take control of their finances, and live their best lives.
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