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What Are Thrift Savings Plan Lifecycle Funds?

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Posted in Savings Account

Members of the military and federal government civilians have a retirement plan in addition to their pensions. Its known as the Thrift Savings Plan, or TSP, which is similar to a civilian 401(k) account. The TSP has five index fund investment options to choose from and it is has evolved over the years to keep up with changes in the civilian investing landscape.

The Federal Retirement Thrift Investment Board, which manages the TSP for federal employees, has also recently included five target date retirement funds, called Lifecycle Funds, to make investing even easier for the plan”s participants.

What Are TSP”s Different Investing Options?

Like a corporate 401(k) retirement plan, the Federal Thrift Savings Plan is a tax deferred retirement plan where the investor makes pre-tax contributions to the portfolio and then pays income taxes on the principle, interest, dividends and capital gains at the time of withdrawal.

There are five distinct index funds options for investors:

  • The C Fund: An index fund that replicates the Standard and Poor”s 500 (S&P 500) Index.
  • The S Fund: Invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index.
  • The I Fund: This fund”s investment objective is to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.
  • The F Fund: It”s investment objective is to match the performance of the Barclays Capital U.S. Aggregate Bond Index, a broad index representing the U.S. bond market.
  • The G Fund: Invests exclusively in a non-marketable short term U.S. Treasury security that is specially issued only to the TSP.

What Are Lifecycle Funds?

In 2005, the Federal Government”s Thrift Savings Plan formed five target date retirement funds which are called Lifecycle Funds. There are funds that are targeted towards individuals who are set to retire in the years 2010, 2020, 2030, 2040, and one for people who are currently retired called the Lifecycle Income Fund.

The 2010 fund is about to close and roll all its assets automatically in the Lifecycle Income Fund and the 2050 fund is about to be created.

The Lifecycle Funds are comprised of elements from each of the five TSP index fund options available to members of the military and federal government. For example, the Lifecycle 2020 Fund currently has an asset mix of 39% G Fund, 7% F Fund, 29% C Fund, 9% S mobile casino Fund and 16% I Fund. Each of the funds” assets is adjusted quarterly as the retirement date nears to provide more capital preservation and reduce risk.

The TSP”s Lifecycle Funds provide investors easy to manage investing options. The retirement targeted date funds automatically rebalance the assets inside each fund as the investor nears retirement and his or her risk tolerance changes. The funds become less volatile and less risky as the retirement date approaches and the fund sells stock in favor of purchasing bonds and holding cash reserves in an effort to preserve capital for retirement.

TSP”s Lifecycle Funds are a good choice for the investor who just wants to invest his or her money and forget about the upkeep and rebalancing. For those investors looking for a higher risk profile and higher possible return, choosing their own mix of investment options might be a better choice.

Hank Coleman is a Captain in the U.S. Army, freelance writer, and the founder of personal finance sites such as Military Money Might. His writing has been featured on The Motely Fool, Military.com, and many others. You can follow him on Twitter at @HankColeman.