As of July 1, 2020, the TSP has added new Lifecycle funds (L funds) to the existing five options. The TSP Lifecycle funds are professionally managed mixes of the G, F, C, S, and I funds that are balanced to meet investment goals over various periods of time. The objective is to strike an optimal balance between the expected risk and return associated with each fund. The closer to the target date the funds reach, the more conservative they become. The TSP L funds rebalance every quarter, saving investors time and energy. Recent changes to the TSP L funds introduced several new options: L 2025, L 2035, L 2045, L 2055, L 2060, and the L 2065.
L 2020 TRANSITIONS TO L INCOME
Federal employees who were invested in TSP’s L 2020 fund likely received updates earlier in the year that the L 2020 fund would be retiring. Keeping in line with this rebalancing approach mentioned above, the L 2020 fund is now simply L Income and represents the most conservatively allocated of the Lifecycle funds. According to TSP.gov, the L Income Fund should be considered, “if you are currently withdrawing money from your TSP account in monthly payments or you plan to begin withdrawing money before 2021”.i
MEET THE NEW FUNDS
The recent additions to the TSP Lifecycle funds are meant to give federal employees enhanced options. Rather than one L fund per decade, there is now an L Fund for every year that ends in a five or zero (until 2065). Each fund is built to maintain an approach of limiting risk the closer one gets to retirement; therefore, the L Income and the L 2065 have significantly different allocations. The chart below has a complete list of the L funds now available to federal employees.
WHICH L FUND IS RIGHT FOR YOU?
Your portfolio can contain more than one L fund or a combination of TSP L funds and individual funds, if you so choose.
Picking a TSP Lifecycle fund is generally a better strategy than not having any investment strategy, as it provides some intentional diversification of asset classes and rebalancing. It can make investing and staying diversified easier. However, while investing in TSP L funds may be easier, is it the best thing to do to maximize your retirement income?
It’s generally not wise to make investment decisions based on what is easiest or what the government suggests that you do. More important is what gives you the right combination of risk and returns.