The Thrift Savings Plan declining can be a scary thing for federal employees, but what happens after the decline? Advisors like to tell people to stay put, and don’t touch your TSP! But why?
Here is a little context on why and what has happened in the past after a decline of 25% or more….(read more)

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The Thrift Savings Plan (TSP) is a defined contribution retirement plan for federal employees. It is similar to 401(k) plans offered by private sector companies. The TSP has been a popular retirement savings vehicle for federal employees since its creation in 1986. However, recent declines in TSP returns have caused concern among its participants.

In 2018, the TSP saw its first decline in five years, with the C Fund (which tracks the performance of the S&P 500) declining by 6.24%. This was followed by a downturn in 2019 when the C Fund saw a 31.45% increase which was the highest in two years after a strong rebound from the Covid-19 pandemic. But in 2020, the C Fund experienced a -4.38% decline, which can be attributed to market volatility brought on by the global pandemic.

It is important to understand that declines in the TSP are not unique to the plan. The stock market, in general, has seen significant volatility in recent years. Many investors, including those with 401(k) plans, have also experienced declines in their retirement savings.

Another issue contributing to the decline in TSP returns is the low-interest-rate environment. The Federal Reserve has kept interest rates low to stimulate economic growth, but this has had a negative impact on the TSP’s fixed income funds. These funds, which usually provide stable returns, have been affected by the low rates.

Despite the recent downturns, it is important for participants to keep in mind the long-term nature of retirement savings. Historically, the stock market has seen periods of growth and decline, but over the long-term, it has provided significant returns. Participants who leave their funds in the TSP for the long-term are likely to see growth in their savings.

In addition, the TSP continues to offer low-cost investment options compared to many private sector retirement plans. The plan also offers a range of investment options, including lifecycle funds that automatically adjust to a participant’s age and investment goals.

Overall, declines in the TSP should be viewed in context with the larger economic and market conditions. While it can be concerning for participants to see their savings decline, it is important to remember that retirement savings are a long-term investment. The TSP remains a valuable retirement savings option for federal employees, offering low-cost investment options and a range of investment choices to meet individual goals.