Very Dangerous TSP Advice

“If I’m planning to start drawing from TSP in 2022 (I will be 58 years old and am in FERS), do you recommend I be in the L2020 fund now…based on I’m currently 50 years old and planning to start drawing at age 58?”


“Given that you are 50 years old and plan to start drawing from your TSP account in eight years when you are age 58, you should have 90 percent of your money spread among the C, S and I funds or be in the L2030 fund (which are more aggressive than the L2020 fund).”

My Outrage:

No wonder the federal securities regulators are trying to regulate advice given to TSP participants! I have to take a deep breath to calm down and collect my thoughts before starting to write. This answer provided in the blog is wrong in so many ways. Where do I start?

First, this advice is given in a vacuum. The responder knows nothing about the TSP participant beyond that he/she is 50 years old and planning to retire and begin drawing on his/her TSP account in 8 years, at age 58. To offer a specific recommendation like this with so little knowledge of the participant’s financial situation and needs is irresponsible.

Second, this advice exposes the participant to significant market risk. Imagine the impact on the participant if the market hit a 2008-type market collapse shortly before age 58. Such a decline could postpone retirement for years.

Third, there is an old rule of thumb for how much of a portfolio to hold in stocks (which is how the C fund, S fund and I fund are invested) that says an appropriate percentage is 100 minus your age (100 – age = % in stocks). A common variation of this rule of thumb is to use 110 instead of 100 (110 – age = % in stocks). These two formulas generate stock allocations of 50% and 60% for this participant. They are just rules of thumb, but the difference between 50-60% and 90% is a lot more than a rounding error.

Finally, there is no mention of any sort of management of the 90% allocation to the C, S and I funds to protect the TSP account from significant market declines. Having been through two market crashes of 50%, or more, in the last 15 years, most pre-retirees are keenly aware of the impact that a big decline can have on their TSP accounts. Committing 90% of a TSP account to the stock market without any protective management process is very risky.

Bottom line: be careful of TSP advice. Not everyone is equally qualified to offer it.