The TSP recently published a "Keeping Score" questionnaire that prompts users to compare the TSP to other financial plans such as an IRA through a financial institution. However, we’re calling foul on the TSP's insinuations. We believe you are the ultimate referee of your retirement and want to ensure you have all the facts to make the right call for your financial situation.
Challenging TSP’s Call
TSP has made a series of potentially misleading implications with its seven-question questionnaire. The first three questions suggest that TSP is the most cost-effective option compared to other investment options.
This could be misleading for three reasons:
TSP may not offer the lowest expense ratios compared to other self-directed funds.
TSP’s expense ratios can increase.
TSP is self-directed and does not offer the same level of support that managed accounts can provide.
An expense ratio is essentially how much it costs per year to own a fund. For example, a fund with a 0.05% expense ratio would cost $5 per year for every $10,000 you have in the account. This fee covers the fund's costs, such as administrative duties, research, and operating expenses. Actively managed funds, meaning a fund with a fund manager whose goal is to outperform certain benchmarks, tend to have higher expense ratios. Passive funds, meaning funds generally tied to an index, tend to have lower expense ratios.
Currently, there are self-directed funds equivalent to options in the TSP’s C, S, and I funds, which have lower expense ratios than the TSP. According to a recent US News and World Report, 4 of the top 5 Index Funds tracking the S&P 500 (as the C Fund does) all have lower expense ratios than TSP1.
TSP’s expense ratio changes year-to-year based on increases or decreases in average net assets and administrative costs2. This means that TSP could be a good option for one year and a worse option for another. In fact, from 2017 to 2021, TSP’s expense ratios increased by over 130%!3 Leaving all your money in TSP could mean leaving money on the table.
TSP says it doesn’t make a profit, but it also lacks the support and consideration that working with a Certified Financial Planner offers. Comparing the fees of a self-directed plan like TSP to working with a financial planner is like comparing a neighborhood scrimmage to the Super Bowl. Same game, different levels. TSP agents can tell you how the plan works, but they can’t tell you how it can work for you.
When you work with us, we consider your complete financial picture. What are your retirement plans? Debts? Health considerations? How do you want to transfer your wealth? What are the best tax strategies? We consider all of your financial aspirations and obligations to create strategies to help you accomplish your goals. If you’re the referee of your finances, we’re the coach. We’ll do our best to ensure all your financial players are working to achieve your financial touchdowns.
Comparing the fees of a self-directed plan like TSP to working with a financial planner is like comparing a neighborhood scrimmage to the Super Bowl. Same game, different levels.
The questionnaire also states that the TSP has a fiduciary obligation to put your interest over its own, while financial planners do not. This statement may be misleading. While the Thrift Board has a fiduciary duty to run the plan, the TSP representatives participants speak to cannot give financial advice. In fact, the Thrift Board has stated and printed that they do not have a fiduciary duty over the funds in the mutual fund window – “Unlike our low-cost TSP funds, mutual funds available through a brokerage account aren’t vetted by a plan fiduciary to determine whether they are wise investments. This means that you need to carefully review the prospectus for each mutual fund you consider and make your own decisions about which ones will meet your investment goals.”4
This is in contrast to individuals who receive the Certified Financial Planner (CFP)® designation, who do have a fiduciary duty to put their clients’ interests first.5
Our lead financial advisor, Wes Battle, has CFP®, ChFEBC℠, RICP® and AIF® designations. A CFP® accreditation requires several years of experience and passing a comprehensive exam. To maintain their certification, CFPs must commit to continuing education to stay on top of current financial information and trends. They also must adhere to a code of ethics that protects clients and ensure their needs are the priority. Additionally, Wes has a Federal Employee Benefits Consultant (ChFEB)℠ certification, which means he has extensive knowledge of FERS, CSRS, TSP, FELGI, and Social Security. The Accredited Investment Fiduciary® (AIF®) designation “assure that those responsible for managing or advising on investor assets have a fundamental understanding of the principles of fiduciary duty, the standards of conduct for acting as a fiduciary, and a process for carrying out fiduciary responsibility.” In short, Wes and his team are working for you. Get a complimentary portfolio analysis.
Individuals who receive the Certified Financial Planner (CFP)® designation have a fiduciary duty to put their clients’ interests first.
The fifth implication the Keeping Score questionnaire makes is that IRAs are not protected from creditors' claims. This is state-dependent. However, most states (43 plus D.C.) protect IRAs and Roth IRAs from creditor claims.6 Some states, such as California, have additional stipulations where funds in excess of what is necessary for debtors, their spouses, and their dependents to live are subject to garnishment. Other states, such as Kentucky and Michigan, do not protect funds deposited 120 days before declaring bankruptcy. A financial professional can help you navigate the specific laws of your state.
The final question in the questionnaire (can I change my investments or take withdrawals without being subject to surrender fees or back-end charges?) attempts to compare TSP to an annuity. An annuity is a contract with an insurance company that guarantees current or future payments in exchange for a premium or series of premiums. Some annuities can have surrender charges if you withdraw more than 10% per year for the first 8-10 years. Other annuities pay a one-time lump sum. Annuities differ from IRAs, which do not have these restrictions. Generally, annuities aren’t the first place Feds should look regarding investment options, but we can help you decide if it works for you.
Making the Call on TSP
As you can see, there’s more to deciding which investments you should prioritize than a questionnaire can cover. But here’s the thing: You don’t have to give up TSP completely! It’s not necessarily an either/or scenario. We help you decide when it’s right for you to keep some of your money in TSP or move it into another investment vehicle. TSP offers some positives, such as its ease of use with its limited fund choices and target date funds, its unique G fund, automatic required minimum distribution, and its relatively low cost. It also has drawbacks, such as limited investment options, slow innovations, limited withdrawal options, and, most importantly, no guidance. Depending on your financial situation and goals, we work with you to decide if TSP is a good fit for you. If you’d like to learn more about the advantages and disadvantages of TSP, download our complimentary white paper: Thrift Savings Plan: Should You Stay or Should You Go?
With our Financial Advantage for FedsTM, we specialize in assisting active and retired federal employees by implementing tailored plans. While many firms may share content and information on federal benefits, we offer a unique combination of experience, tools, strategies, and resources to bring these plans to life. Unlike other firms that may have extensive knowledge of the basics but lack the infrastructure to provide comprehensive solutions, we ensure that our clients receive all the necessary tools for a seamless experience, eliminating the need for additional legwork in connecting with professionals. Schedule a complimentary portfolio analysis today.
As the referee of your retirement, you must have all the facts about your options. TSP could be a great option, but other options might be better for you. Let us help you make the right call.
Footnotes
- https://money.usnews.com/investing/articles/best-s-p-500-index-funds-to-buy
- https://www.frtib.gov/meeting_minutes/2025/2025Jan.pdf
- https://minutes.frtib.gov/
- https://www.tsp.gov/mutual-fund-window/
- https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct
- https://www.thetaxadviser.com/content/dam/tta/issues/2014/jan/stateirachart.pdf
Disclosure
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. The target date of a target date fund may be a useful starting point in selecting a fund, but investors should not rely solely on the date when choosing a fund or deciding to remain invested in one. Investors should consider funds' asset allocation over the whole life of the fund. Often target date funds invest in other mutual funds and fees may be charged by both the target date fund and the underlying mutual funds. The principal value of these funds is not guaranteed at any time, including at the target date. Although it is possible to have guaranteed income for life with a fixed annuity, there is no assurance that this income will keep up with inflation. There is a surrender charge imposed generally during the first 5 to 7 years or during the rate guarantee period.
Investors should consider the investment objectives, risks and charges and expenses of the funds carefully before investing. The prospectus contains this and other information about the funds. Contact Wes Battle at 301-610-0071to obtain a prospectus, which should be read carefully before investing or sending money.