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Is the TSP's new L 2050 Fund right for me?

By Miriam Darden Settles, CFP, Federal Retirement Thrift Investment Board
Source: Military Saves

On January 31, 2011, the TSP introduced its newest investment option:  the L 2050 Fund.  The L 2050 Fund is a part of the TSP's family of Lifecycle funds. Within the first few days of its opening, the fund had 4,500 participants for a total investment of approximately $200,000,000. 

What are the Lifecycle funds?

The TSP Lifecycle funds (L Funds) are essentially "target date funds."  Each L Fund is targeted to a specific retirement year, so when you invest in an L Fund, you get the level of risk appropriate to when you'll need your money in retirement.  Since each L Fund is comprised of a professionally determined mix of the TSP's individual funds (G, F, C, S, and I Funds), they are an ideal investment solution for you if you don't have the time, interest, or experience to manage your TSP retirement savings on your own.  All you have to do is choose the L Fund that coincides with the period that you plan to start withdrawing your money.  The fund will become more conservative as you approach your target date.  The asset allocation decisions and portfolio rebalancing transactions are automatically done for you. 

The overall objective of the L Funds is to strike an optimal balance between the risk and reward associated with each fund. The assumption underlying the L Funds is that individuals with longer investment time horizons are willing and able to tolerate more risk while seeking higher returns. 

Why was the L 2050 Fund introduced?

When an L Fund reaches its time horizon (or final asset allocation), it is retired and the investments in the fund are rolled into the L Income Fund, the fund designed to provide income in retirement.  The L 2010 Fund reached its final asset allocation in July 2010 and was retired on December 31, 2010, making way for the introduction of the new L 2050 Fund. 

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Assets that are rolled into the L Income Fund are well-protected because the majority of the fund is invested in the stable Government Securities Investment (G) Fund, where there is no risk of loss of principal.  If you were invested in the L 2010 Fund, you did not have to take any action.  Your money was automatically rolled into the L Income Fund at the end of December 2010, and you were notified of the transaction.

What are the risks of investing in the L Funds?

When you invest in the L Funds:

  • You are subject to the investment risks associated with the G, F, C, S, and I Funds. 
  • Your account is not guaranteed against loss.  The L Funds can have periods of gain and loss, just as the individual funds do. 

What are the rewards of investing in the L Funds?

The L Funds simplify fund selection for you.  You choose the fund that is closest to your target date (or if your target date falls between the target dates that are offered, you may also choose to split your account between the two closest funds).

When you invest in the L Funds:

  • You can be sure that your TSP account is broadly diversified.
  • You don't have to remember to adjust your investment mix as your target date approaches - it's automatically done for you.
  • You don't have to worry about straying from your investment strategy - the L Funds keep you on course.

Should I consider the L 2050 Fund?

Generally speaking, you should invest in the L 2050 Fund if you are looking for broad diversification of your investments and you expect to need your money in retirement in 2045 or later. The L 2050 Fund's assets are allocated more heavily toward the TSP's stock funds (the C, S, and I Funds).  Therefore, it will initially focus more on growth than on the preservation of assets and will have the most aggressive investment mix of all of the L Funds.  As it ages, its investment mix will gradually shift to more conservative investments (the F and G Funds).  The L 2050 Fund is ideally suited for younger employees just entering the workforce or those still in the early stages of their careers.

How do I invest in the L 2050 Fund or any of the other L Funds?

First, determine the date when, after leaving Federal service, you will need the money that is in your TSP account.  Then, identify the L Fund that matches your target date:

Choose:           If your target date is:

L 2050             2045 or later

L 2040             2035 through 2044

L 2030             2025 through 2034

L 2020             2015 through 2024

L Income         Now through 2014

Next, log into My Account on the TSP website, www.tsp.gov.  You can make a contribution allocation to direct all new money coming into your TSP account to the L Fund of your choice.  If you want to move the money that is already in your account to one of the L Funds, you can make an interfund transfer (IFT).  Keep in mind that there are certain rules regarding the frequency and type of interfund transfers you can make in a single month.  Visit "Interfund Transfers" in the Plan Participation section of the website for more information. 

You can also make a contribution allocation or an interfund transfer by calling the ThriftLine at 1-877-968-3778.  Outside the U.S. and Canada, call 404-233-4400.

 

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