{"id":37583,"date":"2020-07-30T17:36:07","date_gmt":"2020-07-30T17:36:07","guid":{"rendered":"https:\/\/one.sightlinemg.com\/airforcetimes\/uncategorized\/2020\/07\/30\/dont-let-covid-derail-your-thrift-savings-plan\/"},"modified":"2026-08-08T07:16:07","modified_gmt":"2026-08-08T07:16:07","slug":"dont-let-covid-derail-your-thrift-savings-plan","status":"publish","type":"post","link":"https:\/\/one.sightlinemg.com\/airforcetimes\/management\/pay-benefits\/2020\/07\/30\/dont-let-covid-derail-your-thrift-savings-plan\/","title":{"rendered":"Don\u2019t let COVID derail your Thrift Savings Plan"},"content":{"rendered":"\n

If you\u2019ve been watching the ups and downs of the stock market \u2014 and the balance in your Thrift Savings Plan<\/a> \u2014 during the current COVID-induced economic crisis, you may feel a bit nervous and wonder whether you should take some sort of action.<\/p>\n\n\n\n

First, remember what that TSP is: it\u2019s a long-term savings program that\u2019s meant for saving for retirement<\/a>. Before you\u2019re tempted to try your hand at market timing, or are swayed by some fraudsters urging you to take money from your TSP right now to invest outside the TSP, step back, says Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, known as FINRA.<\/p>\n\n\n\n

\u201cIt\u2019s important in the overall scheme of things to have a long-term plan and to stick with it,\u201d Walsh said.<\/p>\n\n\n\n

The TSP is like a private-sector 401(k) retirement plan savings account. Make sure you\u2019re contributing as much as possible to your TSP, and if you\u2019re in the Defense Department\u2019s Blended Retirement System, contribute at least enough to get the 5 percent matching contribution from the military.<\/p>\n\n\n\n

The TSP is a key part of the BRS because it allows service members to build up retirement savings with help from DoD and take the money with them, even if they leave before serving to full retirement age.<\/p>\n\n\n\n

As of the end of 2019, 56 percent of service members in the BRS were contributing at least 5 percent of their basic pay or inactive duty pay to their TSP, said DoD spokeswoman Lisa Lawrence. That\u2019s about 480,000 service members contributing at least 5 percent, out of nearly 860,000 BRS participants.<\/p>\n\n\n\n

But that also means that about 44 percent of you, or about 380,000 service members, are leaving money on the table. \u201cThe matching contribution that\u2019s available to service members under the TSP is invaluable. It\u2019s basically free money,\u201d Walsh said.<\/p>\n\n\n\n

What changes should I make now? <\/b><\/p>\n\n\n\n

There are a variety of investments available in the TSP.<\/p>\n\n\n\n

FINRA doesn\u2019t give advice on what changes you should or shouldn\u2019t make in your investment mix right now, but puts more emphasis on the importance of sticking with a long term plan, Walsh says.<\/p>\n\n\n\n

\u201cA lot of people think,\u2018Oh, the stock market is falling. I\u2019d better sell.\u2019 That can often be the worst time to sell, because you\u2019re locking in losses. Or they see that the stock market is going up, and they think, \u2018Oh, I\u2019m going to pour all my money into the stock market.\u2019 But that might be the worst time to put all your money into the stock market because prices are high, and so you\u2019re buying in at a high level,\u201d Walsh said.<\/p>\n\n\n\n

Thinking about the long-term plan in general, there are a number of investment options in the TSP for service members who may be thinking about investing in stocks as part of their diversified portfolio, she said. The C Fund invests in the largest U.S. companies, the S Fund invests in small- to medium-sized companies; and the I Fund invests in foreign companies.<\/p>\n\n\n\n

It\u2019s also a good idea to have some percentage of your retirement savings in the traditionally less risky investments like the bond funds and the G Fund, Walsh said. The G Fund is invested in government securities. A number of service members and federal employees use the L funds, which are lifecycle funds with target dates that allow you to choose the year closest to your anticipated retirement date, and the fund will automatically re-balance the investments quarterly to make sure you\u2019re staying diversified. Diversified means you\u2019re putting your money in a variety of investments to reduce risk.<\/p>\n\n\n\n

In talking to service members over the years, Walsh said, one thing she has heard is that investing in an Individual Retirement Account is better than investing in the TSP. \u201cIt\u2019s unfortunate that that message gets out, because the TSP does provide a match, and it does provide low cost, diversified selections,\u201d she said. There are a number of other advantages, such as the ability to make contributions from tax-exempt pay, basic pay, incentive pay, special pay, and bonus pay. You can take a loan from the TSP if you encounter a financial emergency.<\/p>\n\n\n\n

Beware of fraudsters in the COVID environment<\/b><\/p>\n\n\n\n

A word about those loans. Because of the economic struggles people have had during the pandemic, Congress put provisions in the CARES Act to allow people take out money from a retirement plan for a COVID-related issue, with fewer penalties for early withdrawals, as well as a longer period to repay loans from retirement accounts.<\/p>\n\n\n\n

But that doesn\u2019t mean it\u2019s a good idea to do it. Some fraudsters and other bad actors are using these CARES Act benefits to promote high-risk, high-fee investments and other inappropriate products and strategies, according to a joint advisory from FINRA, the Securities and Exchange Commission, and the North American Securities Administrators Association.<\/p>\n\n\n\n

The fraudsters are encouraging people to take money out of their TSP or 401(k)s, or traditional IRAs to buy high risk investments outside their retirement plans, not for emergency financial needs. \u201cThat\u2019s a risky move, because you\u2019re betting that markets go up, and with the market volatility that we\u2019ve been seeing, markets are going up and markets are going down,\u201d Walsh said.<\/p>\n\n\n\n

\u201cYou have to affirmatively put the money back into your retirement account at some point that you\u2019ve withdrawn as a loan. You always risk, if you take your money out, that you\u2019re either locking in a loss, or spending too much, so it can be a dangerous move.\u201d<\/p>\n\n\n\n

But if you\u2019re experiencing financial difficulties because of COVID, and there\u2019s no other alternative besides taking money from the retirement fund in some fashion, the new provisions in law will ease the cost of using those funds.<\/p>\n\n\n\t