Lifecycle Funds in the Thrift Savings Plan

For this week’s post in my Saturday series “Investing for complete and utter idiots and dummies” (and people intimidated by investing) I’m going to revisit the federal Thrift Savings Plan (TSP) which is the US government’s version of a 401(k).  In the spotlight are the “Lifecycle” funds, or the L Funds.  I didn’t cover these very well back in January when I did my overview of the TSP, so I thought it might be a good idea to line these babies up and look under the hood of each one since there are actually five different L funds.  I’ll list these from “most conservative allocation” to “least conservative allocation” (and yes, liz, I understand the G fund is not really conservative when you factor in inflation concerns!)

L-Income Fund:  This is the only L Fund that doesn’t actually change it’s percentage allocations, and is supposed to be for people who are already withdrawing their retirement money.  The allocation is broken down into:

  • G Fund: 74%
  • F Fund: 6%
  • C Fund: 12%
  • S Fund: 3%
  • I Fund: 5%

L-2010 Fund: The L-2010 fund is designed for people who will start withdrawing their money between 2008 and 2014, and the allocation changes quarterly.  The linked page is pretty cool, as it has a flash show that you can see exactly how the funds allocation has changed quarter by quarter since its inception, and how it will be changed in the future!  Once it reaches the same allocation as the L-Income fund it is rolled into the L-Income.  Here is the allocation as of January 2008 (it will change again in April 2008)

  • G Fund: 58.5%
  • F Fund: 6.5%
  • C Fund: 19.5%
  • S Fund: 5.5%
  • I Fund: 10%

L-2020 Fund:  This fund is listed for people who plan to withdraw their money between 2015 and 2024, and changes quarterly.  January 2008 percentages are:

  • G Fund: 31%
  • F Fund: 7.75%
  • C Fund: 32.25%
  • S Fund: 11%
  • I Fund: 18%

L-2030 Fund:  This fund is for people who plan to withdraw money starting between 2025 and 2034, is adjusted quarterly, and is right now allocated as:

  • G Fund: 18.75%
  • F Fund: 8.75%
  • C Fund: 37%
  • S Fund: 15%
  • I Fund: 20.5%

L-2040 Fund: The “furthest out” target retirement date, for people who plan to withdraw their money after 2035.  This one is also adjusted quarterly … hmmm, I see a pattern here.  Here’s the breakdown of allocation for January 2008:

  • G Fund: 7.75%
  • F Fund: 9.75%
  • C Fund: 41%
  • S Fund: 17.5%
  • I Fund: 24%

Overall, the L Funds are designed to be the only fund in your TSP account if you do not feel comfortable allocating your own portfolio.  These funds are not designed to be mixed with others, but I know some folks do.  Hence, I have given these funds the nickname “Lazy” instead of Lifecycle. 

These funds are a little too “conservative” in their target dates for my tastes right now, given rising gasoline and food prices.  But hey, I am just learning these things myself.  If I were to put hubby’s TSP into any of these funds, I would hit the L-2040 since we are both in our 30s right now. 

If you are retiring before 2035, I would say to at least go one decade past what your true target retirement is (i.e. if you plan to retire in 2016 I would go with the L-2030 instead of the L-2020).  My reasoning is simple: the government never plans on people living as long as they actually do, and you may need the fund much longer than the government’s statistics think you will.  But, take any and all investing opinions from me with a grain of salt ;)