'Lifecycle funds' aim to maximize retirement savings

20 Apr 2005 | Mr. Gerry J. Gilmore

Recent surveys show most people contributing to DoD-sponsored thrift savings accounts shun riskier investment options and aren't getting maximum returns to build bigger retirement nest eggs, a DoD thrift savings plan specialist said here April 20.

"The vast majority of participants do not fully take advantage of the Thrift Savings Plan," Army Lt. Col. Janet Fenton, executive director of the Armed Forces Tax Council, told Pentagon Channel and American Forces Press Service reporters during a Pentagon interview.

The Thrift Savings Plan, Fenton explained, is a 401k-type program designed to provide tax-deferred retirement nest eggs for servicemembers and civilian employees. TSP managers have noticed that "very few" participants transfer money out of more stable TSP investment programs into riskier options, she said.

Fenton surmised some participants might be leery of riskier TSP investment options because they have little or no stock market savvy.

However, the new Lifecycle Funds program option slated for implementation sometime in July will enable TSP participants to have experienced money managers make investment decisions for them according to 10-year plans.

The Lifecycle Funds program "is going to help address the issue of people who want to take advantage of the Thrift Savings Plan but maybe are a little bit intimidated by making investment choices and allocating their participation contributions between all of the various funds," Fenton explained.

The Lifecycle Fund program "is based on asset allocation within the fund, based on how long you are going to have that money in the fund until you retire," Fenton said.

Almost half of the total $140 billion invested in TSP accounts -- about $60 billion -- is currently concentrated in the less-risky Government Security Investment, or G fund. The G fund, consisting of treasury bonds and other federal-backed investments, is considered among the most stable of the five TSP investment choices.

An almost equal number of TSP contributions -- about $61 billion -- are now placed in the Common Stock Index Investment, or C fund. Yet, she pointed out, riskier options offered by the Fixed Income Index Investment, or F fund; the Small Capitalization Stock Index Investment, or S fund; and the International Stock Index Investment, or I fund, contain far fewer dollars.

Through use of the Lifestyle Fund program "the money is allocated for you amongst the five funds without you having to do anything," Fenton explained. The system "is automatic" and "changes as your time in the military (or government) continues," she said.

For example, Fenton said, typical investments early in a 10-year period would tend to be targeted toward riskier, but higher potential yield, TSP investment options. Investment choices would become more conservative as the end of the 10-year period nears, she added.

And after the current TSP open-season investment choice system ends July 1, participants will be able to change their investment options at any time, Fenton noted.

Although the TSP program doesn't guarantee participants will make money on every investment, Fenton cautioned, she noted riskier investment options usually produce higher returns over the long term.

Some people may feel safer to continue steering their TSP funds to safer investments, Fenton acknowledged.

But "to really leverage your contributions and make the most of the thrift savings plan," Fenton said, "we need to encourage people" to move their money out of more conservative investment options and allocate it among the various funds that indicate potentially higher yields over time.

Headquarters Marine Corps