What Happens When The Thrift Savings Plan’s 2010 Lifecycle Fund Rolls Over?

by Hank

The very first lifecycle fund in the Thrift Savings Plan will reach its target date this year and is set to expire. In 2005, the Federal Retirement Thrift Investment Board which manages the federal government’s version of the 401k, the Thrift Savings Plan also lovingly known simply as TSP, formed five target date retirement funds which are called lifecycle funds. The lifecycle funds are comprised of elements from each of the five TSP index fund options available to members of the military and federal government.

What Will Happen To The 2010 Fund? The L2010 Lifecycle Fund which will end in December 2010 will transfer into the L Income Fund, the most conservative of the five funds. A new fund, the L2050 Fund, will begin operations in January 2011. Investors in the L2010 Fund need to understand that there will a transfer of their investments from the L2010 Fund to the L Income in December. One aspect to be aware of is that the L Income Fund is even more conservative than the current asset allocation of the L2010 Lifecycle Fund. The L Income has an investing mix of 74% G Fund, 6% F Fund, 12% C Fund, 3% S Fund, and 5% I Fund (as of July 22nd, 2010). While the asset allocation differences are subtle, investors still must be aware of the changes in their potential investing returns with a reduction in risk.

Target Date Retirement Funds. A target date funds, which are also known as a lifecycle or age-based funds, are collective mutual fund investments that are designed to provide a simple investment strategy through a diversified portfolio of other mutual funds that become more conservative as the target date or retirement approaches. With each passing year as an investor gets closer to their designated age of retirement, the assets in the target date fund will become more conservative by selling stocks and buying more bonds and holding more cash. For example, the L2040 Lifecycle Fund of the TSP for those individuals planning on retiring in the year 2040 currently has 80.5% of its assets invested in stock (through the C, S, and I Funds of the TSP) and 19.5% invested in bonds and cash equivalents (via the G and F Funds of the TSP). The L2030 Lifecycle Fund of the TSP, in comparison, holds 29.5% of its assets in bonds and cash in order to preserve capital for a closer retirement. As the date of retirement draws closer, the fund automatically transfers a greater portion of its assets to safer investments. The Lifecycle Funds offered by the Thrift Savings Plan (TSP) are for all intents and purposes exactly like target date funds under a different name. Don’t let the nomenclature fool you. It is one and the same.

Young Investors. Younger investors need to be aware that a new fund (the L 2050) will begin in January which will focus on young members of the military and federal employees who have forty years or more until retirement. This fund is geared towards individuals age thirty and younger and provides an excellent diversified option for their TSP allocations.

There are many options available to members of the military and federal government employees when they invest in the Thrift Savings Plan. Check out TSP’s brand new website to learn even more details and specifics about the different funds in the plan.

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