# TSP Rates of Return Look Different With Inflation Factored In

Every Thrift Savings Plan fund has outpaced inflation since the fund’s inception, but even mild inflation can cause a significant loss in purchasing power if inflation is sustained over a long period of time.

If you had invested \$100 in the G Fund on April 1, 1987 you would have had \$450 on December 31, 2016. Inflation over that period of time would have resulted in you needing \$217 2016 dollars to purchase what \$100 1987 dollars would have bought. The G Fund has returned 2.07 times the rate of inflation.

If you had invested \$100 in the F Fund on January 1, 1988 you would have had \$592 on December 31, 2016. Inflation over that period of time would have resulted in you needing \$211 2016 dollars to purchase what \$100 1988 dollars would have bought. The F Fund has returned 2.8 times the rate of inflation.

If you had invested \$100 in the C Fund on January 1, 1988 you would have had \$1,655 on December 31, 2016. Inflation over that period of time would have resulted in you needing \$211 2016 dollars to purchase what \$100 1988 dollars would have bought. The C fund has returned 7.84 times the rate of inflation.

If you had invested \$100 in the S Fund on May 1, 2001 you would have had \$376 on December 31, 2016. Inflation over that period of time would have resulted in you needing \$138 2016 dollars to purchase what \$100 2001 dollars would have bought. The S Fund hasreturned 2.72 times the rate of inflation.

If you had invested \$100 in the I Fund on May 1, 2001 you would have had \$187 on December 31, 2016. Inflation over that period of time would have resulted in you needing \$138 2016 dollars to purchase what \$100 2001 dollars would have bought. The I Fund has returned 1.35 times the rate of inflation.

Use caution in comparing the fund results, as the TSP funds were introduced at different times. For example, the S and I Funds were introduced right in the middle of the first George W. Bush recession and, hence, appear to have not fared as well as the C Fund, which existed throughout the “go-go” 1990s.

If inflation has the power to cut a dollar in half in thirty years (that’s what it did over the most recent thirty-year period) and we have a career that lasts thirty years, we would need an account balance of \$500,000 at the end of that thirty-year period to generate an amount of money that has the purchasing power that \$250,000 has today. \$500,000 sounds like a lot of money and would yield an income of \$20,000 per year if we follow the popular “4% withdrawal rule”. But, if inflation continued as it has over the last thirty years, we would find ourselves with an annual income that has the purchasing power of just \$10,000 of today’s dollars.

All of the funds, except for the C Fund, have beaten inflation by less than 3%. The G Fund is the largest fund in the TSP by a large margin and has beaten the rate of inflation by slightly over 2% as of the end of 2016. If you were invested in the G Fund, and wanted to end up with a TSP balance in thirty years that gave you an income equal to \$20,000 in today’s dollars, you would need to have the equivalent of close to \$1,000,000.

If you start early and save as much as you can, you can get there. However, if you can’t fully fund the TSP, then worrying about your retirement may be in order.

On a more positive note, two significant components of our retirement benefits are protected against inflationary losses. Both our FERS annuity payments (after age 62) and our Social Security payments are indexed for inflation, and that indexing is a very valuable part of our future retirement security!