There’s no such thing as too much money in the TSP. Image: Dilok Klaisataporn/Shutterstock.com
By: John Grobe, Federal Career ExpertsWho is the greatest basketball player of all-time? This question has been trending lately as LeBron James neared, and then surpassed Kareem Abdul-Jabbar’s all-time scoring record. The discussion sheds some light on what is called “recency bias”; that is, the fact that more recent events tend to carry more weight in our memory (and in the collective memory, too) than do either past events, or the broad trail of history.
Surveys of younger people tend to favor LeBron as the GOAT, while older people (remember, Michael just turned 60) lean towards MJ. Rarely mentioned, or at least overlooked in the conversation, are greats such as Kareem himself, and Wilt Chamberlain. Are LeBron and MJ really greater than Kareem and Wilt, or is it just the fact that many participants in the debate over who is the GOAT never saw either of these two stars play the game?
So, what does this have to do with the Thrift Savings Plan? Participants are more likely to remember the recent past (e.g., 2022’s market losses and increasing inflation) than they are to remember the years with high returns and more moderate inflation that preceded 2022. Over the long-haul, how has the TSP performed is a better question to ask than how it has performed over the last year.
Well, every fund in the Thrift Savings Plan has outpaced inflation and has increased in value since its inception. We’ll look at data from the TSP on how each individual fund has outpaced inflation and increased in value since its inception. In doing this we must remain aware that we are looking at what happened in the past, which is not necessarily what will happen in the future.
On the TSP website, in the “forms and publications” section, one can find “Fund Sheets” for each of the five basic funds. These sheets list how each fund did against inflation from their inception to the end of the most recent calendar year. The inflation charts compare what $100 would have turned into if it was invested in the fund on the day of the fund’s inception, with how the purchasing power of $100 would have been eroded by inflation. The data on the website was as of 12/31/2021 at the time I checked it at the end of February 2023.
Today’s value of $100 invested in the fund at its inception
– vs –
How much you would need to purchase what $100 would have purchased at fund’s inception:
G $496 : $250
F $709 : $242
C $3,856 : $242
S $765 : $159
I $300 : $159
In looking at the above figures keep in mind that the funds were introduced at different times, so the results are not directly comparable.
One takeaway from this discussion about inflation, other than the fact that all TSP funds have outstripped inflation, is that we are likely to need more than we think we will need in our TSP. $500,000 sounds like a lot of money today and would yield an income of $20,000 per year if we follow the popular “4% rule”. If an employee started saving in the TSP today with a goal of accumulating $500,000 by the time of their retirement in thirty years and, if we had inflation like we have had since the inception of the TSP almost thirty years ago then, their TSP balance would give them the equivalent of $250,000 in today’s dollars.
And inflation doesn’t stop once we retire; we will want to be able to adjust our TSP withdrawals to keep up with inflation over our retirement.
I think it’s a good time to repeat an observation that I frequently make “there’s no such thing as too much money in the TSP.”
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