Is the Thrift Savings Plan still a safe investment for retirement?

Saving for retirement tends to dominate most discussions about finances, but it’s important to put the concept of “saving for retirement” into perspective.

The perception around the Thrift Savings Plan (TSP) is that it is the most logical place to direct your retirement savings, when in fact, the TSP offers you no more guarantees of a positive outcome than Bitcoin. The Stock Market has been around longer than the concept of cryptocurrency, but neither are predictable, no matter how much the media or a financial professional discusses risk and volatility of an underlying asset. I’m certainly not suggesting Bitcoin is good, nor am I suggesting TSP is bad. I am suggesting that the majority of people that invest in either tell themselves that they understand the investment when in reality there are many more factors involved in predicting the potential outcome than can ever be explained by a financial plan (that is rarely followed) or a prospectus of a mutual (that is rarely read).

This false sense of security around the TSP is based on the past performance of the underlying funds that comprise it. In fact, by law, any stock market-related investment advertisement is required to disclose that “past performance does not predict or guarantee future results.” Translation: No one has any idea how your TSP will perform.

We tell ourselves we have faith in the standard guidance of how to save for retirement because “that’s how its always been.” But is it? In reality, all that past performance data that is used for retirement planning projections really only looks back less than 100 years, to the market crash of 1929.

This is the very definition of cognitive dissonance. We justify giving up as much as 20% of our income-producing time now, in hopes that we can eventually trade them for hours of life in retirement, knowing that it is nearly impossible to account for all the variables that will impact that investment over the next 30 to 40 years, or whenever you plan to retire.

To add more perspective, remember that of those approximately 90 years on which all certified financial planning and fiduciary guidance is based, only a little more than a decade has passed since the iPhone was invented. This means that the first 80 years of those average returns were relatively similar, and it’s understandable that financial planners could ethically use the past performance of the market to offer somewhat realistic retirement planning advice. But to do so now? After what we saw in 2020? I think all service members and veterans should use this moment in time as an opportunity to reevaluate their personal goals and reconsider how they want to trade those hours for future investment. More importantly, we need to take an honest accounting of what the standard retirement savings vehicles like IRAs, 401(k)s and the TSP truly offer.

To put it another way, are you still using a landline phone for your retirement, or are you using an iPhone?

Don’t worry, there is good news. Frankly, it’s great news, and it doesn’t require learning about cryptocurrency or any fancy investment strategy. In fact, improvements in technology in the retirement planning space have actually made it easier to save for retirement without the uncertainty of the stock market or paying the high fees associated with an investment advisor.