L Fund

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Q. I notice that in several of your responses to people requesting guidance on how to allocate their Thrift Savings Plan account, you use as a ‘default’ answer to choose the L Fund that most closely corresponds to their life expectancy. The guidance on the TSP Web page advises the following: “Determine the date when, after leaving federal service, you will need the money that is in your TSP account. Then identify the L Fund that matches your target date.” If I’m 51 and plan to retire and begin tapping my TSP at age 59, according to the TSP guidance, I should choose the L2020 fund. My life expectancy at age 51 is probably 80-something, so if I follow your advice, I should probably choose the L2040 Fund, which would be significantly more aggressive and stock-oriented at the time of my retirement than the L2020 fund. Is there a reason you recommend life expectancy as a target rather than a date when the fund would likely be accessed?

A. Because the TSP’s recommendation will significantly, and I believe unnecessarily, reduce the lifetime withdrawal rate than can be safely expected from the account. Please keep in mind that my recommendation in the instances you mention are not advice, but a suggested course of action for those who have no reliable rationale for doing otherwise. I regularly mention that the best course of action is to identify and apply the cash reserve and asset allocation that meet your needs with the minimum possible risk.

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