'Locking in losses'


Q. I understand why you defend leaving your money in the Thrift Savings Plan because of low expenses, security, protection from lawsuits, etc. However, how do you address the issue of “locking in losses” when withdrawing money in retirement from the TSP? For example, in an IRA, I can have (for a basic portfolio) a cash fund, an income fund and an equities fund. I know I can do this in the TSP, as well, G/F/C or S, but the primary difference is when I go to withdraw my money, in the TSP it comes out of all of these funds equally vs. an IRA which I can take money just from my cash fund and, if the stock market had a bad year, don’t touch that money for that year. I can’t do that in the TSP and I would immediately lock in my losses when I take out the money from the TSP. Please furnish your opinion.

A. Add to the list of pros the fact that the G Fund is likely much better than your IRA’s cash fund. The disadvantage you perceive is an illusion. There is no such problem as “locking in losses.” The real issue is whether your portfolio is in or out of balance. You should be establishing a cash reserve to fund your withdrawal needs and then rebalancing the remaining portfolio to the asset allocation model you’ve selected each time you rebalance. For example, suppose that your account contains $105,000 at the beginning of the year, you plan to withdraw $5,000 during the coming year, and you’ve settled on an asset allocation of 30 percent C Fund, 20 percent S Fund, 10 percent I Fund, 20 percent F Fund and 20 percent G Fund. You would rebalance your account at the beginning of the year to $30,000 C Fund, $20,000 S Fund, $10,000 I Fund, $20,000 F Fund and $25,000 G Fund. Notice that the G Fund is overweight by $5,000 to support the cash reserve. Each time you rebalance, you simply set aside the next year or two’s worth of withdrawal needs as cash reserves and then rebalance what’s left to the appropriate percentages, adding the cash reserves to the G Fund target. This approach can be used in the TSP account or any IRA, and there is no problem of locking in losses.


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.


  1. I always agree with the opinions of Mr. Miles. You will not find an IRA as good as TSP. Long ago I transferred all of my IRA’s into my TSP and I have been very pleased and I do not worry about the money in the TSP. As an aside take some time to see who manages our TSP and then research them. You should immediately recognize the firm as they are one of the very biggest in the industry.

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