TSP’s cost advantage


Q. Although we are not there yet, it seems the expense ratio gap between the Thrift Savings Plan and Vanguard is continuing to narrow. Vanguard recently lowered its expense ratios considerably on many of its funds. Admiral Share-class expense ratios on some funds are within a whisker of being the same as TSP. Do you think that a firm like Vanguard can now offer advantages to individuals who want to roll over their TSP balances to them? At the very least, it should serve as a wake-up call to BlackRock and TSP management that they need to not let the expense ratio edge any higher.

Prior to the Vanguard news, I had hoped to leave my money within the TSP. Now, since I wish to utilize a bucket approach, I still might be able to have my cake and eat it, too — low expenses and manage it through an IRA approach with Vanguard. I am four or five years away from retirement, so I have time to see how this shakes out.

A. I agree that the TSP’s cost advantage isn’t what it once was. In, fact, if cost was it’s only advantage, I would be in favor of leaving the TSP for better options elsewhere. What the TSP still offers, that can’t be found in any IRA that I have seen, is the G Fund — a federally guaranteed, interest-bearing security that delivers a return that is significantly greater than the market rate for similar risk. The G Fund can be used to safely support a higher lifetime standard of living than would be possible without it.


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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.

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