The Government Actually Does Something Right: Retirement

“There’s no trick to being a humorist when you have the whole government working for you.” – Will Rogers

Many of us take great joy in pointing out the ineptitude of the government. No matter which way you lean politically, you probably wouldn’t get too many arguments if you were to claim that the government is run inefficiently.

One of the reasons for this is the fact that there are so many people and organizations that rely on the government that it is simply too complex.

But there is one place where the government gets it right – their employee retirement plan.

The Thrift Savings Plan (TSP) is the retirement and savings plan for all Federal employees and uniformed service members. It is a defined contribution plan similar to any 401(k) plan at companies around the country.

This retirement plan hits on every single one of my investment rules common sense guidelines for a successful investment plan. As a review, here are my general rules for successful long-term investors:

(1) Keep it simple. Less is more. Simplicity should be your default choice, not complexity.
(2) Keep your costs low. High fees are detrimental to your long-term investment returns.
(3) Stay disciplined. Asset allocation, rebalancing and dollar cost averaging should be the hallmarks of your investment plan.
(4) Keep your behavior in check.

Let’s see how the government employee retirement plan does on these fronts.

(1) Keep it simple. Less is more. Simplicity should be your default choice, not complexity.
Most of us assume that more choices will lead us to make better decisions. Unfortunately, study after study shows that this is not the case, especially in the complex financial markets.  More choices lead to more complexity and misunderstanding.

The TSP offers simplicity through the number of funds they offer and the names on those funds.

Many retirement plans offer 10, 15, maybe even 20 funds choices. Good luck picking through all of your options.

The TSP has only 6 funds, all of them index funds.  There is a government bond fund, a total bond market fund, an S&P 500 fund, a total international stock fund, a small and mid-cap stock fund along with an asset allocation fund that invests in all five of these funds with different target dates for retirement.

That’s it. Simple and easy. No need to compare different fund choices in the same asset class or strategy.

Have you ever looked at some of the names in your retirement plan offering?

The Smith Growth & Income Capital Appreciation Fund Series C.

The Tiger Small-Mid Value Dividend Technology Efficiency Fund Class III.

How are you supposed to know what some of these funds even invest in? (Not real fund names if anyone’s curious)

The names on the funds are one of my favorite parts of the TSP. They all are named by one letter. There is the G fund, the F fund, the C fund, the S fund, the I fund and the L fund.

Fund companies try to trick you through their complexity, but the government makes it simple for their plan members.

(2) Keep your costs low. High fees are detrimental to your long-term investment returns.
I almost didn’t believe it when I saw the costs on these funds. They are 0.027%. For each fund.  That’s it.

Even Vanguard or Charles Schwab don’t come close to these fees. There are a few ETFs that now offer 0.05% expense ratios, but I’ve never seen index fund costs that low.

Since costs are play such an important role in determining in fund performance, this one is a huge advantage.

(3) Stay disciplined. Asset allocation, rebalancing and dollar cost averaging should be the hallmarks of your investment plan.
Even though there are only five fund offerings and a target date fund, all of the broad asset classes are covered to create a simple portfolio that will give you a high probability of meeting long-term goals.

You can easily come up with an asset allocation mix of your own or use the professionally managed option they offer.

Like any plan, employees are able to dollar cost average on a periodic basis to take the buy decision out of their hands. Rebalancing from funds that outperform to funds that underperform can also be automated to force you to buy low and sell high.

(4) Keep your behavior in check.
Actually, the first three rules all help investors keep their behavior in check.

There are no active funds available, so you are forced to invest in ultra low-cost index funds that guarantee you the market return less a minuscule fee.

You have no temptation to try and choose active funds that will outperform. That means no unnecessary transactions or switching costs from fund to fund. This alone is worth the price of admission.

Automation of good behavior through dollar cost averaging and rebalancing will also help you stick with your plan for the long-term.

It seems like the government has it all figured out here. They offer a simple, low-cost plan that hits on all of my common sense rules that can lead to long-term success for investors.

It’s just too bad they haven’t decided to offer it alongside current retirement plan offerings for those who don’t have the same simple solutions. I guess that would be asking for a little too much efficiency.  At least they’re consistent.


Further Reading:
Golden retirement benefits for Congress (Bankrate)
Focus on Norway not Cyrus (Abnormal Returns)


This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Ben Mealey commented on May 08

    Hi Ben –

    I am a retired career Federal employee, under the FERS system. I felt your article was quite accurate, from an “insider’s perspective.”

    If you are disciplined, then your net spendable income in retirement comes close to your net spendable income while you are working, assuming you save the maximum into TSP, currently +/- $23K for 50+ people.

    Of course, a big part of that is the pension, which is (in round numbers) 30% of your payroll.

    Even so, an offhand remark from the retirement processing specialist was revealing – many of my fellow Feds make contribute very little to TSP. Life, eh ?

    In particular, I liked the way you expressed the load in terms of how much per thousand dollars. Seeing all those numbers to the right of the decimal point makes my head spin.

    I have no insight as to why TSP is not open to anybody, other than the influence of financial industry types, and perhaps a lingering thought that lots of “low balance and high-maintenance” accounts would adversely affect the cost structure.

    In many countries, for example Britain, China, Germany, Japan, and France, the post office functions as a basic “credit union”. I don’t see why USPS can’t do the same thing — can you ? At the end of the day, I don’t believe we have to worry about TSP getting to be too large an entity that would adversely affect the capital markets. For starters, as you point out, TSP is passive. Second, given human nature, there most likely won’t be a flood of new money. Any bounce would be a “zero sum” event.

    So why don’t the American people have access to TSP or something like it ? Obama could have proposed it, but didn’t, except in a weird, self-limited crippled fashion. Even so, have not heard much about it lately, have you ?

    If you think about it, the “those goofy silly Govt folks” is a fairly jejune narrative. More persuasive and germane is the huge amount of management fees, bounced check fees, mortgage shenanigans, commodity and energy and interest rate manipulations and so on foisted on the rest of us. If people had access to the TSP, why would they put up with Wall Street ?


    Ben Mealey

    • Ben commented on May 09

      Thanks for the comment. Good insight. You make a great point — the tsp is already available to many but not enough take advantage of it. If they did open it up to everyone the economies of scale would be enormous. Would never have to raise fees. I’m not holding my breath…