If you are a Federal employee you NEED to be investing your contributions into the Roth TSP. Why?
Because you’re going to get a pension from the Feds, most likely. Plus Social Security. So, right there alone, you’re going to have sizable taxable income at retirement.
If you have a pension of say $3k a month, you’re already above the first threshold for taxation of your Social Security benefit. All you need in Social Security income is $16k for you to begin to have 85% of your benefits taxable.
Add required distributions and your’re triple taxed. RMDs, pension and Social Security. Oh, think it’s bad now. Wait to you or your spouse dies. It’s going to get much worse at that point.
So, pay a bit more tax now, take advantage of your deductions and exemptions if you have some. Your deferrals go into the Roth. The employer deferrals go to the Traditional side.
Invest your Roth side into GROWTH investments, like the C, I or S Funds, or the lifecycle funds. If you are a nervous investor, put the traditional side of the TSP into the G or F funds but take advantage of the tax free GROWTH potential of the Roth.
To take advantage of Tax Free Growth though, what do you need?
You got it, growth! Bonds don’t grow. Only stocks can grow, but yes indeed, it’s going to be a scary time on occasion. That’s the nature of the equity market. When you own something it’s more at risk. When you loan something it’s less so.
A bond is a loan. A stock is to own. You can lose all in a stock. Which is why you don’t put everything in one stock. You diversify. The C, S, I or Lifecyle funds do just that for you.
Take advantage of the fact they have WAY LOW fees! I’ve never seen fees as low as on the TSP. Use it to your advantage.