'Lifecycle Funds' aim to maximize retirement savings Published April 22, 2005 By Gerry J. Gilmore American Forces Press Service WASHINGTON (AFPN) -- Recent surveys show most people contributing to Department of Defense-sponsored thrift savings accounts shun riskier investment options and are not getting maximum returns to build bigger retirement nest eggs, a DOD thrift savings plan specialist said here April 20.“The vast majority of participants do not fully take advantage of the Thrift Savings Plan,” said Army Lt. Col. Janet Fenton, executive director of the Armed Forces Tax Council.The Thrift Savings Plan is a 401k-type program designed to provide tax-deferred retirement nest eggs for servicemembers and civilian employees, Colonel Fenton said. TSP managers have noticed that “very few” participants transfer money out of more stable investment programs into riskier options, she said.Some participants might be leery of riskier TSP investment options because they have little or no stock market savvy, Colonel Fenton said. However, the new Lifecycle Funds program option slated for implementation in July will allow TSP participants to have experienced money managers make investment decisions for them according to 10-year plans.The Lifecycle Funds program “is going to help address the issue of people who want to take advantage of the Thrift Savings Plan but maybe are a little bit intimidated by making investment choices and allocating their participation contributions between all of the various funds,” Colonel Fenton said.The Lifecycle Fund program “is based on asset allocation within the fund, based on how long you are going to have that money in the fund until you retire,” she said.About $60 billion of the total $140 billion invested in TSP accounts is currently concentrated in the less-risky Government Security Investment. The G fund, consisting of treasury bonds and other federal-backed investments, is considered among the most stable of the five TSP investment choices.About $61 billion of TSP contributions are now placed in the Common Stock Index Investment. Yet riskier options offered by the Fixed Income Index Investment, the Small Capitalization Stock Index Investment, and the International Stock Index Investment contain far fewer dollars, Colonel Fenton said.Through use of the Lifestyle Fund program, “the money is allocated for you amongst the five funds without you having to do anything,” she said. The system “is automatic” and “changes as your time in the military (or government) continues.”For example, typical investments early in a 10-year period would tend to be targeted toward riskier, but higher potential yield investment options, Colonel Fenton said. Investment choices would become more conservative as the end of the 10-year period nears, she said.After the current TSP open-season investment choice system ends July 1, participants will be able to change their investment options at any time, Colonel Fenton said.Although the program does not guarantee participants will make money on every investment, Colonel Fenton said riskier investment options usually produce higher returns over the long term.Some people may feel safer to continue steering their funds to safer investments, Colonel Fenton said. But “to really leverage your contributions and make the most of the thrift savings plan,” people need to move their money out of more conservative investment options and allocate it among the various funds that indicate potentially higher yields over time, she said.