The Thrift Savings Plan is one of, if not THE cheapest retirement plan in the United States.
There is not a plan that I know of (feel free to let me know in the comments section if you do) that offers lower fees than the TSP.
That said, TSP fees continue to increase, and to be honest, may never stop (just like inflation.)
The cost of the TSP is something I believe that every federal employee should keep their eye on.
Over time, I am of the opinion that the TSP will increase in cost. Not just for its current benefits, but also because I believe that the Thrift Board is likely to add new features for TSP Investors. Will it be worth the cost? That’s for you to decide at that time.
So, What Was the Cost to Use the TSP in 2016?
Before I let the cat out of the bag on exactly how much it cost on average for TSP investors in 2016, I first want to talk about previous years.
In 2013, the average expense ratio was .027%.
In 2014, the average expense ratio was .029%.
In 2015, the average expense ratio was again .029%.
As you can see, the difference between these three years isn’t much at all. The difference between previous years isn’t much at all either.
But, 2016 was different.
In 2016, the average expense ratio was .038%.
That is the single largest growth in expenditures for the TSP that I have ever seen. (If you can find more significant change, please let me know in the comments.)
Now, I know what you may be thinking, “Cooper, it’s only .038%, what’s the problem?”
Well, the issue is not the overall cost. Whether it’s .029% or .038% it’s cheap. The problem is the increase in cost without an increase in benefits. Let me break it down for you in terms of percentage increase. The difference between .038% and 2015’s average expense ratio of .029% is 31.03448275862068% (for those of you who like numbers.)
For those of you who like cleaner looking numbers, the TSP increased in cost from 2105 to 2016 by just over 31%.
Now you can start to see how although they’re small numbers, the difference between them is pretty vast.
What this means cost wise for you, the TSP Investor is that in 2015 for every $1,000 invested in the TSP, you paid an average of $0.29. Compared to 2016, you paid an average of $0.038.
Let’s see what that looks like for many who read my writings and are steadfast in their TSP Savings and allocation choices.
A $300,000 TSP Account can be achievable by just about every federal employee IF they’ve spent a majority of their career with the government.
So, as an example, I used a $300,000 TSP to show the cost differences.
As you can see, the difference from 2015 to 2016 is $27.
What makes up the TSP Expense Ratio?
The TSP expense ratio you pay is not merely to pay some big wigs sitting atop the TSP pyramid. The costs get funneled to personnel, but also many other features that help keep the TSP running and TSP investors happy.
When I show the average of the TSP expense ratio being .038%, that’s taking into account the average cost of all the funds. The individual funds differ in their cost with some being much higher or lower than others.
Here are the individual rates of return and expenses in 2014:
Taken from TSP.Gov
Here is what makes up the TSP Expense Ratio:
- The costs of operating and maintaining the TSP’s record-keeping system,
- The cost of providing participant services, and
- The printing and mailing of notices, statements, and publications.
These are all pretty standard as far as investment fees go.
To find out what you receive in exchange for the fees you pay TSP, check out my article on the topic here.
Why You Should Track the Cost
The next question you’re probably wondering is why does it even matter? If fees are so low, shouldn’t we just be happy with what we have?
Well, the reason I track them and tell you about them is because nobody else is!
All that ever gets said is how cheap the fees are, and they undoubtedly are cheap. BUT, that doesn’t mean they will be forever.
“The most effective check and balance on government have been an independent press which maintains its credibility by ensuring that its criticism is balanced and based on fact -based indeed on solid journalistic work.” – Malcolm Turnbull
Now, I don’t necessarily consider myself a journalist, as I’m a Financial Advisor, but I do believe I have a job of telling the truth.
And the truth is– if I don’t tell others about the cost of the TSP (and that it’s now more than it was before,) who else will?
You see what ends up happening is, TSP notices that nobody recognizes the increase in cost and feels no need to stop increasing costs. Then, by the time everyone notices, the expenses of the plan have risen above what’s offered commercially.
What makes the TSP so great is the fact that it’s so cheap. That’s about it, barring the agency match.
So, if the TSP becomes no longer cheap, then it will no longer be great.
And I want to keep the TSP great (and because I don’t want to wear a hat that says “Make the TSP Great Again! 😂 )
The TSP is still cheap, don’t let my discussion on the increase in price deter you from taking advantage of it during your working years.
That said, it’s still limited, yet more expensive than it was.
If you haven’t ever done so, I recommend heading over to TSP’s website and checking out some of their monthly highlights of the TSP, and it’s funds. There is a lot of good information there including the returns for the month as well as the expenses (both fluctuate.)
Keep abreast with what’s happening in your retirement. It’s your money, and you deserve to know where it’s being spent. All the more reason to develop a financial plan and monitor it!
– Cooper Mitchell