U = Uniformed Services

What's in your portfolio?
Remember that your asset allocation is the most important determinant of your long-term rate of return.
Beyond Your Retirement Date
Keep in mind that you could spend a decade or two (or more) in retirement and you'll want your money to last. While you may want to trim your risk during those years, you certainly do not want to outlive your money. Some continued exposure to the TSP stock funds might be worth considering.

What percentage will you need to earn from your investments each year to meet your retirement goals? That number is your required rate of return.

Determine Your Required Rate of Return


This website has a calculator that allows you to input different rates of return to calculate the future value of your TSP account balance and contributions. However, the challenge arises in determining whether your required rate of return is realistic given your time horizon, your willingness and ability to take risk, prevailing market conditions, and other constraints that may be specific to your situation.

If, for example, you calculate that, to meet your goals, you'll need a 15% annual rate of return, you will likely fall far short. You'll need to go back to the drawing board and either increase your savings or reduce your retirement income expectations. Most experts agree that it is unrealistic to expect such high rates of return, especially over the long term.

Consider Historical Performance


After a review of long-term historical rates of return, you may conclude that lowering your required rate is more realistic. The next step is to consider which combination of available investment vehicles will generate that rate. You'll also have to think about the amount of risk those investments carry. Perhaps 7% is a realistic goal, but, if you've invested all of your money in the G Fund, the likelihood of earning a rate that high is slim.

Be aware that even within a reasonable range of expected returns, the higher your required rate, the more risk you will have to take on — which means investing in higher volatility funds like the TSP's C Fund, S Fund, and I Fund. If that is not possible for you given your risk tolerance and your time horizon, you have a few other solutions: save more, seek other sources of retirement income, and/or scale back your expectations about life in retirement.