2022 Changes to the TSP: Mutual Fund Window, TSP App, + More | Military Money Manual Podcast Episode 39

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Changes are coming to the TSP! Learn all about the June 2022 changes to the TSP in this episode.

  • New TSP app
  • New TSP website
  • Mutual fund window

Military Money Manual Podcast Episode #39 Transcript

[00:00:00] Spencer: Changes are coming to the TSP, and I think a lot of them will actually be for the good. There's one that I'm not excited about at all, and I hope it goes away.

Hey everybody, Spencer here from MilitaryMoneyManual.com. Today's episode is all about the changes to the Thrift Savings Plan, or TSP, coming in June 2022. I founded the Military Money Manual in 2012, over 10 years ago, to share everything I learned about personal finance. During my military service last year, I released my book. It's 119 pages of financial freedom goodness, The Military Money Manual, A Practical Guide to Financial Freedom. It's available right now on Amazon and my website shop.militarymoneymanual.com. 

I'm here with my co host, Jamie to present today's episode on the changes coming to the TSP.

[00:01:13] Jamie: Thanks, Spencer. Happy to be here as always. And just a quick reminder for the listeners, if you have any questions or feedback, you can always send that to us on Instagram at military money manual or email us at Info at military money manual. com. As with all our episodes, this episode is for informational purposes only.

We're not investment advisors. We can't guarantee you'll get rich in your TSP. If you send us four easy payments in 1999 right now, this is for informational purposes only. Nothing here is investment advice.

[00:01:45] Spencer: So our most popular episode was episode number two, and that's where we discussed all the details of the TSP.

And then in episode 37, we talked about the five TSP funds and broke those down even further. And then in episode number 38, we discussed some popular TSP investing strategies. So if you want to get the full TSP buffet, the full five course tasting menu. Those are the episodes you want to go look at.

Episode number two, number 37 and number 38. And then this one, which I don't have an episode number for yet. Cause we're recording it. Yeah. So changes are coming to the TSP and I think a lot of them will actually be for the good. There's one that I'm not excited about at all. And I hope it goes away.

First couple of changes. They're going to create a user friendly and customizable homepage, which is I guess user friendly. And the 1990s called and the TSP is finally going to catch up to a web 2.0. We're all moving on to web 3.0. Another nice feature, which I can't believe that this doesn't already exist, but if you have a civilian and a uniformed services account, so let's say that you were active duty military and you got out, you got a GS job, you'll be able to see both your TSP accounts in one place, which is, pretty, I guess I should be that surprised, but it's unfortunate that it took until 2022 to roll out that feature. You'd think that'd be something pretty basic, but here we are. You'll also have a TSP mobile app. So that's coming in June and I'm pretty excited about that because right now it's like a five minute process.

Every time I want to log in to see my TSP account. So that's going to be a great feature there. And you'll also be able to use fingerprint or facial recognition. Obviously. All this banking app stuff that was around five years ago, the TSP is finally catching up to, but

[00:03:33] Jamie: we're all used to it. All our other apps are finally…

[00:03:36] Spencer: Yeah, I guess there's probably some retirees out there that are still getting their statements mailed to them, but then they're going to have a little chat assistant that you can ask questions to, a little chat bot on their website. Again, every other financial institution has had this for almost a decade now.

But they're also going to introduce live chats so you can actually talk with a human over chat, which I think is a great feature. I know American Express has an awesome chat feature on their website, and I'm usually able to solve most problems in under five minutes just by chatting with someone, which is a much more pleasant experience than having to call and make pleasantries with a customer service representative.

They also have a secure mailbox, so you'll be able to send documents back and forth. And one thing that I am really excited about is that you're going to be able to digitally sign a lot of documents. So again, catching up to what everybody else has been doing for the last couple of years, but it is nice to see that there is improvement and that the TSP is not completely stagnated.

Now, Jamie, this next feature here, a mutual fund window. What is that? That this is the first time I've ever heard of this phrase, mutual fund window.

[00:04:51] Jamie: Yeah, I'm not a big fan of the terminology that they chose here because it makes it seem like it's a window of a period, like a period of time where you have to sign up for a mutual fund, between June and July.

Exactly. And if you miss your window of opportunity, then you don't get to invest. But really what it is it maybe give it, think of it as giving you a glimpse into a window of extra options. So they're going to allow you starting in June of 2022 to invest in mutual funds. In addition to the core funds, the five funds we talked about in episode 37 and the life cycle funds that are there, they're going to open up mutual funds. I haven't seen yet at least Spencer, I don't know if you have, but a list of what mutual funds are going to be available. But I would picture things like low cost passive index funds, similar to VTS X or a total stock market index, there may be, they haven't even said what company. I haven't seen anything confirming that it's going to be Vanguard funds or whatever the mutual funds are. Have you seen anything?

[00:05:51] Spencer: I did see something about BlackRock was gonna be involved and they're one of the, I think they do the iShares funds, so you'll probably see S-P-Y-E-T-F but I don't even think they're gonna be doing ETFs.

I think it's all just mutual funds. One thing that does, it does open up the possibility for is ESG, that's environmental, social, and good governance. Funds, ESG funds, they've become really popular in the last 10 or 15 years or so. And some people are really into these funds and they, they like to own mutual funds that don't own any tobacco companies don't own any defense contractor companies, which is funny if you work for the government or the military.

But, I understand the mentality behind it. And the thought process behind it. It is interesting that it, that is opening up basically 5, 000 more options. Yeah. I think all in all though, it's a negative because the five core TSP funds, other than the I fund, which I'm always ragging on are really good funds and they're relatively cheap and there's nothing that's going to say that any of these mutual funds are going to adhere to any kind of.

Low cost expense ratio, like the five core TSP funds. I'm already getting messages from people on Instagram saying, Hey, have you heard about this mutual fund window? Are you going to invest in it? And the answer is absolutely not. Like I'll do my mutual, and people get the wrong impression.

The five core TSP funds, they are mutual funds. We are mutually pooling our resources to then buy shares of companies. It's not and the other common misconception I see as well is, oh, you never get dividends in your TSP fund. No, you do. They're just automatically reinvested.

So if you were to buy, let's say, VOO, the Vanguard S&P 500 mutual fund, that's their ETF version. And I'm using ETFs and mutual funds here interchangeably because really that's what they've become. They're almost completely interchangeable. If they're investing in the same exact things and the expense ratios are just as cheap.

So I guess the Spencer rant is all to say I don't really see what the benefit here is. If you want to go and purchase a mutual fund, go to Schwab, go to Fidelity, go to Vanguard. Purchase a mutual fund through a brokerage. Heck, you can even do it through USAA uses what Victory Capital or did they get bought out by Schwab?

I can't remember it now, but I think it's still Victory Capital. So yeah, you can go and buy a mutual fund there. And, but there's nothing that's going to, that's saying you're not going to have to pay. A ton of expense ratios. There's nothing that's saying any of these funds are going to be any good.

5,000 mutual funds. How many ways do you want to invest in the– I'm a global market cap index fund investor. There's only so many ways you can invest in the entire world stock market. So I think they're a bit silly.

[00:08:39] Jamie: So not only does introducing another 5,000 options to your TSP portfolio, it really complicates it, but it also adds fees.

And this is one of the main reasons why both you and I are not a big fan of this particular change. We're very happy with the mobile app. I'm very happy with digital signatures, very happy with a better homepage, assuming it is actually more user friendly, but let's talk about some of these fees that are going to come up.

Though, if you choose to opt into the mutual fund window, there'll be a $55 annual administrative fee that helps ensure that the mutual fund window doesn't indirectly increase TSP administrative expenses for TSP participants who choose not to use the mutual fund window. So you may think $55 a year.

That's not that crazy, but wait, there's more. Another infomercial vibe the last couple episodes. So in addition to that $55 annual administrative fee, there's also a $95 annual maintenance fee. In addition to both of those annual fees, you're also going to pay per trade. This is going to be $28.75 cents per trade.

That is both when you buy the fund and when you sell the fund. So if you think I'm going to diversify my TSP portfolio a little bit, and I'm going to buy, say five of these available funds, you're going to have two annual maintenance fees, plus five times $28.75. To buy the fund and then you're going to have another fee when you sell it at the end.

The fees just don't make a lot of sense when you have better mutual fund opportunities in other brokerage firms like Vanguard, Schwab, Fidelity. Things like that. Now, Spencer, one of the limitations they have on not everyone that has a TSP is going to be eligible to buy into this mutual fund window of 5,000 extra mutual funds, right?

What are the limitations they have in place for who can participate in it?

[00:10:31] Spencer: Your initial investment must be at least $10,000 and you can't invest more than 25 percent of your total account into the mutual fund window. So if you do the math there, you need at least $10,000 times four. So you're going to need at least $40,000 in your total balance in order to make your first investment through the mutual fund window. So that's going to take out a lot of people, which is, I personally think is a good thing because I don't think anybody should be really doing it. If you want to go again, if you want to go buy mutual funds, go to any of the major brokerages and you can purchase them for free, literally no trade fees, no annual fees, no administrative fees, nothing.

You just. You can log into these, what is it? Fidelity has their FZ rocks, F Z R O X fund, which I think is their total US stock market, which is 0 percent expense ratio, no transaction fees to purchase it. No annual maintenance fees. Nothing. It's a completely free investment fund.

And so it's insane to me that the TSP is charging all these fees. I understand why they are because they don't want the TSP fees to increase for those who elect not to participate in the meet on window, which I think I appreciate because I'm not going to participate. But at the same time I think it's absolutely ridiculous.

The number of fees that they're charging in order to use this mutual fund window. 

So Jamie I'm not going to be using it. Do you have any intention?

[00:12:03] Jamie: No, I don't. And like you said, I'm going to keep my Vanguard brokerage and my Schwab brokerage going and leave that kind of separate. I think it introduces a higher cost and people will realize it introduces more complexity than people realize. You have to think with 5000 available funds, some of them are probably not going to be great investments in general. And all those fees that we mentioned are in addition to the fee structure of the fund itself.

So if it's 0.05 or Five basis points. We talked about that a couple episodes ago. What that means. So it can just add up. So if I can get it for the same, if I can get the same mutual fund for free with Vanguard, then why would I do it here? 

Yeah. So to summarize, I guess I have no intentions of taking advantage of the mutual fund window. I'm going to keep with my CS and the strategy that I personally like right now. 

Spencer, you mentioned a little bit earlier about some of the changes coming. I just want to step through them in a little bit more detail on some of them to highlight again and see the benefits of some of the changes coming.

So we're bashing a little bit on the mutual fund window. But a lot of the customer service side, these are positive changes that we're going to see in June of 2022. You mentioned the mobile app, which is going to be huge. The virtual assistant that's available 24 seven. That's cool.

Hopefully that's helpful. The chat function that you mentioned earlier is available during duty during business hours only. But I think, like you said, I think that'll be a good change. And then still having the ability to call in. Via phone. If we want to, I'm really excited to check out the new, my account interface and see exactly what they look like.

Supposedly your account summary will display your investments a little bit more cleanly. It will be very clear when you log in and then the navigation menu will be cleaned up a little bit, like a little bit better as well. I think the most positive change that we're both excited about is the mobile app though, like you said, being able to use my face to log into the TSP and not having to deal with getting a text or.

Two factor authentication app. They do, it makes it, it's very clunky to log in and check your balance, and we're not checking it every day. But having the ability to do it quickly from the app, I think is a huge win. The ability to save time and reduce paperwork is going to be helpful as well.

They even talk about Being able to submit documents, scan checks, and I think, for people that do a TSP loan or at the stage where they're taking payments from their TSP, it'll clean up that process a lot as well. And the last one here is rolling over money from an IRA or other eligible plan into your TSP, they're making it personalized service to bring money into your TSP, just to help smooth that process over if you had a 401k from a previous job or something like that, that you wanted to consolidate into your TSP.

The next couple of things we want to mention are just kind of things to be aware of or warnings, if you will, things to watch out for the first thing that is important to note is that all TSP participants, whether you're using the mutual fund window or not, anyone with a TSP account is. Going to have to set up a new login for my account.

So there's some outages, some known periods of downtime for the website towards the end of May. So watch out for those, but expect in June of 2022, you'll have to log in and make a new account, even if you already have one. And then the next one to watch out for is an interesting note is that the historical documents, your statements will not transfer over to the new account, to the new website access. So if you want to have access to your historical statements, your options are to either save them now before the old legacy system goes down towards the end of May, or you'll have to call into the thrift line and request to have them mailed to you. So it might be a good idea to go in there and save a couple of your statements, maybe at least your annual statements for the last couple of years.

So you have that historical record available to you as they migrate to the new account.

[00:15:51] Spencer: Yeah, that's a great PSA public service announcement there, Jamie, I think I'll probably go in and just download my end of year statements for the last five years or something in PDF and upload it.

I do the same thing with my LES where I download every PDF and just put it into Google Drive. So I have a record and I know what's going on now. Some of the terms are changing, right? The TSP has some pretty confusing terminology sometimes when they're, when you're talking about, yeah. What's happening with your money that's currently in the account versus what's happening With the money that's going into the account.

So can you walk us through the terminology that's changing?

[00:16:29] Jamie: Yeah, these are very important to understand. So the first one we'll talk about is your investment election. This is previously called your contribution allocation and so Your investment election will specify how you want to invest new money coming into your TSP account, such as from your direct contributions from your paycheck and things like that.

Changing your investment election doesn't affect the money already in your account. So those are two separate things. And your investment election remains in effect until you submit a new one. And as a new feature. Any change to your investment election will usually post to your account immediately and be effective the next business day.

Currently, there's a little bit more of a delay time, so they're speeding that up as part of the upgrades in June of 2022.

[00:17:13] Spencer: Yeah. And then the other one is a reallocation. So this used to be called interfund transfer when you move money in your account among the different TSP funds, and they've Rebranded this reallocation, which makes sense.

Cause you're basically setting up your asset allocation. So it's a reallocation and you choose the percentage that you want invested. In each TSP fund it is currently reallocations and fund transfers are limited. So each calendar month you get your first two reallocations or fund transfers to redistribute money in your account among any of the TSP funds.

You basically can change your asset allocation two times. And then after that, you can only move money into the G fund. So for all you TSP day traders out there, and I know that you're out there sorry, you're still going to be stuck with your limitation. You can do two inter fund transfers per month.

And then after that, you can only move money into the safety of the G fund.

[00:18:14] Jamie: Last week we were talking about the TSP day trading subscription services that people try to sell you of when to sell in and out of the G fund and trying to time the market via your TSP. On Facebook this weekend, I got an ad for one of those services.

I'm like, man, come on, Zuckerberg, stop being so creepy. I don't want it. I'm not doing it. And why I haven't searched for that. I don't understand it. It's creepy, but so anyway, changes to the TSP in June of 2022. Hopefully, maybe on the other side of that, at the end of the summer, we'll give a review of the app and a review of the changes maybe, and see how customer friendly and user friendly the new services are.

Maybe try a chat or two, ask them some questions and see how the service goes. I think overall to summarize our feelings about. The changes coming in June of 2022, the customer service interface, positive changes. The mobile app is a huge benefit, the mutual fund window we would say we would do without that.

We don't want the high fees. We would prefer to get our mutual funds elsewhere. Again, just to recap the fees, if you choose to opt into the mutual fund window, which will give you access to 5, 000 mutual funds, but you're going to pay $55 annual administrative fee, $95 annual maintenance fee. In addition to 28.

75 per trade, and then there's also the restrictions of your initial investment needs to be at least $10,000. And that amount, your initial investment can be no more than 25 percent of your total account balance. So it also complicates your options in the TSP. Thinking CSI or CNS or all C some of those options that we talked through a couple episodes ago of different strategies really complicates it when you're talking through another 5,000 options.

And so that's the summary of why we don't think the mutual fund window is going to be a great option for really almost anyone, if not for most people with the TSP window.

[00:20:12] Spencer: Yes. And like we said to learn more, you can go back to our most popular episode. That was number two, where we discussed all the details of the TSP.

And then episode 37, we talked about the five TSP funds that we do think you should invest in. That's the C, S, I, G and F. And then episode number 38, we discussed some popular TSP investing strategies, whether that's a total market, total US stock market total world stock market refund. The Boglehead lazy portfolio, three fun portfolio.

So lots of options there. And the big takeaway from that episode is just pick something that's reasonable and then stick with it and don't try to chase performance and don't try to try not to have. Performance envy when your friends post a 30 percent gain and you're down and maybe a 15 percent gain, but maybe they took a little bit more risk.If you're enjoying the podcast, we'd appreciate a five star review on Apple podcast or Spotify, and we appreciate all the reviews we received so far and make sure that you subscribe. So you don't miss future episodes and whatever app you use. If you have any questions or feedback, you can message us on Instagram @militarmoneymanual, or email info@militarymoneymanual.com.

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