If You Haven’t Rebalanced Your TSP Portfolio in the Past Year, You Might Be Off-Track for Retirement

Key Takeaways

• Failing to rebalance your TSP portfolio regularly, especially after the market volatility of 2024, may leave you exposed to more risk or return drag than you realize in 2025.

• A well-timed rebalance can help align your asset allocation with your retirement time horizon and income needs, particularly if you are within 5 to 10 years of leaving government service.

Why Rebalancing Your TSP Portfolio Is Critical in 2025

Your Thrift Savings Plan (TSP) portfolio may have changed significantly over the past year without you even realizing it. In a year like 2024, which featured volatile markets, inflation pressures, and shifting interest rates, some funds may have grown faster than others, skewing your intended asset allocation. If you haven’t rebalanced your TSP yet in 2025, there’s a high chance your portfolio is no longer aligned with your original strategy.

For public sector employees nearing retirement, this misalignment could translate into avoidable risk or lower-than-expected returns just when your retirement plan needs to be most precise. Rebalancing helps bring your allocation back in line with your target mix and retirement timeline.

What Is Rebalancing and How Does It Work?

Rebalancing is the process of realigning the proportions of your TSP investments to match your desired asset allocation. Over time, as different funds perform differently, your portfolio drifts. For example:

• The C Fund may outperform in a bull market, taking up a larger share of your portfolio.

• The G Fund, with its stable returns, may become underrepresented.

Rebalancing restores balance. If your goal was 60% stocks and 40% bonds, and it’s now 70/30 due to market shifts, you would sell a portion of your equity funds and buy more bond funds to get back to your 60/40 target.

You can rebalance manually through the TSP website or set up an interfund transfer. It’s typically recommended to review and rebalance your portfolio at least once a year or when your allocation drifts more than 5% from your targets.

What Changed in 2024 That Affects Your 2025 TSP Outlook?

Several market forces from 2024 may have altered your TSP portfolio’s composition, possibly without you noticing:

• Equity Market Recovery: After early-year volatility in 2024, both the C Fund and I Fund experienced strong recoveries in the second half of the year. If you held these funds, your stock allocation likely ballooned.

• Interest Rate Adjustments: The Federal Reserve’s shifting stance led to periods of bond market instability. The F Fund and G Fund, while stable, did not keep pace with equity returns.

• International Uncertainty: Global market swings in 2024 impacted the I Fund, sometimes causing sudden gains or losses.

If you haven’t rebalanced since early 2024 or earlier, your portfolio might now be heavier in riskier assets than you originally planned.

Risks of Not Rebalancing in Pre-Retirement Years

As you approach retirement, typically within 5 to 10 years, protecting what you’ve built becomes just as important as growing it. Neglecting to rebalance your TSP could expose you to the following risks:

1. Overexposure to Volatile Markets

If your C Fund or S Fund holdings have surged, you may be more vulnerable to a downturn. A single correction could significantly impact your nest egg.

2. Sequence-of-Returns Risk

If you start withdrawing from your TSP during a market downturn, the order in which you experience returns can dramatically affect how long your funds last. A too-heavy equity allocation makes this risk worse.

3. Missed Opportunities for Income Stability

The G and F Funds offer more stable income streams. If your allocation to these is too low, you may lack a dependable source for early retirement withdrawals.

4. Drift from Your Retirement Goals

Your target allocation is based on time horizon, risk tolerance, and income needs. Drift due to market performance can quietly sabotage that plan.

When and How Often Should You Rebalance in 2025?

For most TSP participants, once or twice a year is a good starting point for rebalancing. The ideal times include:

• Early in the year: To reset after year-end gains or losses

• Mid-year check: Especially after large market swings

• After a major life or financial change: Retirement eligibility, new job, or income shift

In 2025, with continued economic uncertainty, more frequent reviews (quarterly) might be appropriate if you are within three years of retirement.

Should You Rebalance Based on Age or Risk?

Your rebalancing strategy should reflect your time horizon and retirement needs. Here’s a general framework:

• Over 10 years to retirement: Growth-focused allocation. Slight drift may be acceptable.

• 5 to 10 years from retirement: Transition phase. Annual or semiannual rebalancing is key.

• Under 5 years: Prioritize capital preservation. Rebalancing should ensure enough is in stable funds like the G and F Funds.

Avoid locking in equity gains without a purpose, but also avoid letting risk snowball silently.

How to Evaluate Your Current TSP Allocation in 2025

If you haven’t reviewed your TSP since 2024 or earlier, now is the time to:

1. Check your latest statement: Compare fund balances against your original target mix.

2. Run a projection: Use the TSP’s retirement calculators or other tools to see how current allocation aligns with your income goals.

3. Assess your risk tolerance again: Has your comfort with volatility changed? Retirement planning should reflect this.

The Case for Automatic Rebalancing

TSP does not offer an auto-rebalance feature like some private retirement plans, but you can set calendar reminders to review your account periodically. Rebalancing quarterly or annually, even manually, can reduce emotional decision-making and maintain consistency in your strategy.

You may also consider shifting to Lifecycle (L) Funds if you prefer an automated glide path that adjusts over time. However, even L Funds should be reviewed periodically to ensure they still match your personal retirement objectives.

Tax and Withdrawal Considerations

Rebalancing within your TSP account does not trigger taxes, as it is considered a transfer, not a withdrawal. However, if you plan to roll over or withdraw in the next 1 to 3 years, your allocation becomes more critical.

• Tax-Deferred vs Roth Balance: Review how rebalancing affects each portion.

• Liquidity Needs: Ensure you have enough in lower-risk funds to meet short-term withdrawals without selling equities in a down market.

These details matter greatly as you approach Required Minimum Distribution (RMD) age, which begins at 73 in 2025.

Retirement Income Planning Starts with Allocation

If you’re within five years of retirement, your portfolio should not only reflect your risk comfort but also anticipate your income strategy. This may mean:

• Increasing exposure to the G Fund or F Fund for near-term stability

• Keeping enough in equities for long-term growth, but not so much that volatility threatens short-term needs

• Planning a bucket strategy to align fund use with different retirement phases

Aligning Your TSP Strategy With Life Milestones

Your TSP rebalancing approach in 2025 should account for:

• Retirement eligibility milestones

• Pension estimates and timing

• Social Security filing age

• Health insurance decisions

A TSP portfolio is not just an investment vehicle; it is the financial engine for your retirement. Aligning it with real-life decisions is vital.

A Stronger 2025 Retirement Outlook Starts With Action

You’ve likely spent decades contributing to your TSP. But unless you regularly check and rebalance, your portfolio may no longer be working as hard as you are. Especially after a year like 2024, when market fluctuations shifted many account balances significantly, reviewing your allocation in 2025 isn’t optional—it’s essential.

If you’re uncertain about your current allocation, your risk exposure, or your retirement timeline, now is the time to consult a licensed professional listed on this website. They can help you clarify your goals, reassess your tolerance, and rebalance with confidence.