These Are the TSP Funds Most Federal Workers Are Quietly Moving Away From in 2025—Here’s Why

Key Takeaways

• Many federal workers are shifting away from traditionally conservative TSP funds in 2025 due to inflation concerns and underperformance.

• Understanding why certain funds are falling out of favor can help you reassess your allocation strategy with clearer insight into current market behavior.

Why TSP Allocations Are Shifting in 2025

Thrift Savings Plan (TSP) participants are not required to stick to one allocation for life. In fact, it’s expected that as markets change and your retirement horizon shortens, your strategy should evolve. In 2025, an increasing number of federal workers are quietly moving away from certain TSP funds. These trends reflect broader shifts in market expectations, inflation outlook, and retirement timelines.

You may not realize it, but sticking with the same mix of funds you chose five or ten years ago could now be holding you back. Let’s explore what’s happening and why many near-retirees are reevaluating their allocations.

The G Fund Isn’t as Safe as It Seems

The Government Securities Investment (G) Fund has long been considered the ultra-safe harbor in the TSP lineup. It offers principal protection and daily interest accrual without the volatility of equities. But in 2025, more participants are reducing their exposure to the G Fund. Why?

• Lower real returns: The G Fund’s yields are not keeping pace with inflation. With the inflation rate still hovering around 3.1% in 2025, net gains after inflation can be negligible or even negative.

• Long retirement horizons: If you are retiring at 60 and living into your 90s, that’s a 30-year investment window. Being too conservative early on can stunt long-term growth.

• Opportunity cost: Other TSP funds, despite some volatility, are offering significantly higher returns in the current climate.

The F Fund Faces a Confidence Decline

The Fixed Income Investment (F) Fund is another conservative choice, designed to provide bond market exposure. However, 2025 hasn’t been kind to this fund either. You may be second-guessing your F Fund allocation due to several reasons:

• Rising interest rates: While rates rose sharply in 2022 and 2023, they have plateaued in 2025. Bonds purchased earlier are still lagging in price recovery.

• Inverted yield curve: A persistent inverted curve suggests short-term bonds may outperform long-term ones, which undermines the F Fund’s broader bond strategy.

• Bond market volatility: With economic uncertainty still lingering from global supply chain disruptions and geopolitical risks, bond prices remain unpredictable.

For many retirees and soon-to-be retirees, these realities are prompting a move away from the F Fund in search of more dependable returns.

L Funds Lose Their Shine for Seasoned Investors

Lifecycle (L) Funds are designed for set-it-and-forget-it investors. They automatically adjust your asset mix as your target retirement date approaches. But here’s why experienced investors are growing skeptical of L Funds in 2025:

• Too generic: You may find that L Funds oversimplify your needs. They assume a one-size-fits-all strategy that doesn’t account for your personal savings, outside investments, or income sources.

• Too conservative, too soon: L Funds shift heavily into G and F Funds as you approach retirement. This shift could lower your earnings at a time when you still need moderate growth.

• Lack of control: You can’t fine-tune the fund’s allocation. For some, that feels restrictive—especially if you’re knowledgeable or working with a planner.

The net result? More TSP participants are moving funds out of L Funds in favor of tailored allocations using individual funds.

C Fund Still Popular but Under Review

The Common Stock Index Investment (C) Fund mirrors the performance of the S&P 500. In 2025, it’s still a strong performer overall, but it’s not immune to scrutiny:

• High concentration risk: The C Fund is heavily weighted toward a few mega-cap stocks. A downturn in those companies could heavily impact your returns.

• Valuation concerns: While the S&P 500 has recovered well, some investors believe certain sectors are overvalued after three strong years of gains.

• Cyclical sensitivity: If the U.S. economy slows in late 2025 or early 2026, corporate earnings could soften and drag performance.

Despite these concerns, many federal employees are maintaining or slightly trimming their C Fund exposure rather than exiting entirely.

The S Fund Is Losing Appeal for Risk-Averse Workers

The Small Cap Stock Index Investment (S) Fund tracks U.S. small and mid-sized companies. It has had a rocky ride since the pandemic, and 2025 is no exception:

• Underperformance relative to C Fund: The S Fund has lagged large-cap indexes significantly, which has left many questioning its future role.

• Market volatility: Smaller companies are more sensitive to economic shifts, interest rates, and market sentiment. This creates wider swings in performance.

• Flight to quality: With retirement nearing, many workers are shifting out of riskier holdings and consolidating into more stable options.

Unless you have a high risk tolerance and a long retirement horizon, the S Fund may no longer align with your objectives in 2025.

The I Fund’s Recovery Isn’t Convincing Everyone

The International Stock Index Investment (I) Fund offers global diversification, but federal workers are increasingly cautious about maintaining large positions in this fund.

• Foreign exchange pressure: The strong U.S. dollar continues to dampen returns from international investments when converted back to dollars.

• Geopolitical instability: Ongoing conflicts, trade restrictions, and unstable markets in Europe and Asia make the I Fund more volatile.

• Economic divergence: While the U.S. economy has remained relatively strong, many global markets have not matched that pace in 2025.

The I Fund isn’t being abandoned, but many TSP participants are reallocating some of their I Fund holdings toward domestic options.

Where Are Workers Moving Their Funds in 2025?

The shift isn’t just about where workers are moving away from—it’s also about where they’re moving toward. In 2025, here’s what the patterns show:

• Back to basics with C Fund: While not perfect, the C Fund’s U.S.-centric exposure and consistent track record make it a staple.

• Targeted allocations over L Funds: More participants are customizing their own blends of C, S, I, and G Funds instead of relying on Lifecycle Funds.

• Holding some G Fund for liquidity: While the G Fund has lower returns, it still serves as a cash-like buffer for short-term withdrawals.

• Reduced but not eliminated F Fund: Some are keeping a small F Fund allocation for diversification but limiting exposure.

• Minimal use of S and I Funds: These funds are being scaled back by more risk-conscious workers.

You might find yourself reflecting these trends if you’re preparing for retirement in the next 5–7 years and want more control, more stability, and better alignment with current economic conditions.

Reassessing Your Allocation Isn’t a One-Time Task

Too often, TSP participants set their allocation once and forget about it for decades. But in retirement planning, inertia can be costly. In 2025, as life expectancy, inflation, and market conditions evolve, rebalancing and reallocation are not just optional—they are necessary.

Ask yourself:

• Have your goals changed?

• Are your withdrawals starting within the next 2–3 years?

• Has your risk tolerance shifted?

• Are you prepared for a downturn in any single fund?

The TSP offers flexibility—but only if you use it intentionally. Being hands-off can work for a while, but now may be the right time to get proactive.

What This Means for You as a Public Sector Employee or Retiree

If you’re still working in government service or preparing to retire soon, your TSP allocation decisions carry long-term consequences. The funds you choose now will affect your:

• Withdrawal strategy

• Required Minimum Distributions (RMDs)

• Tax planning approach

• Investment longevity

In 2025, the investment landscape isn’t as forgiving as it once was. Every choice you make with your TSP should support your income needs, life expectancy, and long-term risk tolerance.

You don’t have to do it alone. A licensed professional can help interpret the data and align your TSP with your broader financial goals.

Rethinking Fund Choices Can Be the First Step Toward a Stronger Retirement

The TSP is a powerful tool—but like any tool, it depends on how you use it. If you haven’t reviewed your allocation recently, or if you’re unsure whether your current mix fits today’s environment, now is the time to act.

Get in touch with a licensed professional listed on this website to discuss your goals, your risks, and your strategy for making the most of your TSP.