The G Fund Trap: Why Federal Employees Struggle to Become TSP Millionaires
Last year, I wrote an article called “Becoming a TSP Millionaire Isn’t as Hard as You Think—It’s Much Harder”. In it, I explained that while the formula for success is simple—steady contributions, patience, and compounding—most people struggle to follow it when the market gets rocky.
For federal law enforcement officers under FERS, this challenge can be even greater. With earlier retirement ages, the FERS supplement, and heavy reliance on the TSP to fill income gaps, decisions about where to invest—especially in the G Fund—carry even more weight.
Then came early 2025—a live-fire drill where the TSP numbers told the story: investors running from stocks into safety, just when discipline mattered most.
That little story isn’t fiction—it’s exactly what the TSP data shows many federal employees actually did in early 2025. And it’s why becoming a TSP millionaire will always be harder than it looks on paper.
What is the TSP G Fund?
Before we dive into the “trap,” let’s define it. The TSP G Fund is the “Government Securities” fund inside the Thrift Savings Plan. It’s unique because it offers a guaranteed return with no risk of loss. Sounds perfect, right? For many federal employees, the G Fund feels like the safest choice.
Why Federal Employees Rely on the G Fund
Picture this: It’s mid-March 2025. You log into your TSP account before heading to work. The headlines are blaring about new tariff battles, the stock market is flashing red, and your C Fund balance is down thousands of dollars in just a few weeks.
Your stomach tightens. One click promises relief: move it all to the “safe” G Fund. And you do it—just like thousands of others.
This pattern plays out again and again. When markets get volatile, federal employees retreat to the G Fund because it feels secure. But security comes at a cost.
What the Data Shows About the TSP G Fund
The numbers confirm this behavior. In March 2025, the Thrift Savings Plan released participant data showing just how dramatic the shift to the G Fund was:
The first quarter of 2025 delivered a real-time test of investor discipline.
- From February 18th through April 8, the S&P 500 (C Fund) fell nearly 19% peak-to-trough as tariff concerns and trade headlines rattled markets.
- The S Fund fell almost 25% during the same time. (source: TSP.gov and ycharts.com)
- The I Fund did much better, but it too fell 11.30% during the same time.
TSP Flows: Panic in Motion
Here’s what TSP investors actually did during those months**:
- February 2025:
- +10.2B into G Fund
- –7.3B out of C Fund
- –2.9B out of S Fund
- +$538M into F, +$480M into I, –$994M from L Funds
- March 2025:
- +16.3B into G Fund
- –14.1B out of C Fund
- –7.0B out of S Fund
- +5.8B into I Fund
- +$1.36B into F, –$2.3B from L Funds
- April 2025:
- +6.5B into G Fund
- –2.7B out of C Fund
- –1.1B out of S Fund
- –0.4B out of I Fund
- +$473M into F, –$2.8B from L Funds
And here’s the big picture: over just three months (Feb–Apr 2025), $33 billion poured into the G Fund, while $29 billion drained out of the C, S, and I Funds.
On paper, these moves look like “risk management.” In reality, they reveal how fear pushes people toward short-term comfort, often at the expense of long-term growth.
These are extraordinary reallocations in just 3 months. On paper it looks like “risk management.” It’s classic short-term fear overpowering long-term strategy—the very behavior that keeps many from reaching millionaire status.
Building a Smarter TSP Millionaire Strategy:
If you look at those who have crossed the $1M mark in their TSP, the traits aren’t flashy:
- Consistency – Contributing through good years and bad.
- Patience – Ignoring the noise of monthly swings.
- Discipline – Resisting the urge to run to the G Fund every time stocks wobble.
- Faith in Compounding – Trusting that the long run will reward risk-taking in stock funds.
Notice what’s missing? Market timing, switching funds based on headlines, or trying to outsmart volatility.
Why the G Fund Feels So Tempting
Here’s a wrinkle worth mentioning: the TSP’s transfer rules make it a little too easy to run to the G Fund.
- You can make unlimited transfers into the G Fund at any time.
- But you’re limited to just two transfers per month into the C, S, I, or F Funds.
This was designed to keep trading costs down, but it also creates a kind of behavioral temptation. In moments of market stress, the path of least resistance is to hit the “safe” button and move to G. Getting back into the stock funds can feel harder—not just logistically, but emotionally too.
It’s not that the TSP is “bad” or “flawed.” Far from it—the plan remains one of the best retirement savings vehicles in the country. But like any tool, how you use it matters. The rules can quietly nudge you toward short-term comfort at the expense of long-term growth if you’re not mindful
Is the TSP G Fund Safe for Retirement?
The TSP G Fund is safe in the narrowest sense: your balance won’t lose value, and it’s backed by the full faith and credit of the U.S. government. That security is why many federal employees flock to it in uncertain times.
But “safe” and “sufficient” aren’t the same thing. While the G Fund protects your principal, it exposes you to two hidden risks:
- Inflation risk — returns often barely keep pace with rising costs, meaning your purchasing power shrinks over time.
- Longevity risk — with lower growth, your TSP may not generate enough income to last through a retirement that could stretch 25–30 years, especially for federal law enforcement officers who retire earlier under FERS.
So, while the G Fund is safe from market loss, relying on it too heavily can be unsafe for your retirement income. True safety comes from balancing short-term stability with long-term growth.
The G Fund Trap? A Better Path Forward:
If your goal is millionaire status in the TSP:
- Anchor to your long-term plan – Write it down. Review it. For extra credit, create and investment policy statement.
- Use the G Fund wisely – It’s an integral part of a portfolio, not a panic button.
- Automate good behavior – Contributions and allocations should run on autopilot, not emotion. Be careful of checking your balance too often—it can create panic where it didn’t exist.
- Remember the rebound – In May 2025, after those February and March losses, the C and S Funds came roaring back. Those who fled to G Fund missed it.
Final Word
The real enemy isn’t the market. It’s our own tendency to trade long-term success for short-term comfort.
That’s why becoming a TSP millionaire will always be “harder than you think.” Not because the playbook is complex—but because most won’t follow it when it matters most.
Good luck out there friends. We hope this helped you on your financial and retirement journey!
Sources
* TSP.gov and ycharts.com
**www.frtib.gov/meeting-minutes/
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC.
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