For many years, the G-Fund has been the bedrock of the Thrift Financial savings Plan.
It’s the default “safe haven” for federal staff and retirees as a result of it guarantees security. On paper, there’s no threat of dropping principal. That’s why the G-Fund holds virtually 25% of all TSP participant belongings.
However a deep dive into the info during the last 25 years reveals a pattern you possibly can’t unsee…
Whereas the G-Fund has efficiently protected principal prefer it guarantees, it has failed to guard buying energy.
And right here’s the factor, once you’re speaking about cash and your retirement financial savings, the buying energy of that cash is the one factor that basically issues.
Which is why many Federal staff and retirees we speak to are involved once they notice that their G-Fund financial savings are literally dropping worth over time.
The phantasm of wealth (why numbers on a display screen can lie)
We’re conditioned to measure wealth by the quantity on our account assertion. If the quantity goes up, we really feel richer.
However in an financial system characterised by persistent inflation, this “nominal” progress generally is a harmful phantasm. Why? As a result of nothing is definitely paid for in {dollars}, it’s paid for within the buying energy of these {dollars}.
These {dollars} must pay for issues like groceries, healthcare, utilities, journey, and so forth. For the subsequent 20-30 years. But when the price of these necessities rises sooner than the worth of your financial savings, then you’re truly dropping cash, even when your account steadiness seems to be rising.
Let’s take a look at the final 5 years…
Between 2020 and 2025, the G-Fund generated a cumulative nominal return of roughly 19.8%. On paper, numbers went up. Appears good on the floor.
Nonetheless, throughout that very same time interval, the cumulative inflation price (CPI) rose by roughly 25%. Which implies though the G-Fund went up, the worth of the cash in that fund truly went down by over 4%.
Put one other method: In case you had $100,000 sitting within the G-Fund in 2020, your steadiness in the present day could be roughly $119,800. However to purchase the very same basket of products and providers you would purchase for that cash in 2020, you’d now want roughly $125,000.
You didn’t “lose money” within the conventional sense. However you misplaced the worth of that cash, and that’s what actually issues.
That is the silent erosion that every one People are going through. And in case your cash is within the G-Fund, then it’s a direct menace to your retirement financial savings.
The downward pattern (greater than only a blip)
Skeptics may argue that the inflation spike of 2021-2022 was an anomaly. However should you take a look at the final 25 years, you’ll see that is truly a downward pattern that’s been constructing for a very long time.
- 2000–2009: The G-Fund was at its strongest, producing +22% actual return after inflation. However ever because the Nice Recession, when the Fed basically modified the US financial system with the introduction of “quantitative easing”, it’s been all downhill.
- 2010–2019: The G-Fund barely treaded water, producing a meager +4.6% actual return over a complete decade.
- 2020–2025: The pattern crossed into detrimental territory, leading to a -4.16% loss in buying energy. And this may solely proceed to worsen as time goes on, as a result of issues with the financial system are getting worse, not higher.
Why is that this occurring?
The G-Fund’s return is mathematically tied to the weighted common yield of U.S. Treasury securities with 4 or extra years to maturity. In earlier a long time, these authorities bonds supplied yields considerably larger than inflation.
Right now, nonetheless, we’re in a unique financial cycle. With the U.S. nationwide debt exceeding $38 trillion, there’s a structural ceiling on how excessive “risk-free” rates of interest can rise. If charges have been to rise considerably above inflation for a sustained interval, the curiosity expense on the nationwide debt would develop into unmanageable for the federal funds.
Economists seek advice from this as “financial repression”. It means rates of interest are saved close to or beneath the speed of inflation to assist handle sovereign debt hundreds. And because the US debt continues climbing at an unsustainable price, with a debt-to-GDP ratio of 120%, this isn’t going to cease.
Which means the G-Fund will proceed to offer security on the digits you see in your account, however it may well now not sustain with the rising value of residing. Funds look secure, however they’re truly dropping worth each single 12 months.
The TSP Gold Technique ( shield your financial savings)
Most federal staff have been informed that the “safest” technique is to pay attention their holdings within the G-Fund. However in an period of excessive debt and foreign money devaluation, this conventional knowledge has develop into a entice.
However there’s a highly effective technique that most individuals don’t even find out about: turning your TSP into gold with government-backed treasured metals.
Not solely is gold the last word inflation hedge that protects wealth as a result of, as legendary hedge fund billionaire Ray Dalio says, gold is the one asset that isn’t another person’s legal responsibility…
However because the greenback continues to fall and nationwide debt continues to rise, gold is outperforming most asset lessons, together with US Treasuries and the inventory market.
In case you began with $10,000 within the G-Fund within the 12 months 2000, it could be value roughly $23,450 by the tip of 2025 (not even maintaining with cumulative inflation over the identical interval). However should you put that $10,000 in gold, it could be value virtually $150,000 now.
And what many individuals don’t know is that you need to use your TSP to put money into gold by a tax-free, penalty-free retirement technique referred to as a Gold IRA.
A Gold IRA lets you use an age-based in-service withdrawal (or a regular rollover should you’re retired) to maneuver a portion of your TSP steadiness right into a self-directed IRA that holds IRS-approved gold.
Which means you possibly can personal American Gold Eagles (and American Silver Eagles) in your retirement account. These are cash assured for weight and purity by the U.S. Mint.
You’re not abandoning the protection of government-backed techniques. You’re merely shifting from authorities paper (Treasury securities within the G-Fund) to authorities steel (American Eagles issued by the U.S. Mint).
Each are backed by the complete religion and credit score of the USA. The distinction? One is designed to protect buying energy throughout inflationary cycles. The opposite isn’t.
The underside line
The G-Fund isn’t “broken,” however the financial setting it was constructed for now not exists. In a rustic that’s $38 trillion in debt and coping with persistent inflation, a fund tied to authorities rates of interest is mathematically incapable of defending your buying energy.
The “silent erosion” of your retirement financial savings is actual. The information is all there.
Nonetheless, you could have choices.
The “TSP Gold Strategy” presents a method so as to add actual safety. By diversifying a portion of your TSP into bodily gold by a Gold IRA, you possibly can defend your financial savings from the devaluation of the greenback whereas retaining your wealth inside a tax-advantaged retirement account.
Learn how to be taught extra
Most federal staff do not know this feature exists. TSP doesn’t promote it. Your HR workplace in all probability doesn’t point out it. And monetary advisors who solely handle TSP funds haven’t any incentive to convey it up (gold doesn’t pay charges).
That’s why Nationwide Gold Group created a free information written particularly for federal staff and retirees, referred to as “The TSP Gold Guide.”
Inside this free information, you’ll uncover:
- Learn how to execute a tax-free TSP rollover in 3 steps (with out triggering penalties or making pricey errors that might value you hundreds)
- The one payment construction that allows you to keep away from ongoing expenses completely (most gold firms received’t inform you this as a result of it cuts into their earnings)
- Learn how to confirm your gold is definitely secure, together with IRS rules, insured depositories, and the buyback assure that provides you complete management and peace of thoughts
- Learn how to take bodily supply of your gold or promote it again with zero charges, providing you with complete management and most liquidity
You’ve earned your retirement. This information exhibits you shield it.
Obtain your free copy right here.
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