The TSP "G Fund Glitch" That's Quietly Costing You Thousands

May 20, 2025

Most federal employees are told the G Fund is the safest investment in the Thrift Savings Plan.

After all, it guarantees no loss of principal, it’s backed by the U.S. Treasury, and it earns interest daily.

But here’s the uncomfortable truth:

In real terms—meaning your actual purchasing power after inflation—the G Fund has lagged badly.

And worse? It’s not just inflation dragging it down. It’s politics.

🧨 The Hidden Cost of “No Risk”

Let’s start with the numbers. Here’s a comparison between G Fund annual returns and CPI (Inflation Index):

Year

G Fund Return

CPI Inflation

Real Return

2021

1.38%

7.0%

-5.62%

2022

2.98%

6.5%

-3.52%

2023

2.78%

3.1%

-0.32%

(Source: TSP.gov & BLS)

If you had $250,000 in the G Fund from 2021 to 2023, you’d have earned roughly $18,000 in interest...

But you’d have lost over $38,000 in real purchasing power due to inflation. That’s a net negative of $20,000+—all while thinking your money was “safe.”

🏛️ The Debt Ceiling Trick That Drains Your G Fund

Here’s where it gets worse. Most participants don’t know that the Treasury has legal authority to suspend G Fund investments during debt ceiling crises.

It’s called “extraordinary measures.”

What does that mean for you?

  • When this happens, G Fund returns are suppressed or frozen temporarily.

  • Treasury reimburses you later, but the timing and compounding opportunities are lost forever.

  • And no, they don’t pay you missed interest at market rates—just what you would have gotten.

This has happened multiple times: 2011, 2013, 2015, 2021, and again in early 2023.

So even while you’re trying to “play it safe,” you’re involuntarily funding the national debt debate—and not earning what you could elsewhere.

⚠️ The Psychological Trap: Safety at Any Cost

Why do so many cling to the G Fund despite all this?

It’s behavioral:

  • Loss aversion makes people fear volatility more than they fear slow erosion.

  • The illusion of control comes from seeing a stable balance, even as real value slips away.

  • Most don’t compare after-inflation returns—they only look at the number growing slowly.

But let’s be blunt:

A “safe” fund that guarantees you’ll fall behind inflation is not safe. It’s a slow-motion bleed out.

💡 A Smarter Way to Use the G Fund

We’re not saying ditch the G Fund entirely. It has value—as a parking lot, a cash reserve, or a rebalancing anchor.

But it shouldn’t be your retirement home base unless:

  • You’re within 6–12 months of needing the cash

  • You have other assets beating inflation elsewhere

  • You have a tactical reason (e.g., buffer for RMDs, income bridge)

For everyone else? Revisit your TSP allocation.

You may be trading long-term growth for short-term comfort—and that comfort comes at a hidden cost.

📬 Final Thought

This is the kind of oversight that quietly costs federal retirees tens of thousands—not because they did something wrong, but because they played by the old rules in a new economy.

Best,
Federal Wealth Retirement