The federal government’s Thrift Savings Plan is sometimes offered as a model retirement savings vehicle that could be adopted for private sector workers, for state and local government employees, and even for Social Security personal accounts. The TSP has a simple structure built around a small number of widely diversified investment options that carry practically no administrative costs. The TSP offers a “target date” investing approach in which the plan automatically shifts federal employees’ savings from stock to bond funds as they approach retirement. And at retirement, the TSP offers annuities that let workers convert their lump sum savings into a monthly benefit that last for life. What’s not to like?

A lot, according to Joanne Butler, a former House Ways and Means Committee staff and, prior to that, a colleague of mine at the Social Security Administration. The TSP has now been in place for 30 years, having started in 1987, and 47,000 federal employees have participated over the full three decades. “Here’s the troubling part,” Butler says. “The average account balance for those 47,000 people is $346,000.” If those federal employees “withdrew just $30,000 for their income, their nest egg of $346,000 would last them about eleven years. The retiree also would receive Social Security benefits plus a small federal annuity benefit – let’s say that bumps the retiree up to about $35,000 a year. It’s still not much.”