Many federal employees we meet are 100% invested in the G Fund, thinking it’s the safest option. And while it does offer principal protection, what many don’t realize is that “safe” doesn’t always mean secure—especially when inflation and taxes are quietly eroding your long-term returns.
If your TSP allocation hasn’t changed in years—or if you're entirely in the G Fund—this is a must-read.
Below I have compiled data showing the returns of the G fund benchmarked against the respective inflation rate, which I used CPI-U (Consumer Price Index for Urban Wage earners) In the last column, you will see “Real Return,” measured in the difference between the G fund’s performance against the CPI-U.
G Fund vs. Inflation: Performance Overview
| Time Period | G Fund Avg Annual Return | Avg Inflation Rate (CPI-U) | Real Return (G Fund - Inflation) |
| Since Inception (1987–2024) | 4.2% | 2.7% | 1.5% |
| Last 10 Years (2015–2024) | 2.2% | 2.7% | -0.5% |
| Last 5 Years (2020–2024) | 1.9% | 3.7% | -1.8% |
| Year to Date (2025 YTD) | 2.6% | 2.7% | -0.1% |
Source: TSP.gov and BLS.gov (CPI-U); data rounded to nearest tenth percent as of July 31st, 2025. G Fund returns are nominal and pre-tax.
The Hidden Risk in Playing It “Safe”
The G Fund is appealing. It never goes down in value and is backed by the U.S. government. But when you look closer:
- G Fund returns have trailed inflation in recent years, meaning your money buys less over time.
- It offers minimal opportunity for long-term growth beyond modest interest.
- For traditional TSP it is tax-deferred, you’ll pay ordinary income tax on all withdrawals—possibly at higher tax rates in retirement.
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Don’t forget to consider “Tax Drag”
Many feds forget: your entire TSP (Traditional) is taxable. So even if the G Fund earns 2%, after taxes and inflation, your real return could be zero or even negative.
If your plan doesn’t account for future tax strategy, inflation, and withdrawal sequencing, you could unintentionally be giving up a large portion of your retirement income.
Don’t Let the G Fund Be Your Whole Plan
We often ask:
- Are you 100% in the G Fund out of strategy—or habit?
- Is your TSP positioned to keep up with inflation and minimize taxes?
- Do you have a coordinated plan that includes FERS, TSP, Social Security, and possible Roth conversions?
Complimentary Federal Benefits & TSP Allocation Review
At Serving Those Who Serve, we’ve helped federal employees for over 35 years make smarter decisions including:
- TSP fund selection
- Inflation and tax-aware strategies
- Maximizing federal retirement benefits
Let’s make sure you’re not unknowingly sacrificing future income by staying “safe.”
You’ve worked hard for your benefits—now let’s make them work hard for you:
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**Written by Matt Kramer, CFP®, ChFEBC®. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Katelyn Murray and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
