No, your TSP account is not falling behind inflation—in fact, the opposite is true. The data from 2025 and early 2026 clearly shows that TSP accounts are significantly outpacing inflation across nearly all fund options. For federal employees and retirees invested in stock funds, the performance gap is even more dramatic: the I Fund (international stocks) returned 32.45% in 2025 while inflation-based Cost-of-Living Adjustments (COLA) ranged from just 2.0% to 2.8%. Even conservative investors in the G Fund (government securities) earned 4.44% in 2025, which exceeds the 2.8% COLA increase that CSRS annuitants received in January 2026.
The premise of this headline appears rooted in outdated thinking or misconceptions about TSP performance. While it’s true that TSP returns fluctuate year to year and no investment guarantees you’ll beat inflation indefinitely, the recent data tells a reassuring story for federal employees. The numbers don’t support claims that TSP accounts are losing ground to rising prices. Instead, they demonstrate that the Thrift Savings Plan remains a surprisingly effective tool for building inflation-resistant retirement savings.
Table of Contents
- How Are TSP Stock Funds Actually Performing Against Inflation?
- What About The G Fund and Risk-Averse Investors?
- How Have TSP Account Balances Actually Grown?
- Are Your Current Contributions Keeping Up?
- What Happens During Market Downturns or Recession?
- How Do COLA Increases Compare to TSP Investment Growth?
- What Should Federal Employees Do Now?
- Conclusion
How Are TSP Stock Funds Actually Performing Against Inflation?
The 2025 TSP returns reveal a significant cushion above inflation rates. federal employees who held even a modest stock allocation saw gains that substantially exceeded the modest COLA increases affecting retirees and annuitants. The C Fund (large-company U.S. stocks) returned 17.85% in 2025, while the S Fund (small-company stocks) gained 11.38%. The standout performer was the I Fund (international stocks) at 32.45%, demonstrating the benefit of global diversification. These returns occurred in a year when inflation-based COLA adjustments ranged from 2.0% to 2.8%—meaning even the most conservative of these stock fund gains outpaced inflation protection by a factor of four to sixteen times.
For perspective, consider a federal employee age 50 with a TSP balance of $300,000 invested in a balanced mix that includes 60% stocks and 40% bonds. Based on 2025 fund performance, that account would have grown by approximately $43,000 in a single year, or roughly 14.3%. That growth rate far exceeds what would be needed to maintain purchasing power against inflation. In early 2026, this momentum has continued: the I Fund gained 5.94% in January alone, while the conservative L Income Fund (designed for retirees) gained 9.27%, suggesting the outpacing trend persists. The limitation here is that past performance doesn’t guarantee future results. A tech-heavy market environment in 2025 may not repeat indefinitely. However, the historical pattern shows that TSP accounts, when diversified across multiple funds, have typically kept pace with or exceeded inflation over 10+ year periods—the relevant time horizon for retirement investing.
What About The G Fund and Risk-Averse Investors?
Not all federal employees can tolerate stock market volatility, and some retirees have shifted heavily toward the G Fund for safety. The good news is that even this conservative choice is currently competitive against inflation. The G Fund interest rate stood at 4.500% as of May 2026, according to TSP.gov data. The 2026 COLA adjustments—2.8% for CSRS annuitants and 2.0% for FERS annuitants—are both lower than the current G Fund rate. This means a retiree holding G Fund shares isn’t experiencing erosion of purchasing power; they’re earning a real return above inflation.
However, there’s a crucial warning here: G Fund rates are not fixed. They’re adjusted quarterly based on Treasury security yields and are subject to market conditions. The 4.5% rate available today may not persist if interest rates decline. Federal employees relying entirely on the G Fund for inflation protection should understand that if rates fall below future COLA increases, they could face a brief period where inflation outpaces returns—until the next COLA adjustment applies to their annuity. The broader point is that risk-averse investors aren’t necessarily trapped in an inflation-losing position, but they also don’t have the same inflation-protection upside that stock fund investors enjoy. A retiree age 70 who can’t afford market volatility can earn a real return with the G Fund today, but should monitor quarterly rate changes and consider a modest allocation to stock funds if their time horizon and risk tolerance permit.
How Have TSP Account Balances Actually Grown?
The Federal Employees retirement System (FERS) account balances tell a story of meaningful wealth accumulation. Average FERS TSP accounts grew from $194,000 in 2024 to $217,300 in 2025—an increase of $23,300, or 11.98%. This growth rate substantially exceeds inflation adjustments. CSRS participants with supplemental TSP accounts also saw gains, with average balances rising from $220,000 to $240,700, a gain of 9.41%. These figures represent not just investment returns, but also ongoing contributions from federal employees and agency matches. Consider a specific example: a mid-career federal employee age 40 started 2025 with a $150,000 TSP balance.
Assuming they contribute $9,000 annually (the 2025 employee limit) and their agency matches 5%, and assuming their account was invested in a 70% stock / 30% bond mix mirroring the fund performance data, their account would have grown to approximately $184,000 by year-end—a gain of $34,000 or 22.7%. Over a 25-year career, this compounding effect combined with inflation-beating returns creates a substantial retirement nest egg. The limitation to understand is that these average balances include some accounts with low balances and some with very high balances. A federal employee with a small TSP account may not see the same dollar gains as an employee with a six-figure balance, even if the percentage returns are identical. Additionally, these averages reflect 2025 performance, which was particularly strong. Returns will vary year to year, and a down market could temporarily reduce account values.
Are Your Current Contributions Keeping Up?
Federal employees making pre-tax contributions to their TSP are protecting their purchasing power in two ways: through investment growth and through tax-deferred compounding. A federal employee contributing the maximum $9,000 annually (as of 2026) into a diversified TSP account benefits from both the inflation-beating returns documented above and the power of regular contributions that accumulate at a faster rate as the account grows. However, the practical concern many federal employees face is whether their salary increases keep pace with inflation, which directly affects how much they can contribute to TSP. If a federal employee’s salary increases by 2% annually but inflation rises by 3%, their purchasing power stagnates—even if their TSP account is earning 8% annually.
This is a real limitation of TSP as an inflation hedge: the plan can only grow as fast as contributions plus returns allow. A federal employee whose base salary lags inflation may struggle to contribute enough to achieve their retirement goals, regardless of TSP’s fund performance. The action item here is to maximize your TSP contributions during your working years, especially in high-earning years when you can contribute more. If you can boost contributions beyond the annual limit through catch-up contributions (available at age 50 and up), doing so amplifies the inflation-beating returns. A federal employee age 52 can contribute up to $11,500 in 2026—that additional $2,500 annual boost compounds significantly over a 10-year period to retirement.
What Happens During Market Downturns or Recession?
The 2025 performance data is impressive, but federal employees must understand that returns aren’t guaranteed every year. If a recession were to occur in 2026 or beyond, TSP stock funds could experience temporary declines. An employee nearing retirement who held a heavily stock-weighted portfolio at the onset of a downturn could face meaningful paper losses that require several years to recover. During that recovery period, if inflation continues to rise faster than investment returns, an investor could temporarily fall behind inflation. This scenario highlights a critical warning: your fund allocation matters enormously. A federal employee age 60 holding 100% C Fund (large-company stocks) faces more downside risk during a correction than an employee with a 50/50 mix of stocks and bonds.
The TSP’s target-date funds (L Funds) automatically de-risk as you approach retirement, reducing stock exposure and increasing bond allocation. This design feature helps protect gains in years like 2025 while also limiting losses during downturns. An employee relying on the L Income Fund (for retirees) is protected by design from excessive stock exposure, though this comes with the tradeoff of lower return potential compared to 100% stock portfolios. The forward-looking insight is that no single year of data—even a strong year like 2025—proves that TSP will always beat inflation. What matters is your asset allocation over your full career and into retirement, diversification across funds, and realistic expectations. Federal employees who stay invested through market cycles and maintain appropriate risk exposure for their age have historically kept pace with or beaten inflation over 20+ year periods.
How Do COLA Increases Compare to TSP Investment Growth?
Federal annuitants receive annual COLA adjustments designed to protect retirement purchasing power. The 2026 COLA increases of 2.8% (CSRS) and 2.0% (FERS) are meaningful, but they’re also lower than typical long-term inflation rates. By contrast, TSP account holders who are still accumulating can earn returns that substantially exceed these COLA figures, creating a savings cushion. A federal employee age 55 with a $400,000 TSP balance earning 8% annually (a conservative blended return for a diversified portfolio) gains $32,000 per year—an 8% increase, which exceeds even the highest COLA figures by a wide margin.
Once a federal employee retires and begins receiving an annuity, the dynamic shifts. Their annuity grows by the COLA percentage each year, while their remaining TSP balance (if they don’t withdraw it) continues to earn investment returns. This dual approach provides a hedge: the annuity guarantees inflation protection (limited though it may be), while remaining TSP assets can continue to appreciate. A retiree age 70 with a $600,000 TSP balance still invested in stock funds can see that balance grow by 8-10% annually even as their fixed annuity income is protected by COLA adjustments.
What Should Federal Employees Do Now?
The data presented in this fact-check suggests that concerns about TSP falling behind inflation are overstated—at least based on recent performance and current conditions. Federal employees should approach TSP with confidence that it’s an effective retirement savings tool when used properly. The key is ensuring your fund allocation aligns with your age, risk tolerance, and timeline to retirement.
Younger employees can afford stock exposure; older employees benefit from a more conservative mix with bond and G Fund allocations. Looking ahead to 2026 and beyond, federal employees should monitor several factors: quarterly G Fund rate changes (which affect conservative investors), overall market conditions (which drive stock fund returns), and their own salary progression (which enables contribution increases). The TSP’s low fees and diversified fund options position it to remain competitive against inflation for the foreseeable future. Rather than worrying whether TSP will keep pace with inflation, federal employees should focus on consistently maximizing contributions, maintaining an appropriate asset allocation for their age, and resisting the urge to time the market during volatility.
Conclusion
The headline premise that “TSP accounts won’t keep pace with inflation” is contradicted by the evidence. In 2025, TSP stock funds returned 11-32%, while inflation-based COLA adjustments were 2-3%. Even conservative G Fund investors earned 4.5% annually—above inflation adjustments. Average TSP account balances grew by 9-12% in 2025, creating substantial inflation-beating wealth accumulation.
Federal employees shouldn’t interpret this fact-check as a guarantee of future performance, but rather as evidence that current concerns about TSP’s adequacy are premature. The path forward for federal employees is straightforward: maintain discipline in TSP contributions, ensure your fund allocation matches your timeline and risk tolerance, monitor G Fund rates and broader market conditions, and resist panic during inevitable market downturns. TSP, combined with federal annuity COLA increases, provides a robust platform for maintaining purchasing power through retirement. The numbers tell a story of success, not failure.