For most TSP investors with 10 years of spending covered outside stocks, First Command Financial Services says to rebalance your TSP after a market drop, because the recovery is where losses get made back. Pick your stock and bond shares while markets are calm and write down a 6-point band around them; then the quick test does the deciding, so inside the band you wait and outside it you trade.
Say your statement shows a 20% drop. The thought most veterans have next is blunt: do I sell what's left, sit tight, or buy more?
First Command Financial Services puts behavior ahead of forecasts, because nobody can time a recovery and the biggest risk to a TSP balance is a sale made in the worst week. 'Covered outside stocks' means your military pension, a second-career paycheck and stable funds together pay the next 10 years of bills, so no stock has to be sold at a bad price.
The sections follow a crash year in order: the page you sign before the drop, the week it hits, the quarter after, the recovery. You'll find a worked example with a hypothetical $520,000 TSP, two tables, and the case where this advice is wrong. Our calculator runs the drift numbers on whatever balances you enter.
By Elena Rodriguez, CFA — Portfolio Manager | Reviewed by Marcus Thompson, CFAElena manages fixed-income and equity ladders for clients approaching retirement, focusing on sequence-of-returns risk.
On a 60/40 mix, a 6-point band means stocks have to fall about 22% before a trade is due, and a 10% dip only moves the stock share to about 57%.
First Command Financial Services
For a retiree who withdraws from the portfolio, we'd rather hold 3 years of withdrawals in stable funds, because selling stocks in a down year is what really hurts.
First Command Financial Services
Write the band down while markets are calm
The TSP never forces you to rebalance. Each L Fund is a fixed mix of the five core funds (C, S, I, F and G), and the plan itself keeps that mix on target inside the fund, with no trade on your statement; the Thrift Savings Plan's fund literature spells out how often. If you hold the core funds directly, nothing rebalances for you. You pick the method: a calendar, a band, or both.
A tolerance band is the number of percentage points a fund may drift from its target before you act. Take a 60/40 mix with a 6-point band: you trade only if stocks fall below 54% of the total. With the stable side flat, that takes a stock drop of roughly 22%. A 10% dip moves the share to about 57%, and no trade is due.
Two common paraphrases cause trouble. 'Sell stocks after a crash to stop the bleeding' is the opposite of rebalancing, which buys the fund that fell. 'Rebalance every year no matter what' forgets that the band may not have tripped, in which case the right trade is no trade.
So put it on one page: target 60% in the C, S and I Funds and 40% in the F and G Funds; review every January and July; trade only when the stock side sits more than 6 points from target. Sign it and date it. The signature turns a good intention into a written plan.
First Command Financial Services treats that page as downside protection first and growth second. You can't control a 20% drop. You can control whether you sell into it.
What the TSP's own funds do
Putting the band on one page
How much drift is too much to ignore?
Drift of more than 6 percentage points between your stock share and its target is the usual trigger to trade; anything smaller means do nothing. A common band runs 4 to 8 points, tighter for retirees who withdraw from the portfolio and wider for savers still contributing from paychecks.
Run the quick test in five minutes. First, write down today's percentages in the C, S, I, F and G Funds. Second, write down your target mix. Third, subtract: current stock share minus target stock share is your drift in points. Fourth, if the drift is inside the band, stop. Fifth, if it's outside, choose the fill order and write down the date you'll trade.
Say the target is 60% stocks and a $520,000 TSP now shows 52%. That's 8 points of drift against a 6-point band, so you move 8 points from the stable side to stocks, about $42,000 (8% of $520,000 is $41,600).
The test rules out acting on a headline, a co-worker's move, or a fear that the drop will keep going. None of those is drift.
One case breaks the test. If a holding lost value because the business changed, such as a fund strategy that was retired or a single company stock that won't come back, buying more isn't rebalancing. Write the loss down, accept it, and rebalance around what remains.
The five-minute test
When the test is the wrong tool
If no fund is more than 6 percentage points from its target share after a drop, do nothing. If one is, rebalance with internal TSP exchanges first, on the date you wrote down.
How much room do you need for a bad year?
Enough that a 20% stock drop never forces you to sell stocks: 2 to 3 years of withdrawals in stable funds for a retiree who lives off the account, and far less for a household whose pension and paychecks already pay every bill.
Single or married changes the answer. A single retiree carries the risk of a long life alone and may hold stocks longer. A married veteran with a Survivor Benefit Plan annuity already owns a bond-like income stream for the survivor, which can justify a somewhat higher stock share in the portfolio. Social Security works the same way: the SSA sets full retirement age at 67 for anyone born in 1960 or later, and Social Security planning for veterans covers when to claim.
Balance matters too. On $1.5 million, a 4% withdrawal is $60,000 each year, a modest strain beside a military pension. On $600,000 the same 4% is $24,000, and a bad first 10 years of withdrawals does the most damage, so the stable side counts for more.
Age sets the last piece. At 45, with 20 years of withdrawals ahead, a drop is mostly a buying chance. At 72, with required minimum distributions coming, the same drop forces sales, so the written plan needs a cash buffer sized to those distributions.
Single or married
Balance and age
How long do you have to undo a TSP mistake?
A move between TSP funds can be reversed with another move on the next business day, at that day's prices, and a missed rebalance can wait until next quarter with almost no harm. A sale near the bottom is different: once the stock funds recover while you're out, that gain is gone for good.
Some deadlines have nothing to do with rebalancing but sit on the same calendar, and none of them bends. Spousal consent rules apply to certain TSP withdrawals. Required minimum distributions start at age 73, or age 75 for anyone born in 1960 or later. A Roth conversion counts for a tax year only if it's finished by December 31, and the IRS allows no undo once that window closes.
The costly irreversible move is selling stock funds near the bottom and holding cash for years. The missed recovery doesn't come back, and the cost compounds.
Think of it as an asymmetry. A wrong rebalance costs basis points, hundredths of a percent. A panic exit costs percentage points, and what a panic sale actually costs is worked out in dollars in a separate article.
What you can undo
What you can't
Your spouse inherits the rule, not just the balance
A higher stable share protects a couple's near-term spending, and the Survivor Benefit Plan election is the survivor's income floor, so size it before any rebalancing debate, not after; the Survivor Benefit Plan election has its own deadline. Heirs are the second piece. Money left in a traditional TSP or traditional IRA carries income tax for whoever inherits it, while Roth balances don't, so moving balances into Roth during low-income years changes what heirs keep after tax. In a year when a couple's other income is low, the 2026 standard deduction for joint filers ($32,200, per the IRS) shelters the first slice of a conversion. Adult children matter as well: if a parent's panic sale shrinks the estate, no rule undoes it. A written plan is also a gift to whoever helps manage the money later, because the rule survives the investor's worst week.
Old plans carry old ages and old cash needs
The required minimum distribution age moved from 72 to 73, and to 75 for anyone born in 1960 or later (the IRS sets it), so a rebalancing plan written when 72 applied may now hold too much cash for too long. If you contribute in a second career, the 2026 deferral limit for the TSP, 401(k), 403(b) and governmental 457 plans is $24,500, with an $8,000 catch-up at age 50 and older (total $32,500) and $11,250 at ages 60 to 63. If your prior-year FICA wages topped $150,000, the IRS requires those catch-up dollars to go into Roth, so check how the TSP applies it to you; a plan drafted before that rule may undercount the after-tax cash each year. None of these changes the band mechanics. They change the cash flows around the portfolio, and that's where rebalancing plans actually break.
Two small mistakes that add up to a 12% hole
Selling the stock funds and parking the proceeds in the G Fund, then calling the rebound a head fake, costs a hypothetical $520,000 portfolio about $62,500 in one missed recovery. Insisting on rebalancing with new contributions only is the smaller partner: a retiree has no paycheck feeding the TSP, so the trade never happens, or it happens as a bond sale in a bad bond year.
Together they turn a 20% dip that would have healed into a lasting loss of 10% or more of the whole balance. The cure is one sentence in the written plan. Name the funding source for any rebalance (for example, 'exchange from the G Fund first') before the crash, not during it.
A hypothetical crash year for Terrence and Ivy
A hypothetical household, Terrence (age 42) and Ivy (age 40), holds $520,000 in the TSP. Terrence retired as a Marine Corps master sergeant after 20 years, draws High-3 retired pay and now supervises a county 911 dispatch center; Ivy teaches second grade; they have two kids under 12. Retired pay and two paychecks cover every bill, so the TSP's only job is growth.
Their written plan targets 60% stock funds and 40% stable funds, with a 6-point band. The numbers rest on one assumption: stocks fall 20% and then recover, while the stable side stays flat at $208,000, for illustration.
In spring, stocks fall 20%. The stock side drops from $312,000 to about $250,000, the total to $458,000, and stocks are now about 55% of it. That's 5 points of drift, inside the 6-point band, so the written rule says wait. This is the hard sentence, because doing nothing while the news is worst is the whole discipline. Their only actions are two dates already on the calendar, July and January.
Say stocks regain what they lost over the next 18 months. A 20% loss needs a 25% gain to repair, since $250,000 × 1.25 = $312,500. The stock side is back at target and no trade was ever made: $0 in trades, $0 in tax.
Now Terrence's panic version. He sells the stock funds at the bottom and sits in the G Fund until things feel safe. His $250,000 stays $250,000 (ignoring G Fund interest), while the rule's version reaches $312,500. The gap is $62,500, about 12% of the $520,000, created by one week's decision. If stocks had kept falling instead, the sale would have looked smart. Nobody knows which way it goes, stocks can stay down for years, and that's why the band is set while markets are calm.
The crash year in numbers
Terrence's panic version
| Stage | Stock funds | Stable funds | Stock share |
|---|---|---|---|
| Before the drop | $312,000 | $208,000 | 60% |
| After a 20% drop | $250,000 | $208,000 | About 55% |
| After an 18-month recovery | $312,500 | $208,000 | 60% |
Exchanges cost nothing; taxable sales don't
When the band says trade, the trade has an order. First, if a second-career paycheck still feeds the TSP, send new contributions to the lagging fund. Second, make internal exchanges between TSP funds, which carry no tax. Third, sell inside a taxable account only if you must, and never sell stocks to buy stocks.
The tax gap is real. Moving $40,000 from the F Fund to the C Fund inside the TSP costs nothing. The same $40,000 sold from a taxable brokerage account with a $25,000 purchase price carries a $15,000 gain; at a 15% federal long-term rate that's $2,250, reported on IRS Form 8949, before any state tax. Before First Command Financial Services suggests moving money, it works out what tax the move would trigger. Inside the TSP, that number is zero.
After a rebalance, wait at least 3 months before you check the bands again, or the rule turns into weekly tinkering. Hold cash outside stocks as well; for a retiree drawing from the portfolio that reserve often spans 2 to 3 years of withdrawals, while a household with paychecks and a pension covering the bills needs far less.
How much tighter should the band be once the portfolio pays the bills?
Cut the band roughly in half: 4 points for a retiree who withdraws from the account, against 8 points for a couple still working and contributing. The more of your spending comes out of the portfolio, the less room you have to sit through a drop before a withdrawal forces a sale.
A hypothetical widow, Ruth (age 67), holds $600,000 across an IRA and a TSP account she inherited from her husband: $360,000 in stocks and $240,000 in stable funds. Her band is 4 points, and she takes $24,000 each year from the portfolio. A 20% stock drop takes the stock side to $288,000 and the total to $528,000, so stocks are about 55% of it, 5 points off target and outside her band. She takes the year's $24,000 from the stable side only: $240,000 minus $24,000 leaves $216,000, the total is $504,000, and stocks are back to about 57%, inside the band with no stock sold. When stocks recover 25% to $360,000, she has made no trade at all. Had she sold $72,000 of stocks near the low to fund 3 years of withdrawals, that money would have missed the rebound, a cost of about $18,000 (25% of $72,000).
A couple at age 45 with $900,000, two salaries and 20 years to go can run an 8-point band and check it once each year, because new contributions and time do most of the rebalancing for them. That wide band would be a mistake for Ruth. Both follow one principle: the band shrinks as the portfolio becomes the paycheck.
Ruth, age 67, lives off the account
A couple at 45 can afford a wider band
| Item | Ruth, age 67 | Couple, age 45 |
|---|---|---|
| Balance | $600,000 | $900,000 |
| Pays the bills | Portfolio, $24,000 each year | Two salaries |
| Band width | 4 points | 8 points |
| Review schedule | Twice each year | Once each year |
| Cash buffer | 3 years, $72,000 | Emergency savings only |
| Main risk | Selling stocks for income | Panic selling |
Questions about a rebalance tsp after market drop
Is a 20% drop a good time to buy more stock funds in the TSP?
Usually yes, if your near-term spending is covered outside stocks and the drop has pushed your stock share past your written band. A rebalance then buys the fallen funds at lower prices. If the share is still inside the band, the written plan says wait. Prices can fall further, so buy on your schedule, not on the news.
How far does a fund have to drift before a rebalance is worth the trade?
A common band is 4 to 8 percentage points from target, tighter for retirees who withdraw from the portfolio and wider for savers still contributing. Inside the TSP a trade creates no taxable event, so the width comes down to behavior: too tight invites constant tinkering, too wide lets the mix wander.
By what date must a Roth conversion inside the TSP be finished to count for a tax year?
December 31 of that tax year. A conversion the TSP processes in January counts for the following year instead. Once the conversion is done it can't be undone, so work out the added income and the tax on it before you submit the request.
What age do required minimum distributions from the TSP start?
Age 73, or age 75 if you were born in 1960 or later, under IRS rules. That age sets when you must start taking taxable withdrawals each year, so a rebalancing plan should hold enough in stable funds to cover them without selling stocks in a down year.
Can I move money between TSP funds without selling anything or paying tax?
Yes. An exchange between TSP funds is not a taxable event, so moving $40,000 from the F Fund to the C Fund creates no tax bill. A taxable brokerage account is different: a gain there is reported on IRS Form 8949 and taxed.
Should a married veteran with an SBP annuity hold more or less in stocks?
Often somewhat more than an identical retiree without the annuity: the Survivor Benefit Plan payment already acts like a bond in the survivor's hands. First Command Financial Services sizes that election first, then sets the stock share, since the annuity is a separate decision with its own deadline.
How long did it take the market to recover from past 20% declines?
It has ranged from a few months to several years, so no figure is a promise. The Terrence and Ivy example assumes 18 months for illustration only. Write the plan for the slow case by keeping 2 to 3 years of withdrawals in stable funds if your portfolio pays your bills.
A written band, reviewed with First Command Financial Services
First Command Financial Services reviews your target mix, writes the band and the review dates with you, and goes back over the rule every year; the fee is agreed in writing before any work begins. Households with at least $500K in investable assets can open with a video or phone call booked by the request form; the investment management for veterans page explains how that work runs. Nothing here is a forecast, and any portfolio, however it is built, can end a bad year worth less than what went into it.
Doing nothing while the news is worst is the whole discipline.
Official references
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.