If you use the Thrift Savings Plan tactically, you could be extraordinarily wealthy by the time you retire.
The Thrift Savings Plan (TSP) is a version of a 401k retirement system for military service members and federal employees. If you are considering joining the military, you will get more specific training as it comes time to set up your TSP account.
This article will explain how you can get the most out of your TSP to become wealthy and possibly have a TSP balance of at least a million dollars in retirement.
An 18 year old E-3 makes $2,161 in base pay a month. He contributes 5% of his base pay to his Roth TSP over a 20 year career. We will assume that his annual return rate is an average of 10%. In this example we will not factor in any promotions.
After 20 years, the E-3 is 38 years old and his TSP is worth $156,858. Of that, he contributed $25,999. He cannot access this money until he is 59.5 years old so he has to wait another 22 years.
When he is 60 years old, his TSP is worth $1,276,875. He contributed $25,999 over a 20 year career with E-3 pay. Additional contributions and promotions would make this number a lot higher!
Get the Maximum Matching TSP Contributions
Who doesn’t like free money? Good news because that’s exactly what matching contributions are, and if you’re in the blended retirement system you will get this great benefit. Check out this article at TSP.gov for more information.
However, there are limitations. To get the maximum government match, you need to set your contribution of your base pay to at least 5%.
Within that amount, 3% of your TSP contribution is matched dollar for dollar. The remaining 2% is matched fifty cents on the dollar. Also, 1% is automatically contributed to your TSP by the government.
You set up your contributions in myPay under the Thrift Savings Plan tab on the left upon logging in.
Disclaimer! This rings true for those in the blended retirement system with some time limits you must meet before getting matched. Those in High 3 retirement system will not receive any matching contributions.
If you are having trouble saving money, read How To Grow Your Savings Account While in the Military
Use Roth TSP
Roth TSP is money that you invest into your retirement after you pay taxes on it. This means that it has tax benefits, and it will grow tax free. You will have a fat pile of money when you are 60 years old. Check out how Ramsey Solutions explains it in this article. Remember that TSP is the government’s version of a 401k.
Just think about it like this, would you rather pay taxes on your $26,000 of taxable income while you are young or pay taxes on $1.2 million when you are 60?
The answer is pretty simple, just use the Roth option.
You set this up by logging into myPay and going to the Thrift Savings Plan tab on the left upon logging in.
Disclaimer! Most people will use Roth, but if you are in an unusual circumstance where your income is very high and need a tax break, you should seek financial advice from a financial advisor or tax professional and make a decision.
Stay Out of the TSP G Fund
TSP investors have 5 different investment options or funds to choose from and lifecycle target funds that have a combination of all 5 and target the year that you plan on retiring.
The TSP G or Government fund is where your money will automatically be if you do not act! Over the past 10 years, the G fund has gained less than 2 percent. It is there to try and keep pace with inflation and in my opinion, it is a glorified savings account.
The TSP C or Common fund is trying to match the performance of the S&P 500. It has returned over 13% over the past 10 years.
The TSP F or Fixed fund is trying to match the performance of the Bloomberg U.S. Aggregate Bond Index.
The TSP S or small cap fund is trying to match the performance of the Dow Jones U>S. Completion Total Stock Market Index
The TSP I or International fund is to trying to match a baseline of companies in the countries in Europe, Australia and Asia
My advice to someone who wants to lessen their risk, would be to use one of the lifecycle funds.
However, someone who is comfortable with more risk tolerance should consider making their own decisions on the percentage of the funds in their portfolio after a lot of research.
I do not recommend to anyone to put a chunk into a lifecycle fund and put a chunk at other funds. It is a good idea to do one or the other.
You can completely customize your portfolio allocations by logging into tsp.gov.
Check out fund performance over time at this link.
Stay in the Market
Who doesn’t love a good roller coaster? Most people would agree that roller coasters are generally safe. However, if someone decided to jump out of the roller coaster in the middle of the ride they would get hurt.
The same thing applies when it comes to any investment plan. Stay in the market. I repeat… Stay in the market. Especially while you are young. The power of compounding interest is extraordinary, and even during economic downturns you are still buying at a discount because the TSP is for long term goals.
When it is time for you to access your funds, you should seek the advice of a financial professional.
Stay motivated! For advice, see How to Stay Motivated in the United States Military
Stay Informed and Stay Involved With TSP
TSP does a good job of sending out quarterly reports to their users. These will show you a pie chart of your fund’s allocations and the gains or losses your money has made over the term and all time.
Also, if you keep up enough with current events, you can increase your contributions for a month or two if there is a downturn in the stock market.
Common Questions From my Troops
Which TSP fund is best?
I will not speculate on which funds you should allocate your money to. However, the way I allocate my TSP funds is 80% C fund, 10% S fund, and 10% I fund.
I highly encourage anyone interested in allocating their funds instead of using a lifecycle fund to do their own research and make an informed decision.
When can I withdraw from my TSP?
The short answer is age 59.5, like most civilian retirement accounts. If you withdraw before then, you are subject to a hefty early withdrawal penalty.
Can my TSP go down to 0?
Any investment that is associated with the stock market can in theory go down to 0.00. Even if that happens, you would still have shares of whichever fund is in your account.
In my opinion, if this happens we would not be worried about our TSP money because the economy of the entire world would be nothing.
Can I roll my TSP assets to an Individual Retirement Account when I get out?
Yes! I would seek the advice of a tax professional or financial planner. This is something you want done correctly. Check out this article for some more information on rolling over your TSP.
Is a Roth Individual Retirement Account (IRA) better than TSP?
The benefit of having a Roth IRA is that you can decide how your money gets invested. You can pick mutual funds, ETF’s, stocks, crypto, you name it. There is a $6000 cap on it every year.
With TSP, you get the match from the government, it is automatically coming from your check, and it caps out at $22500.
My personal strategy is investing 5% into my TSP to get the full match, and contributing 500$ to my Roth IRA every month to hit the contribution cap.
Does my matching contributions go towards Roth TSP?
No, they go to the traditional side of your TSP. This is because it is free money that you have never paid income taxes on.
Becoming a millionaire through Thrift Savings Plan is very doable. Especially over a 20 year career. Consistency is key! Consistently contributing to your TSP will set you up to grow a nice nest egg, save enough money to meet your financial goals, and be wealthy in retirement.
TSP along with the Blended Retirement Plan is a great benefit that I would argue beats the High 3 plan. In fact, I opted into it when it became available. If you use these tips to become a millionaire using TSP in 20 years, you will be thankful that you found this article so early on.
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