TSP contributions and investing should be top of mind when you begin your federal career in order to achieve big returns. Image: L.O.N Dslr Camera/Shutterstock.com
By: Abraham Grungold, AG Financial ServicesFederal employees who are members of the Thrift Savings Plan (TSP) have the potential of becoming a TSP millionaire, with a fat nest egg in addition to their CSRS or FERS annuity.
As of November 2022, there are 65,000 TSP millionaires. But why do they only makeup 1% of all federal employees and federal retirees? The reasons break down to two main habits: “Procrastination” and “Fear”. During my 36-year career, I have worked at four different federal agencies and I have heard the same thing over and over from co-workers.
Here are the examples of Procrastination (making excuses not to contribute): I want to pay off my school loans. I want to save for a house. I want to travel and I want to save for my wedding. Paying yourself first is the employee salary contribution. If you make a contribution to the TSP of at least 5%, you receive the 5% percent government employer matching contribution. The government basically gives you a 5% salary bonus that you can save for your retirement, but you need to make your 5% contribution to guarantee the receipt of it. This statement would always get my co-workers attention.
Here are examples of Fear (I will only invest in the G Fund): I do not want my balance to decrease even one dollar. The market will soon experience a recession. And the other TSP funds are too volatile. I completely understand their concerns, but many of my co-workers fully understood the power of investing and they still only chose the G fund. Investing your entire career in the G Fund will only provide you with a balance of approximately 250k. However, taking greater risk will generate bigger rewards.
TSP contributions and investing should be top of mind when you begin your federal career. An employee who earns 50,000 per year and contributes 2,500 dollars with a 2,500-dollar match from the government can reach the TSP millionaire dollar mark in 25-30 years by investing aggressively. If your salary is 75,000 dollars or 100,000 dollars per year, you can reach the TSP million-dollar mark in a shorter time span. And there are many TSP multi-millionaires, who continue to invest aggressively during the latter part of their careers and into retirement.
Employees need to be educated that if they invest during their federal careers, they have the opportunity to become a TSP millionaire. No one is educating their staff on this important benefit. Agencies bring in financial people during their annual conferences who are only trying to motivate employees to move their TSP to their company or purchase annuities. The government can bring a TSP expert to educate their employees and show them how important their TSP is for their retirement.
Abraham Grungold is a retired federal employee with 36 years of federal service, and through his company AG Financial Services he helps federal employees with their TSP and federal retirement planning and decisions. Mr. Grungold has written over 50 articles regarding the TSP and FERS retirement and been a guest on several podcasts with the Federal News Radio and Government Executive Magazine.
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FAQs
There are approximately 117,000 Thrift Saving Plan (“TSP”) Millionaires. They make up about two percent of approximately 6.9 million active TSP participants. This is an elite club of employees who have worked a 25–30-year federal career.
Can TSP make you a millionaire? ›
By taking advantage of the TSP and other investment opportunities, and by making smart financial decisions, you can work towards building a comfortable retirement and achieving millionaire status.
What is the average TSP balance at retirement? ›
Total TSP assets at the end of 2023 were $845 billion. 4,060,009 FERS TSP accounts with an average account balance of $175,692. To compare, the average 401(k) balance based on 4.9 million defined contribution retirement plans was $112,572 at the end of 2022, according to Vanguard's 2023 analysis.
What does Dave Ramsey say about TSP contributions? ›
Dave Ramsey's advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.
How long does it take to become a TSP millionaire? ›
TSP contributions and investing should be top of mind when you begin your federal career. An employee who earns 50,000 per year and contributes 2,500 dollars with a 2,500-dollar match from the government can reach the TSP millionaire dollar mark in 25-30 years by investing aggressively.
What is the highest TSP balance ever recorded? ›
The largest TSP account balance is now $8,007,210. This is up from $7,226,814.30 at the end of September and from $7,170,226.61 at the end of March. The average years of contributions to the TSP among the $1 million and up account balances is 28.91 years.
How did this TSP millionaire run out of money? ›
The first reason they were running out of money is because they did not address something called Sequence of Returns risk. In short, it's the risk that your investments could have less-favorable returns during the time that you need money from your portfolio, like in retirement.
What is the highest amount in TSP? ›
The 2024 IRS annual limit for Catch-up contributions is $7,500. This amount is in addition to the regular TSP limit of $23,000.
Should I move money from TSP when I retire? ›
You can keep your TSP account after you separate from federal service as long as you have a vested balance of $200 or more. Many participants choose to keep their money in the TSP because of the TSP's low-cost funds.
What is the 55 year rule for TSP? ›
The rule of 55 is a great feature of your Thrift Savings Plan that helps early retirees. This IRS rule means that those who leave service in the year they turn age 55 or later can take TSP withdrawals without penalty.
There is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.
What is the best TSP mix in retirement? ›
Your best bet is to stick with the C, S and I Funds. Here's the ratio we recommend for your portfolio: 80% in the C Fund, which is tied to the performance of the S&P 500. 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return.
Is TSP really worth it? ›
For federal employees and military personnel, the TSP is a resounding yes! The tax benefits, matching contributions, and low fees make it a powerful tool for secure retirement. However, it's not a "one-size-fits-all" solution. Consider your risk tolerance, investment goals, and retirement timeline.
What is the best performing TSP fund? ›
The common stock index C fund still posted the highest year-to-date return at 6.03%, and a 10.88% return over the last 12 months. All Lifecycle funds also posted negative returns.
What's not to like about the TSP? ›
But as good as the TSP is, there are things that some retirees don't like about it. These include: The inability to withdraw from specific funds, such as taking payments only from the G Fund while allowing the money in the other funds to continue to be invested.
How many people are 401k millionaires? ›
The number of people with $1 million or more increased to 485,000, a 43 percent jump from the same three months last year, according to Fidelity, one of the nation's largest administrators of workplace retirement accounts.
How much should you have in TSP? ›
There's a one-word answer to that question: More! There is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.
How many people have a TSP account? ›
The TSP is the largest defined contribution plan in the United States. There are 7 million participants with over $845 billion in invested assets. Almost $10 trillion is invested in defined contribution plans overall.
TSP contributions and investing should be top of mind when you begin your federal career in order to achieve big returns. Image: L.O.N Dslr Camera/Shutterstock.com