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Maximize Your TSP Retirement Fund

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Maximizing Your Thrift Savings Plan Retirement Fund

The Thrift Savings Plan (TSP) offers similar retirement savings and tax benefits that many private corporations provide their employees under their 401-K plans. (Learn the full ins and outs of the TSP here.) Not sure how to best utilize your TSP? Here are some tips…

Why TSP?

The government doesn’t offer a 401-K plan or other retirement funds like an IRA or Roth IRA.

The more you contribute to your TSP, the better off you’ll be when it comes time to tap into your retirement savings. If your retirement fund has a higher contribution limit, you can save more.

How to Make The Most Of Your TSP

‘Maxing out’ or contributing the full limit to your TSP ($22,500 in 2023, subject to change) year after year is an important option to make the most of your TSP retirement fund.

“I Can’t Afford To Put That Much Away”

Not everyone will be able to save a lump sum in excess of $20k every year because of life situations, income level, etc. However, starting to put away as much money per year into your TSP as early as you can is going to help prepare you for your retirement years.

Life situations change. This year might not be the year for you to start investing heavily because of car payments, but maybe next year, you are getting a raise or a promotion. Put some or most (if you can) of that raise into your TSP instead of increasing spending.

How to Contribute Effectively

Set up automatic payments that transfer money from your bank account to your brokerage account regularly, such as every two weeks or once a month. This way, smaller increments of money are being put away instead of one large chunk of money all at once. This way you can also become accustomed to & comfortable with regularly saving smaller amounts if you aren’t already.

Setting up these periodic contributions has another benefit, too. You’re adopting the practice of “dollar-cost averaging.” That’s when you buy investments in small periodic payments rather than in one big lump sum. Doing this means you buy no matter what is going on in the market and over time (we’re talking long-term here), the price differences eventually average out.

The opposite of “dollar-cost averaging” is “market timing.” Market timing is when people try to figure out when prices are low, thus indicating the best time to buy. The problem is that no one will know when the best time is, so it’s best to dollar-cost average and set your sights on long-term retirement savings.

What Is That Lump Sum Worth At Retirement Age?

The average return on investment over the long term for someone investing for retirement is 7%. (That means that some years will be better than 7% and some will be worse, but by the time you retire, you are likely to have had an average of 7% return on investment each year.)

Let’s say that in 2021 you invested the maximum lump sum ($19,500  for 2021, higher in 2023 and beyond) in your TSP and don’t touch it or add to it for 35 years. That $19,500 is projected to be worth $208,193.34 based on a 7% yearly return.

That’s a lot of money. But if you can’t ‘max out’ or invest to the $19,500 cap (for 2021) that doesn’t mean you can’t still reap major investment payouts. A single investment of $10,000 that sits for 35 years is projected to be worth $106,765.81.

Remember, calculations made on the current year’s maximum contribution will vary from that number due to higher annual contribution limits.

What If I Wait 20 Years To Start Investing In Retirement?

Every year that you don’t put money in your TSP (even if it isn’t a lot), you’re missing out on money that your money makes for you by just being invested.

For example, if you invest that same $19,500 that we spoke about earlier and invest in into your TSP 20 years from now (we’re pretending that from 2020 you can retire in 35 years) it will only have 15 years to sit in the stock market. After 15 years, that one-time investment of $19,500 will be worth $53,801.12.

Compare that $53,801.12 to the previously mentioned $208,193.34 that your one-time investment could be worth if you invest $19,500 into your TSP this year.

How Much Are You Putting Away?

Now is a great time to check your retirement investment totals and disposable income. Could you increase your investments slightly to get you closer to ‘maxing out’ your yearly contribution?




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