When you begin work in the federal government under the Federal Employees Retirement System, your agency automatically sets up a Thrift Savings Plan. Each pay period, they deposit an amount that is equal to one percent of your basic pay into that account. Of course, it is highly recommended that you deposit at least five percent of your basic pay to take advantage of the matching by your agency. It’s important to start depositing money into your TSP as soon as possible. The following will show how waiting to invest in your TSP can affect the different phases of retirement planning.
Early Career
This phase is the best time to take advantage of investing in your TSP. The best asset available to you at this point is time. Saving for retirement early in your career means you not only have years to save but also, it’s easier to weather any market fluctuations and gain the maximum benefit from compounding.
The table below, from TSP.gov, shows the power of saving as early as you can.
| Savings per Month | Years of Investing | Rate of Return | Value at 65 | |
| Scenario 1 | $200 | 40 | 6.0% | $400,289 |
| Scenario 2 | $200 | 35 | 6.0% | $286,367 |
As you can see, just waiting 5 years to start saving, as in Scenario 2, significantly decreases your savings at age 65. In fact, using the numbers from the table above, the person from Scenario 2 would have to save $280/month for 35 years to achieve the same results as the person from Scenario 1.
*And if you’re a FERS employee, you should contribute no less than five percent of your salary to your TSP to receive the maximum agency matching contribution.
Mid-Career Phases
If you haven’t started saving, it’s still not too late.
Catch-Up Contributions
If you’ve gotten a late start or maybe you don’t have as much accumulated as you wanted at this point, you can take advantage of catch-up contributions.
- You must be 50 years or older in the year you plan to make the contributions
- You must expect to contribute the max amount allowed of regular employee contributions for the year
Remember to do the Following
- Check your asset allocations
- Review investment experience and TSP balance
- Reassess your retirement income needs and investment goals
- Consider risk tolerance and make any necessary changes to your asset allocation
- If necessary, increase your TSP contributions
Nearing Retirement
Even though retirement may be just a few years away at this point, it’s still not too late to start contributing to your TSP. And if you have been contributing your entire career, keep doing it as long as you can. Again, you can take advantage of catch-up contributions in this phase, if needed.
Here at Harris Federal, we help injured or ill federal employees secure the federal benefits they’ve worked so hard for. We’ve helped over 8,000 happy clients get approved for Federal Disability Retirement at a 99% success rate. Please give our office a call to schedule a free consultation to see if you qualify.
