How Exactly Do I Manage and Grow My TSP?
There are only 3 variables that effect how big you can grow your TSP nest egg:
- The amount of money you contribute each pay period
- The amount of time you spend in Federal / Military service
- Managing your allocations to be in the Stock Funds when the market is trending up and in the G Fund when the market is trending down
Ideally, every employee would contribute the maximum amount allowable to TSP each year. Having said that, everyone’s circumstances are different. Some of us live in high cost-of-living areas, raising a family on one income. Others are living in low cost areas and enjoying two incomes with few expenses. We all have circumstances but you have to figure out a way to “Pay Yourself First”. This means taking a chunk of your gross (pre-tax) salary and contribute to TSP. If you’re a Federal Employee, at an ABSOLUTE MINIMUM, you must contribute 5%. The government matches up to 5% so you make an IMMEDIATE 100% on your 5% investment. If you do nothing else, make that 5% investment to TSP.
Albert Einstein is said to have called “the power of compound interest the most powerful force in the universe.” There is nothing more important than the effect of time on your TSP nest egg. The more time you have to save and invest, the better off you will be. This may be intuitively obvious but, when you really look at the numbers, the effect of compound interest is Mind Blowing! Start contributing to your TSP NOW, and keep contributing, whether the market is going up or down.
There is only so much control you have over the first 2 variables above. If your circumstances allow for maxing out TSP contributions, awesome! If not, do the best you can. If you’re reading this at the beginning of your career, awesome! If not, start contributing NOW. Waiting until tomorrow will not help your bottom line… The 3rd variable you can control. It takes a little attention and applied knowledge but, it can make the difference between financial security in retirement or taking a second job to make ends meet!
Managing your allocations means being in the TSP stock funds when the market is trending up and in the G fund when the market is trending down. Why is this so much easier said than done? The answer is “Human Nature”. Fear, Greed, and listening to your co-workers will crush your TSP results. The TSP is a RETIREMENT plan (i.e. Long Term). Over a 30+ year career you will make lots of TSP related decisions but, there will likely only be a small handful that will really make a difference. The S&P500 (C fund) chart below shows 5 moves over a 15 year period that made a WORLD of difference…