Finding the Balance with TSP Contributions
By David Chan

When you work for the federal government, there are all sorts of advantages you can enjoy and receiving a matching TSP contributions is only one of them. The Thrift Savings Plan (TSP) allows a certain amount of money to be paid your way after choosing to retire. However, there are still thousands who don’t choose to contribute into their TSP because of one main reason; it is not mandatory. With FERS, Social Security and the FERS Annuity are an automatic part of the federal employee’s retirement package, whereas the TSP option is something federal employees can opt out of.

With your FERS annuity, nobody can avoid the 0.8% payment from your salary just as he or she can’t prevent the 6.2% charge for Social Security. Regardless of how close or far away you are from retirement, these two outgoings will remain for years to come yet there isn’t such a demand on you to pay into your TSP…but should you be contributing anyway?

If we use an example, let’s say a female employee works for a federal agency for 30 years with a salary starting at $60,000. Each year, she experiences a 1% increase in salary for the entirety of her career. For the first ten years of her career, she chooses not to pay into the TSP. For the next twenty, she changes this to 5% of her earnings (which is then matched by the government). If we use the TSP Calculator available through TSP.gov, this comes to over $250,000 at retirement. Considering no contributions were made during the first ten years, this is quite impressive.

On the other hand, her friend and colleague contributes 5% from the very first day and continues on this path for thirty years; with the same salary. Pl ugging the different numbers into the same calculator, it comes to just short of $460,000. As you can see, this is a huge difference, and it increases to over $900,000 with a simple change in contribution from 5% to 15%.

From this, we hope you see that the best retirement is always made in the early years. If you start investing now, no matter how far away your retirement may seem, you will have earned a fantastic nest egg by the time the magical date comes. Feel free to check out the TSP Calculator online where you can play around with different contribution percentages to see what you need to save to reach your goal by retirement!