Utilizing Your Thrift Savings Plan: 7 Tips

By David Chan

For all Federal Employee in the US and all over the world, you should be preparing for retirement regardless of age. The earlier you start, the more comfortable you’ll be when it comes to that magic day. Nowadays, this can take place in many forms, but the Thrift Savings Plan (TSP) is perhaps the most common. Today, we want to provide you with some amazing tips that ensure you’re making the most of your plan.

In fact, we’re actually going to break this down into sections depending on your experience within the industry, and it starts with those who have only recently gained their first job in the public sector.

New Federal Employee?

First and foremost, welcome to your new job and we wish you all the luck in the world moving forward. If you’re unaware, you are now eligible for the Federal Employees Retirement System (FERS). As a part of this, you can make tax-deferred contributions into a Thrift Savings Plan (TSP) which will also be helped by payments from the government.

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For example, all contributions of up to 3% of your salary will be matched entirely by the government which is quite impressive. After this, they’ll contribute 50% of all your contributions between 3-5% of your earnings. If you decide to invest more than this on your future, you’ll be on your own, but this is a great starting point regardless of your age.

If possible, we advise (free tip before the seven main tips!) you to invest 5% of your salary into your TSP otherwise you’re missing out on what is essentially free money. If you’re new to the industry, we have four more fantastic tips below;

#1 – Consider Your Retirement – Although it sounds early, we urge you to think about retirement now and what you want to achieve from this period in your life. Are you looking to downsize into a smaller home? Travel with your partner? Maybe even upsize to enjoy retirement in style? Once you know this critical piece of information, you’ll know an estimate of how much you need to contribute.

If you’re still young, this is great because you have more time to build your nest egg and you won’t have to contribute so much. Luckily, the government has a TSP tool on their website, and this shows how much you should be saving for retirement to achieve a goal figure. If you haven’t yet decided, feel free to play around with the numbers and find what works for you.

#2 – Start Saving Early – If you’re researching a number of different guides right now, you’re likely to find this tip on every single one (if it isn’t, it should be!). The more you save when you’re young, the more time this money has to grow and the less pressure you’ll face in your advancing years. No matter how small, compound interest will increase this figure over time so always put some away when you can.

If you’re struggling to do this right now, consider consolidating all of your debts (credit cards, student loan, mortgage) into one with a low-interest rate. This way, you’ll only be paying one lot of interest rather than three or possibly more. Once you reduce your debts somewhat, you can start investing in your retirement account.

#3 – Don’t Forget the IRS – Regardless of what contribution type you choose, you will be taxed somewhere along the line, so it’s all about working out how to pay the least amount possible. With traditional payments, you won’t pay any tax (even while growing) until you withdraw. If you choose Roth contributions, you’ll pay the tax at the point of contribution.

If you’re still young, we highly recommend paying all taxes now because this leaves you free to enjoy the withdrawals without a worry and you can plan a little better. When it’s time to retire, you’ll probably find yourself in a higher tax bracket which means the more expensive route is usually with traditional contributions.

#4 – Invest, Invest, Invest – When you’re younger, you don’t want money just sitting anywhere doing nothing. Although it may sound like a risk at first, you should work with your advisor and consider a mixed portfolio of stocks or mutual funds, because you should be investing for years to come and the market is cyclical. Since your money will be invested for maybe even decades, the short-term fluctuations will matter less than for older investors and for traders who rely on making short-term profit.

Firstly, this will allow you to get a much higher rate of return when compared to bonds and other investment types. Secondly, you have more time to recover from a poor market when you choose a balanced investment approach. If you do choose this option, don’t panic if there’s a sudden downturn in the market. If you want to see the best results, you shouldn’t be worrying about the next few weeks or months but instead concentrating on the long-term game.

Have Some Saved Already?

Next up, we have some tips for those who have already been saving for a few years. Perhaps you started saving at 25 and haven’t stopped in the 30 years since? If so, this is great news but now isn’t a time to rest on your laurels and fall into the traps of many before you.

#5 – Get Started Now – If you chose not to invest when you were younger thinking you would contribute when your earnings increased, there’s no point dwelling on the decision because you can’t go back and change anything. Sadly, you probably realized other things in life make this even harder such as having children, sending them off to college, helping parents, and more. However, it’s never too late to start so don’t get yourself into this mindset.

Even now, it might seem as though your budget is too tight for retirement contributions so start by sitting down and assessing every single outgoing from your bank account. From here, weigh them in terms of importance and see whether there’s anything you could drop. Remember, nobody is ever going to help you after leaving the workplace; help can be attained in putting your children through college and in other areas so keep this in mind.

#6 – Ask Questions – As you get older, you shouldn’t just assume everything is going well, and you’re on for a comfortable retirement. Instead, you need to be asking questions all the time while reassessing your position. For example, are my expenses going to change over the next year? Can I prevent withdrawing from my TSP immediately after retirement? Is my desired lifestyle during retirement going to be supported? Can I retire fully or will I need to hold down some sort of part-time role? Has everything been budgeted correctly?

By staying on top of these questions, you won’t be left with any nasty surprises when it comes to retirement itself. Unfortunately, we’ve seen plenty of people reach retirement only to find they hadn’t been saving enough or that they didn’t factor in their increased expenses on medicine or any other factor.

#7 – Review Often – Continuing from the previous tip, we also advise you to check in on your investments every so often. Once you reach the age where retirement is upon you, you can start to pull out of your investments while the market is strong. In the last five years, you haven’t got the knowledge that the market will pick up again after a downfall so it could be worth contacting a finance professional; they can help you pull all investments in the right way.

If your salary has increased since you began, you can also look into increasing contributions for the last few years while you still have the chance to access the government’s matching contributions. Once again, there are some really useful tools on the TSP section of the government website where you can calculate how much you can contribute and have matched before the tax-deferred feature no longer applies.

Summary

As long as you pay attention to these seven tips, you can enjoy the retirement you deserve with no nasty surprises. If you have any questions or want to utilize the government tools, simply head over to their website now!

Contact David Chan:

Phone: (510)440-7110

Email: [email protected]

 

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