When you were first brought on to the federal workforce, one of the myriad of in-processing tasks was to sign up for the Thrift Savings Plan (TSP). If you were lucky, a retirement benefits counselor was on hand to assist you, provide some basic info, refer you to www.tsp.gov, and get you signed up. While nothing could be further down the road than retirement on your first day on the job, how you manage your TSP account early in your career can make the difference between living comfortably in retirement or taking a second job to make ends meet.
Here are 5 down and dirty basics. These are a few important things that all government employees need to know to get the most out of your federal retirement package. These are just some highlights. I HIGHLY recommend digging into the tsp.gov site!
The website is your primary TSP tool. You will use this site to log into your account, reallocate funds, look at your balance, apply for loans, and find official policy regarding all things TSP. Book mark this site on your work computer, lap top, iPad… You should be logging in often.
User Name and Password
User Name and Password management is a bit clunky, mostly related to security vulnerability concerns. Everything is initially done via Snail Mail. The TSP will send your User Name and Password to you in the mail the first time. Once you receive them, you should log in and change your temporary password. If you lose or forget your password, it can be be reset over the phone. If you try to reset it online, your new password will be snail mailed to you. You can also set a User Name to use rather than the account number (I highly recommend this option!). DO NOT lose or forget your user name and/or password. Keep them in a safe place that is easily accessible. If you are following this blog, you will be using them OFTEN.
Time Value Of Money
The growth of your TSP account is largely based on the time value of money. If you are just beginning your federal career, you have lots of time to grow your account thru the power of compounding. The closer you are to retirement, the less impact the power of compounding has for you. See this Business Insider article and play around with the Calculator on the TSP site to get an appreciation for the true power of compounding and its effects on your final retirement number.
Contributions and Government Matching
The TSP is a tax deferred investment vehicle. Anything you contribute is in pre-tax dollars. This lowers your overall taxable income and puts more money to work for you each pay period in TSP. Because it is a tax deferred investment vehicle, there is a limit to how much you can contribute to your TSP account. In 2016 that limit is $18,000 per year. You can contribute to TSP as a specific dollar amount or as a percentage of your pay. Whichever way you contribute, 5% of your pay should be your absolute minimum contribution. Why so important, because the government will match any amount that you contribute up to 5%. That means that you make a 100% return on your investment (ROI) as an incentive (up to 5%). This is free $$ and is a NO BRAINER. Regardless of your circumstances, contribute AT LEAST 5% every payday to your TSP account from day one!
Everyone has their own style when it comes to investing for retirement. For some, TSP will be a relatively minor piece of their overall retirement portfolio. For others, TSP could be the majority of their cash flow in retirement. Some factors to consider include your personal risk tolerance, your level of financial education and interest, and your ability or desire to passively or actively manage your TSP account. These considerations will drive the way you play the TSP game. We will get into this in detail in the next post.
These 5 basics are enough to get you on the road to managing and growing your TSP account. In the next post I will work thru a variety of strategies that will help you create your own investment style. I will also explain my investment strategy, how I manage my own TSP account, and my strategy for Grow My Thrift Savings Plan.
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