Benjamin Franklin once said this now famous quote:
“An ounce of prevention is worth a pound of cure”.
In other words, planning ahead to prevent a problem is often way easier (and cheaper) than having to deal with it when the problem finally boils over and hits us square in the face.
And while many things have changed since Benjamin Franklin was walking around, his words are more true now than ever. They are especially true when it comes to your TSP (Thrift Savings Plan).
Getting It Right The First Time
Before I dig into the TSP, I would be remiss if I didn’t mention (very briefly) a couple things that will make or break your retirement as well.
Get Your Relationship on Track.
I can summarize this whole paragraph with the next sentence. A dozen roses is a lot cheaper than a divorce attorney. Enough said.
Get Your Health on Track
Staying active and eating healthy takes time and energy but not nearly as much time and energy as it takes to regain your health after you lose it. Doing just a little bit every day will do wonders in helping you stay healthy over time.
Get Your TSP on Track
People ask me all the time if now is the best time to invest. My go-to answer is “no, the best time to invest was 30 years ago. But the 2nd best time is right now”.
Basically, we would all be better off if we would have invested more money years ago because it would now be worth many multiples of what it was. But since we can’t change the past, we must decide what we are going to do now to make life easier for our future selves.
Here is a quick example of how an ounce of prevention is so much better than a pound of cure in investing.
There are 2 federal employees, Sally and Frank. They both start working as federal employees at age 30 and retire at 60.
Sally starts investing in her TSP at 30 and Frank starts at 40. They both are trying to have more than 500k in their TSP by retirement and this is what they’ll both have to do to get there.
(This chart assumes a growth rate of 8% per year and ignores agency matching contributions)
As the chart shows, because Sally started 10 years earlier than Frank, it only took $400/month (less than $200 a paycheck) to get her to over 500k by retirement. Frank, on the other hand, had to invest $1,000 per month to have a similar balance at retirement.
But what we also notice is that Sally only contributed $144,000 into her TSP and compound interest did the rest of the work to get her to her retirement goal. Frank, however, had to contribute almost 100k more than Sally because his account had less time to grow.
Sally understood that starting as soon as you can is actually the easiest way to save for retirement and every year that we wait it just becomes harder.
And no matter you age or TSP account balance, we can all do something today to make sure our future selves are better off.
