Doubling your TSP. Sounds great right.
There isn’t anyone (I assume) who wouldn’t want twice as much money for retirement.
But the real question is who has the knowledge (and discipline) to make it happen?
Here are key factors to know (and do) to double your TSP as quickly as possible.
Max It Out!
The first step in doubling your TSP is contributing as much as you can.
And I know that not every federal employee is able to max out their TSP right now. The max for 2022 is $20,500 and $27,000 if you are over 50.
But it should certainly be the goal of every federal employee to get closer to the max every chance you get.
Maybe you got a pay raise or just paid off your car. Take a piece of that extra money to put it in the TSP.
By doing this consistently overtime, you will be at the max before you know it.
Getting Growth: Rule of 72
The second component in doubling your TSP is the growth that comes from your investments.
And the rule of 72 helps us figure out how long it will take to double our money.
Basically we divide 72 by our estimated rate of return to find out how many years it will take to double.
So if our rate of return is 9%/year then it would take 8 years for our money to double.
72 / 9 = 8 Years
So if you had $300,000 in your TSP it would take 8 years to turn into $600,000 with an average return of 9%/year. But of course your account would double much faster assuming you’re contributing a bunch to your TSP as well.
Down Markets Are Your Friend
If you want to double your money as soon as possible, you have to understand how great of an opportunity a down market really is.
And while it is no fun to ever watch our investment lose value, it provides an incredible opportunity to buy more investments at a steep discount.
The most astute investors double down in bad markets by investing more.
Saving ‘Bonus’ Money with The Roth TSP
If you are looking to get more money (and buying power) into your TSP a great way to do it is by using the Roth TSP.
For those that don’t know, when you save into the traditional TSP you get a tax deduction but you do have to pay taxes when you take the money out.
However, with the Roth TSP, you don’t get a tax deduction when the money goes in but you can take it all out tax-free in retirement.
So in reality, saving $20,500 into the Roth TSP is actually worth a lot more than saving the same amount in the traditional TSP because the Roth TSP has more buying power in retirement.
Beyond The TSP
The TSP is a great tool at building wealth but for higher earners the annual contribution limit may not be high enough to be saving enough for their desired retirement.
In these cases, you will want to save money outside the TSP as well such as in an IRA or brokerage account.
This way you can have multiple pots of money all working for you at the same time.
What if You are Close To Retirement
It is a popular belief that as you approach retirement you should only focus on keeping what you have and not on growth.
But in reality, focusing on growth (at least to some degree) is the only way to maintain your standard of living over a long retirement.
Without growth, you are giving inflation free access to your money with no defense.
This is why, even as you approach retirement, you want to be investing your long-term (not short-term) money for growth.
Discipline and Consistency
But just like everything that is truly valuable, doubling your TSP doesn’t normally happen over night. It only happens after years of consistent energy and effort (especially as your account size gets larger).
Just like planting a tree, with some discipline and patience, you will enjoy the fruits of your labors for many years to come.
