Working for the federal government is often not known for its crazy high salaries and bonuses.
Despite this, many federal employees retire as millionaires. How is this possible?
The answer: They knew how to use the TSP (Thrift Savings Plan) correctly.
How To Invest In Your TSP
There are many things to consider when deciding how to invest your money in the TSP but this guide will help you through some of the most important things to know.
Understanding the (Fund)amentals
The first thing to know about the TSP is what funds you can invest in and what those funds are meant to do.
There are 5 core funds to choose from as well as the L funds which are just various combinations of the 5 core funds.
And make sure to check out this article which goes deeper into the funds and what they are designed to do: Do You Really Understand What Your Life Savings is Invested In?
But to summarize that article, the 5 core funds can be broken down into conservative and aggressive funds.
The conservative funds are the G and F funds and the aggressive funds are the C, S, and I funds.
And again the L funds are just various combinations of the core 5 funds and you can learn more about the L funds here:
Investing in The TSP While Working
When you are young and early in your career, it often makes sense to put the vast majority of your TSP in the C, S, and I funds. And because young feds tend to have a lot of time before retirement, they don’t mind that these funds bounce around because overtime, they grow at a fast rate.
But as you progress through your career and approach retirement, it often makes sense to introduce more of the F and G fund. These funds won’t grow nearly as fast, but they will provide more of the stability you need in retirement.
But even in retirement, I almost never recommend going 100% into the G fund. The G fund is safe but won’t grow enough to beat inflation and maintain your lifestyle over time.
Having a good mixture of funds allows the more stable funds (G and F) to provide consistent cash for your retirement lifestyle and the other funds (C, S, and I) to beat inflation and continue to grow your wealth.
Investing in The TSP as You Approach (and during) Retirement
As you approach retirement, how you should be investing becomes a little more nuanced.
This is because everyone is planning to use their TSP a little differently in retirement and so the best investment plan will be different as well.
And actually, I have already written an in depth guide on a great TSP Investment Strategy for Retirement.
Other Important Factors
But like always, here are some other factors to consider as well when investing in your TSP:
How Much Can You Safely Take From Your TSP to Not Run Out of Money
