The TSP is an incredible wealth building machine! If managed well, the TSP can double its value many times over.
Here are 3 strategies to double your TSP as many times as possible.
Tip #1: Investing in the Right Funds
There are 5 basic TSP funds: G, F, C, S, & I funds. There are also 10 different L funds which are combinations of the 5 basic funds. Choosing the right fund can have a big impact on the TSP over time. Let’s take a look at the returns of these funds over time:
Source: https://www.tsp.gov/fund-performance/
Investing mainly in funds like the C, S, & I funds is a great idea if you’re not planning to use your retirement money for many years. As you can see by their average returns tend to be much higher over time.
Let’s see how quickly your TSP fund can double using the C fund average 10-year return of about 12.8% per year. We can find the rough estimate using the 72 rule. If you divide 72 by the annual return, it will give you a rough estimate of how many years it would take that investment to double.
So, let’s take 72 and divide it by 12.8. We get about 5.6 years for the fund to double once.
Imagine if you left money in the C fund for 30 years. Your money would double at least 5 times. For example, if you invested $1,000 in the C fund for 30 years, you would get $1,000 x 2 x 2 x 2 x 2 x 2. This equals $32,000. The earlier you start investing in the TSP, the better. In contrast, let’s compare investing $1,000 into the G fund using the 10-year average return of 2.42. 72/2.42 is 29.75 years. It would take the G Fund 29.75 years to double once. So, instead of $32,000 in the C Fund, you would only have $2,000 in the G Fund by the end of 30 years.
The C, S, and I funds might go up and down in the short term, but over the course of many years, they have proven to be great long-term investments.
If you are approaching retirement or planning to withdraw from your TSP soon, it is a good idea to start investing money to be more conservative. The G and F funds are very conservative funds. Although they don’t offer as much growth over time, they offer more of a guarantee that your money won’t lose value with the stock market.
But, just because you’re getting ready to use your TSP, does NOT mean you have to invest everything into the G or F funds. Your retirement might last a very long time and it is nice to be invested partially in funds that will grow over time as well. Some federal employees find success in splitting their TSP into 40% conservative and 60% aggressive. But, this might not work for everyone.
Tip #2: Contribute More
This might seem like a very obvious tip, but it makes a huge difference. Each year federal employees are given a maximum contribution that they can put into the TSP. For the year of 2024, the maximum that one federal employee can contribute to their TSP is $23,000 and an additional $7,500 for those 50 years of age or older.
Very few federal employees actually contribute the max every year, but it is still important to contribute as much as you can.
Another thing to consider is the possible employer match. Basically, your employer will contribute retirement money up to 5% of your salary as long as you are contributing at least 5% of each paycheck into the TSP. So even if your budget is tight, it almost always makes sense to contribute at least 5% into the TSP to get the match.
A word of caution to those who are maxing out their TSP (aka putting as much into the TSP as the government will allow). Make sure you spread your contributions throughout the year. For example, if you contributed your max of $23,000 into your TSP by October, your employer will not contribute anything after October because you stopped contributing.
Tip #3: Invest Early, Invest Often
Time is the most powerful tool you have in investing. The more time you have, the better results you can have. If you just started your federal career then you have a lot of time to let your money grow before retirement.
But even if you are retiring tomorrow you still have a 20-50 year retirement in front of you to grow your money and build wealth over time.
That doesn’t mean a retiree should be as aggressive as a 20 year old. But it does mean that the retiree still needs growth to make sure his money lasts his entire retirement.
Conclusion:
Hopefully this helped you understand the TSP a little more. While these were 3 tips you can implement to improve your TSP strategy, there are so many other things to discuss about the TSP like using ROTH strategies, not withdrawing money too early, etc. If you would like to know more about these topics, feel free to visit our website here.
