Don’t be deceived by the title. I love it when anyone is able to max out their TSP.
However, you don’t want to get the cart in front of the horse and mix up priorities.
The Basics
We can’t ignore the basics of personal finance just to max out the TSP. For example, if you don’t have an emergency fund in place, you’ll want to get that built up (6-12 months of expenses) before you max out the TSP.
Note: You will always want to contribute at least 5% of your salary into the TSP to get the match even when you are doing things like building your emergency fund.
Can You Get a Better Return Elsewhere?
The TSP is a great place to invest but can you get a better (and sometimes guaranteed) rate of return somewhere else?
For example, do you have Credit Card debt (or any other type of debt) that has an interest rate higher than about 8%?
If so, you are probably better off paying off the debt to get the guaranteed return of whatever the interest rate is.
Do You Have Other Goals?
Retirement is a great thing and a major goal for most.
However, what other financial goals do you have? Do you want to send your kids to college or get your house paid off?
If so, do you need to allocate any of your extra savings to those goals? Will any of those goals help you out in retirement? I.e. not having a mortgage payment in retirement.
Hard Decisions
However, as you probably already know, we all have limited time and money. This means that we can’t always reach all our financial goals perfectly.
For example, you may have a goal of paying 100k+ for your kids’ college education but that may not allow you to retire when/how you’d like.
That is why we all have to prioritize which financial goals are most important to us and allocate our money accordingly.
And there is no right or wrong here. But you do have to make educated decisions about how your choices will affect all your financial goals.
Some people are totally okay with paying for their kid’s college knowing that it may delay their own retirement.
However, others are okay with helping their kids less in favor of their own retirement because they know that while their kids can get loans for school, they can’t get a loan for retirement.
Is There a Better Place for Your Money?
Now that you know what goals are your highest priority, the next step is to decide the best place to put your money to achieve those goals.
For example, your TSP is often a great place to save for retirement but not a good place to save for your kids’ college.
A better place for college savings may be a 529 plan or a simple brokerage account. These accounts can be invested just like your TSP but they are much easier to access before 59 and ½.
Whatever your financial goals, you’ll want to pick a type of account that works best for you.
