The retirement plan for federal employees, the Thrift Savings Plan (TSP) can be a great vehicle for retirement savings – especially if you can avoid the following missteps!
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The following items are not in any specific order, and every individual’s financial situation is different, so keep in mind that the list is designed for a more general audience. Need more personalized help with your federal benefits? - click here.
1. Forgetting the Roth TSP
Unlike a Roth IRA, there are no contribution limits to participate in the Roth TSP. In a traditional TSP account, where contributions are made pre-tax and then taxed when withdrawn, a Roth TSP entails after-tax contributions and then future withdrawals are not taxed. The employer’s matching contributions have to go into a traditional TSP account, but employee contributions can go fully into a Roth TSP account. Read more here.
2. Not Keeping Beneficiaries Up to Date
Whether your marital status has changed, or you’ve had children since you updated your beneficiary, or if your original beneficiary has passed away… all of these life events, and a handful of others, can mean your TSP beneficiary is no longer up-to-date. This can lead to undesirable consequences. For example, if you’ve got an ex-spouse listed as your TSP beneficiary, they would get the money should you unexpectedly pass. Read more here.
3. Not Contributing Enough
A lot of TSP participants feel if they contribute 5% of their paycheck to get the full Government match, then they are doing enough. Unfortunately, this doesn’t guarantee a prosperous retirement. A good rule is to contribute as much as your budget allows – up to the maximum contribution limit. Read more here.
4. Taking TSP Loans
Obviously, if a TSP loan is direly needed due to personal circumstances, then you’ve got to take one. However, it is best to be used as a last resort – not an additional income stream for use when working. To ensure a TSP account will provide adequate income during retirement, it is best to avoid taking out a loan from the TSP if possible. Read more here.
5. Not Having an Investment Strategy
How TSP money is invested can have a big impact on its ability to provide future income. Again, an individual fed’s personal situation will determine what investment strategy is best for them, but there are a few things to keep in mind when managing TSP investments. For one, you don’t want to trade too much. Timing the market can be detrimental, and transferring between funds can have costs associated with it (this will be especially true for TSP investors planning to utilize the upcoming TSP mutual fund window). Typically, rebalancing your TSP investments at least once a year and no more than quarterly is advisable. However, rebalancing is only effective with a proper investment strategy. This is where having a trusted financial planner can make a world of difference. Retirement under FERS is often described as a “3-legged stool” comprised of Social Security, the FERS pension, and the TSP. Here at Serving Those Who Serve, we can provide Federal employees a fourth component: strategy. Having a Fed-Focused Financial Advisor will give you a “leg up” in planning your federal retirement with The Strategic Leg®. Read more here.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.