In recent years, the number of TSP millionaires has been steadily rising, with nearly 117,000 federal employees now holding seven-figure balances in their Thrift Savings Plan accounts. This significant growth is largely attributed to strong market performance, disciplined long-term saving, and the power of compounding.
Whether you’re early in your career or nearing retirement, learning how to become a TSP millionaire can help you maximize your TSP. Here’s what you need to know.
Key Strategies for Building Seven-Figure TSP Savings
A TSP millionaire strategy is based on two key actions: starting early and taking advantage of compound interest. In addition, it's critical to maximize the government’s 5% matching contributions by contributing a minimum of 5% of your salary each year. This allows you to receive a dollar-for-dollar match from your employer, essentially doubling that portion of your savings.
To stay on track toward your goals, commit to consistently contributing to your TSP and increasing the amount you defer as your salary grows. Once you reach age 50, you’re also eligible for catch-up contributions, allowing you to make contributions above the standard limit and accelerating your savings as you approach retirement. As of 2024, the maximum annual allowable contribution to TSP is $23,000, and those who have attained age 50 or older can put in an additional $7,5000 as a “catch-up” contribution each year.
Investment Options and Asset Allocation
Your TSP offers several investment funds, each with different levels of risk and potential returns. Options include:
- G Fund – Government Securities Investment Fund
- F Fund – Fixed Income Investment Fund
- C Fund – Common Stock Index Investment Fund
- S Fund – Smaller Cap Stock Index Investment Fund
- I Fund – International Stock Index Investment Fund
- L Funds – Lifecycle funds (pre-made mixes of the 5 core funds that are automatically adjust allocation based on time to retirement)
Consider working with a financial professional to develop a diversified portfolio that aligns with your risk tolerance. Spreading your investments across multiple funds may help reduce the risk associated with relying on one type of asset. It’s also important to regularly review and adjust your asset allocation to ensure your portfolio is in line with your goals and time horizon. This is particularly significant as you near retirement.
Staying the Course Through Market Volatility
TSPs are designed for long-term investment, and market fluctuations are a natural part of that process. While market downturns can be unsettling, reacting by selling your investments can lead to missed opportunities when the market rebounds.
Staying invested through these cycles, rather than making short-term decisions based on fear, helps keep your strategy focused on your long-term goals. Patience and a steady approach to investing are key components of an effective TSP millionaire strategy.
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When a TSP May Not Be Enough
While TSPs are known for low fees and simplicity, they have limited investment options. This may not provide the level of diversification some investors need for the long term. Additionally, a TSP doesn’t offer personalized financial planning guidance or investment management, leaving you to make these critical decisions on your own.
Once you reach age 59 ½, you’ll have the option to roll your TSP assets into an IRA or Roth IRA (depending on the type of TSP) without facing taxes or penalties. Making this move allows you to access a broader range of investments and strategies that may be more tailored to your retirement goals. Once you separate from service, your TSP also becomes mobile, meaning you can move those funds to another qualified retirement account.
If attaining TSP millionaire status is your goal, once you reach this stage, it may be the right time to consider working with a CERTIFIED FINANCIAL PLANNER™ professional to help protect and manage your nest egg.
The Role of Financial Planning in Reaching TSP Millionaire Status
Working with a CFP® professional may help ensure you have a clear, personalized retirement strategy. A financial planner can assist in evaluating your retirement goals and adjusting your TSP contributions to ensure you're on track to meet those targets.
Your CFP® professional can also guide you through key strategies such as rebalancing your TSP as needed to adjust for changing market conditions and your retirement timeline. When it’s time to retire, implementing tax-efficient withdrawal strategies and maintaining a thoughtful long-term plan can help extend the life of your retirement savings.
Building a Sustainable Retirement Strategy
Achieving TSP millionaire status is a major milestone, but planning for a sustainable income strategy post-retirement is just as important. Ensuring your savings last throughout your retirement requires careful planning, ongoing adjustments, and a focus on long-term goals.
Even if becoming a TSP millionaire seems like a distant goal, staying the course and making informed decisions can help secure your financial future. For personalized advice regarding managing your TSP and preparing for retirement, reach out to the team at Serving Those Who Serve at [email protected].
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 Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
