How many times have you heard a co-worker say that they can’t afford to contribute (or contribute more than they already do) to the Thrift Savings Plan? Probably quite a few times; in fact, you might have said it, or at least thought it, yourself. And then, an old-timer like me would pipe up and say “You can’t afford not to contribute.”

When it comes to actually participating in a workplace retirement plan like the TSP or a 401(k), federal employees have a higher participation rate than does the population in general. Close to 90% of FERS employees contribute to the TSP. That figure is closer to 70% among those outside of the federal government who have access to a defined contribution plan.

With few exceptions (like deep debt or abject poverty), no one should be contributing less than 5% of their salary to the Thrift Savings Plan. A 5% contribution rate ensures that, if you’re FERS, you will be receiving 5% in agency contributions to your TSP account – you’re doubling your money! In the next few paragraphs, we will look at three new hires who start out making $45,000 per year and receive annual raises of 1%. They will work for the federal government for a period of 30 years. One of them contributes the default 3% of their salary; another contributes 5% and the third contributes 10%. They never increase their contribution rate. I used the TSP calculator How Much Will My Savings Grow which can be found in the calculator section of the TSP website and I assumed an annual rate of return of 5% per year. All of the TSP’s basic funds, except the I fund, have returned more than 5% per year since their inception.

The employee who contributed 3% of their salary had $42,269.98 at the end of 10 years; $115,546.26 at the end of 20 years; and $239,790.53 at the end of 30 years.

The employee who contributed 5% of their salary had $60,386.70 at the end of 10 years; $165,068.56 at the end of 20 years; and $342,562.64 at the end of 30 years.

The employee who contributed 10% of their salary had $90,580,04 at the end of 10 years; $247,601.61 at the end of 20 years; and $513,841.65 at the end of 30 years.

Imagine how much more they could have if they contributed more, worked more than 30 years, or earned a greater rate of return.