Though the Thrift Savings Plan can provide you with a source of monthly income after retirement, it is different from the other two income sources that you will likely have (i.e., your FERS annuity and Social Security). The biggest difference between the TSP and these other two sources of retirement income is that the TSP is voluntary, while the other two are mandatory.
No matter how you are approaching your future retirement, you cannot escape from the fact that you are required to make contributions for your FERS annuity (at least 0.8% of your salary with no limitations) and for your Social Security (6.2% of your salary until you reach the annual tax cap, which for 2017 is $127,200). There is no requirement that you contribute to the TSP at any time in your career.
Consider an employee who works for the federal government for a period of 30 years and whose starting salary is $60,000. Her salary increases 1% per year for their entire career and the earnings that apply to any money in the TSP account is a steady 5% per year.
She does not contribute to the TSP at all in the first ten years of federal service and then contributes 5% of salary (enough to secure the entire government match) for the remaining twenty years. Using the TSP’s How Much Will My Savings Grow? Calculator, she will have almost $256,000 at retirement. That’s not too shabby for someone who didn’t contribute at all to their TSP for the first third of their career.
The employee’s colleague, however, begins contributing 5% of his salary from the get-go and continues at that rate for his full thirty-year career. Using the same calculator, his balance is almost $457,000; not quite double that of the first employee.
Imagine how much more both employees would have had if they had contributed at a rate higher than the 5% required to get the match. Simply changing the second employee’s contribution rate from 5 percent to 15 percent results in a balance of over $913,000 after 30 years.
What does this tell you? It tells you that if you save early and save often, you will be in an enviable financial position upon your retirement. An upcoming article will look at how employees can try to make up for not investing in the Thrift Savings Plan at all in their first decade of federal employment.