TSP

John Grobe

Many articles have been written about choosing the “best” day to retire when it comes to federal pensions, both CSRS and FERS. Although you can retire any day you want to once you become eligible, some days are more advantageous than others. Often the last day of a month is the most beneficial for FERS, while a day between the last day of a month and the 3rd of the next month work best for CSRS. For those who are looking at maximizing the value of their lump-sum annual leave payout, the end of the year is generally best.

When it comes to the Thrift Savings Plan, are there any days that are better than others? Not as much as there are with CSRS and FERS, but there are some TSP related items that you should consider when you are picking a date on which to retire.

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First, if you are retiring at or near the end of the calendar year, you should be sure to max out your TSP contributions for the year. The means that you should, at the beginning of the year in which you plan to retire, divide the elective deferral amount ($19,500 in 2021) by the number of pay days you will have (generally 26, though occasionally 27). If you were retiring at the end of 2021, you would contribute $750 per pay period in a 26 pay day year and $723 in a 27 pay day year; this would have you reaching the elective deferral amount in your final pay period. You would also receive the full employer matching contribution, as you had contributed over 5% of your salary in each pay period.

Second, if you are retiring before the end of the calendar year, you should try to max out your contributions for the year. You would use the same strategy outlined in the above paragraph; that is, divide the elective deferral amount by the number of pay periods that you will work over the course of the year. If you were retiring at the end of October, you would use 19 pay periods. $1,027 per pay period would bring you up to the elective deferral amount by the day you retire.

But wait! Most folks who retire are age 50 or older and are able to contribute an additional $6,500 to their TSP (for a total of $26,000). Beginning this year, the Thrift Savings Plan did away with separate catch-up contributions, so, for someone who is 50+ and can afford to contribute the full $26,000, the numbers in the preceding two paragraphs would be $1,000 (full year – 26 pp), $963 (full year – 27pp) and $1,369 (19pp).

The above strategies assume that you can afford to contribute the entire elective deferral amount including the age 50+ catch up to the TSP. While some federal employees are fortunate enough to be highly compensated, giving them the ability to max out their TSP contributions, not all of us can do so. If you are among those who cannot max out, you should still try to get in as much as you can afford before you retire.

When it comes to retirement savings, more is always better than less. In an article that appeared several years ago, I used the TSP calculator to compare the savings of hypothetical employees who saved 5% and 10% respectively in the TSP over a 30 year federal career. Both employees started at $45,000 per year and received annual pay increases of 1% per year. Their accounts grew at a rate of 5% per year. These are all conservative assumptions. The difference in their TSP balances at the end of 30 years was $171,279.01. Almost $200,000 for an additional 5% of salary per pay period! If you’ve still got some time to go before you retire, don’t wait – start contributing more to the TSP now.

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OPF: Tweak Your Personnel Folder for Maximum Benefits

FERS and Social Security Take Some Stress Out of Planning to Spend Your TSP, IRAs

Lessons Learned Growing a TSP Balance Beyond $1M

TSP Investors Handbook, New 7th Edition