For what purpose will you use your Thrift Savings Plan after you retire? I suspect that most readers will use their TSP accounts to provide them with a stream of income to supplement their FERS annuities and Social Security.
We’re fortunate to have FERS (an “old-fashioned pension”) along with Social Security (a benefit that we share with 96% of American workers). If we work for Uncle Sam for our entire career, between these two sources of retirement income, we should be able to replace 50% to 70% of our pre-retirement income from these two sources.
Financial planners are fond of telling us that we can retire with the same standard of living we had before retirement with 80% of that pre-retirement income level. If you have saved in your TSP account since your first day of work, it shouldn’t be too hard to accumulate enough in the Thrift Plan to make it to that 80% level. As Mick Jagger told us, “Time is on (our) side”; if we begin saving early, keep it up, and don’t run into any financial catastrophes, we could have a nice nest egg by the time we need it.
I routinely run into federal employees who have account balances in the high six figure range, and the number of TSP millionaires is growing. At the 4% Withdrawal rate recommended by many of these same financial planners, a balance of $500,000 will allow us to safely withdraw an inflation indexed $20,000 per year for the rest of our life; $1,000,000 would up that to $40,000.
When we retire, we do a 180 degree turn from our saving days and saving ways to the days when we withdraw from our TSP accounts. If our TSP investments keep growing after retirement, we may have years in which our account balance either stays the same or grows.
The next time you have time on your hands, go to the TSP website (https://www.tsp.gov) and find their calculators. Use the How Much Will My Savings Grow? calculator to estimate how much you might have in your TSP by the time you will be starting to withdraw the money.
You’ll be surprised about how the money grows and how much it turns into by the time you’re ready to use it for your retirement. Once you have you estimated your future balance, use the TSP Payment and Annuity Calculator or the TSP Installment Payment Calculator to estimate the level of monthly income you can realize from that balance.
What about TSP participants who have less than a full career with Uncle Sam? The Thrift Savings Plan allows rollovers from previous employer plans and from Individual Retirement Arrangements, so you can move money you saved at prior jobs into the TSP.
What about those who haven’t saved a lot of money for retirement and are just now, at age 40, realizing that they have to start socking money aside in order to have a comfortable retirement. The aforementioned calculators can help you determine how much you will need to save, and for how long, in order to have that comfortable retirement. You might have to work a little longer, or cut back on un-necessary expenses, but you can still make a difference.
Turbulent Climb Higher for TSP Funds
If we were to get this rotation, from tech/growth to value/financials, it could be rough for the broad stock indices, because after a decade of tech outperformance, these sorts of highly-valued tech names dominate the top slots of the index, whereas financial stocks and value stocks in general make up a smaller portion.