It’s not uncommon for a federal employee to feel that they can’t afford to contribute to the Thrift Savings Plan, or to say they can’t afford to increase their contributions. However, nothing is more important to a comfortable retirement than a large TSP balance.

Most of us will have three sources of retirement income from our federal career. First there is FERS, which has mandatory contributions of anywhere between 0.8% (regular FERS employee hired prior to 01/01/2013) and 4.9% (special category employee hired 01/01/2014 or more recently) of salary. Second is Social Security which has mandatory contributions of 6.2% of salary up until the “tax cap” is reached. The tax cap is $128,400 for 2018 and is adjusted each year for inflation. Third is the Thrift Savings Plan, but TSP contributions are completely voluntary. For those who choose to participate in the TSP, the elective deferral amount for 2018 is $18,500 with those 50 and over able to contribute an additional $6,000.

What percentage of your pre-retirement salary would be replaced by the mandatory part of your retirement income? If we assume a regular employee who works a 30 year career, somewhere between 55% and 60% or pre-retirement income would be replaced by these two sources. What percentage of your pre-retirement salary would a financial planner recommend you replace? 80%. With just FERS and Social Security, you are not going to get anywhere near the recommended replacement rate. You need your TSP!

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 in addition to the 5% that you put in – you’re doubling your money!

Consider three new hires that start out making $55,000 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 current default contribution for new hires of 3% of their salary; another contributes 5% (which will become the new employee default in 2020) 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. Each one of the TSP’s basic funds have returned more than 5% per year since their inception.

More on the Thrift Savings Plan at ask.FEDweek.com

At the end of 30 years, the employee who contributed 3% of their salary had $293,080. The employee who contributed 5% had $418,687 and the one who put it 10% ended up with $628,029. That’s quite a bit of money coming from modest bi-weekly contributions over a long period of time. It is likely that the employees who contributed 5% and 10% of their salary would be able to meet the financial planner’s goal of replacing 80% of their pre-retirement income by taking monthly payments from their TSP accounts. Who knew that Mick Jagger was talking about the TSP when he sang “Time is on my side”?

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