TSP

John Grobe

Have you ever been sick with a bad cold of the flu and wondered if you would ever feel normal again? Contrariwise, when you are in good health, have you ever thought about when you would next become ill?

We can look at finances in the same way we view our health: When we are financially stable and sound, we don’t worry about falling on hard times; and when we are waiting for the wolf to knock at the door, we can’t imagine being back on solid financial footing.

I think that we can all agree that it is better to be healthy than it is to be ill; and that it is better to be financially sound than it is to be wondering how you’ll be able to pay the bills. To be healthy we eat well, exercise and follow the instructions of medical professionals. To be financially sound, we spend wisely, invest for future needs and create an emergency fund.

It was surprising when, during the 2019 furlough, many federal employees felt they had to take hardship withdrawals from their Thrift Savings Plan accounts in order to survive two missed paychecks (that they were relatively certain they would be reimbursed for when the furlough ended). Based on the TSP rules in effect at that time, these folks were precluded from contributing to the TSP for 6 months, thereby missing out on the opportunity to save more for retirement.

While individual circumstances vary, most federal employees should make a focused effort to avoid having to tap retirement savings for a short-term emergency.

You have probably figured out by now that this article is about the importance of preparing for financial setbacks; especially the importance of having an emergency fund. Financial writers will tell you that you should have an emergency fund that covers three months to a year’s worth of expenses. We federal employees would fall closer to the three month end because we are at less risk of layoff and job loss than are those who work in the private sector.

Stash your emergency money (even if it means dialing back on your TSP contributions until you can save some) in a taxable account where you can get at it without penalty. Because we don’t know when an emergency might strike, we should keep the money in conservative investments.

Financial health, which includes having a robust emergency fund among our savings, is to be preferred over financial illness. Let’s get started on an emergency fund so that we don’t have to worry about our financial position if we face another furlough – or an honest-to-God emergency.