“It takes money to make money” is an old saying that has been, is, and will be true. If you don’t have any money to invest, you can’t invest and share in what, hopefully, will be the gains of your investments. If all you earn is used for necessities, there is no potential for growth.
If I’m speaking to a group of GS-14s and GS-15s about the Thrift Savings Plan, I am generally “preaching to the choir”. Contrariwise, when I’m exhorting GS-4s and GS-5s to throw more money into the TSP, I sometimes feel that I am asking them to take on an impossible task. Urging someone who makes $33,262 (GS-5, step 5 in the RUS pay area) to contribute the maximum to the TSP is asking them to do the impossible. For someone who is making just enough to get by, even the 5% of salary needed to get the full match is a stretch.
Nonetheless, a modestly paid federal employee covered by FERS or uniformed services member covered by BRS should not throw up their hands, and think that it doesn’t make a difference whether they are able to find 5% of their salary to set aside. Over their entire career; it does make a difference; and a big one at that. The TSP calculator’s How Much Will My Savings Grow? feature (which can be found under “calculators” on the TSP homepage) can show just how much of a difference even 5% can make. By the way, 5% of $33,262 comes out to $1663 per year. I ran a scenario with a newly hired employee (making $29,000 a year, which is close to a GS-5 step 1) who set aside 5% of their salary ($1,450 a year, $56 a pay period, or $4 a calendar day in the first year) for a 30 year career, received salary increases of 1.5% a year and had average investment earnings of 5% a year. 30 years later they had just a whisker over $234,000 in their TSP. Using the “4% rule” for withdrawals, that would give them annual withdrawals (that could be adjusted for inflation) of $9,360. Surely, you can find $4 a day!
The amount this imaginary employee contributed to the TSP was lass that half of their ending balance. Uncle Sam contributed an equal amount and earnings accrued at 5%. The time value of money worked for this employee.
Yes, the above example didn’t take inflation into account. It is likely that, after a 30 year period, the value of a dollar will be cut in half (assuming an inflation rate of between 2% and 3%). Nonetheless, the $9,360 equals $25.64 a day in today’s dollars, or $12.82 in inflation adjusted dollars; not bad for $4 a day.
The moral of this story is that you can make a difference by setting aside even a little amount of money in the TSP each pay period. If you’re just starting out, make Strive for Five your TSP mantra.