The number of “millionaires” in the Thrift Savings Plan is rapidly expanding, but that should not come as a surprise. At the end of 2020, there were 75,420 participants with account balances of $1M or more – up from 49,620 millionaires at the beginning of the year. An interesting sidelight is that on March 31, 2020, the depths of the short lived bear market, the number of TSP millionaires dropped to 27,212. This tells us that many of those who were millionaires at the beginning of the year, were only barely above the $1,000,000 threshold.
This increase in the number of participants who have balances of $1M or more should be expected. The increasing numbers are explained by the “time value of money”, or as it was referred to in a recent biography of Warren Buffett, the “snowball effect”. When you consider that, as of April 1, 2021, the Thrift savings Plan has been around for 34 years, that gives plenty of time for money to grow.
I bet that many of the TSP millionaires were hired in the late 1980s and either recently retired or are planning to retire in the near future. They also started contributing early to the TSP and contributed the maximum each and every year. There are also some millionaires who came to the federal government with robust outside 401(k) balances. Remember that the TSP was late to the defined contribution plan dance. The first 401(k) was created in 1980 and, by 1983, half of all large companies offered them. This gave a lot of folks who came to the federal government later in their career a 4 to 7 year head start on those who were lifetime feds.
Perhaps you’ve heard of the “rule of 72”, which states that if you divide a rate of return by the number 72, your answer is the number of years in which it takes a dollar to double. At a 7.2% rate of return, money would double every ten years. Both the C and S funds have average annual returns since their inception of between 10% and 11% (leading to a dollar being doubled about every 7 years). The lowest since inception return is the G Funds average of 4.2%.
So, Mick Jagger was right when he sang that “Time is on my side”. The earlier you start saving and the more that you save, the higher your TSP balance will be at retirement. Jagger was a student at the London School of Economics when he joined the Rolling Stones back in the 60s, so he knows of what he speaks.
Many readers of FEDweek’s TSP Investment Report are near the beginning of their federal careers. If they start saving now and continue saving for the rest of their federal careers, it’s likely that they will find themselves TSP millionaires by the time they retire.
What it Takes to Be a TSP Millionaire in Today’s Dollars
With a long enough timeline, involving consistent large contributions and decent long-term stock returns during the period, it’s possible to become a millionaire from compounding a middle-class or upper middle-class income, including most jobs in federal service.