Keep it Simple: Doing the basics consistently, over time produces results. Image: Nattanan Zia/Shutterstock.com
By: Dallen HawsGetting to a million in your TSP doesn’t happen by accident.
There are certain principles that TSP millionaires know and follow to get to where they are while others wonder how they do it.
The good news is that there is no magic or vudu involved.
It is simply math.
Unveiling the Mystery
Here is the shockingly simple math of having a million in your TSP.
Simply invest $315/paycheck for 30 years and invest it well.
Explanation: Investing $315/paycheck for 30 years and earning an average of 8%/year will grow to $1,005,992.63 after 30 years.
Note: In this example I ignored agency matching contributions which would increase your TSP even faster in real life.
But I Don’t Have 30 Years Left
The reason the example above is so powerful is because someone consistently saved/invested for 30 years.
Most TSP millionaires started relatively young, understanding that one of the most valuable elements in investing is time.
If you have a lot of time then your money will do a lot of the work for you.
If you don’t have a lot of time then there are still things you can do but it will take work on your part.
Your 2 Levers
Regardless of where you are at in your career, we all only have 2 levers to increase our investments.
We can save more and invest it well.
If you save a lot of money but choose bad funds then your growth will be stunted. If you have a perfect fund allocation but don’t save very much then you’ll still have marginal results.
How Much to Contribute
So, how much should you be saving into the TSP?
Some financial gurus say you should be saving 15% of your salary for retirement and this can be a good rule of thumb to start.
However, if you are 55 years old with $0 in retirement savings then you have a lot more catching up to do compared to a 30 year old.
And because there is no perfect rule of thumb for everyone this is my standing piece of advice: Save as much as you can!!
If you can only save 5% right now, then do that. If you can save 30% then do that.
But the moment you get a pay raise or step increase, put a part of the increase into your TSP.
Or if you pay off your car then take a piece of what was your car payment and contribute it into the TSP.
If you save as much as you can right now and increase it overtime as you are able then you will be surprised at the progress you make.
TSP Millionaires’ Investment Strategy
Now that you are saving as much as you can, the next step is to make sure things are invested in a way that makes sense for you.
Most TSP millionaires invest primarily in the C, S, and I funds for most of their career.
This is because the C, S, and I funds are the stock-based funds which is where most of the growth happens overtime.
However, as they approach retirement they start to use the G and F funds for a part of their portfolio.
The G and F funds are the bond-based funds and while they don’t tend to grow as fast they provide more stability.
The Millionaire’s Secret
When most people think of millionaires, they think of smart, dedicated people who knew exactly what they were doing the entire time.
However, most TSP millionaires simply don’t start out this way at all.
When I ask TSP millionaires what they did, I hear the same story over and over.
They tell me, “I had no clue what I was doing. But when I was first hired my boss sat me down and practically forced me to invest 10%-15% of my pay into the TSP and to use the C, S, and I funds”.
And so that is what they did. And 30 years later they’ve accumulated more than a million.
KSS: Keep It Simple Stupid
They got the results not because they were investing experts. They got the results because they did the basics consistently over time.
That is it.
It doesn’t have to be complicated.
In fact those that try to make it complicated by trying to time the market or constantly changing their allocation get worse results 99% of the time.
Keep it simple. Do the best you can. And you will be surprised at the results you accomplish overtime.
Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.
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