How to Know if You’re Contributing Enough to the TSP

This is a question I get all the time. Am I contributing enough money to the Thrift Savings Plan, the 401(k)-style retirement program for federal employees? In other words, how much should you be putting aside every paycheck for the future?

Like many other questions in life, there is no perfect answer. If there was, it would make my job as a financial planner much easier. 

To answer the question correctly, the first thing to know is what you are going to be using your TSP for. For most feds, it is for retirement. The next question is much harder: How much will you need at retirement? 

And what makes it so difficult is that for some people, $100,000 may be enough; for others, $2 million may not be enough. Everyone’s retirement plans, goals, and needs are different. Some people have no consumer debt, no mortgage, and all their expenses are covered by their pension and social security. They really don’t need much from their TSP in retirement other than fun money. Others may still be paying off their mortgage or may have a more expensive lifestyle in retirement. 

External factors make a huge difference as well. This includes things like inflation, tax rates, and investment returns.

One big potential curveball that might affect all of us is the depletion of Social Security. At the current rate, without some kind of intervention, there won’t be enough funds to pay out full benefits starting in 2035. Government leaders may well come up with a way to fill the gap, but it will have to come from somewhere and that somewhere is usually us, the taxpayers. And regardless of what happens to Social Security, that is just the tip of the iceberg when it comes to the benefits federal retirees rely on from the federal government. That’s not to say we should all plan on the government going under—that’s not likely, and if it happens we will have bigger problems.

But it’s important to understand that the TSP is one of the few benefits you have control over. You control how much you invest, how you invest, and how you use it in retirement. And because you have control, the TSP is one of the best tools to fill all your retirement gaps and prepare for financial surprises. 

So when feds ask me how much they should be investing, I tell them “as much as you possibly can.” It is much easier to work with “too much” money at retirement than not enough. The odds are things will go a lot better than your worst case scenario. Still, I don’t endorse postponing all trips, entertainment, and nice things until retirement just in the name of filling your TSP account as much as possible. You have to find a balance that works for you now, but also takes care of your future needs.

Like anything else, the sooner you start, the easier it is to be prepared. This is why it is so important to start planning as early as possible in your career so that you can make necessary adjustments as you go. It is much more painful to make a measurable difference in the last 2 years before retirement. If you haven’t started saving already, start now. You will thank yourself over and over again.

Dallen Haws is a financial planner and host of the “Plan Your Federal Benefits” YouTube channel as well as a podcast at PlanYourFederalBenefits.com.