TSP Millionaire: Myth or Mystery?

Unfortunately, I hear much too often from my fellow federal employees, “I have 5 years left until I retire, and I have been sitting in the G Fund my whole career.”  My heart breaks for them.  Most federal agencies do not give enough guidance to their employees regarding their pension and Thrift Saving Plan (TSP).  And then when they do, it is usually mid to late career...that's way too far into the game!  I hope you are reading this article at the beginning of your career or at least early enough that you can take the necessary steps to change course.  Some federal employees view retirement as so far down the road that they think they have plenty of time to plan for it.  And some federal employees just don’t know how to invest their TSP and the thought of being personally responsible for your own retirement can be overwhelming.  The two factors that prevent them from doing anything are FEAR and PROCRASTINATION.  That is not a good combination and the longer you wait to plan for retirement, the more it will cost you! 

Saving for retirement must be a priority early in your career.  I call it, pay yourself first. It must be a habit, thus becoming second natured.  When you contribute to your TSP, the money comes out of your pay prior to your pay being deposited into your bank account and if you can live within your means, you will never miss the money.  FERS employees receive an automatic 5% match if you contribute at least 5% of your base pay (and AUO/LEAP for SCEs).  That alone should be incentive enough to contribute at least 5%.  Nowhere else can you receive a guaranteed Return on Investment (ROI) of 100%!! However, I do not believe that only contributing 5% throughout your career will get you there.

During my research, I found that the average years of investing in the TSP that it takes federal employees to reach $1M is 29 years.  It's not a myth. Yes, it can be done. If you consistently contribute at least 10% into the equity funds (C, S, I) and using a buy and hold or dollar-cost averaging strategy and earn an average annual return of at least 9%. (The average federal employee's annual salary currently is $90K) But, as Special Category Employees (SCEs) under the Federal Employees Retirement System (FERS), we are in a catch-22.  We only have 20-25 years to save for retirement, but because we retire so young, our savings have-to last us longer in retirement starting at age 50-57.  We have a longer retirement time horizon that our savings has to last. Because of this catch-22, I believe that SCEs must be aggressive investors.  We must get our “army of dollar bills” working for us as early and as hard as possible. 

At the end of the 2nd Quarter (Q2) 2023, approximately 88K TSP account balances were over $1 Million out of over 6.7 million participants.  That is just over 1.3%.  So where is your TSP balance?  Are you on track to reach a $1M balance in your TSP by retirement?  If not, more TIME (ie. Working and investing longer) or contributing more money may be able to get you there.  But other than that, the only other factors that you may be able to control is how fast your money compounds or increasing your ROI.  One way to do that is by moving it around between funds in the TSP using a seasonal strategy.  The key word above is TIME.  That is why I fully support seasonal trading.  When investing, time is your friend.  Compound interest is a beautiful thing, but when you have a shortened time to play the game, the key is keeping your money in motion so that it compounds faster producing higher annual returns. 

Seasonal trading is a theory that the markets repeat themselves certain times of the year based on seasonal events or market influences that occur the same time each year, for example quarterly earnings reports, holidays, heating/cooling season, travel, jobs reports and Federal Reserve meetings.  In 2019, I discovered TSPcalc.com.  TSPcalc is a whole website dedicated to seasonal trading with hundreds of thousands of strategies mapping out when to move your money between the different TSP funds throughout the year.  Between January 2019 and November 2021, using TSPcalc seasonal strategies, I averaged an annual ROI of 30.18% and became part of the 1% in only 22 years!

Let’s talk pension for a moment.  As federal employees under FERS, we are blessed with three buckets of money at retirement.  Our pension, which is paid as an annuity, Retiree Annuity Supplement (RAS), which you receive until you're first eligible to receive social security (age 62) and our TSP.  Most of us already know the formula that determines our pension.  If you do not, please review your annual benefits statement which can be found on the Employees Personal Page (EPP).  Assuming an SCE employee retires as a GS-12 with a High-3 average of $130,000 with 25 years of service, they will receive approximately $50,700 per year.  If you live 20 years in retirement, God willing, you will receive annuity payments totaling over $1 Million just with your pension!  In essence, you’ll retire a “millionaire”.  Awesome!!  But wait, when you pass, unless you selected a reduced annuity with survivor benefit, that money stops, and nothing gets passed to your heirs.  Also, can you afford an $80K per year pay cut in retirement? That is where the TSP comes in and can make up the difference.

Unlike your pension, when you retire, your TSP balance is your life savings, you’re vested, it’s your money, you’ve earned it.  When you pass, your TSP balance will be dispersed to your designated beneficiaries.  YOUR TSP IS YOUR LEGACY.  Soak that in for a minute.  I bet you never thought of it that way?  With your TSP, you have the possibility of creating generational wealth and setting you and your family up for a prosperous and fulfilling life in retirement and beyond.  After sacrificing and serving your country for 20+ years, don’t we all deserve that?

If you’d like to learn more about TSPcalc and how the strategies work, click on the hyperlink below to watch a YouTube video explaining seasonal trading or you can visit TSPcalc.com. 

Intro to TSP Seasonal (youtube.com)

tspcalc.com

Jerome R. Moyer

T$P Money Tree