Want to Make Better Decisions with Your TSP? Here’s How Federal Employees Can Tweak Their Savings

Key Takeaways:

1. Small adjustments in your Thrift Savings Plan (TSP) can yield big impacts on your retirement.
2. Understanding TSP options better can help boost your financial security.

Making the Most of Your Thrift Savings Plan (TSP)

If you’re a federal employee, you already know that the Thrift Savings Plan (TSP) is a valuable part of your retirement strategy. But the TSP isn’t a “set it and forget it” type of account. Regular adjustments can help optimize your retirement savings and position you to retire comfortably. The good news? There are straightforward steps you can take to get more out of your TSP. Let’s look at some of the ways you can tune your savings approach and make smarter, long-term choices for retirement.

Understanding TSP: A Quick Refresh

• Also Read: Six Tips for Getting the Most Out of Military Buyback Programs and Improving Your Federal Retirement Plan
• Also Read: Seven TSP Fund Adjustments That Could Help Federal Workers Achieve Long-Term Financial Goals
• Also Read: Five Signs You’re Ready to Take Advantage of Early Retirement Options

Before we get into the tweaks, let’s have a brief refresher on what TSP offers. The TSP functions as a retirement savings and investment plan for federal employees, providing a way to build a nest egg over time. With several fund options and both Traditional (tax-deferred) and Roth (tax-free) choices, the TSP is versatile and designed to cater to various retirement strategies.

As a TSP participant, you can pick from several funds, including:

• G Fund: Government securities
• F Fund: Fixed income (bonds)
• C Fund: Common stock (S&P 500 index)
• S Fund: Small-cap stock (extended market index)
• I Fund: International stock (based on foreign markets)

If you’re unsure where to start with TSP tweaks, focusing on fund selection, contribution amounts, and long-term growth goals are excellent places to begin.

Step 1: Revisit Your Contribution Amount Regularly

Your contribution rate is one of the most significant drivers of retirement savings. If you’re in a position to increase your contributions, even a small percentage increase can lead to substantial gains over time. The TSP allows you to contribute up to $23,000 annually as of 2024, with additional catch-up contributions if you’re over 50. Even if you can’t max out, gradual increases – say, 1% more each year – can help you save more without feeling the impact too much on your day-to-day budget.

Takeaway: Checking your contributions annually, especially with annual pay raises or bonuses, keeps you on track with inflation and your retirement goals.

Step 2: Choose Between Traditional and Roth Wisely

The TSP gives you two powerful tax options: Traditional and Roth contributions. Traditional TSP contributions are tax-deferred, meaning you don’t pay taxes upfront, but you will when you withdraw them in retirement. Roth TSP contributions, on the other hand, are made with after-tax dollars, so withdrawals are tax-free.

Which is best? It depends. If you expect to be in a lower tax bracket in retirement, the Traditional TSP may be more beneficial. Conversely, if you’re in the early or mid-stage of your career and expect higher taxes later, a Roth TSP might make more sense. There’s also the option to split contributions between the two if you want to hedge your bets.

Takeaway: Review your tax bracket each year to see which approach makes the most sense for you. It’s okay to adjust your strategy as your financial circumstances evolve.

Step 3: Align Your TSP Fund Choices with Your Risk Tolerance

One of the main benefits of the TSP is its range of funds with different levels of risk. The mix of G, F, C, S, and I funds is designed to offer a broad spectrum of risk and return profiles. You can choose a mix that aligns with your retirement timeline and tolerance for risk.

For example:

• If you’re close to retirement, you might prefer a conservative allocation, perhaps with a higher proportion of the G and F Funds, which are lower-risk but provide stable returns.
• If you’re younger and have time on your side, a more aggressive mix that includes the C, S, and I funds may be worth considering.

Checking and adjusting your allocations annually can help ensure that your TSP portfolio keeps pace with your goals and market conditions.

Step 4: Set a Schedule for TSP Check-Ups

Routine TSP check-ups ensure your retirement portfolio remains aligned with your goals and market conditions. Every six months to a year, review your contributions, fund allocations, and account performance. Take stock of any significant life changes (marriage, kids, job changes) that might impact your future needs. Many experts recommend reevaluating your TSP each time you reach a new age milestone, like 35, 45, or 55, to accommodate shifts in life priorities and risk tolerance.

Takeaway: Set a recurring date – maybe the start of the new year – to evaluate and adjust your TSP contributions and investments.

Step 5: Take Advantage of the TSP Lifecycle Funds

Lifecycle (L) Funds are a great option if you’re not comfortable selecting and adjusting individual funds. L Funds are designed to automatically adjust over time, shifting from higher-risk investments to lower-risk ones as you near retirement. You select the L Fund closest to your anticipated retirement date, and it takes care of the rest, balancing risk and returns based on your timeline.

While this hands-off approach works well for many, it’s still a good idea to periodically review your chosen Lifecycle Fund to ensure it aligns with any changes in your retirement timeline or risk tolerance.

Step 6: Don’t Ignore the TSP’s Matching Contributions

One of the biggest perks of the TSP is the matching contributions for FERS employees. The government will match 100% of the first 3% of your contributions and 50% of the next 2%, giving you a total 5% match if you contribute at least 5% yourself. These matches are free money for your future, so if you’re not yet contributing 5%, aim to reach that threshold as soon as possible.

The TSP match is a valuable tool that gives you an instant 100% return on a portion of your contributions, so take full advantage of it. If you’re not able to contribute 5% right now, consider gradually increasing your contributions over time.

Takeaway: If you’re not yet hitting the 5% match threshold, plan how to increase your contributions to reach that goal.

Step 7: Stay Updated on TSP Policy Changes and Enhancements

Finally, staying informed about TSP changes or new options can help you maximize your retirement benefits. Changes in TSP policies, fund options, or withdrawal rules are common and could impact your savings strategy. For example, the TSP has raised the catch-up limit for employees aged 60 to 63, allowing for extra contributions in the years leading up to retirement. Keep an eye on updates that may benefit your long-term planning.

Build a TSP Strategy You Can Rely On

With a bit of attention to your TSP, you can set yourself up for a more secure retirement. Small adjustments in contributions, fund selections, and even simple policy awareness can help you capitalize on the advantages of this retirement plan. Regular check-ups, a willingness to adjust with changing conditions, and a thoughtful approach to contributions can make all the difference. By taking charge of your TSP now, you’ll thank yourself later when you’re set for a comfortable retirement.

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Maximizing Your TSP for a Better Tomorrow

Ready to feel confident about your retirement strategy? With these tweaks and a clear plan, your TSP can provide you with a reliable, long-term solution for retirement savings. Start making these adjustments today, and keep revisiting them to ensure your TSP keeps up with your life and financial goals.