Thinking About Your TSP? Here’s What Federal Workers Can Do to Grow Their Nest Egg Fast

Jeff Boettcher
December 26, 2024

Key Takeaways

Maximize Your TSP Contributions for Faster Growth: Learn how to leverage contributions and matching funds to accelerate your Thrift Savings Plan.
Optimize TSP Allocations to Secure Your Future: Discover the best ways to allocate your funds for growth based on your time horizon and risk tolerance.

Building Your Federal Retirement Faster with the TSP

If you’re thinking about building your retirement nest egg, it’s smart to take a closer look at the Thrift Savings Plan (TSP)

. As a federal worker, you have access to one of the most robust retirement savings programs around, but are you making the most of it? Let’s dive into practical steps you can take to help your TSP grow faster, maximize your employer match, and avoid the common mistakes that could slow down your retirement progress.

Getting to Know the TSP: The Basics You Need to Know

The TSP is the federal government’s retirement savings plan for employees. It’s similar to a 401(k) in the private sector, and it offers various tax advantages and matching contributions. The plan includes different types of funds, each tailored to different investment strategies and risk tolerance levels. From the safe harbor of the G Fund to the growth-oriented C Fund, your options are diverse and built to support your long-term goals.

Why Contributing More Now Pays Off Later

One of the most effective strategies for growing your TSP fast is to contribute as much as you can afford. In 2024, the TSP contribution limit is $23,000, with an additional $7,500 catch-up contribution if you’re 50 or older. Contributing the maximum allowed amount not only grows your savings faster but also ensures you benefit from compounding returns. Consider it a “pay yourself first” approach — the more you can contribute, the more your investments have to grow.

Maximize the Employer Match — It’s Free Money!

If you’re a FERS employee, don’t miss out on the 5% match from your agency. FERS employees receive an automatic 1% contribution from the agency and up to an additional 4% match if you contribute 5% of your own salary. By failing to contribute at least 5%, you’re leaving free money on the table that could otherwise be invested and growing for you.

Employer Match Quick Tips

Meet the 5% Threshold: Aim to contribute at least 5% to get the maximum match.
Match Contributions Early: If you can, front-load your contributions early in the year to start seeing returns sooner.
Check Your Contribution Rate: Adjust your TSP contribution rate annually or after any salary changes.

Choosing Your Investments Wisely

The TSP offers a variety of funds, including the G Fund, F Fund, C Fund, S Fund, and I Fund. Each fund has a different level of risk and return potential. Choosing the right mix of funds based on your age, time to retirement, and risk tolerance can make a big difference in your portfolio’s performance.

The G Fund: Stability with Less Growth

The G Fund is the most conservative of the TSP funds, investing in government securities that protect your principal. While the G Fund offers stability, it typically has lower returns compared to other options. Younger investors with a longer retirement horizon may want to balance the G Fund with more growth-oriented funds.

The C Fund: Growth through U.S. Stocks

The C Fund tracks the S&P 500 index and offers growth potential, albeit with higher risk. If you have decades before retirement, the C Fund could be a good option for accelerating growth.

The S Fund: Small-Cap Growth for Higher Returns

The S Fund focuses on small- to medium-sized U.S. companies and offers higher growth potential. This fund tends to have more volatility but can significantly boost your portfolio over time if you’re not retiring soon.

The I Fund: International Exposure

The I Fund includes international stocks and can add some diversification to your portfolio. Investing in the I Fund might help you benefit from global economic growth, though it does carry additional currency and market risks.

The L Funds: Set It and Forget It

L Funds are Lifecycle funds designed to automatically adjust your asset mix based on your target retirement date. They’re perfect if you want a hands-off approach. Just choose the L Fund closest to your retirement year, and the TSP will handle the rest.

Compounding Growth: Why Time Matters

Starting early is crucial. Compounding means that the returns on your investments generate their own returns, creating a snowball effect over time. The longer your money is invested, the more compounding works in your favor. For example, if you invest $500 a month into your TSP at a 7% return, you could accumulate over $500,000 in 30 years. That’s the power of compounding!

Leverage Your Time Horizon

Early-Career Workers: Take advantage of higher-risk, higher-reward funds like the C and S Funds.
Mid-Career Workers: Gradually start moving funds to safer investments as you get closer to retirement.
Approaching Retirement: Shift more funds to the G Fund to protect your principal and reduce volatility.

Minimize TSP Fees and Watch Out for Withdrawal Penalties

One advantage of the TSP is its low fees, but it’s still essential to be mindful of fees that can chip away at your returns. Also, keep in mind that early withdrawals from your TSP before age 59½ typically incur a 10% penalty on top of regular income taxes. To avoid losing hard-earned savings to fees and penalties:

Avoid Early Withdrawals: Wait until after age 59½ to access your funds, if possible.
Consider Leaving Your Money in the TSP: When you retire, keeping your money in the TSP allows you to continue benefiting from low fees.

Boost Your Growth with Catch-Up Contributions

If you’re 50 or older, the IRS allows you to make catch-up contributions to help you accelerate your retirement savings. This extra $7,500 per year can make a significant difference in the growth of your TSP balance over time.

Catch-Up Contribution Tips

Use It Every Year: The catch-up contribution amount typically increases every few years, so take full advantage of it.
Plan Around Retirement Milestones: Aim to contribute the maximum each year leading up to retirement to take advantage of compounding.

Rollover Options: Consider Adding Outside Funds

If you have previous retirement accounts, such as a 401(k) from another employer, you may want to roll these funds into your TSP to consolidate your investments and potentially lower fees. By adding to your TSP, you can also simplify your retirement savings plan.

Is Rolling Over Right for You?

Lower Your Fees: The TSP’s low fees can reduce the cost of holding onto outside retirement accounts.
Simplify Your Accounts: Consolidating your retirement funds helps streamline your portfolio management.

Final Thoughts for a Strong TSP Future

Your TSP is one of the most valuable assets you have for retirement, so take the time to ensure you’re maximizing its potential. From contributing enough to get the full employer match to choosing the right mix of funds based on your risk tolerance, every decision can have a lasting impact on your financial future. Even if retirement feels far away, your TSP can give you a head start on building a comfortable nest egg.

Jeff Boettcher

For over 20 years, Jeff Boettcher has helped his clients grow and protect their retirement savings. "each time I work with my clients, I'm building their future, and there are few things that are more important to a family than a stable financial foundation."

Jeff is known for his ability to make the complex simple while helping navigate his clients through the challenges of making the right investment decisions. When asked what he is most passionate about professionally, his answer was true to character, "Helping my clients – I love being able to solve their problems. People are rightfully concerned about their retirement income, when they can retire, how to maximize their financial safety and future income." Jeff started Bedrock Investment Advisors for clients who value a close working relationship with their advisors.

A Michigan native, Jeff grew up playing sports throughout high school and into college. While Jeff is still an 'aging' athlete, Jeff will take more swings on the golf course than miles running these days. He creates family time, often with weekly excursions to play golf, a hobby he shares with his three young children.

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.