Should You Invest Everything Possible Into Your TSP?

April 8, 2020

Should You Invest Everything Possible Into Your TSP?

Many federal workers enjoy the Thrift Savings Plan due to the matching contributions, affordably low fees, and the simplicity of its investment choices. However, there seems to be a question that participants have: should they contribute every additional windfall into their TSP?

The very minimum an employee under FERS should contribute is 5 percent so that they can receive the full contribution match. This is free money to put toward your retirement.

Once you have the minimum amount invested every paycheck, you can focus on other items that might need addressing, such as debt. If your debt interest rate is very high, like 24 percent, it would be smart to take care of that first.

Some of you may ask, “but what about the gains of the investments?”

In the past five decades or so, the average yield has been 10 percent. So 24 percent interest on debt tends to beat that 10 percent return. Ensure to get rid of as much high-interest debt as possible, so that you can then free up your budget to put more into your financial future.

Once your debt is taken care of, you will want to save up for an emergency fund. Many Americans are unprepared when a costly, unexpected event is around $400. It would be a good idea to have at least 3 to 6 months of your living expenses stashed away, just in case.

The next thing you may need to look at is if you have everything necessary insured, such as home, automobile, health, or life insurance. Why insurance? Because one unexpected and uninsured event could empty your hard-earned savings. You want to make sure your assets are protected so that you can stay safe financially.

Once those things have been handled, you can prioritize investing in your TSP, other retirement savings account, or market vehicles to ensure that you have enough to live comfortably throughout your retirement.