A Bullish Stock Market: Number of TSP Millionaires Up Significantly
by Ralph Smith |
Whether you think that you can, or that you can’t, you are usually right…Henry Ford
Last year, we ran an article about the 208 millionaires that are enrolled in the Thrift Savings Plan. That is good news but here is an update: There are now 562 millionaires in the Thrift Savings Plan.
Obviously, accumulating that much money in an investment account for future retirement income is a milestone and those that have done so are to be congratulated. When writing the article, I considered the fact that there are 208 millionaires as an affirmation of the success of the Thrift Savings Plan and how some federal employees have invested wisely and profited from putting money to work in companies both here and abroad.
One of these successful millionaire investors wrote this comment:
I’m one of the 208 who has a little over $1,000,000.00 in my TSP account after contributing to the TSP since it’s inception. I don’t consider myself an investment guru, just someone who took advantage of the match and increasing my contributions when I became able to contribute more after age 50. I retired several years ago and I’m looking forward to contributing or rolling over my ROTH account in the TSP ROTH once it gets up and going. Yes, it can be done but you can’t just invest and forget but restructure your TSP fund periodically according to the financial times we are living in.
Another reader wrote to us recently with this comment that may appeal to the readers in the FERS system: ”As a near 30 year employee of the Dept of Veterans Affairs who is now nearing retirement, I never in my wildest dreams would have guessed I would amass the chunk of change the TSP has helped me create. When I first came to VA, FERS was new and the prevailing sentiment was that CSRS was the better retirement plan. It took a few years but that idea did fade. Especially for those who jumped on the TSP bandwagon early and stayed on in full force.”
But, despite the good news about the financial success of these TSP investors, more than a few of the comments were negative. One person referred to me as an “idiot” for allegedly spreading a false illusion that federal employees can accumulate a million dollars in the thrift savings plan. One person went to considerable lengths to go through the history of the TSP and the ups and downs of the stock market to demonstrate it was impossible for a federal employee to accumulate a million dollars in the TSP.
Here is a portion of one comment that succinctly states this point of view:
“The conclusion is obvious and inescapable. The overwhelming majority of tsp millionaires were flush with money before they entered public service, and merely transferred some of their assets into the thrift savings plan once employed by the federal government.”
After last year’s article appeared, another person wrote: “I would venture to say that all TSP millionaires are simply those who rolled over money from somewhere else. I do not believe anyone who has not done so is a millionaire.”
Regardless of a reader’s personal belief on whether it is possible to accumulate a million dollars or more in the TSP, here are the facts: There are now 562 millionaires in the TSP program—up from 208 about one year ago. One person stands out as the top investor with a total accumulation of $3,421,521.93.
Length of Federal Service for TSP Millionaires
We asked the folks at the TSP how long most of these TSP millionaires have been a federal employee. The answer is 24.8 years, at least for those in the FERS system. According to Kim Weaver, Director, Office of External Affairs for the Federal Retirement Thrift Investment Board, ”The average tenure for active employed FERS participants with more than $1 million in their TSP account is 24.8 years. This data is unavailable for CSRS and uniformed services employees. We do not track rollover data.”
For comparison, the average TSP investor has been with the government for 10.8 years.
So, make of that what you will. But, for these TSP millionaires, most have been a federal employee for more than two decades. Presumably, that number would be a little higher if the data for CSRS employees were available.
So, how do these successful individuals invest their money? “Of the 562 participants, 40 are investing solely in the lifecycle funds, 68 are partially invested in the lifecycle funds, and the remainder is solely invested in the core funds.”
How Much Does Uncle Sam Contribute to the TSP?
How much does the government contribute to the Thrift Savings Plan for its employees? Here is the data just for the most recent fiscal year:
Total Agency Contributions: $7,584,896,259.40
2012 contribution average for an employee: $4,914.96 (This average does not include catch-up contributions or participants without employee contributions (i.e. their contributions consist solely of agency 1% automatic contributions)
TSP Investment Returns
Approximately 41% of all TSP funds are invested in the G fund. That is understandable as the G fund is a relatively safe investment. It has never gone down so it always provides some return on your money. The problem, of course, is that the return is likely to be small. In fact, the G fund rate of return is likely to be less than a realistic rate of inflation, particularly for retirees as they often have expenses that are not realistically calculated in the official inflation rate.
In 2012, for example, the G fund had an annual return of 1.47%. The C fund returned 16.07%.
Since its inception in 1988, the C fund has had a return rate of more than 11% per year—despite having several years in which C fund investors saw their investments go down significantly. The G fund has returned an average of about 5.6%. (Check out the annual rate of return for all TSP funds in the TSPdatacenter.com)
In effect, a TSP investor who put money into the G fund has had a “safer” investment and never lost money but the price for this extra margin of safety was substantial over a long period of time as this investor would have given up the extra average rate of return provided by the C fund.
Stated differently, it is a good bet that investors who have attained the million dollar mark in their accounts have had much of their investment in the TSP stock funds rather than the G fund. That is an easy observation to make but, when the stock market goes down dramatically as it did in 2008, or as it did for several years in a row early in the 21st century, it is very hard to stay invested in stocks when you see your investment totals dwindle on a regular basis.
For those who have been regular investors, the payoff has been significant. Our congratulations to these successful investors.
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by Ralph Smith |