Sometimes a little adds up to a lot. I recently met a CSRS employee who told me he chose not to participate in the Thrift Savings Plan in 1987 because he was only allowed to contribute 5% of his salary, got no government match and was restricted to investing in the G fund. About 20% of CSRS employees do not participate in the TSP; roughly 10% of FERS employees also choose not to participate.
How much in potential savings did this employee pass up? I made several assumptions in calculating the amount he would have today. The first assumption was that he began contributing at 5% and never raised the percentage. The second assumption was that he was making $30,000 in 1987 and $60,000 today. The third assumption was that he remained in the G fund, which gave him an annual return of 5.93% between 1987 and 2011 (this return was taken from the G fund fact sheet on the TSP website).
He would have just a little short of $120,000 today if he had begun in 1987 and stayed the course for 24 years. At a relatively safe 5% rate of withdrawal, that would result in an annual income of $6,000 that could be adjusted annually for inflation and would likely last him for his lifetime.
He could have had more in the TSP if:
- His salary grew more quickly than I assumed.
- He increased the percentage he saved once CSRS employees were allowed to contribute more than 5%.
- He had diversified his holdings to other funds. The other two “original” funds grew as follows:
- The F fund returned 7.34 in the same period
- The C fund returned 9.78 in the same period.
Before you pass up investing for your retirement and financial future, focus on the long-term. What seems like a small amount today can grow into a much larger amount over time.
