Are You Losing Free Money in Your TSP Account?

If you are not contributing at least 5% to your TSP account, you could be losing out on thousands of extra dollars.

The Thrift Savings Plan has released a new educational video for TSP investors that illustrates the importance of ensuring you get your agency’s matching contributions through the TSP.

The title of the video is “Take Five for Your Future,” and its key premise is that civilian federal employees need to be contributing at least 5% to their TSP accounts from each paycheck in order to take advantage of their agencies’ matching contributions. Employees who fail to do this are losing out on thousands of dollars that can help them down the road when they get ready to retire.

It sounds like a no brainer on the surface, so why wouldn’t somebody contribute this amount to the TSP? The reasons are most often a lack of knowledge about how the TSP works or not wanting to part with the money that gets withheld from each paycheck without realizing how much a little saving now can impact one’s future so greatly down the road.

The video says that while wanting to keep the extra money each month is certainly understandable, one must consider the effect that these small contributions made regularly have over the course of a career working for the government.

For an employee earning $50,000 per year, 5% contributed towards the TSP is about $95 per paycheck. Assuming this employee earns an average annual rate of return of 6%, that small biweekly contribution could be worth as much as $418,000 after 30 years.

But can you really earn 6%? This figure is actually quite modest given the average annual returns of the stock funds within the TSP. For example, over the last 10 years, the C fund has averaged a 7.44% return and the S fund has averaged 10.43%.

The S&P 500 index, which the C fund tracks, has averaged an annual return of about 10% from 1926 – 2011, so over a long period of time, such as a 20 or 30 year career with the government, one can expect to see a lifetime average return of somewhere in the 7-10% range from the C fund alone.

For employees who are confused about which funds to select or find this to be overwhelming, the TSP offers a simple choice. An employee can select one of the Lifecycle funds based on his or her target retirement date.

For example, if an employee anticipates retiring in 2045 or later, he can choose the L 2050 fund to use for his TSP contributions which will invest in an appropriate mix of the core TSP funds at various points throughout the employee’s career with the government. The Lifecycle funds generally invest more heavily in the stock funds (C, S and I) early on and become more weighted towards the bond funds (G and F) as the target retirement date of the fund approaches.

Can you afford to put at least 5% of your paycheck into your TSP account? The choice is yours, but perhaps a better question is, can you really afford not to?

About the Author

Ian Smith is one of the co-founders of He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.