The TSP (Thrift Savings Plan) is awesome at creating wealth and helping you retire confidently.
However, many federal employees cripple themselves by making one (or many) of the following TSP mistakes.
1. Not Saving Enough Early
The most powerful element in investing is time. The more time we have, the more opportunity our money has to double, triple, quadruple, etc.
The problem is that many people don’t get serious about their TSP investing until they get into their mid to late careers.
Saving as much as you can early allows your money to work for you as long as possible which can often allow you to retire years earlier than you would be able to otherwise.
But I do know that most people reading this article are not going to be early in their federal careers. However, the good news is that even as you approach retirement, your money often still has decades to grow in retirement as well.
And this is why, no matter where you are in your career, you will thank yourself many times for any extra you are able to save and invest now.
2. Not Saving More Than The Match
As many of you know, whenever you contribute up to 5% of your salary into your TSP, your agency will also put 5% of your salary into you TSP.
While this is a great perk, no federal employee should stop at just 5% as that amount rarely provides a desired amount of income for retirement.
Dave Ramsey uses 15% of your income as a rule of thumb for how much you should be saving and I think that is a great place to start (no need to stop at 15% if you can afford to save more).
Note: If you don’t yet have an emergency fund or have any high interest debt, it probably makes sense to only contribute 5% into the TSP for the match and attack your debt and build your emergency fund with whatever is left. Once these things are taken care of then you can start contributing more to your TSP.
3. Taking a TSP Loans
As a general rule, I don’t like TSP loans, and while there are some cases where it can be the best option (check out this article for more on this), most people I talk to regret taking out a TSP loan.
The biggest issue with a TSP loan is that the money you borrowed is not growing in your TSP. This can easily cost you thousands of dollars in lost growth. So in essence, you are often just stealing from your future self.
Second, if you have an outstanding loan at retirement then it will count as a taxable distribution from your TSP.
One of the best ways to avoid having to take a TSP loan is by having a solid emergency fund to cover any unexpected things that might come up.
4. Being Too Conservative at Retirement
Most of us inherently understand that you should invest more conservatively as you approach retirement, but honestly, most people I talk to take this too far. They invest too conservatively at retirement.
And investing too conservatively is just as bad as investing too aggressively.
For example, in 2021 inflation was about 6% and the G fund only returned about 1.3%. This means that if you invested 100% of your TSP in the G fund, even though the G fund is considered ‘safe’, you would have lost 4.7% of buying power in 2021.
You need to have long-term growth during retirement as well to make sure you can maintain your standard of living over time.
5. Only Getting Advice At The Water Cooler
The water cooler is a great place to swap weekend stories but not always the best for TSP investment advice. I have heard and seen way too much misinformation spread this way.
While it can be helpful to see what the people around you are doing, you will want to make sure to fact check any advice before implementation.
6. Trying to Time The Market
Trying to time the market is extremely difficult even for the pros. You can get lucky once or even multiple times, but over time the odds are against you.
It’s like catching a falling knife. It could work, but you could also lose a finger, and this is certainly not a risk I would want to take with my retirement savings.
Find a long-term strategy that works for you and stick with it.
7. Watching Your TSP Too Much or Too Little
I see people on both sides of the spectrum. There are those that watch the market and their TSP daily and who get anxious with every market dip.
And then there are those that have no clue what is happening in their TSP and never check it.
Neither of these extremes are very healthy. Ideally, we all check in with our investments on a regular basis (but not too often) such as quarterly or even semi-annually.
This way we have a consistent time to know what is going on (and to make changes/improvements when needed) without getting stressed out about the daily market volatility.