Top 5 TSP Mistakes Federal Employees Should Avoid

These are five potentially costly mistakes federal employees need to avoid when it comes to their TSP accounts.

Have you managed your TSP perfectly from the first day of your federal career? 

If you are like most of us, probably not. 

We all have things that we wish we knew earlier that would have saved us a lot of time and money. 

And if you have yet to get your TSP fully working for you, here is a great place to start. 

1. Don’t Be Default

Let’s face it. When is the default option for anything the best option? Not often. 

The same is true for the TSP. 

When someone is hired, the automatic TSP contribution is 5% of your salary invested into the Traditional TSP and put into the L Fund that they suspect lines most closely to your retirement date. 

And if someone made no changes to this for their entire career, then they’d probably have a decent amount saved, but certainly not a surplus, and it would be invested very (most likely too) conservatively by the time they approach retirement.

Note: The L Funds automatically get more conservative as you approach retirement.

The default options will get you subpar results and certainly not that results you need for a great retirement.

2. The Water Cooler Adviser

Everyone has an opinion about how you should be using your TSP. Especially that one coworker that seems to always be hanging around the water cooler. 

And sometimes, this guy gives great advice. 

For example, I have spoken with dozens of TSP millionaires and I have asked them all what their strategy was during their career. Many of them expressed that they didn’t know what they were doing, but early in their career a coworker told them to invest most of their money in the C and S funds and before they knew it they were retiring with $1 million or more. 

But not all water cooler guys know what they are talking about. I have spoken with countless other federal employees who followed bad advice and they paid dearly for it. 

Long story short, you may want to do your own research before you leave your fate in the hands of the office socialite. 

3. Don’t Hogtie Your TSP

Many people simply invest way too conservatively that their TSP has no chance to have any real growth. 

If you are investing 100% in the G fund I am talking to you 🙂

To make matters worse, right now with inflation between 8%-10%, if you earn 2% in the G fund then you are actually losing 6%-8% of buying power after inflation. 

Overtime, this sort of thing will absolutely decimate your TSP. 

4. Don’t Overdo It

Now, before you run out and invest your TSP as aggressively as you possibly can, let’s talk this through. 

You can take it too far in the aggressive direction, especially as you approach retirement. 

I see this most often with those that got incredible results from investing aggressively during their career and they simply haven’t adjusted anything as they approach retirement. 

I am not saying you need to be 100% G fund in retirement, but you don’t want to overdo it in either direction. 

5. The Downside of the TSP App

This last no-no is when federal employees never check in on their TSP or when they check in way too often.

Let me explain. 

If someone never reviews how their TSP is doing, then they never take the opportunity to make needed adjustments based on their changing situation and needs.

However, many people who check their TSP often are stressed out because they watch the daily fluctuations. These people tend to make irrational investments because they are tied up in the emotional roller coaster of the market in the short-term.

So you’ll want to review your TSP often enough to know what is going on but not so often that you get distracted by short-term gains or losses. 

Here is a video about finding a TSP investment strategy that works for you. 

About the Author

Dallen Haws is a Financial Advisor who is dedicated to helping federal employees live their best life and plan an incredible retirement. He hosts a podcast and YouTube channel all about federal benefits and retirement. You can learn more about him at Haws Federal Advisors.