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There is no such thing as too much money in the Thrift Savings Plan. Image: Andrii Yalanskyi/Shutterstock.com
I’ve heard lots of questions over the many years I’ve worked in the area of retirement and financial education and the most common one is – How much money should I have in my TSP?
There’s a one-word answer to that question: More!
There is no such thing as too much money in the Thrift Savings Plan.
If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.
If you extrapolate this number, you can see that if you want to get $40,00 a year, you’re shooting for a $1,000,000 balance.
These numbers are based on the “4% rule”. Financial planners using calculators that give the odds of running out of money in 30 years (called “Monte Carlo Simulators”), have found that 90% of the scenarios generated by the calculator will result in an individual still having money remaining at the end of 30 years if they begin their withdrawals at a 4% rate and make annual inflation adjustments.
During the last decade of low returns on many investments, some advisors even suggested lower rates of withdrawal.
There’s no reason to throw up your hands and say, “I’ll never reach a million-dollar balance in the TSP, so why should I try?” If you start now and contribute as much as you can to the Thrift Savings Plan, you’ll end up further ahead than if you give up. Remember, time is on your side.
Speaking of time being on your side, I recently ran across a clip of the Rolling Stones performing this early hit on the Ed Sullivan show in 1964. If you had invested $100 in the Standard and Poor’s 500 (the index tracked by the TSP’s C Fund) in 1964 and never invested another penny you would have $27,993.51 today assuming that you had re-invested all dividends. Time truly is on your side.
Did you know that roughly 70 percent of the United States Gross Domestic Product (GDP) is due to consumer spending? It’s you and I who keep the economy humming along; we are the “job creators”.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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