If you are a federal employee, your TSP or Thrift Savings Plan is one component of your retirement benefits provided by the federal government.  The TSP is a defined-contribution retirement savings plan that functions in a similar way that an employee 401k functions in the private sector.  Money can be invested pre-tax or after tax, employees can enjoy matching contributions from their agencies, and there are different fund options in which you can invest.  There are 5 individual funds as well as 5 Lifecycle funds that are a mix of the individual funds. When choosing how to invest in your TSP it is important to take a variety of factors into consideration so that you can maximize your savings for your retirement.  Below are 3 tips for TSP investing that we recommend.

3 Tips for TSP Investing

1. Start Saving as Soon as Possible
   • Regardless of what age you are right now, start saving in your TSP as soon as possible. It may feel strange to be saving for retirement at 20 years old but the more you save now, the more you will have when you reach retirement age.  And, if you have not yet begun saving and are already mid-career or late in your career, there is still time to save!  In fact, the federal government allows you to make catch-up contributions which are extra deposits that you make to your TSP once you turn 50 years old.
2. Contribute 15% of Your Salary
   • It is important to contribute as much as you can to your TSP account and, ideally, work your way up to contributing 15% of your pay. For those covered by FERS the government matches up to 5% what you contribute so by all means contribute at least 5% of your pay otherwise you are passing on free money. Think you simply cannot afford to contribute 15%?  Every little bit counts and small changes can have a big impact.  Look for ways you can contribute more to your TSP account.  Are great way is to divert increase in pay such as a step increase, promotion or COLA.  Perhaps you eat out at restaurants less, spend less on groceries, spend less on entertainment or other expenses – you may free up some cash for your TSP that you will thank yourself for later!
3. Don’t Chase Investment Returns
   • There are 5 individual funds plus 5 Lifecycle funds in which you can invest for your TSP. It can be beneficial to change up which funds you invest in from time to time. But, understanding the market and knowing what to do and when can be confusing and something that many people simply don’t have time for.  By default, many folks simply invest in the funds that have done the best for the last month, 3 months or year.  This is chasing returns or buying high and selling low.  Successful long term investing means not allowing short-term movements in the market to put you in panic which can lead to poor decisions.  It’s wise to create a fund allocation that is appropriate for your risk tolerance and time until your plan to use the money.  You may also consider counsel from a qualified financial planner who can help you make appropriate TSP investments decision for your risk tolerance and time horizon.

There has been a lot of buzz about President Trump’s proposed fiscal 2018 budget.  The proposed budget would save the government trillions of dollars but many government programs would be impacted by the budget cuts as a result.  If you are a federal employee, the proposed budget cuts may deeply impact something very important to your financial future – the federal retirement system.  The proposed budget would cut spending on federal retirement programs by $3.3 billion over a 10 year period.

President Trump’s proposed budget would seek to cut contributions to federal employee’s retirement programs.  Though the proposed budget will not necessarily be implemented as is – congress ultimately has to vote on the budget – if you are a federal employee, it may directly impact your retirement savings.  Should President Trump’s proposed budget get enacted, it would be important to revisit your retirement plans as soon as possible and make necessary changes to give you the highest probability of meeting your goals.

There are various increases and decreases in President Trump’s budget so determining what it all means can be confusing.  For example, though President Trump proposed a pay increase, the cut to federal retirement spending.  The Washington Post elaborates on the five main takeaways for federal employees if President Trump’s budget is enacted as is:

• Increase Federal Employee Retirement System (FERS) contributions from workers by 1 percentage point each year until they equal the government’s contribution. This would take five to six years and would result in increased out-of-pocket payments of about 6 percent over that period. Out-of-pocket payments by federal law enforcement officers would increase by the same amount, but would not equal the greater contributions from law enforcement agencies.
• Base future retirement benefits on the average of the high five years of salary instead of the current high three
• Eliminate cost of living adjustments (COLA) for current and future FERS employees
• Cut the COLA for Civil Service Retirement System (CSRS) employees by 0.5 percent from what the formula would allowed
• Eliminate the special retirement supplement payments for FERS employees. The supplement approximates the value of Social Security benefits for those who retire before age 62.