The Thrift Savings Plan is getting a big makeover, giving military families a powerful new tool to invest for retirement.
For years, the Thrift Savings Plan (TSP) has offered military members and federal employees an attractive set of low-cost investment options for building up retirement funds during their working years. Now, the TSP Modernization Act is providing a new set of withdrawal options for generating flexible income in retirement.
Effective Sept. 15, 2019, TSP participants can:
- Make multiple withdrawals
- Select a mix of withdrawals
- Remain in TSP after age 70.5
- Schedule flexible payments
For those in the military, this is the second significant enhancement to the TSP in the last two years. With the implementation of the Blended Retirement System on Jan. 1, 2018, service members began receiving an automatic contribution to their TSP account equal to 1% of their base pay and matching contributions on the first 5% of their own pay invested in the TSP. (They earn a dollar-for-dollar match for the first 3% and 50 cents on the dollar up to the next 2%.)
The TSP should be the go-to option for service members investing for their future retirement, and our financial advisers coach their clients accordingly.
How can you make the most of the TSP? Drawing on our decades of providing financial coaching, here are our top tips on getting the biggest benefit for your family.
1. Start saving early by paying yourself first. Once you decide how much you should save each month, take that money out of each paycheck, before paying bills or making purchases. The easiest way to do this is with an automatic deduction going into your savings account.
2. Capture the match. If you are in the Blended Retirement System, you'll receive an automatic contribution to your TSP account equal to 1% of your base pay. But you should take maximum advantage of the program by earning matching contributions on the first 5% of your own pay invested in the TSP. Otherwise, you're leaving free money on the table.
3. Save windfalls. Set aside a portion of every small windfall that comes your way. Small savings today can pay off big in the years to come.
4. Invest for the long term. Be sure to concentrate on investments best suited for building personal wealth. For most people, that typically means a broad participation in the stock market. Fear of potential stock market losses prompts many TSP participants to put their dollars in the G Fund, which is invested in short-term U.S. Treasury securities. It offers protection from loss of principal but delivers returns that may be below the rate of inflation. While the G Fund may look like a haven from losses in the near term, it may not deliver enough growth for service member families to meet all of their retirement wants and needs. Don't invest too conservatively for a retirement that is likely decades away.
5. Hire a coach. Even if you engage in all the right behaviors, we believe the TSP alone is not enough to achieve a secure retirement for most people. People need to be coached to pursue a long-term retirement plan. A knowledgeable financial adviser can coach you in the financial behaviors that will help you build assets throughout your working years, then transition from asset accumulation to asset distribution at retirement.
The Thrift Savings Plan just keeps getting better and better. And that's great news for military members and federal employees who have exclusive access to this outstanding retirement-planning resource.
Scott Spiker is CEO of First Command Financial Services, which coaches our nation's military families in their pursuit of financial security. Since 1958, First Command Financial Advisers have been shaping positive financial behaviors through face-to-face coaching with hundreds of thousands of client families.