Not Contributing to TSP Will Cost You in the Long Run


There’s a lot of uncertainty out there these days…war, inflation, wild market swings and other scary scenarios that go on and on. Given all that, here is one thing of which I’m certain: You wouldn’t walk right by a $100 bill sitting on the ground without taking notice. Sure, you might wonder how it got there and even make a solid effort to find the rightful owner, but you wouldn’t just ignore that kind of cash — that’s not a money move to make – or would you?

Hundreds of thousands of workers across America do it every single paycheck. Yes, I’m talking about failing to take full advantage of an employer’s matching contributions to the Thrift Savings Plan, a 401(k), or another workplace retirement plan. In December, The Federal Retirement Thrift Investment Board reported that 25% of those eligible for a total of 5% in automatic and matching contributions to the TSP were not contributing the 5% required to get it. Those findings aren’t a surprise given similar choices that have been documented in civilian retirement plans over the past decade. That’s bad.

Hopefully, you’re intimately familiar with your employer’s matching contribution arrangement. Even more importantly, that you are leveraging it to its full effect and making the most of what’s available.  It hits me right now, during the Great Resignation and the considerable churn we are seeing in the employment space, how important it is to also understand your plan’s vesting schedule. By that, I mean how much service time must you log before those employer contributions are yours.  

Whether you are considering what could inadvertently be an ill-timed move or failing to take full advantage of a matching program, it’s not just one bill, but a sidewalk full of them, you may be walking blindly past without understanding the implications.

Here are a few number-crunching thoughts that I hope will have you, metaphorically, bending over and reaching for the ground:

Missing out on 5% for just a year is bad. Let’s say your employer pays you an annual salary of $50,000. Miss out on a 5% match from your employer, and that’s $2,500 that you won’t be getting. Doesn’t sound like a big deal? Well, if you earned a 7% return on that money over the next 45 years (age 22 to 67) — that’s more than $50,000 in savings that’s not part of your retirement fund.

Missing out on 5% for five years is really bad. By not contributing, you would be making a move that could equate to nearly a quarter of a million in “lost” dollars. 

Miss out on 5% for your career, and you’ve created your own TV show: “Who Doesn’t Want to Be a Millionaire?” And not just a millionaire, but a multimillionaire because the missing million dollars that I calculated based on what you didn’t receive from your employer is only half the story. You’d potentially have over $2 million because your own contributions also would have been compounding over the decades.

A month could mean thousands of dollars lost. Vesting requirements vary from employer to employer, but it could be possible that your employer has what is called a 3-year cliff vesting schedule. That means that after three years of service, all the matching money they contributed is yours. Quit at 2 years and 11 and poof, all that matching money is gone. According to the Fidelity, the average employer contribution to plans they oversaw in 2021 was just over $4,000…so one month could cost you over $12,000. 

Your path to financial security may be littered with cash in the form of employer-matching contributions. Scoop it up and avoid missing out on this important tool in your quest for a relaxing retirement.

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