Can you imagine having $1,00,000 in your TSP account?
For many federal employees, this is the pinnacle of their careers; to be able to look at their Thrift Savings Plan account and see seven figures.
Many think it’s not possible or only achievable by the few who are the ultra-high income earners. But, the reality of the situation is, becoming a TSP millionaire requires hard work, dedication and a little bit of luck.
As of late 2016, there were nearly 10,000 TSP Investors with a balance of $1,000,000 or more in their account. That is nearly triple what it was in early 2016.
This shows a few things, but most of all it points to the fact that the market has done well and plays a significant part in how much money will be in your TSP account (as if you dind’t already know that.)
I am getting more calls and emails than ever before from TSP Investors looking for help on how to increase their accounts. Many would love to be referred to as a ‘TSP Millionaire’, but more often than not, they just want to know that they’ll be prepared for all the demands that retirement will bring them.
So, before I go into how to become a TSP Millionaire, I first want to discuss the motivation behind it.
Why Being a TSP Millionaire Matters
Based upon the number of investors in the Thrift Savings Plan with 1 Million Dollars or more in their account, it stands to reason that it’s an elite club.
In fact, it’s such an elite club, based upon the most recent numbers, only .21% of TSP Investors have $1,000,000 or more in their account. That’s probably even less than the number of federal employees who have a financial plan (which is unfortunately VERY low.)
The problem with the idea of every federal employee desiring $1,000,000 in their TSP, is not that it’s completely unrealistic, but that there is no plan attached to it.
You see, for the frugal, $1,000,000 in their Thrift Savings Plan would be more than enough to meet their needs in retirement. For others, though, it wouldn’t be enough.
What I find over time is that one of the biggest issues people have in relation to their personal finances is not so much that they don’t invest enough (most don’t,) but that they spend TOO MUCH. Seriously, if you haven’t done so, take a look back over your yearly expenses and see how much you spent on things like entertainment, clothing, and other things that are considered non-essential.
I’m not saying you shouldn’t EVER spend money on those things, but you should do so in a balanced manner that aligns with your goal.
I hate to be the bearer of bad news, but if your goal is to have $1,000,000 in your TSP than you’re probably going to have to stick to a budget and be VERY frugal in your spending. And, the less you make, the more dedication you will have to have.
I certainly don’t want to step on anybody’s dreams, as reaching a million dollars would be a great accomplishment if that’s something you set out to do. However, I would just suggest that you be realistic with yourself while setting that goal.
Also, you’re going to need a plan.
Every time I say this I picture people getting upset because I technically am a “financial planner,” but I’m not saying you HAVE to use a financial planner. One would certainly help, and I greatly enjoy having federal employees as clients, but it is possible for you to do financial planning on your own.
The problem is, most of you won’t do it.
In fact, many of you reading this right now who are starry-eyed and dreaming about seeing seven figures in your TSP account will be more likely to win the lottery than achieving that goal. And the reason is not that it’s not possible. The reason is that you won’t take the necessary steps to see it come to fruition (::whisper:: like creating a financial plan and living below your means.)
But, I don’t want you to get stuck on the $1,000,000 mark. I instead want you to focus on reaching the number that allows you to have a 100% probability of meeting all of your goals in retirement. If that is $1M, awesome. If that’s $500,000, great. The number ultimately does not matter; it’s just a tool.
3 Steps to Becoming a TSP Millionaire
Why did I just tell you all of that? Why did I just discourage you?
Because I want you to prove me wrong.
I want everyone reading this to have enough money in retirement that the financial worries of this world are not a reality for you. It’s one of the primary motivations behind this website, my YouTube Channel, and my advisory business Dane Financial, LLC.
I believe that there will be people who are a part of the Fed Retirement Planning Community who WILL become TSP Millionaires. Those people will be the ones who take what I’m saying and writing, and rather than putting it aside, will use it to better prepare for their future.
Step One: Invest as Much as Possible into the TSP
Some of these steps will seem rather straightforward and obvious, but if they were, so there would likely be more millionaires.
This step comes down to controlling what you’re able to, and one thing you’re able to control is how much you contribute. We don’t have any control over how well the market does, but we do on our contributions, so this one must be done with diligence.
For 2017, you can contribute up to $18,000 and an additional catch-up amount of $6,000 if you’re over 50 years old.
That DOES NOT include the 5% match you receive from your employer.
So, want to know the surest way to reach your goal of having $1,000,000 in your TSP Account at retirement? Contribute all you can.
If we looked at a federal employee contributing the max of $18,000 for 20 years, and then adding an additional $6,000 for 10 years, without any growth of the account, it would equate to $600,000 contributed on your behalf.
If you then throw in the 5% match, that will increase the account dramatically.
And, throw on top the fact that just choosing a fund like the C-Fund and leaving it there for your whole career will average (based on the last 10 years) a rate of return around 7%, you’re well on your way to reaching your goal.
Many of you are looking at the $18,000 and wondering how that’s possible.
Well, that comes into play with Step 2…
Step Two: Track and Control Your Spending
It’s not enough to want to contribute the max to your TSP each year, you actually have to have the funds to do it.
This goes back to basic financial planning. If I make a recommendation to a client, but give them no advice on how to make it happen, then it’s not much of a recommendation.
Every financial decision is going to require some give or take from another area.
For you to be able to have the $18,000+ to contribute to the TSP, then you’re going to have to earn a very high income (which many federal employees do not) OR, you’re going to have to take the hard road and track and control your spending.
One of the easiest and best ways to do this is to have a budget.
A budget allows you to see how you spend your money, and then allocate how you want to spend it going forward. I know the word “budget” sends shivers down some people’s spines, but there’s a reason I talk about them. They work.
If you haven’t ever, I highly suggest begin tracking your spending to see where it’s going.
Many will tell me there’s no way they could contribute the max to their TSP; that they simply don’t make enough money to do so.
I then ask them how much they spend on eating out, cable television, clothing, and other things. They quickly get the point that it’s not necessarily that they aren’t able to contribute more to their TSP, they would just simply rather spend their money in a different manner.
Step Three: Choose an Allocation and Monitor, but Rarely Change
I talk about this in-depth in my Ultimate Guide to the C-Fund, but to summarize: if you simply left your money in the C-Fund, you’d do better than probably 80% of investors.
I’m all for constant monitoring of your investments (less is probably better than more), but there’s little reason to jump in and out of the market.
Read this aloud until it ingrained in your mind:
I am an investor, not a trader.
Traders are free to jump in and out of the market and many do it professionally. You, however, are not a professional trader.
Benjamin Graham (Warren Buffett’s mentor) has a great quote that I actually have hanging up in my office:
“The individual investor should act consistently as an investor and not a speculator.” – Benjamin Graham
So, decide how to allocate and outside of monthly to quarterly monitoring, just forget about it. Your allocation from the beginning should be one that aligns with not only your goals but also your risk tolerance.
Also, don’t subscribe to those newsletters that charge you $15/month telling you when to jump in and out of the market. Many, if not all are scams.
Step Four: Practice Patience
This is quite honestly the hardest part of growing your TSP to $1,000,000.
Waiting is not easy. Whether it’s waiting for my wife to get ready in the morning or the pot of coffee to brew, I’ve never really liked waiting. Most other people don’t either.
But, waiting can bring excellent things. And, as has been shown over the lifetime of the stock market, those who are diligent and persistent often times beat those who are in it for a quick gain. Think like a tortoise to beat the hare.
I truly believe that many of you reading this today will be TSP Millionaires.
But, in order to get where you want to, you need to start today. I hope to be here to hear how you’ve met your goal years from now.
If you haven’t yet, I suggest picking up the book, “The Millionaire Next Door.” It’s a book I often recommend to my clients, and it will be very helpful to you in your journey towards being a TSP Millionaire.
– Cooper Mitchell