Updated: Mar 12, 2021
Federal employees, retirees, and uniformed service members have access to an employer-sponsored retirement plan known as the Thrift Savings Plan (TSP). It’s the largest group contribution plan in the world, with over $769 billion in assets managed by Blackrock, the Plan’s provider¹. The TSP is a pivotal retirement savings tool for its participants, enabling them to store and build their assets for the future. Like other federal benefits, the power of the TSP can be better utilized by setting aside enough time to allow your plan and strategies to play out.
For starters, FERS employees should prioritize allocating at least 5% of their base pay to their Thrift every pay period. Your employing agency will effectively match up to 5% of your contributions with their own, so aim for at least 5% if you can; it’s FREE money!
It’s important to understand that the match isn’t a flat 5%, though you may have heard it described as such. Broken down, you get an automatic 1% contribution by your employing agency, independent of your own contributions. Then, the first 3% you contribute is matched dollar for dollar, while the next 2% is matched at 50 cents on the dollar². These contributions sum to 5%. The nuance of how the match works is meaningful; given that your employer automatically contributes 1% of your base pay to your Thrift every pay period, FERS employees who have never contributed to their own TSP will have contributions in their accounts. Of course, these individuals could improve their situation by choosing to contribute and take advantage of a bigger portion of the match—and we encourage all FERS employees to do so—but this automatic 1% is worth pointing out, as we’ve encountered many clients who have never personally contributed and therefore believe they do not have a TSP, which is certainly not the case!
If you are contributing more than 5% of your base every pay period, that’s fantastic, but a point of caution: the TSP is bound by annual 401(k) contribution limits, which for 2021, means that participants under age 50 cannot contribute more than $19,500. Those over age 50 are allowed to make an additional $6,500 in “catch-up contributions”, raising the annual limit to a total of $26,000. If you can, spread out your TSP contributions throughout the year to avoid hitting the limit before your last pay period in December. The 5% match is given strictly per-pay-period, so if you max out your TSP contributions early (like in October or November), you will miss out on the full match for the remainder of that calendar year! As a rule of thumb, you won’t hit the ceiling before your last paycheck as long as you contribute less than or equal to $750 per pay period for those under age 50, or $1,000 per pay period for those 50+. Note that this limit is shared between your Traditional and Roth TSP accounts, so there will be some additional math involved if you’re making Roth (post-tax) contributions.
If you are a CSRS employee, you are not part of the TSP matching program, but you can still contribute to your TSP, and you absolutely should if you are able! Regardless of the federal retirement system you fall under, the effect of saving over the long term is real and significant. Even without the match, if you are allocating 5% of your base salary every year towards your Thrift, you will have saved your entire salary over a 20-year period, and that’s with 0% growth. Don’t even get us started on the effects of compound interest!
If you’d like help strategizing how you are contributing to your TSP and how you plan to use it as a retirement tool, reach out to us; we'll be happy to help.
¹United States, FRTIB. "Thrift Savings Fund Financial Statements", CliftonLarsonAllen LLP, 2019. https://www.frtib.gov/ReadingRoom/FinStmts/TSP-FS-Dec2019.pdf
²United States, TSP. "Maximizing Your Savings", FRTIB, 2021.