Updated: April 14, 2021 TSP mistakes happen more than most of us would like to admit. If you’re actively saving money in your Thrift Savings Plan (TSP), you’re doing the right thing. Saving for your retirement is the critical part, but sometimes mistakes happen. If you don’t catch and fix them, it can cost you money and delay reaching your retirement goals. TSP mistakes are errors in the management of your Thrift Savings retirement account. Correcting management missteps can save you more money and time in your long-term retirement savings. As a financial coach, I see—and catch—some common TSP mistakes. Knowing what they are can help you either avoid them or correct them on your own. Here are the top TSP mistakes people make and, more importantly, how you can fix them.
Not Using Your TSP Benefit
Hands down, the number one mistake people make with the TSP or any other employer-sponsored retirement account is not utilizing it to save for your retirement. It’s one of the perks of serving, so you should take full advantage of it. In case you don’t know, you should be saving for retirement. Right now, you’re working to earn money for two people—you and your 80-year-old self. To cover room and board for both of them, you’ll need to save part of your current income to use years from now. So, it’s a mistake not to be using your TSP or another tax-advantage account to assist in amplifying the money you’re saving for your future self. If you haven’t been contributing or set up an account, now’s the time. Related: Using Spousal Individual Retirement Account (IRA) to Save for RetirementThe Fix
The easiest way to fix this is to go into your MyPay account and begin having automatic payroll deductions start for your Thrift Savings Plan. Decide how much you want to contribute each pay period to begin. Your financial goals, retirement plans, and many personal factors will go into deciding your savings rate. If you fall under the Blended Retirement System (BRS), you were automatically signed up for the BRS 60 days after your military service began. If you’re in the Legacy Retirement System, you need to make the election yourself via MyPay. Related: How to Make the Traditional vs. Roth TSP DecisionNot Contributing Enough for the Match
If someone offers to match the amount of money you save, it would be an expensive mistake not to take them up on that offer. For those of you under the BRS, you’re eligible to receive a matching contribution of 5% of your basic pay. That means if you aren’t contributing at least 5% of your income to your TSP, you’re losing money. You’re missing out on an extra 5% of retirement savings. It wouldn’t be a government program if it didn’t have a degree of “let’s make this confusing.” So get ready. Here comes the “if-then” matrix.The Fix
It is such a big mistake not to contribute enough money to get the match that the Department of Defense did something to correct the error. You see, for service members under the BRS that joined the military between August 1, 2010, and September 30, 2020, you were automatically set up to contribute 3% to the TSP, which is not enough to get the match. If you fall in that category, to rectify a low contribution rate, the fix is to increase your Thrift Savings contributions to at least 5%. To bump up your monthly savings, you go into your MyPay account to up your contribution percentage. If you joined the military after October 1, 2020, you’re automatically set up to make 5% contributions to your TSP. The only way you won’t be saving the 5% required to get the match is if you go into MyPay and change it yourself. And even if you do that, on January 1, the TSP will automatically put you back to saving 5% unless you go in again and change it. Which you should not. If you fall under the Legacy System, you aren’t eligible to receive matching contributions. You do, however, receive a higher monthly military pension. Related: What You Should Know About the Blended Retirement SystemGoing All-in On the G Fund
If you set up your TSP account before September 5, 2015, all of your contributions or the money you put in was automatically invested into the G Fund. Unless you’re getting ready to retire fully, it’s a mistake to be all in on the G Fund. The G Fund may have the least amount of risk, but because of that, it also has the least amount of return, which can cause you to miss your retirement savings goals. And when I say fully retire, I mean to retire from working, not just retire from the military. If you set up your TSP after September 5, 2015, or you’re in the BRS, all of your contributions are automatically invested into the Lifecycle Fund closest to your 62nd birthday. Which may have less risk than you’re comfortable with, or they may be in funds you don’t want. It’s a mistake not to be invested in TSP funds that work best with your retirement savings goals.The Fix
To fix the mistake of being all in the G Fund or being invested in a Lifecycle Fund that isn’t a good fit for you is to log into your TSP.gov account and change your allocations. Changing your allocations isn’t something you’ll do just once. Change your allocations to make sure your TSP savings stay in line with your investment goals. Also, you must educate yourself and make the selection that works best for you. To help with those decisions, the TSP website has plenty of information on investment strategy and calculators. Resource: The Basics of Thrift Savings Plan Investing
Allocating for the Wrong Reasons
Allocating your TSP for the wrong reasons is a mistake too many people make. Just because your buddy allocates his Thrift Savings one way doesn’t mean that’s the way you should do it. Often service members make their investment choices based on what the barracks financial planner says. Or they’re picking something random just to get going on their TSP. Investing by throwing a dart at the board or based on someone else’s criteria—who isn’t a financial professional—is a mistake.The Fix
Before you pick the TSP funds, you invest in, consider your financial needs, budget, and goals. Factors like the time you have until retirement, the risk you’re comfortable with, and your retirement spending needs and wants. Use the tools and resources on TSP.gov to help you make informed decisions for your retirement—not someone else’s. Resource: U.S. Securities and Exchange Commission’s Beginners’ Guide to Asset Allocation, Diversification, and RebalancingNot Increasing Your Contributions
It’s a mistake not to increase your TSP contributions over time. As your income increases, so should your retirement savings. Almost every year, the military receives a pay increase. Unfortunately, most people just take the pay raise and improve their currency quality of life. You work hard for your money. There’s nothing wrong with improving your quality of life. You just also have to consider the future. It can’t all be about getting a sweet new truck or a trip to Disney.The Fix
The fix to this mistake is to increase your TSP contribution yearly. As your salary increases, take half to improve your quality of life but use the other half to increase your quality of life in retirement. Remember, you’re saving money for two people!Not Reviewing Your Thrift Savings Plan
Nothing in your finances is set it, and forget it. You have to stay mindful of the state of your money all of the time—to include your retirement accounts. It’s a mistake not to review and reevaluate your TSP account every six months to a year. I’ve coached many people who are getting ready to retire only to find out that they haven’t earned any money on their contributions because it sat in the G Fund for years. They set up the TSP but forgot about it after that and never reviewed their account. There needs to be a review to adjust your investments and to check for errors in your account.The Fix
Review your Thrift Savings account and investment every six months to a year. Check your account for errors, increase your contributions, and evaluate the funds you’re invested in. Determine if they are still in alignment with your retirement spending needs and your goals.Taking TSP Loans
In most cases, it’s a TSP mistake to take a loan from your retirement savings. Remember you’re earning money for two people—you and your 80-year-old self. So when you borrow or withdraw money from your retirement savings, it’s the same as stealing money from an 80-year-old. That’s not cool. And since your TSP account is also the money you’re saving for your 80-year-old self, you won’t have that money in the future to live. And that’s a huge mistake—you will need that money later. Of course, there may be times when it is necessary to borrow money from your retirement savings. For example, if you needed to pay for a catastrophic medical bill. But taking money out to go on vacation or to pay for your child to go to college isn’t a good idea. I’ve seen too many people ready for retirement but unable to do so because they kept spending their retirement savings.The Fix
The fix for taking a TSP loan mistake is simply doing this one thing—don’t do it! Do not take loans off of your future self. If you think you’re struggling right now to get by, imagine how much harder it’s going to be to generate income when you’re 80. Have no doubt—it’s going to be harder. So unless you have a severe emergency—like life or death—don’t take a loan from any of your retirement accounts.Not Updating Your Benefericies
Last but certainly not least of the TSP mistakes is not updating your beneficiaries. The person or person you choose to be your beneficiary may not be the same now as when you started your TSP. It’s a big mistake not to keep your benificiary designations up-to-date. You may get married, have kids. And let’s not kid ourselves. Divorce is a reality in the military. Unfortunately, many service members get married or go through divorce and never update their beneficiaries.The Fix
Be sure to update who you want to receive your TSP benefit in the event of your death. Anytime you have a life change like marriage, kids, or a divorce, update your beneficiary designation immediately. By keeping your information current, your TSP savings will go to the people you wish it to go to. And P.S. The importance of updating your beneficiaries also applies to your Servicemembers Group Life Insurance (SGLI). Related: The Financial Guide to Help You Through a Military DivorceHere’s the Bottom Line
Saving for retirement is crucial. If you’re already putting away money in your Thrift Savings for your 80-year-old self, you’re on the right path. But don’t let minor TSP mistakes cost you money and the quality of life you want in retirement. Identify errors early and take immediate action to fix them If you want to “kickstart” your finances in the military, you can get access to my free Financial Kickstart Kit here.
