The TSP a.k.a, the Thrift Savings Plan is a retirement saving and investing account sponsored by the Department of Defense (DoD). It’s the government’s version of a 401k. Which is an account that gives you a tax benefit for squirreling away money for your retirement?
Even though it’s been around since the end of the 80s, many Service members don’t use it to save for retirement. And often the ones that are using it aren’t using it to its full potential. In my experience coaching, I’ve found it’s because they either don’t know how to begin. Or what to do after they’ve started. Taking steps to understand the TSP will help you reach your ideal retirement. I’m talking dollar, dollar, bills y’all. So it’s worth taking the time to understand it and be able to use it well for your benefit.
Here are all the things you need to know about the TSP.
The Blended Retirement System (BRS)
Before we dive into how to begin, I have to mention the Blended Retirement System (BRS). It’s the new retirement system for the military. You can read all about it here. But what’s important to understand is, anyone that joins the military after January 1, 2018, is automatically enrolled. That means they’re also enrolled in the TSP. Members that join before January 1, 2018, are grandfathered into the Legacy Retirement System (the old system). Depending on their years of service or points they may be able to Opt-In to the BRS. Legacy system Service members have to “turn on” the TSP if they want to take advantage of that benefit. I’ll repeat it to be clear. Legacy System Service members need to enroll to start saving money for retirement.
Military Pension vs. Military TSP
One more point to clarify before we get down to bus-i-ness. The difference between military retirement and the Thrift Plan. A pension or retirement is continuing to receive money each month the same as when you’re working. But now you’re retired. There is usually a time rule, in this case, it’s 20 years. When you use the TSP, you’re saving money for retirement through deductions in monthly pay. With the TSP, you’re contributing money to your retirement. The official wording is “a defined contribution plan.” That means the income you’ll get later depends on the amount you save and the investments you select. So the pension is money the DoD saves for your retirement and the TSP is money you save for retirement.
How to Start
Ok, now to begin. It all starts with your MyPay account (the government’s payroll system.) That’s where you go to “turn on” the retirement savings.
1. Select TSP on Main Menu
2. Decide what percentage of your monthly, incentive pay, and bonuses you want to save and invest*+.
3. Choose between Roth vs. Traditional (see below)
4. Wait for your account number and password. The TSP will snail mail them.
5. Login to TSP.gov to select how you will invest your savings.
*You need to contribute at least 1% of base pay to be eligible to contribute money from incentive or bonus pay. But please remember your selections when bonus time rolls around. People often forget they elected to save part of their bonus.
+ Currently, the max you can contribute to your account is $18,500. That’s equal to $1,541.67 per month. If you’re 50 years or older, you can add an extra $6,000 as a catch-up. There are no matching contributions for military members unless you’re in the BRS.
Roth vs. Traditional Savings Plan
During the set-up process, you’ll need to choose between the Roth and/or the Traditional version. The Roth allows for after-tax contributions, while the Traditional are pre-tax contributions.
Further reading: Which is Better: Traditional vs. Roth TSP
TSP Login
Once you receive you’re account number and password in the mail, you’ll now be able to login to your account at TSP.gov. By logging in, you’ll be able to change your investment selection from the default funds your money is put into when you signed up (see TSP Mistakes #2 below).
MyPay vs. Thrift Savings Plan
Remember that MyPay is for changing the amount of money you contribute. Your TSP.gov account is for adjusting your investments.
Forgot Password
The dreaded “forgot my password” comes up a lot. If at any time you forget your password you can reset it through the website if you have your account number. If you can’t remember your account number or user ID, you’ll need to request a new password. They’ll mail a new password to you. But before you do that, make sure you have the correct address listed. Or they’ll send the new password to an old address.
TSP Funds
Now that you’ve set-up your account and decided how much of your monthly pay you’ll be investing in the TSP. Now it’s time for the good stuff. Picking how you want to invest that money. There are five individual funds and lifecycle funds from which you can choose. All the funds offer a mix of different types of investments. Each has its own risk and return. The TSP funds are:
1. G Fund – Government Securities Investment Fund: short-term U.S. Treasury securities
2. F Fund – Fixed Income Index Investment Fund: matches the performance of the Bloomberg Barclay’s U.S. Aggregate Bond Index
3. C Fund – Common Stock Index Fund: matches the performance of the S&P 500 Index
4. S Fund – Small Cap Stock Index Investment Fund: matches the performance of the Dow Jones U.S. Completion Total Stock Market Index
5. I Fund – International Stock Index Investment Fund: match the performance of the MSCI EAFE (Europe, Australasia, Far East) Index
6. L Funds – Lifecycle Funds: Are professionally selected investments mixes meant to meet investment objectives based on time horizon (how long you have until retirement)
Related reading: Best Uses of the G Fund for Service Members
How to Pick Your Investments
1. Get Schooled Up – You may not want to hear it, but you’re going have to read over the TSP.gov website. Learning about the different types of investments will help you make decisions about your retirement.
2. Set Your Goals –
3. Pull the Trigger – You can read and research until your blue in the face, but at some point, you have to make a decision and live with it. Even though you shouldn’t do it too frequently, you can always change your fund selection if you’re unhappy.
4. When in Doubt, Go with Lifecycle – If you have a paralyzing fear of making a decision, start with the Lifecycle Fund closest to your 62nd birthday. Remember it’s a one size fit all fund, not a personalized one.
4. Don’t Set It and Forget It – Don’t select your investment funds and never look back. Review your funds ever six months or a year and make any necessary changes.
TSP Management Help
If you’d rather paint your nails or wash your car than figure out your TSP, Blooom can help. You’ll have to pay, but for $10 a month, they’ll manage your TSP for you. They have a great video to explain it all.
Matching Contributions
You can only receive matching contributions from the DoD if you are in the BRS. If you are, the DoD will match up to 5% of your contributions.
Thrift Savings Plan Loans and Withdrawals
I’d like to start by saying you should not take a loan or withdrawal from your account unless it’s an emergency. When you take money out of your account, you’re taking away money from your future self. That said, you can take a loan or a withdrawal from your account, but there can be costs and effects from it. When you make a withdrawal that means you’re permanently removing money from your retirement savings. There’ll be a tax liability and possibly a tax penalty if you’re under the age of 59 1/2. There’s also a $50 fee to take out a loan, and the smallest a loan can be is $1,000. There are different types of loans, eligibility, and rules that go with them. Keep in mind. You cannot borrow or take out more than the amount of money you have contributed and earned.
TSP Calculator
The TSP.gov website has calculators to help you make decisions about your retirement. Here’s a list of the calculators they have available:
TSP Mistakes to Avoid
Saving for retirement is crucial for your financial future. There’s plenty of advice on what to do with your TSP but not so much of what not to do. Here are five common TSP mistakes to avoid.
1. Not Investing
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. It’s a mistake not to use the TSP or other tax-advantaged accounts to help you save money for the future. Also, if you don’t plan on serving for 20 years you absolutely should use the TSP. By doing so, you’ll have some retirement savings when you leave the military. If you haven’t been contributing or set-up an account, now’s the time.
2. Not Picking Your Investments
If you don’t select your investment options when you sign up for the TSP, they’ll choose for you. All the money you allot from your paycheck will go one of two ways.
1. Signed up before September 5, 2015, all money went into the G Fund.
2. Signed up after September 5, 2015, all the money goes into the Lifecycle Fund closest to when you will turn 62.
Until you log into your account and select the funds you want, that’s where they’ll invest your money. That’s a mistake because the investment options the TSP defaults to may not be the best for you. They could have more or less risk than you’re comfortable with, or they may be in funds you don’t want. That’s why it’s important you educate yourself and make the selection that’s best for you.
3. Not Increasing It
As your income increases, so should your retirement savings. Almost every year, the military receives an increase in their pay. It would be a TSP mistake not to go into MyPay and increase your contribution by half of your pay increase. As your salary increases, you’ll want your quality of life to improve as well. The other half of your pay increase can go towards improving your quality of life.
4. Forgetting About It
If you’re using the TSP, then you’re on the right track. That’s the biggest part of saving for retirement. But, the other part is reviewing and adjusting your investments every six months to a year. If you’re not reviewing your account, it is a mistake. I coach many people close to retirement that haven’t earned money because it sat in the G Fund. They set up the TSP but forgot about it. There needs to be a review to adjust your investments and to check for errors in your account. Also, review who’s the beneficiary of your TSP. Your TSP isn’t something to set and forget.
5. Withdrawing or Borrowing Money
I’ve already mentioned that right now you’re earning money for two people. When you borrow money from your savings, it’s the same as taking money from 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.
Thrift Savings Plan Address and Phone Number
If you’re trying to give the TSP a jingle for extra help or information, you can call. But don’t do it on a Monday or Tuesday because those are the busiest days. Wait until Wednesday to avoid the frustration of waiting music. To speak with a human, you’ll need to call between 7 am and 9 pm Eastern time. If you don’t mind talking to a robot, you can call 24/7. Either way, you’ll need your TSP account number and four-digit pin to get any intel on your account.
1-TSP-YOU-FRST
(1-877-968-3778)
To mail in forms or general correspondence, you can use this address. But for others be sure to check out the TSP website for those addresses.
Thrift Savings Plan
P.O. Box 385021
Birmingham, AL 35238
Here’s the Bottom Line
Understanding the TSP can save you money plus frustration come retirement time. Now that you know the ins and outs of it, what are you going to do about it?
Photo by Sgt. Thomas Mort
