Matt: There's three things, Jeremy, that you can control inside TSP.
The first thing that you can control is time. Start today. So here's an example. If you contributed for 10 years making $85,000, the 5% and you've got the 5% matching with a 2% COLA, and let's say you average a 5% return. If you did it for 10 years, you would have $118,000. If you do it for 20, it would be 338. If you do it for 30 years, the same thing, you would have $728,000. The only difference is, is how long you contributed and how long you let your money grow.
So the first thing you can control to a degree is time. Start today, don't delay, is the point. The second thing you can control is compound interest. What funds are my money in, inside TSP? Again, what you saw for the 10 year history is not necessarily what's gonna happen in the next 10 years. But if you do look here, if you made 85,000, you got 2% COLA over your career., you contributed 5%, you had a matching of 5%, you got a 3% return for 30 years. You'd have $531,000. But if you did the same contribution and you were in a more aggressive fund and maybe you could average around 8%, you would have $1.2 million. That's a big difference in what funds you choose. So this shows the difference in choosing the funds, and again: everybody's different on the funds they should choose.
The next thing is contribution. How much you put in. Remember, 5%'s the matching but you can do more. So if you took the same employee for 30 years with a 2% COLA, putting in 5% with a 5% return, $728,000, that number we saw earlier, but let's say you could do 10% or 15%, over $1.4 million dollars if you can do 15% for 30 years. So the third thing you can control is how much you put in.
So to recap, you start today, you can control time to a degree. The second thing is what funds you choose. Are you gonna keep all your money in the G Fund? Or are you gonna consider diversifying the little bit to try to get a higher average return? The third thing you can control is how much you actually put into TSP and it's up to you. Again, if you can do just one of these three items. You can make the difference in your retirement because it's in your control. We run into very few people that can actually do all three, and do all three good.
Jeremy: What happens if you do?
Matt: Well, we call it a trifecta.
Jeremy: A trifecta?
Matt: What's a trifecta? That means you did time, contribution, and you chose the right funds over your career. This is what it looks like. An $85,000 career with a 2% COLA for 30 years, contributing 15%, no catch up provision, 5% matching with an average of 8% return over the 30 years: $2.4 million.
Jeremy: So you're a multimillionaire just by planning in advance, having the right education and the right guidance, and being smart.
United Benefits has assisted thousands of federal employees on several impactful topics. We can help you, too. Ask us anything!
Click here to request a consultation and talk one-on-one with a representative about the options available to you.