How to Manage Your TSP Like You Want To Be Rich

in Invest by Lacey Langford, AFC®

You absolutely have to do it, but it’s kinda overwhelming if you don’t know what you’re doing. Managing your TSP account is just something that has to be done if you want your investments to grow. And it begins the moment you set it up. You have to know what type of account, how much you want to invest, the funds you want to invest in. Plus a plan to manage your TSP account for its lifetime.

In some of my other videos, I’ve shared What the Heck the TSP is and what to do with your TSP account when you leave military service but today I going to explain the difference between a Traditional TSP and a Roth TSP,  how to decide how much to contribute, and how to allocate your contributions. All of which will help you manage your TSP like you want to be rich. Side note: This article is geared toward active duty or veterans using the TSP, but all of these topics apply to civilian 401k or 403b plans as well.

Today’s What the Heck Wednesday is:

How to Manage Your TSP Like You Want to Be Rich

TSP Contributions

In 2018, the maximum you’re allowed to save in your Thrift Savings Account is $18,500. But if you’re over the age of 50, you can contribute a max of $24,500. If you’re under the Blended Retirement System (BRS), you should contribute at least 5% of your income to get the full match from the Department of Defense. Remember, the Legacy Retirement System does not have matching contributions from the Department of Defense.

The amount of money each person needs in retirement depends on the person. Many factors go into the amount such as life expectancy, how long they will work and how much they spend and save.

A good rule of thumb is to save 10% of your pre-taxed income, but 15% would be way better. If you’re an E-3 making $2,000 per month, 15% would be $300 per month. If you aren’t able to do 15% right away, that’s alright. Do not beat yourself up. Just start saving $50 and keep increasing it over time. Shoot for increasing your contribution by 1% each year.

Traditional vs. Roth TSP

You’ll have to decide which type of TSP account you would like to set up, a traditional TSP or a Roth TSP.

Traditional TSP

The Traditional account means that the contributions you make come out pre-tax. The money then grows tax-deferred until you retire. At retirement, you will pay taxes on the earnings based on our tax rate at that time.

Roth TSP

With a Roth TSP account, your contributions are after-tax. This means you paid the taxes before the contribution and therefore will not have to pay taxes when you withdraw the money at retirement. Roth is often more popular and valuable because you will not pay a portion of your earnings to the IRS at retirement.

Further reading: Which is Better: Traditional vs. Roth TSP

MyPay Account

These first two steps, deciding between a traditional and Roth TSP and contributions is all done through your MyPay Account. You log into your account and select the TSP tab to find the selections.


TSP Allocation

Asset allocation is a significant part of how to manage your TSP. You’re deciding how to spread your money between three groups of financial groups which are better known as securities. Those three securities groups are equities, fixed income, and cash equivalents.

Deciding on the asset allocation of your TSP means you pick how much of your money you want to invest in each of those three.  For example, you can put 70% of your money in stock and 30% in bonds or 60% in stock and 30% in bonds, and 10% in cash equivalents.

Three things to consider when you’re deciding on the allocation of your account, risk tolerance, risk capacity and time horizon.

Risk Tolerance

Risk tolerance is your ability to handle the increases and decreases in your investments caused by the market. Could you handle large drops in your account balance and not panic or would a little drop in your investments cause you to panic and sell at the wrong time. Your tolerance of risk doesn’t change much in your lifespan, it’s just who you are. Knowing yourself and how you feel about the potential loss of money will help you make decisions about how you divvy up your money.

Risk Capacity

Risk capacity is how much risk you can take based on your current financial situation. For example, if you just lost your job and are getting ready to have a kid, your capacity for risk is going to be low. Your risk capacity will change over time based on your current situation.

Time Horizon

Time horizon is the length of time until you will need to start cashing out your investments. In the case of your TSP, it’s how many years until you retire, which can be decades away. When you know your time horizon, it helps you determine what types of investments. If you have more time until you retire, you can take more risk, but if you are close to retiring, you don’t want riskier investments because you don’t have as much time to make up if there is a loss.


TSP Funds

Once you have in mind the asset allocation you want, it’s time to pick the investments to apply it to. There are no individual stocks in the TSP—there are five individual funds and lifecycle funds. You’ll need to decide what percentage of each fund you’d like to purchase with the money you’re contributing to the TSP. The 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: Professionally selected investments mixes meant to meet investment objectives based how long you have until retirement

Further reading: Best Uses of the G Fund for Service Members

Reallocating Your TSP Account

The original allocation or balance you have between stocks, bonds, and cash equivalents changes over time and as the market does. Your time horizon will get shorter and shorter which is just a nice way of saying you’re getting older. The mix of assets you hold will get out of balance over time. For example, if the stock market is doing well, your percentage of stocks may be higher than you want. It could go up to 90% of your investments instead of the 70% you want. Reallocating means you would need to sell 20% of our stocks to get back to your desired allocation. Check your TSP account at least twice a year to see what rebalancing or allocating you need to do.

Help Managing Your TSP

If the thought of managing your TSP account is freaking you out, don’t worry there’s help. Blooom is a company that can help you manage the investments in your account. For $10 per month, they’ll analyze your TSP to help you understand and optimize your investments.

Managing your TSP is something that has to be done, it’s not something you can set and forget. It’s your financial future, so you want to take the time to set it up right and then keep a close eye on it. If you want more information on how to use the Thrift Savings Plan to save for your retirement, I have a detailed article on All Things You Need to Know About the TSP

Photo by Sgt. Sarah Sangster