One thing we are all guilty of is asking our coworkers, how
much money they have in their TSP and then mentally comparing that with what we
have in our own. Our next question may even be asking, is how much time do you
have until you retire? Then after words we may be deciding if we need to change
or allocation or start watching the market so if the market starts to go down we
can move our money from one fund to another. But is this really necessary? Do
you really need to time the market in order to insure you will have a decent
amount of money in your TSP? Well I’m here to tell you that may not be
necessary.
If you have followed some of my suggestions from my other
posts then you may be setting things up for your house to be paid off by the
time you retire, you are most likely doing a budget so you can track how much
you spend per month and over a year, plus you should be at the point where you
are paying cash for your cars so that you no longer have car payments. So if
you are doing these things, let me show you that if you have 10 years or more
left until retirement don’t worry about it. You will still have more than
enough money to live on by the time you retire.
Let’s say you make $50,000 a year and never get a raise for
easy accounting purposes. You are only contributing the minimum of 5% ($2,500)
to your TSP for 10 years. Now remember the government matches you at 5% so the
total amount that is being contributed to your TSP is $5,000 a year.
|
Yearly
contribution $5,000
|
10
years
|
20
years
|
25
years
|
|
Total Principle
|
$50,000
|
$100,0000
|
$125,000
|
|
Interest 6%
|
$18,624.48
|
$93,479.62
|
$165,191.22
|
|
Total
|
$68,624.48
|
$193,479.62
|
$290,191.22
|
|
Interest 8%
|
$26,735.70
|
$147,061.33
|
$273,902.71
|
|
Total
|
$76,735.70
|
$247,061.33
|
$398,902.71
|
Now looking at the chart above if you only average 6% on
your money, after 10 years you will have $68,624.48. But no need to panic at
the 2o year mark you will have almost $200,000!! Woo hoo. Do to the magic of
compound interest your money will more than double in those last 10 more years and
in 5 more years there will be a gain of
nearly $100,000 more.
If you don’t know anything about investing and worried you
will not have enough money rest assured that even if you only ever invest the
minimum in your TSP, you could still end up with $200,000 at an average of 6%
interest over 20 years. You could average that and maybe more by just picking
one of the L-Funds closest to the date you plan to retire. So my point is, that
just “set it and forget it” can work just fine without trying to time the
market. As long as your money doesn’t all stay in the G-Fund your entire career.
Side note the government match is
actually,
- 1%
agency automatic contribution paid whether or not you are contributing to
the TSP.
- A
dollar-for-dollar match on the first 3% of your salary that you contribute
each pay period.
- A
fifty-cent on the dollar match for the next 2% of your salary that you
contribute each pay period.
Ms. Smart
