It is never too early to begin planning for retirement. It is critical that as a Service Member, you understand your benefits and know how to properly leverage them. The TSP is one of the tools that the DOD has to help Service Members plan for their future.
What is the TSP? TSP stands for Thrift Savings Plan and is a Federal Government sponsored retirement and investment plan. It is similar to corporate-sponsored 401(k) plans. You can opt-in to have a percentage of your pay automatically deducted from your paycheck and allocated to your TSP fund.
The TSP is comprised of five individual funds and 10 life cycle funds. Individual funds are a collection of assets that invest in a variety of bonds, securities, and/or stocks. Life cycle funds are a combination of the five individual funds at a different weight. All of these funds are great for diversifying the risks associated with investing.
The Five TSP Individual Funds
The G Fund is a low-risk investment fund. The fund is heavily invested in U.S. Government bonds and securities, meaning all payments are guaranteed by the U.S. Government. The returns of the G fund are generally lower than other funds.
The F Fund is also a low-risk investment fund. The fund is heavily invested in corporate bonds and securities. These companies typically have high credit ratings and represent a low-risk investment. The risk in the F Fund is higher than that of the G Fund, however, the return is typically higher than the G Fund.
The C Fund is a common stock index fund. The C Fund benchmarks its success based on its performance against the S&P 500. This fund is comprised of companies such as Apple, Amazon, and Microsoft. This fund is comprised of stocks and is therefore a much higher risk than that of the G and F Funds but also experiences higher returns.
The S fund is a small-cap index fund. This fund is primarily comprised of small to mid-sized companies. The S Fund uses the Dow Jones index as its benchmark. Companies in this fund include Blackstone, Lululemon, Uber, and more. This fund is comprised of growth stocks and will carry with it a higher risk than the C Fund but also higher long-term returns.
The I fund is comprised of International stocks. The I fund is impacted by the performance of individual companies that make up the fund as well as the strength of the US Dollar. This fund carries with it a high risk as well as the ability to generate decent returns.
Why the TSP? The TSP is a tool that is there for any Service Member to use. It offers a web-based platform and app for you to manage your contributions and what funds they are allocated to. Allotments will also be tracked on your LES which will help with taxes.
Ultimately, where you put your money is your choice. There are a multitude of banks that offer similar services and investment opportunities. Make an informed decision about what is best for you.
Blended Retirement: If you began service after January 1, 2018, you are automatically enrolled into the Blended Retirement System (BRS). BRS combines the legacy retirement system with TSP contributions. If you plan to do 20 years of service, with the BRS you will receive 40% of your base pay for the rest of your life. If you go over 20 years, the system gives an extra 2%/year served.
The remainder of your retirement is derived from your TSP. For this portion of your retirement, it does not matter if you serve three years or 20 years, you leave with money towards retirement.
The BRS provides an automatic 1% contribution of your base pay. Furthermore, the BRS will match up to 4% of your contributions. This means that if you contribute 5% of your base pay to the TSP, you will receive a 4% match in addition to your automatic 1% contribution totaling 10% of your base pay towards retirement. This is essentially free money that you will earn interest on. If you are in the BRS, you need to take advantage of the TSP match!