Around 6.9 million US federal employees are participating in the thrift savings plan.

2 percent or 117,000 people out of the total TSP participants became millionaires in 2023. 

Most of the federal employees who are millionaires today have actively served the federal government for 25-30 years. 

The exceptional performance of the stock market and smart investment strategies are two of the main reasons. Taking a step to save early in your career is the easiest way to grow your future funds. 

There are three secrets to becoming a millionaire as a federal employee. These are – 

• Contribute as much as possible and as much as limited in a financial year. 
• Contribute consistently regardless of detour in strategies. 
• Trust in the long-term returns. 

You can easily become a millionaire at the time of retirement if you work consistently for 25 years with the US federal government. However, you have to invest timely in the thrift savings plan as well.

Different factors determine how soon you can become a millionaire. Also, it is essential to ask yourself how soon you need the money.

We will discuss the factors and investment strategies in this blog to help you become a millionaire during retirement.

The Thrift Savings Plan (TSP) is a retirement investment program for all US federal employees. It guarantees retirement income. 

It is the highest contribution plan with the largest number of participants in the US. 

Only federal employees and uniformed service members can participate in this program. 

TSP was initiated as a part of the Federal Employees Retirement System in 1986. 

Federal employees from the Federal Employees Retirement System (FERS) get automatic TSP enrollment. Nevertheless, it is only applicable if the employee is hired after January 1, 1984. Moreover, automatic deductions are done from their salary (basic pay) and contributed to the TSP account. 

The TSP is a retirement investment account. Participants are unable to withdraw from the TSP account before age 59 and a half years. Withdrawal before reaching this age will levy heavy taxes and penalties on the withdrawn sum. 

There are two types of thrift savings plan accounts. These are the ROTH TSP and traditional TSP. The tax implications differentiate both accounts. Traditional TSP accounts deduct taxes during contributions. This means that taxes do not affect the profit at the time of withdrawal. Contrarily, no taxes are charged from a ROTH TSP account at the time of withdrawal if the employee has reached the age threshold. So, 10 percent penalties are charged for early withdrawal. It is deducted if the federal employee wants to withdraw the money before the age of 59 and a half years. 

$23,000 is the contribution limit for traditional and ROTH thrift savings plan accounts combined. Therefore, participants cannot exceed $23,000 in contributions in one year. Also, extra contributions are allowed for TSP participants over 50 years old. The limit for this is $7,500/year.  

The most prominent feature of the TSP account is the matching government contributions. The federal government contributes 5 percent of the total amount contributed by the employee in their TSP account. 

Eligible federal employees can choose between 5 thrift savings plan distribution options. These include – 

• Partial distribution – Participants can partially withdraw money from the TSP account if they have reached age 59 and a half years. A maximum of 4 withdrawals are allowed in one year. Although, each partial distribution should be a minimum of $1,000. 
• Total distribution – A total distribution is withdrawing all the money from the TSP account. Participants are unable to continue this account if the total withdrawal is completed. 
• Annuity purchase – Federal employees get the option to buy annuities from third-party vendors. In this case, they have to give up the control of the TSP money. Furthermore, the minimum annuity purchase limit is $3,500. Annuity sale is an irreversible process. 
• Installments – This is the most popular option for federal employees. This allows them to buy annuities, draw installment payments, and keep control of the TSP account. 
• Required Minimum Distributions (RMDs) – 73-year-old retired federal employees and uniformed service members must take RMDs from the TSP account. Failing to withdraw the RMDs will levy a 50 percent excise tax on the withdrawal amount. 

Let us quickly go through the rollover process for TSP accounts. It is the procedure to transfer a retirement account into another retirement account. This process is useful for people who are leaving their federal employment or switching their employer. 

Individual retirement accounts (IRAs) and 401k are common TSP alternatives. 

There are 6 investment funds for thrift savings plan participants. These are – 

• Thrift Savings Plan C Fund – A fund comprising the largest US companies. It has high risks and chances of high profit. 
• Thrift Savings Plan G Fund – A fund that allows federal employees to invest in the US Treasury Department’s government securities. This fund offers a stable source of income with low risks. Additionally, the rates of the TSP G fund are considered as the rate of interest for TSP loans. 
• Thrift Savings Plan F Fund – A chance for federal employees to invest in bonds from the US market. Mortgage securities, corporate bonds, and government bonds are some investment options in this fund. Participants can expect higher returns from this one compared to the G fund. 
• Thrift Savings Plan I Fund – Federal employees can invest in non-US company stocks through this TSP fund. 
• Thrift Savings Plan S Fund – A fund that includes the stocks of all small and medium businesses in the USA. The volatility and chances of returns are high for the TSP S fund. 
• Thrift Savings Plan L Fund – The lifecycle fund combines the benefits of all other types of TSP funds. It is an age-based retirement fund for federal employees. This allows them to invest based on their requirements. 

It is ideal to invest for retirement savings in the TSP C, S, and I funds. Invest 80 percent in the C fund and 10 percent each in the S and I funds. This increases your chances of higher retirement returns. The L and the F funds have lower risks and offer stable returns. 

Besides, it is best to consult with a retirement advisor or financial consultant for federal employees. They can outline the best investment plan based on your retirement goals and financial objectives. 

Several myths surround the idea of becoming a TSP millionaire. Some of these myths are – 

• Mandatory to have a salary greater than $100,000/year. 
• Max out the TSP account contribution limit. 
• Rollover 401k or any other IRA money into TSP. 
• Invest in the stock market funds only. 

None of the above statements are true. Employees can still earn a million dollars from their TSP accounts without following the myths. 

Let us walk you through the best investment strategies for the TSP funds for 2024. These tips will help you become a millionaire when you retire –  

Determine the Retirement Age

Every federal employee retires at a different age. Some complete the full-service term while others retire ahead of time. Several factors determine the retirement age. For example, uniformed service members can choose early retirement if they suffer from duty-related injuries or disability. There are several tax implications. Moreover, failing to follow the retirement age guidelines could levy heavy taxes and penalties. So, finalize the retirement age to make an ideal contribution strategy. Turn your financial goals into reality. 

Start Saving Early

Beginning to save from day 1 of your career gives you more time for investment. Also, it increases your number of contributions. Salary increments, contribution limit amendments, and promotions impact your contributions. All these factors strengthen your TSP investments and help your money grow considerably. Starting as early as 23 or 24 years old enables you to reach your millionaire dreams by the age of 50-60 years. 

Contribute To Full Limit

Utilize the contribution limit. Federal employees can contribute up to $23,000 to the TSP accounts in one year. 50-year-old employees can contribute an extra $7,500 to the TSP account. Maximizing your TSP account contributions every year will give you a huge amount of retirement savings.

Make Smart Investment

Federal employees need to break down their career timelines and goals into smaller objectives. This makes it easier for participants to invest in TSP and become millionaires. To maximize your retirement funds, divide your career into 3 stages. The stages include – 

• 10 years before retirement – When employees have more time to retire, it is best to utilize the C, S, and I funds. Even though these funds are more volatile, they can help beat inflation in the future. It is not necessary to check the rates for these funds every day. However, you will understand the benefits if you continue investing in these funds for more than 10 years. 
• Less than 10 years from retirement – This is the ideal time to invest in government securities and fixed-income funds (G and F). These funds have lower risks and offer stability for employees who are about to retire in a few years. 
• Less than 5 years from retirement – Employees will have a concise idea about how their retirement will look in the last five years of service. A 60/40 portfolio distribution is ideal to beat the inflation rate after your retirement. Invest 60 percent of the TSP money in stocks including the C, I, and S funds. Contribute the remaining 40 percent of money into bonds such as the G and F funds. 

Compare the Rates of Yearly Returns

The TSP C fund had the highest percentage of returns in 2024. It is currently 4.96 percent. Similarly, the I fund is next in line with 4.86 percent returns. The G fund highlighted the lowest rates of return in 2024 with 0.41 percent. The S fund had the second highest rate of return with 24.55 percent. However, only the F fund experienced a negative return of -1.56 percent in this financial year. Comparing the yearly rates of returns gives TSP fund performance insights. This will help make firm investment decisions. 

Contribute Consistently

Retired employees can no longer contribute to a TSP account. However, it is pivotal to make use of the active service years. Federal employees do not have to worry about contributions to the TSP account. The employer sets up automatic deductions from the payroll. Therefore, a portion of the basic pay of the employee’s salary is contributed to the TSP account. 

Nevertheless, it is essential to keep a check if you are eligible for additional contributions. Additionally, Civil Service Retirement System (CSRS) federal employees need to make manual contributions. Employees can make consistent annual contributions if they track all factors regularly. 

Consult a Financial Advisor for Federal Employees

A financial advisor can help evaluate your retirement goals. Also, they assist in creating a flexible TSP contribution plan based on your income. Moreover, smart TSP fund allocation is one of the biggest factors to identify how quickly you can become a millionaire. Additionally, consultants can create accurate investment plans. This can significantly reduce taxes and increase retirement income. 

Have Patience

Growing your TSP funds into millions of dollars is a long-term process. Apart from consistent contributions, awareness and patience are important virtues. Federal employees cannot lose hope or stop their contributions mid-way. Staying on track will get you closer to your dream and secure your retirement income. Most importantly, you will become a millionaire if keep investing patiently during your service years. 

A federal employee can contribute up to $1,000 per month to their TSP accounts. If an employee continues to invest $1,000 every month for 20 years, they will have an average savings of 2,40,000 in the TSP account. However, all federal employees can’t contribute $1,000 every month. Each employee has a different salary structure so their earnings vary. Nevertheless, contributing any amount between $500-700 monthly will help you get there. 

For example, if you invest $700 every month for 20 years, you can get $1,68,000. 

So, any amount above $500 as a monthly contribution to the TSP account will make you a millionaire 20 years later at the time of retirement. 

PSR Assurance has reliable retirement consultants for federal employees. We devise special investment strategies that allow you to become a millionaire easily. Most importantly, we break down the complex TSP tax rules. Also, our exclusive fund distribution strategies maximize your returns. 

Talk to us today and start your smart investment program to become a millionaire.