Road map to a $1 million TSP account
By Mike Causey
March 27, 2017
There are basically two (legal) ways to wind up with $1 million in your Thrift Savings Plan account:
- Route 1. Make a ton of money in the private sector, maybe as a high-priced lawyer, executive or entrepreneur. Build up $1 million or more into a 401(k) or retirement account. Then call in some political IOUs. Get elected to Congress. Nearly half the members are millionaires and many, if not most, participate in the TSP. Or get yourself a federal job in the executive branch. Maybe as a federal judge or high-level political appointee. Then transfer all that money into the TSP and bingo, you have a $1 million account. If that isn't in the cards, you can …
- Route 2. Take the long way. The road most traveled. Start investing from day one. Sign up for the TSP and put as much as you can (a minimum of 5 percent, to get the government match) and sign up with one of the stock-index funds. Either the C fund, or S fund or both. Then keep pumping money into it every payday. Stick with your investments in good times and (especially) in bad times. When the market is down, shares in the C and S funds are on sale. As in cheap. You will buy more shares — by investing the same amount each payday — when the market is down than when it's way up. Like now.
Hitting the $1 million mark means not panicking (like so many did) during the Great Recession. Hundreds of thousands of TSP investors left the sagging stock market and headed for the safety of the Treasury securities G fund. And many haven't come back. Now that the market is at record highs — and overdue for a correction — they are looking for the right time to return.
Becoming a millionaire the hard way, over years of investing, is how most feds will have to do it. Invest the maximum, stay the course (maybe one of the lifecycle funds?) and repeat as necessary for roughly 750 pay periods. It works:
In mid-2016, there were 3,272 people with $1 million TSP accounts. Most had been in the TSP from day one of their service (an average of 28.5 years) when they hit the $1 million mark. Another 18,846 were on the brink, with account balances from $750,000 to $990,000 after an average of 28.7 years in government. And over 90,000 investors had between $500,000 and $749,000 in their accounts.
By the end of 2016, the number of millionaires had tripled, to 9,599. The almost-millionaire club ($750,000 to $999,000) jumped from 18,846 to 35,161, reflecting the fast-rising stock market. Many more have joined it this year.
Lesson: Those who didn't come into the TSP with huge amounts of money made it the hard way by regular investing and riding out the ups and downs of the market. It's a long-haul but the time is going to pass whether you are investing or not.
Posted by: sarah_oz@yahoo.com
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