The bumpy road to a million-dollar TSP account
By Mike Causey
June 26, 2017
There are basically three ways to become a member of the fast-growing group of federal and postal workers who make up the millionaires club — people whose Thrift Savings Plan accounts (Uncle Sam's version of a 401k plan) have hit the million-dollar mark. In one case, make that $5 million.
They are in order of difficulty:
- Bring a million dollars with you when you join the government. This group includes well-heeled political appointees, many members of the House and Senate, and top lawyers appointed to federal judgeships. Many switched from their outside retirement plan to the TSP because of its options, its super-low administrative fees and the fact that it is heavily monitored by several federal agencies.The road to millionaire TSP investor status is even smoother, more fun and less time-consuming (as in pesky years spent working, saving and investing) if you can inherit a bundle of money and get a government job, either elected or appointed. Starting out with a million bucks is the preferred way.
- Time the market. Figure out a system that will let you know when the market is due for a big-time correction (like the 2008-2009 Great Recession or the 1929 Great Depression) so you can get "out" of stocks into something safer, like the TSP's G fund. It isn't easy. To make it work, you must know when the market has bottomed out and then decide when to go back to stocks. Otherwise, you will wind up like hundreds of thousands of TSP investors who jumped from the C, S and I stock index funds into the G fund, took a 40 percent hit and continued to purchase shares in the G fund while the stock funds — now at record levels — were on 'sale.'
- This last option is the least exciting or fun. But it has produced more TSP millionaires than the group of rich people who brought the investment money with them, inherited it or figured out how to time the market. This method involves investing in the C, S and I funds, not panicking when they hit a bump or mini-Grand Canyon in the road, and buying steadily, even when (especially when) the markets are down. As in on sale.
In previous columns, we've broken down the number of TSP millionaires and those — about 20,000 —in the $750,000-to-$999,000 TSP balance range. Many are poised to join the club.
The vast majority of TSP millionaires invested from day one, did not try to time the markets and stayed with their plan during downturns. Here's the tale of the tape from one brand-new TSP millionaire who had patience and did everything right, which often involved doing nothing other than staying the course.
Here's his by-the-numbers story told in 5-year increments.
"I've just passed the 30 year mark — my definition is 'Freedom Day.'
I have been a sustained TSP millionaire for about a year now. I'm currently in the L Income fund for protection, but probably will rebalance with my own percentages. Just don't know what those will be.
Here's my balance in five-year increments:
Government Service Anniversary Date
June 1987 — Began government service (Sunday — first day of pay period)
June 1992 — $22,185.23 (five years of service)
June 1997 — $90,231.77 (10 years of service)
June 2002 — $151,228.29 (15 years of service)
June 2007 — $347,346.87 (20 years of service)
Dec. 10, 2007 — $367,264.19 (Highest point before crash)
March 9, 2009 — $192,348.72 (Lowest point after crash)
Sept. 20, 2010 — $369,145.66 ('recovery' date from the previous high on 12/10/07 — took 2 years, 9 months)
June 2012 — $479,248.83 (25 yrs of service)
June 2017 — $1,136,577.98 (30 years of service)
Keep up the good work informing us feds appropriately."
—K
The best part is what he failed to do. Panic during the last "correction," which was nearly 40 percent.
He said:
"I was either not smart enough, or froze in panic, so never moved any balance during the crash. I did as you and Arthur [Stein] said: Stayed put with 50/50 C & S fund. So I bought lower and lower every two weeks and the last five years shows the result. I can't do percentages too well, but $479 to $1.1 is quite a healthy increase!"
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