How the Thrift Savings Plan made Coast Guardsman a millionaire
In October 2021, a Coast Guard Warrant Officer reached a major milestone: he crossed the $1 million mark in his Thrift Savings Plan.
Since then, his TSP balance has had its ups and downs due to the ups and downs of the stock market, but that hasn’t deterred him. “My advice to anyone worried about the markets is to just ignore them and leave it alone,” said Steve, who asked that his last name not be used.
“You plan for the long term, about 40 years. During this period there will be many ups and downs. »
Steve, 44, has been investing in his TSP since it became available to service members in late 2001 when he was E-5.
“Time is the secret, really,” Steve said.
The Federal Retirement Thrift Investment Board could not provide information on how many service members have reached the $1 million mark in their TSP accounts. But there probably aren’t many, since service members have only been able to contribute to the TSP since 2001, and the vast majority of that time was without Department of Defense matching funds.
When Steve hit the $1 million mark in October 2021, there were 98,523 total TSP millionaires, but that includes all federal workers in the TSP program, as well as the military. These millionaires have an average of 28 years of contributions. Steve achieved the goal in his 20th full year on the scheme.
“I don’t think you’ll find a lot of TSP millionaires on the military side, because it took a lot of hard work to get there,” he said.
There are probably few people like him who built up most of their balance while enlisted, with a few years as a CWO, without withdrawing funds from an IRA or outside of 401k.
“Cost average will be the winner in the long run, or at least it has been for me,” he said.
Averaging means putting money into investments on a regular basis, like you do with the TSP, the government equivalent of a 401k retirement plan. Let’s say you invest $100 per month. You buy more shares with that $100 when the price is low and fewer shares when the stock price is high.
But there are probably others who are millionaires because they have also accumulated savings and investments outside of the TSP. In addition to his TSP, Steve has about $200,000 in an IRA account, which he used to start saving in 1995, before the TSP became available.
The TSP landscape has changed with the Army’s Joint Retirement System, or BRS, in which the DoD now matches 5% of TSP contributions. This means that those who contribute at least 5% of base salary contribute, in essence, 10% upon retirement. All those entering the military on or after January 1, 2018 are automatically enrolled in the BRS, along with some others who converted to the BRS from the legacy retirement system before the 2018 deadline.
In April, there were 1.1 million BRS participants in the TSP; with an average balance of $9,893, according to the TSP board. There were 1.3 million non-BRS service members with TSP accounts, with an average balance of $36,355. (Of those, 638,000 had left the service but still had accounts.)
“These kids coming in now, they have the game. They could have $2 million, $3 million, $4 million by the time they retire at 50,” Steve said.
He is in the legacy pension system, which pays out more in retirement, but there is no government counterpart to his TSP account. He did it all on his own.
As of October 2020, there is a default contribution rate of 5% for federal workers automatically enrolled in the TSP, including BRS members. If service members do not want to contribute as much, they should take steps to decrease it. But decreasing contributions below 5% means you’re leaving money on the table – the free money that comes with the 5% DoD match.
The vast majority of troops get this full match:
|Troops contributing at least 5% to get the full TSP match||Since April 2022||Increase from previous April|
|Active service at BRS||78.7%||+8 percentage points|
|Ready to book in BRS||70.9%||+12 percentage points|
|Source: Federal Office for Investment in Retirement Savings Plans|
“I paid myself first”
Steve has long encouraged other service members to start investing in their TSP early. “I’m a huge proponent of TSP, to the point where the crew hates standing guard with me because they have four hours of conversation about TSP whether they like it or not,” he said.
Each December, he increased his TSP contribution, regardless of the salary increase in the following calendar year. And when he was promoted, before the raise showed on his paycheck, he increased his contribution by that amount.
“At the end of the day, the goal was to do as much as I could, but never feel it. So I always made sure to raise everything before my pay raise kicked in, because once you have that money in your pocket, you don’t want to give it back.
He also contributed as much special compensation and incentive compensation as he could within IRS limits. He got two re-enrollment bonuses and was able to put most of them into his TSP. “If service members can get these big bonuses in their TSP right off the bat, they’re just setting themselves up for success,” he said.
“I made sure my entire career that I was paying myself first, making that TSP contribution first, before anything else.”
Financial experts agree.
“One of the best ways to save for retirement is to save for a long time and keep going, even if you start small,” said Gerri Walsh, president of the FINRA Investor Education Foundation. “Start small and dream big, because as these contributions accumulate, escalate and harmonize, there are opportunities for growth.”
Dealing with volatility
Many people wonder, in this period of stock market madness, if they should act on their investments. “The most important thing is sometimes the hardest thing to do, and that’s to step back, take a deep breath, and look rationally at what you have and what your balance sheet looks like for your family,” Walsh said. .
“Use it to guide you in your choices to work on your goals. …Taking a long-term view will help you ride out market volatility from time to time. It can be really uncomfortable when the roller coaster is pointing down. But it is very difficult to time the market,” she said. If you are out of the market when it recovers, by the time you get back in, you could actually be buying the same basket of investments at a higher price.
For the military, who are decades away from leaving the workforce, it doesn’t really matter what happens year to year and month to month,” said JJ Montanaro, a certified financial planner who is Director of Relations for the USAA Division of Military Affairs. Rather than taking major action now, he said, “use this as an opportunity to do a self-assessment.”
“It’s easy to be a bull and to be aggressive when things are going well, as it has for 14 years.
“If your portfolio isn’t keeping you up at night these days, then maybe make an adjustment to your long-term strategy. But don’t take any action based on short-term news and market advice,” he said.
Steve’s personal strategy has been to invest in various TSP funds, but he has stayed away from international funds altogether, he said.
Another issue is that some military families are struggling financially during these difficult economic times and may consider withdrawing money from the TSP.
But beware. Not only will this affect your retirement reserve, but you will also have to pay taxes. There is a way to make a hard withdrawal from your TSP, but consider other options, like a loan. You can’t put the money back in your TSP if you withdraw it, Walsh said.
Taking a loan from your TSP is another option, allowing you to hand over the money as you repay the loan. But shop around for other options, she says. There may be a lower interest rate with a commercial lender. Or check with your military relief society to see if your particular financial situation might qualify for an interest-free loan.
It might be a good idea to adjust the amount of your contribution. “If you are contributing to your TSP at a high level, but your family is going into debt due to rising costs or other considerations – perhaps because a spouse has lost their job – now is the time to think about cutting back on the amount you contribute, while still contributing,” Walsh said.
Key factor in family well-being
One aspect of his career has certainly helped his family’s finances, although it hasn’t come without sacrifice.
He has been in the same field for his entire career. This allowed his wife to continue her career in the federal government, and they have been paying off their mortgage balance for 20 years. Their son did not have to change schools and they have always lived in the same city.
“At the end of the day, there was a price to pay,” he said. “I took uncomfortable jobs, I went abroad. I’ve done four outings at sea. … It’s a challenge. I was lucky to be able to stay here. I know a lot of guys who wanted to stay and couldn’t because the retailer had other plans.
But the real key to his success can be traced back to his parents. When he enlisted at the age of 18, they encouraged him to start saving to accumulate six months’ salary, “in case something happened,” he says.
“So it’s like a drug. I became addicted to savings. He owes his parents this advice and encouragement, he said. “What I owe them is that I will retire in four years and go back to work if I want to.
“Or I won’t work at all.”
Karen has covered military families, quality of life and consumer issues for Military Times for over 30 years, and co-authored a chapter on media coverage of military families in the book “A Battle Plan for Supporting Military Families”. She previously worked for newspapers in Guam, Norfolk, Jacksonville, Florida and Athens, Georgia.