2014/02/262014/12/08 Who Wants to be a TSP Millionaire? Recently the TSP announced that of the 4.6 million TSP participants, that there are a whopping 1,600 TSP Millionaires- up from over 500 TSP Millionaires from last year. How is this possible? The math is not that hard- It’s just continuous compounding. Say you start out at : Age 25 50,000 annual salary 5% TSP salary deferrals (max out the TSP 5% total match) 1% annual wage/grade salary inflation 8% rate of return … you end up with $1 Million in the TSP by age 60: Become a TSP Millionaire So, it’s not that hard to believe that there are TSP Millionaires running around. If you look at the attached spreadsheet, your investment in the TSP hits the ‘tipping point’ around year 11 (age 35 in this example). At this point, your TSP is returning more in earnings per year ($6,025) than you are contributing per year ($5523 including the TSP ‘Match’). This is what’s known as the ‘Miracle of Continuous Compounding’. Sadly, the TSP director stated in recent interviews that many of the TSP millionares are not ‘Home Grown’. Rather, they are 50+ year-old Feds who have already had a successful privat sector career. Many spent most of their proffessional lives working for a private DC law firm and transferred their Qualified Retirement Plan assets in to the TSP- They were already Millionaires within their 401k/Qualified Plans and salivated at the TSP’s low fees and the uniqueness of the TSP G Fund. You can do it! I recommend you grab a copy of the ‘Millionaire Wage Slave‘ if you need more motivation! Happy Saving! SUPPORT GUBMINTS – Buy Stuff at Amazon (free referral link) Subscribe to GubMints: via RSS: via Email: Related Investing Retirement Thrift Savings Plan InvestingSaving for RetirementThrift Savings Plan
You make a great point here. The question I have is: what about promotions? You seem to be assuming the person is doing the same job, for the same pay, for 35 years, with nothing but inflation adjustment raises. You know that active duty folks are ‘up or out’; you either get a pay raise or get a new job. For me, from O-1 in 1990 to O-4 at 22 years, my average annual pay raise including promotions, longevity, and inflation is 7.88% How are things different for Feds? I modified your spreadsheet and figured for uniformed folks, a 10% TSP rate (with no match) would get you to $1M after 30 years of active duty, from age 22, and $1.8M by 60 with no further contributions (assuming the same 7.88% pay raise rate that I got). Of course it’s easy to get wildly varying results using exponential calculations, so the importance of some of these numbers can be discounted. But your piece is great consciousness-raising: save more early and it pays off! Reply
Rob – I was overly conservative in my wage inflation calculation for Feds. Even with all the media squawking about Pay Freezes, Feds get ‘Step’ Increases in salary- Even for doing the same job- every one to three years. So even though the Federal pay SCALE was frozen for the last few years, the ACTUAL pay of a typical Fed still goes up every few years with Step increases (that is, until the Fed maxes out at ‘Step 10’ within their grade, which takes up to 20+ years to achieve). Reply
I left my money in TSP Market after I retired. Is it still possible to be a millionaire if invest in life cycle funds over the next ten years. Reply
Ms Young – Thanks for reading! There are all kinds of articles out there about people who became TSP millionaires ‘the old fashioned way’, by investing slowly but surely in the TSP over the years. I have no idea about your particulars (what your balance is and what your asset allocation is within TSP), but if you are retired and you are in the ‘L Income’ fund it is unlikely you will have a high rate of return – Most of the L Income fund (74%) is in the G Fund, which is yielding roughly 2.3 percent- A nice guaranteed return for a a Money-Market Fund, but it won’t make you rich and your account will barely keep up with inflation. A good rule to use is the ‘Rule of 72’, which helps you figure out the number of years to double your money. For example, if your asset allocation returns 6%, you will double your money in (72/6) = 12 years. If your asset allocation returns 8%, you will double your money in (72/8) = 9 years. If you are in the L Income Fund, the L Income Fund returned 3.58% last year (2017) …. if that keeps up, it will take (72/3.58) = 20.11 years to double your money. Reply