How to Become a TSP Millionaire as a Government Employee or Military

welcome to fireside chat my name is i is it possible to become a tsp millionaire well did you know that there are currently over 113 000 tsp investors who are members of the tsp millionaires club and during my active duty time in the military i always heard how we could never become millionaires by being a career government employee it's true that government employees or military members are grossly underpaid when you compare them to their equivalency in the private sector but it is entirely possible to become a millionaire while working for the government the average tsp millionaire has more than 28 years of contributions to the tsp and the majority of those millionaires invested in the tsp funds like the individual funds like the cs and iphones and the largest tsp balance is currently at 11 million dollars and i wish i could find out who that person is and find out how that person invested over the years but first i want to clarify something about my previous video on how we plan to withdraw 2.8 million over the course of 15 years during our early retirement in a specific segment i mentioned how i would convert my traditional tsp to my roth ira and how i'm going to roll over my roth tsp to roth ira when i turn 45 what i said about the traditional tsp to my roth ira is a part of the five-year conversion ladder strategy i have in place so i'm doing that to minimize my tax bills as far as rolling my roth tsp to my roth ira i got some messages from some of you that the the fees and tsp are already cheap so why bother rolling them over my plan is to roll over my roth tsp because i want to have the freedom to invest in etfs and individual stocks in my roth ira this is a next level investing mindset so it's absolutely not for everyone and i don't expect you or anyone else to follow my my investment strategy i do agree however that tsp has some of the greatest low rate mutual funds like the cs and iphones and their expense ratios are no more than 0.06 percent however i can do that with my vanguard s p 500 index fund two with point zero four percent expense ratio and they're basically the same thing and i'm not going to stress over the difference of a point zero one or point zero two percent my overall intent of rolling my roth tsp over to my roth ira is to have at least fifty percent index funds and the other fifty percent will go to my individual stocks that i believe in long term and when i turn 50 years old i'll most likely going to keep 70 of my investment portfolio in index funds and the other 20 in individual stocks and i will keep 10 cash in case of a stock market crash and that's why i mentioned the 300 000 in cash that i will have set aside i believe i will make more money by putting in a roth ira instead of just choosing from the five tsp individual funds or the target retirement funds i want to be more aggressive with my portfolio during my early retirement and if you don't want to do research on stocks or etfs then these csi funds or the target retirement funds will be the right choice for you unless tsp makes some changes and they'll they start allowing us to buy individual stocks now let's talk about my tsp account am i going to have over seven figures in my tsp if i left the money in there absolutely i think tsp is by far the best employer sponsor plan after comparing it to multiple 401ks in the private sector and i've been in both private and public sectors for the last last 20 years let's look at the tspc fund for example the fund matches the performance of the s p 500 index and it's basically the same as the vanguard s p 500 index fund ticker symbol and vfi ax so c fund came out in 1988 probably older than most of my audience here and it has performed 11 in annual average return with only 0.043 expense ratio if you work for the federal government as a civilian employee or a member of the armed forces they give you a 100 match to your 5 personal contributions so if you contribute five percent then your employer will match you that five percent now let's go back to my spreadsheet if i started a job with the federal government today and i'm working to achieve fat fire i would max out my contribution every year to my tsp unless i'm working on paying off my debt or increasing my emergency fund if i contributed twenty thousand five hundred dollars which is the maximum tsp contribution amount with 11 average annual return i would have about 380 000 by the time i turn 45 in the year 2031. let me go to the different tab in the spreadsheet here and where it says traditional tsp if my employer contributes 5 dollars a year uh into my tsp and it's going to depend on the salary with 11 annual average return i should have about 160 000 by the time i turn 45 in the year 2031. i separated employer match from my personal contributions because they're all pre-tax contributions that go into a different pot of money your employer match will always go into the traditional pre-tax tsp let's say i quit my job at age 45 and i just leave my roth tsp where it is by the time i turn 59 a half and assuming the market still performs 11 annualized return i would have 1.8 million tax free dollars when i'm eligible to make qualified distributions from the roth tsp i talked about this concept in my coast five video from monday you can max out your retirement contributions for 10 years and then you let it grow until you reach your retirement age and it doubles the amount uh roughly almost every eight years if the stock market continues to perform the way it has been that's the power of compound interest and there are some risks of doing this investment strategy and i talked a lot about them in my coast fire video so i will post that video in the description below your tsp balance will depend on how long you work how much you contribute every year and how well the stock market performs until you reach your retirement age the two things you can control is how much you contribute to your tsp and how long you want to work for your employer you will be amazed at how quickly your net worth grows year over year by maxing out your tsp contribution every year if you're just starting a career in the military or with the federal government and you don't have the income to max out your tsp contribution i would contribute at least five percent to get the employer match because you should never leave free money on the table and as a gs employee you're probably starting anywhere between gs5 and gs7 in the entry level position making about 45 000 a year if you're a brand new enlisted guy in the military living off base you're probably making anywhere between 35 and 40 000 a year if you're living on base then you're not getting the housing or the food allowances so make sure you budget well with your base pay and don't do what i did and buy a pickup truck or a mustang to impress someone else in the in the dorms you know there's always that one guy in the military who did that let's say you decided on a 20-year career with the military or a civilian agency or department and i'm gonna put forty thousand dollars a year uh as your base salary and you're 25 years old then you're contributing four thousand dollars a year in your first year to your tsp what's your employer match and if you always contribute five percent of your salary into your tsp and assuming you have a three thousand dollars average pay increase every year from promotion or adjusting inflation with eight percent average annual return you should have one million dollars in your tsp by the time you turn 60 years old i would also increase my contribution by one percent every year and that would allow me to reach 1 million dollars by the time i turn 52 this is going to take a lot more discipline because every time you get a promotion or a pay raise you want to spend more money right i would try to keep the expenses the same if not lower as my income goes up over the years if one percent increase every year is too much then try doing one percent every other year for the first five years until you reach the rank or a position where you feel more comfortable contributing to your retirement i would also make sure to clean up your debt before you increase your retirement contributions just remember that finances are 80 behavior and you need to get your spending under control even when you're making over six figures in income believe it or not people making over 100 000 a year are especially broke because they don't know what goes out of their bank accounts keep in mind that tsp is not the only account you can contribute to if you follow my fire checklist after you paid off all of your debt except mortgage you should work on maxing out your roth ira and hsa contributions every year before maxing out your employee retirement with the tsp you can contribute up to twenty thousand five hundred dollars every year not counting your employer match with the roth ira you can contribute up to six thousand dollars a year or five hundred dollars a month the hsa allows you to contribute up to three thousand six hundred and fifty dollars a year or seventy three hundred dollars a year if you're on the family plan maxing out your tsp will be on the step seven of our fire checklist if you're just starting at tsp and you're in an entry level position try contributing 15 of your gross income towards your retirement between tsp and the roth ira so with that said i appreciate you watching my video don't forget to subscribe and i hope to see you in the next video have a good one [Music] you

Channel: FIRE Psy Chat

Views: 24,849

Keywords: fire movement, tsp strategy, tsp tips, thrift savings plan, how to get rich with the tsp, thrift savings plan help, federal retirement planning, thrift savings plan military, thrift savings plan explained, thrift savings plan funds, tsp military savings plan, how does tsp work for military, tsp savings plan, tsp c fund, tsp investing strategy, thrift savings plan match, the thrift savings plan for beginners, how to become a millionaire in the military, military fire

Id: LywqKszffH4

Length: 9min 54sec (594 seconds)

Published: Fri Apr 01 2022