Investing TSP Money and Other Retirement Tricks

Financial Goal: Do Something Smart With Your TSP and IRA Accounts

How To Create a Retirement Portfolio:

1. Determine how long you expect to let the money sit and grow between now and retirement (so far away…)

2. If you already have a retirement account, consider the last time you sold your investments and use this “bad news gauge” to determine your risk tolerance.

3. Determine how much time you want to spend pouring over investment information. For less time pick passive investments like index funds – for more time pick actively-managed funds like mutual funds and active ETFs. Pick 5 to 7 different options to create a diversified portfolio.

4. Apply the template portfolio to all of your retirement accounts as best you can.

The Why:

As a young govvie, you have decades before retirement will roll around. As far away as it is, you want to be sure to keep the “I’m outta here” card in your back pocket. The only way to hold that card is to invest in a retirement account. It’s a good thing, then, that if you start early you don’t have to save that much – which helps given you’re not making that much anyway!

We’ve all see the wonders of compound interest, just in some unfortunate places, like credit card balances. Know why that balance just doesn’t budget despite your constant payments? Compound interest. That 20% compound interest keeps upping the finance charges and the balance, wiping out your monthly payment. Imagine the power of that compounding working FOR you in your retirement account.

Starting now makes all the difference. Compound interest grows at a nice steady clip for about 10-25 years, building slowly but surely (again, remember the credit cards). However once you hit year 30, interest starts compounding like crazy now that years and years of incremental progress has built up. However, since most people only start saving for retirement in their 50s, they simply don’t have the time to let the money sit and grow. Instead they need to cash out to pay their bills right before the big payday.

But you are smarter than that. So here goes:

If you are a busy govvie like everybody else, stick with passive funds. Compared to pets, index funds require about as much effort as a house plant. Feed your account on a regular basis, read the statements a few times a year, don’t cash it out and you’ll be fine. Just be sure to invest in 5-7 different asset classes for a diversified portfolio. What’s an asset class, you ask? Simply an area of the economy (i.e. large companies, small companies, commodities). Check the “benchmark” on each fund just to make sure you’re in funds that really are trying to invest differently from each other.

Even if you have tons of time, energy and interest to devote to your investments, still keep a foundation of index funds. They are low-cost and can’t get away from you. If you want to build on top of that, go with actively managed mutual funds or sector ETFs, whatever suits your interests. Just make sure they are low-cost and you don’t trade them often.

For TSP holders: For all the govvies out there with their money in the G fund, listen closely – you’re about to jumpstart your retirement portfolio. Check out the new 2050 L fund. It’s much more appropriate than the 2040 fund for young govvies since there is less money in the G fund (money not designed to grow). You can also use the 2050 fund as a template portfolio for your other retirement accounts – just be sure to add a few other areas such as Real Estate Investment Trusts (REITs), small-cap funds or emerging markets funds.

Don’t know what those are? Leave a comment! I’ll be glad to explain…

Keep contributing, keep diversifying and you’ll be sitting on a pile of money in no time!

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Any rough guidance on how much should someone put in retirement? My fiancee was asking the other day what was normal and good. I know it varies but what’s a good number to guess? 5% (which is really 10%)

Allison Merkley

Which TSP funds are invested in emerging markets, and what you do recommend as an appropriate percentage of each? Right now I’ve got 85-15 ratio (85 G-fund, 15 L-2030), but I’m looking to split my retirement funds and diversify further to gain more ground over time. I don’t want to get too in the weeds, given I don’t have a ton of time. But I would like to look into seeing if I can get more bang for my buck.


That’s a really safe ratio – so safe it’s risky at your young age (just a rough guess based on photo).

Since don’t have too much time or get in weeds, I’d dump it all into one of the L funds. Just put it in the one that most closely resembles your retiremement year – 2030 or 2040 or 2050. That’s what most experts would say (I spent a whole summer reading about 20 personal finance books)

Allison Merkley

Thanks Steve! That’s sound advice. I was thinking of possibly dumping 90 in the L-2050 and putting 10 into the C fund, just to play around for a while until I find a new hobby. (You’re right based on the picture, I am more than safely in the Millennial generation.)

Any other Millennials out there trying to play around with their contributions?

Peter Sperry

I am at the other end of the risk tolerance spectrum, saving 15% which gives me 20% after the agency match and investing 60% in the C Fund, 20% S and 20% I. My thinking is that over time it is really difficult for investments to out perform the world economy but easy to lag behind it. So I try to basicaly invest in a way that reflects the larger economy, put the process on autopilot and monitor once a quater.

Tammie Shipe

So, the least you should contribute is what your agency matches…

Also money contributed to TSP comes out pre-tax, so it effectively it lower your taxable income.

But I believe that the general rule of thumb (wish I had followed this) is: 10% retirement, 10% long-term savings; 10% entertainment (if no bills), and live off of 60% (or less) of your income

Rebecca Schreiber

As for how much to invest, use these guidelines: a) 10% or b) the same amount you spend on eating out and entertainment every month. Don’t worry if it takes a few years to work up from 5% to 10%, as long as you get there. You’ll end up at a 15% total contribution level which will give you lots of options in the future. The second option balances out what you spend on the moment and what you’re saving for the future.

Rebecca Schreiber

Allison, you can definitely get more bang for your buck by slowly moving out of the G fund. You may be investing even more conservatively than you think since the 2030 fund has a big G fund allocation. One conservative approach is to put the G fund money in the 2020 fund, and if it’s not too stressful, eventually move it to the 2030. You can take your time, try it out, and learn your true risk tolerance.

Tammie Shipe

I want to add some to my earlier post about percentages… Ideally (according to Dave Ramsey):

  • Charitable Gifts – 10-15%
  • Saving – 5-10%
  • Housing – 25-35%
  • Utilities – 5-10%
  • Food – 5-15%
  • Transportation – 10-15%
  • Clothing – 2-7%
  • Medical/Health – 5-10%
  • Personal – 5-10%
  • Recreation – 5-10%
  • Debts – 5-10%

“I have used a compilation of several sources and my own experince to derive the suggested percentage guidelines. However, these are only recommneded percentages and will change dramatically if you have a very high or very low income. For instance, if you have a very low income, your necessities percentages will be high. If you have a very low income, your necessities percentages will be high. If you have a high income, your necessities will be a lower percentage of income, and hopefully savings (not debt) will be higher than recommended.”