Invest early and often - use the TSP!

  • Published
  • By 2nd Lt. Matthew Mueller
  • 460th Comptroller Squadron
For most people, the days of a comfortable retirement provided by a pension and Social Security are over. 

Although, the military is different as a 20-year career guarantees retirement benefits, with the uncertainty that is ever-present throughout the economy, it would be prudent to take advantage of any opportunity that is available to better help ensure a secure retirement.

The Thrift Savings Plan is a program that was first made available to military members in 2000. It resembles a traditional 401k program in which members may contribute money that is tax-deferred until it is withdrawn. It is a defined contribution plan, meaning the total amount available when one is ready to make withdrawals is dependent on how much the member has contributed to the account during his or her working years and the earnings those contributions have accrued.

This program is a very good choice for any government employee, not just military members. If a member decides to leave the military or civil service, he or she may rollover TSP accounts into another qualified retirement account without tax penalty. The same is also true if somebody transfers from the private sector to federal employment.

There are several contribution choices available, from very safe government securities all the way to fairly risky international and small company investments.

Members may choose the allocation of their investment. For those who would rather operate on autopilot, the TSP has made available the "Lifecycle" plan that allows the contributor to determine when they will retire from federal service. There are currently retirement fund options for 2010, 2020, 2030, and 2040. This option is incredibly convenient.

Consider some of the benefits of contributing early in one's career to the TSP: Compound earnings, or interest generated on reinvested earnings, over the course of time is the primary contributor to powerful gains. If you start investing early, smaller sums will add up faster than you might think. By waiting 10 or 20 years, you will have to contribute significantly more to reach your retirement goals.

For example purposes, we will assume an 8 percent expected return per year after expenses. We will use one person who begins investing at age 25 and one who begins investing at age 35.

The 25-year-old will invest $2,000 per year until she reaches age 35. The 35-year-old will invest $2,000 per year until age 65. Purely based on contributions, the 25-year-old will only contribute $20,000, while the 35-year-old contributes $60,000.

So who ends up with more money at age 65?

The investing 25-year-old will end up with about $315,000, while the investor beginning at age 35 will end up with only $245,000 even though the 25-year-old stops investing at age 35. It truly is amazing to discover what the power of compound interest harnesses.

The earnings on the 25-year-old's investment of $20,000 are approximately $295,000. The earnings on the 35-year-old's investment of $60,000 are only $185,000. This is all due to compounding interest. If the 25-year-old continued to invest $2,000 per year until age 65, she would end up with around $560,000! Clearly there are significant benefits to staying invested early and often.

With that in mind, I would highly recommend you check out the TSP, available at, and educate yourself on Individual Retirement Accounts. You can automatically deduct contributions right from your Leave and Earnings statement, so you will not even miss the money. Go out and invest!