Thrift Savings Plan

A couple of days ago, I was contemplating writing a column about the Thrift Savings Plan (TSP). I was actually looking for info on the Roth version of this important military benefit.

What I wasn't looking for - but jumped off my computer screen - were the TSP participation statistics, or lack thereof. Only half of those eligible are taking advantage of this important retirement savings tool provided by Uncle Sam.

Granted, 50 percent is a Hall-of-Fame baseball career, a great hoops field-goal percentage, or an ideal percentage regarding how much of that donut we should eat. But when it relates to building a secure financial future, 50 percent just plain stinks. So, I decided to lay out a five-point manifesto on why you and your significant other should start participating in the TSP, now:

5. You won't miss it a bit. Okay, maybe you'll miss the money a little bit, but honestly, not too much. I love to see folks start with a modest contribution, say 3 percent. So let's say you go to your personnel office, fill out the one page TSP Election Form (TSP-U-1) and elect to contribute 3 percent of your basic pay. For an E-6, with eight years of service, this equates to about $90 a month. However, since TSP contributions are made on a pre-tax basis the actual wallet impact is even less - around $77. That's not a lot of pain to get this important part of your retirement savings jump-started. This small step gets your foot in the door and makes it easy (via Defense Finance and Accounting Service's myPay) to bump up your contribution a percentage or two every time you get a pay raise or promotion.

4. It's portable. When I discuss participating in the TSP with financial planning clients, one of the top objections they give is, "Well, I'm only going to be in the military for a few more years." That doesn't matter. Start saving anyway - when you separate from the military you can leave the money in the TSP (as long as it's over $5,000), move it to your new employer's retirement plan, or roll it into an IRA or Roth IRA. Don't let this be your excuse for not starting to build a nest egg for the future.

3. It's easy. Nothing in the investment world is quite as easy as payroll contributions to a retirement plan. Once you're signed up, your investments are made automatically each pay period without as much as a keystroke or phone call. And increasing your contribution is just as easy as a visit to the myPay website. You have to pick how you want your money invested among the index funds offered, but if investments aren't your thing, the Lifecycle or "L" funds are a great option. They represent a diversified mix of the various investment options available within the plan. You don't have to worry about selecting the right mix of investments, rebalancing the portfolio or shifting to a more conservative mix as you approach the "target date"- it's all done for you. Just pick the date that corresponds to your retirement date (normally somewhere around age 60-67).

2. It's cheap. In some circles, "cheasy - cheap and easy" isn't necessarily a glowing endorsement. However, in this case it's a good thing. Mutual funds typically have expense ratios of 1 percent or more and "cheap" exchange traded funds (ETFs) normally carry expense ratios of .25 percent or more. On the other hand, TSP expense ratios a miniscule .05 percent. That may be a first - inexpensive government.

1. A small piece goes a big way. Let's face it, military retirement is a great benefit, but for most folks it's not enough. Let me crunch the numbers for you: Our dedicated E-6 starts saving, bumps his saving 1 percent per year, contributing part of his annual cost-of-living adjustments. He is pretty smart, it's reflected in his job performance and he's promoted a couple of times and finishes his 22-year career as an E-8. Each time he's promoted he dedicates one third of his pay raise to the TSP. And at age 60, not including anything he did in his second career - drum roll please - he's accumulated a whopping $800,000. In my book that's 800,000 reasons to start now.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

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