Travis,
Good to see you here, now for a bit of an attitude adjustment. Really not so much, just some recommendations.
- Your primary way of avoiding the ‘Alpo Meal Deal’ in retirement (43 years from now) is your TSP account. It is NOT your pension. Your pension (at best) will buy you better Alpo. Yummy, but not real yummy. Basically, it will cover about 20% of your spending once you start paying down big ticket items like a house and the little muggles playing soccer and going to college or whatever. Your pension (at worst) can be jiggled by politicians (from both silly parties – not being political here) who simply don’t want to pay what they promised (see Clinton’s tax code change on Social Security benefits). So, don’t count on it to keep you motoring about in your dotage.
- Ditto for Social Security. My guess is that you will pay into it and get very little of it. I will get a little more. And, the Boomers will be the last to get full benefits – and, those benefits may be jiggered (see above). If you count on Social Security than you will be eating out of cut rate supermarket brand chow.
- Another plus for your TSP holdings is that you can transfer them to another 401(k) or another retirement account once you bail from Federal service. Your pension (like that of your military pension) is blissfully spent by someone else.
- So, get some learnin’ on basic investing. There are threads that offer recommendations. Many have crossover – which point to books that offer support regardless of your end game style. My favorites for someone your age would be Ric Edelman’s ‘The Truth About Money’, and ‘The Lies About Money’. In ‘The Lies About Money’ Edelman included some basic asset allocations that you would find useful. I use three of Edelman’s allocations to move from conservative to normal to aggressive strategies.
- On reading Edelman’s books you will find that investing in an L Fund (don’t know which) alongside investing in the individual funds is normally a mistake. The ‘I Fund’ is an ‘aggressive’ foreign market fund. The ‘L Funds’ are kinda like Edelman’s risk/reward allocations. Placing 50% in I knocks out the risk management of the ‘L Funds’.
Finally, let us take a look at what investing in TSP can do for you…
Assumptions:
Current Age = 22
Retirement Age = 65
Your Croaking Age = 85
Current Salary = $24,000
10% Contribution = $2,400
FED Contribution = $1,200
Total Contribution = $3,600
Starting Retirement Fund Assets = $0
We will inflation adjust salary and contributions at 3.1% (the average)
We will use the average Compound Annual Growth Rate (9.77%) of the last 43 years
Spin cycle in the Quicken retirement planner calculator and you have:
$2,500,000 at retirement
And, $49,000 in annual after-tax inflation adjusted income
Or, to look at it differently, a little more than $4,000 a month after tax
Mix in the pension ($400 per month) and maybe a bit of social security ($400 per month) and you will be better off
Those are nice numbers – and the vast, vast majority comes from your TSP (or 401(k)) holdings. Both the pension and Social Security benefits will very likely be higher. I was basing those numbers on earning just $24,000 per year every year for your entire working history. You will do much better than that. Thus, the above will be massively improved - with your TSP providing a much bigger number than I provided.
That is why it is EXTREMELY important to learn the value of your retirement accounts.
TIME - not money - is your friend right now. See what $90 a pay period gives you when you are too old to make money!!! If you take time away from the calculations you will NOT get close to those numbers - even if you put far more money into the account. And, honestly, that $90 will only reduce your take-home by about $75 or so.
Happy Hunting
