By almost any measure, the federal government’s employee 401(k) plan is a great deal. Its administrative fees are the lowest in the business. That’s a fact that, over time, can leave lots more money in your Thrift Savings Plan account. Also, most employees under the FERS retirement system, which is most employees, qualify for a 5 percent match from Uncle Sam. That’s tax-deferred free money.
Very few employers offer employee 401(k) plans and even fewer match worker contributions at the 5 percent level. Thanks to steady investing in the TSP — sticking with the stock-indexed C and S funds — a growing number of federal and postal workers, of relatively modest means, have become TSP millionaires. They invested at the first opportunity, stuck with their steady dollar-cost-average investing plan. They rode out the Great Recession and now have $1 million. Or more.
Financial pro John Bogle, the founder of Vanguard and the father of the index plan, has said he wished he could get into the TSP.
Oh, and the people who run the TSP are watched like hawks. Various federal regulatory agencies monitor it. And their employees have money in it. Members of Congress and their staffs belong to the TSP too. What’s not to like?
So if it’s so good, why do roughly half of all investors take their money out of the TSP when they retire? They all have reasons, but are they good ones when you consider things like fees, oversight, etc.? Many experts recommend that anyone withdrawing all their money leave some (a minimum of $500) in their account so they can return someday if they like. Because, if you take it all out, you can never come back …
Today at 10 a.m. on our Your Turn radio show we’ll talk to benefits expert John Grobe. He’s a retired fed who was one of the 49 percent.
So what should you do? And what about legislation Congress is pushing that would make it easier to make withdrawals from the TSP?