How much should you have in your TSP at retirement?

There’s no easy answer about how much you should have in your TSP account at retirement, but there are a few basics to consider.

Federal News Network Staff

January 13, 2025 1:24 pm

5 min read

Federal employees will have three main sources of income in retirement: their pension, Social Security and their Thrift Savings Plan account.

When planning their budget for retirement, they can easily calculate how much the first two will provide each month. Their TSP will need to bridge the gap between that amount and the monthly cost of the lifestyle they intend to live during retirement. That’s why there’s no easy answer to how much feds should have in their TSP accounts when they retire. It differs for every person.

Federal retirement consultants can help government employees make all those calculations and decisions. But there are a few common considerations federal employees should be thinking about as part of their retirement planning.

Minimize debt, but not at the expense of your TSP

The less debt a federal employee has upon retiring, the less drain that will be on their fixed income. That said, there are few circumstances where it would benefit a federal employee to sacrifice their TSP to retire debt free. For example, if a federal employee still had $70,000 to pay on their mortgage, they could theoretically withdraw that money from their TSP to pay it off in one lump sum and not have to worry about mortgage payments in retirement.

But that would be a bad idea for multiple reasons. First, they would owe taxes on that withdrawal. That means, to pay off that $70,000, they would actually need to withdraw around $84,000 because TSP automatically withholds 20% in taxes. And because that withdrawal counts as income, it could potentially push that federal employee into a higher tax bracket, costing even more out of pocket.

Second, you don’t want to sacrifice your capital if you have the option to continue to let it grow. That $70,000 will deliver more money if left untouched and can continue collecting interest.

Maximize quality of life, not quantity of payments

Research has shown that retiring earlier with slightly lower monthly payments can lead to a better quality of life for retirees. Putting the stress of work behind them while they’re still younger and healthier leads to more good years in retirement.

While 67 is the magic number for most people to collect Social Security, federal employees who do decide to retire early should usually take Social Security as soon as possible. Even though they’ll get smaller Social Security payments, that’s less money than they’ll have to take from their TSP.

There are two ultimate benefits:

First, TSP accrues compounding interest. Social Security only gets a simple interest increase to the payment the longer you wait.
Second, should a retiree pass away early, the remaining balance of a TSP account can be passed along to beneficiaries, which can result in a tidy nest egg. Social Security cannot be passed on to survivors other than their spouse or dependent children.

That said, it’s usually not worth retiring earlier from federal service than 62 years old (unless someone has a special provision). That’s because at 62, people get a higher pension computation. It goes up from 1% of someone’s high three (the highest average pay over three consecutive years) to 1.1% of the high three multiplied by their years of service.

For example, if a federal employee making $100,000 decides to retire at age 61 after 20 years of service, their pension would be $20,000. If that same federal employee waited until 62 — assuming they got an average 2% raise that year, bringing their salary up to $102,000 — their pension would be $23,562. That’s not only a higher pension but less money taken from their TSP.

How to become a TSP millionaire

On average, most federal employees have around $200,000 in their TSP accounts at age 60. Is that enough to retire on and live comfortably? Again, that depends on the individual and their situation. But what if a federal employee sets their sights a little higher, say, membership in the coveted “TSP Millionaires Club?”

There’s no set formula for retiring with $1 million or more in your TSP account. But there are two basic guidelines that can help you reach that goal:

Get the government match.

Whether or not they’re trying to join the TSP Millionaires Club, federal employees can’t afford to leave money on the table when planning for their retirement.

The government will match up to 5% of a federal employee’s pay in contributions to their TSP account every pay period. In fact, the Federal Employee Retirement System was specifically set up with the assumption that all federal employees would take advantage of this match to its fullest.

Take the proper amount of risk during the investment phase.

Sure, the TSP G Fund will never lose you money, but it might barely make you money either.

The further a federal employee is from retirement, the greater the percentage of their TSP account that should be invested in stock funds, especially the C Fund, which has historically outperformed every other fund.

As someone approaches retirement age, they should slowly lessen their stock exposure and focus on protecting their capital. They don’t want a massive loss in their TSP right before retiring. The Lifecycle funds will provide the proper amount of risk exposure for a federal employee’s investment phase, though it won’t give optimal growth.

Federal employees looking to optimize their growth should talk to a professional retirement consultant.