Between early 2016 and mid-2017 (January to August), the number of mostly self-made government worker millionaires jumped from 3,272 to 16,475. Given the rising stock market, more people are moving into the seven-figure retirement club every month. In August, there were 46,088 people with account balances between $750,000 and $999,000. That was up from only 18,846 in January 2016.
So how did they do it?
The early TSP millionaires were all political appointees. Either elected (members of the House or Senate) or appointed to top jobs. Many were successful lawyers who were named federal judges. They brought their outside accounts with them and into the TSP, which is probably the least expensive and most closely monitored investment option on earth. According to some sources, one-time government employee Albert Einstein once said that compounding is the eighth wonder of the world. Or words to that effect. Or not.
But even if he didn’t, and if he were alive today, he probably would have kind things to say about what happens when people invest over a long period of time, keep calm in good times and bad, and stay the course. In the case of federal investors, it helps immensely to take advantage of the 5 percent match Uncle Sam offers employees. As TSP investor Emily in Washington points out, for a TSP investor making $100,000 per year, that government match translates into a tax-deferred pay raise. And as salary goes up, so does the value of the match.
Every now and then, we hear from a self-made TSP millionaire. While they come from all agencies, jobs and income levels, they all have a couple of things in common:
They’ve been investing for a long time, an average of 28 years.
They have all or most of their money in the C and S funds.
When the market tanks (as it did in 1997 and 2008), they continue to buy the stock funds, getting more shares because they consider them on sale. More bang for the buck.
Earlier this year, we got this prescription for success from a long-time, stay-the-course investor.
Check out his numbers:
“You have recently written about federal government employees with $1 million-plus TSP accounts.
I am one of them. How I got there is important. I started saving immediately when I joined the government 28 years ago. First, I contributed enough to earn the match (free money, after all), then every time I received a raise, I added some of it to my contribution until I maxed out. I never missed what I didn’t have on hand. At 50, I took advantage of the catch-up benefit.
Throughout, I invested in a balanced, diversified set of investments (C, G and I). I knew I was investing for the long haul, so I weighted toward stocks (e.g. the C fund at about 70 percent). And I didn’t pay attention to the daily market fluctuations. I stuck to my strategy through the market highs and lows. I never tried to time the market or react to changing market prices, because I knew I was in for the long haul, where fluctuations inevitably smooth out.
And then I benefited from the power of compounding. How powerful?
That’s right, my contributions of $355,000 turned into $1.1 million over 28 years.
I know someone wrote in and said you should not write about millionaires in the federal government, as if somehow federal workers were given free money. I think the above example shows that is hardly true.” — Anon