Where are you on the TSP totem pole?

Account balances in the federal Thrift Savings Plan range from a few hundred dollars (for newcomers) to $4.7 million. Most people, obviously, are somewhere in between. So how about you?

As of January, there were 4.7 million account holders (current and former feds and retirees) with account balances of $50,000 or less. At the higher end of the scale, there were 3,272 whose account balances exceeded $1 million. Also there were a huge number — more than 92,000 — of TSP participants with balances ranging between $500,000 and $749,000. Many are on the cusp of becoming TSP millionaires.

So how did they do it? Some brought the money with them when they came into government. They had high-paying jobs in the private sector but, for whatever reason, came into the federal government. Some were private lawyers who became federal judges. Others had big 401k plans or retirement accounts that they transferred into the TSP because of its low-administrative fees. And the 5 percent match that Uncle Sam gives any TSP participant in the FERS retirement program that puts in 5 percent or more of their salary into the TSP. That 5 percent match — extremely generous by private sector standards, is the equivalent of a tax-deferred pay raise year after year. It’s one reason feds out-invest their private sector counterparts when it comes to building a retirement nest egg.

Based on the last few months, we appear to be — maybe — in a mini-bear market. It could happen, or not. And it could be long or short. But whatever it is, it comes after an extended period (early 2009 until at least the end of 2015) after an extended period of growth (market).

In addition to its lowest-in-the-business administrative fees, the long haul growth in TSP balances has been greatly enhanced by the 5 percent employer match and time. As in time is on your side. The stock markets go up and down but, over the long haul (so far) on the rise. Several financial planners use the example of a person walking slightly up hill playing with a yo-yo. The yo-yo will go up (a bull market) and it will go down (bear market) but overall, it rises. That’s simplistic, but accurate.

Bear markets happen every 4 or 5 years according to the investment giant firm Charles Schwab.  And bull markets rarely last as long as the most recent one. Mark Riepe, senior vice president at Schwab’s Center for Financial Research says the S&P 500 index (which is tracked by the TSP’s C-fund) almost “tripled in value “ from March 2009 to October of last year. He said that going back to the 1960s “the average bull (market) ran for more than four years delivering an average return of nearly 140 percent” while the average bear market lasted a little longer than a year “with an average loss of 34.7 percent.”

The ups and downs of the market are inevitable. How people react during a bull or bear market seems to be the key to financial success. Or loss. People who got out of the C, S and I funds during the Great Recession “saved” in the sense that they put their money in the super-safe Treasury securities G fund. But by moving into the safe harbor of the G fund, and no longer investing in the on-sale stock funds, their “lost” value in their accounts.

An expert on the TSP side said, “The best way to save for retirement is to have a plan (or use the TSP’s Lifecycle L Funds) and stick with it. Reacting to moves of the market never works out — you sell low and buy high — the exact opposite of what anyone is trying to do.” It is hard not to panic, the expert said because “the media pounds the stock market results hard, 24/7, and it’s hard to tune out.”

So where are you in the TSP standings? Checkout this chart, from the Federal Retirement Thrift Investment Board, which shows balances, number of participants and the average years of participation:

Balance Breakdown # of Participants Average Years of Participation
< $50,000 2,810,398 9.3
$50,000-$249,000 1,435,373 19.1
$250,000-$499,000 371,209 24.0
$500,000-$749,00 92,092 27.0
$750,000-$999,000 18,846 28.7
>$1 million 3,272 28.5
TOTAL 4,731,190 13.9

Nearly Useless Factoid

By Michael O’Connell

Richie Rich, the 10-year-old comic book character, has an estimated net worth of $17 billion.

Source: Forbes