Ten TSP Tune-Up Tips for 2022

By Barbara O’Neill, Ph.D., CFP®

At the start of every year, many people take stock of things, including their personal finances. Therefore, now is a great time for Personal Financial Managers (PFMs) to assess service members’ Thrift Savings Plan (TSP) use with a “TSP Tune-Up” review.

Below are ten TSP topics to review with clients:

Investing and TSP Knowledge– It is useful to know what service members already know about the TSP and identify content knowledge gaps. The DoD Office of Financial Readiness has a 45 to 60-minute course with detailed information about the TSP. At the end of the lesson is a 10-question quiz that can be used with clients.
Risk Tolerance Assessment– Research indicates that financial risk tolerance levels are positively associated with stock market performance indexes. Therefore, it is useful to periodically assess clients’ feelings about investment risk. A useful resource is the 13-question investment risk tolerance assessment from the University of Missouri.
Future TSP Growth Projections– A key take-away for service members is that starting off with a low percentage of equity investments in the TSP as young adults will decrease money saved for retirement. This message can be reinforced with investment performance data and online calculators including TSP’s How Much Will My Savings Grow?
Beneficiary Designations– Beneficiaries should be reviewed annually and revised as needed, typically in response to life events such as the death of a beneficiary (e.g., an unmarried service member’s parent), marriage, and divorce. Ask “Who do you want your account to go to when you are no longer alive?” to get the conversation started and encourage service members to list all of their beneficiaries (TSP, IRAs, life insurance) in one place using this worksheet.
TSP Matching– Service members need to know that government matching is “free money.” If monthly basic pay is $1,200 and a service member voluntarily contributes 5% ($60) to the TSP, the government will match that amount for a $120 total contribution. This is a guaranteed 100% return before the contribution even starts to accrue earnings! Service members can, of course, save a higher percentage (e.g., 10%) of pay even though government match maxes out at 5%.
Small Step Increases– Some service members cannot “max out” but may be motivated to take small steps at the start of every year. One “math simple” strategy is to increase TSP contributions by 10 percent per year. For example, if they contribute $800 this year, they will contribute $880 next year: $800 + ($800 x .10) = $880. After ten years, they will double their contribution (10% x 10 years = $100%). Similar math can be done for 20%, 25%, and 50% increases.
Target Date (L Fund) Review– Two key topics for service members to know are asset allocation for their projected retirement age and that L fund portfolio asset allocation automatically gets more conservative as time passes. Changes in the composition of L fund portfolios should be reviewed. Some service members may also want to select a different target date than their current age suggests based on factors such as personal risk tolerance.
Savings Success Stories– FOMO (fear of missing out) can be used as a positive influence by sharing stories about service members who are successfully saving 5% or more of their pay and earning the maximum service matching contribution. People often identify with financial role models and become motivated to follow in their footsteps.
TSP Transition Planning– Service members who are planning to leave active duty soon may need help from PFMs to decide what to do with their TSP account. Some may consider moving it to an investment firm for access to a wider variety of securities. Others want to maintain their account with the TSP because of its performance and very low administrative fees.
Roth vs. Traditional TSP– It is worth reviewing the trade-off between an immediate tax write-off and extra take-home pay now (pre-tax traditional TSP) vs. investing after-tax dollars that earn tax-free compound interest (Roth TSP). Service members can “hedge their bets” about future taxes on their TSP account and make both traditional and Roth contributions.