Retirement Planning. 5 Thrift Saving Plan Mistakes to Avoid

This article discusses the main mistakes individuals make when planning for retirement and how to use your Thriftplan to make sure you are on track to a financially secure retirement.

Retirement planning means preparing today for your future life to continue to meet all your plans and dreams independently, including setting your retirement goals, estimating the amount of money you will need, and investing in growing your retirement savings. Of course, every retirement plan is unique. After all, you may have particular ideas on how you want to spend your retired life. Thus, it’s essential to have a specific plan to suit your individual needs.

You can define the path to achieving these life goals without financial dependence by planning in advance. First, analyze your present financial situation to gauge how much you can save. Ideally, about 30-50 percent of your total savings should go towards retirement. After this, you can narrow down on investment avenues. The younger you are, the more time you have to take advantage of compounding and take a few risks.

Why Do You Need Retirement Planning?

Growing old can be expensive. The burden of not having enough money to sustain future expenses can cause stress and worry. Planning for retirement provides an additional source of income and helps in dealing with medical emergencies, fulfilling life aspirations, and being financially independent. Retirement planning must be a non-negotiable part of everyone’s financial strategy. The future may be uncertain, but it can help to be prepared.

Your retirement will be more enjoyable if your income is structured to fit your lifestyle choices and if you have developed a retirement plan to protect the assets you have worked hard to acquire. Follow these steps to retirement income planning:

  1. Identify and compare your income and expenses to determine any shortfalls or surpluses.
  2. Review and analyze the various retirement income strategies.
  3. Review and compare the retirement income options available.
  4. Develop an action plan.

With longer life spans, and many people enjoying a more active retirement, ensuring you have access to a good, secure income is vital.

Saving for Your Retirement Through TSP

Participation in the TSP can significantly increase your chances of financial security. Participating in your TSP can save part of your income for retirement through automated payroll deductions. You can also receive matching contributions from your employer and perform forward-looking tax planning for retirement. Find out if your employer offers a TSP plan. If you aren’t already enrolled, do so immediately. If you are just getting started in your career, don’t make the mistake of thinking you’ll have plenty of time later to fund your retirement. Starting early is one of the best things you can do to ensure that you set aside enough to support a comfortable retirement.

The TSP offers you two approaches to investing your money:

The L Funds. These are “Lifecycle” funds invested according to a professionally designed mix of stocks, bonds, and Government securities. You select your L Fund based on your “time horizon,” the future date at which you plan to start withdrawing your money. Depending upon your plans, this may be as soon as you leave or further in the future.

Individual Funds. You make your own decisions about your investment mix by choosing from any or all of the personal TSP investment funds (G, F, C, S, and I Funds).

5 Thrift Saving Plan Mistakes to Avoid

Saving for your retirement is the critical part, but sometimes mistakes happen. However, correcting TSP management missteps can save you more money and time in your long-term retirement savings. To help maximize your TSP, you should avoid these TSP pitfalls:

Not contributing enough. Don't just settle for the regular contributions, the payroll deductions from your basic pay before withheld taxes. Employees should invest at least 5% in the TSP, the percentage needed to obtain the maximum available matching funds. Beyond that, employees need to balance long-term investment needs against other needs.

Investing 100% in G Fund. It may seem safe during market volatility, but, unfortunately, you’re exposing your retirement savings to the inflation risk. Instead, splitting your money between two or more funds could offer increased diversification and more significant growth potential and help protect your purchasing power in retirement.

Choosing TSP funds based on past performance. No past performance is a guarantee of future results. In addition, none of the TSP funds can guarantee to repeat what they’ve done in the past. So instead, focus on your risk tolerance and goals to find the TSP funds that best suit your retirement needs.

Take loans from your TSP. Some rules restrict when and how you may take money out of your account while still employed. When you take a loan, you borrow your contributions and the earnings on those contributions. You repay your loan with interest. The interest rate is the G Fund's interest rate when your loan application is processed. The TSP also charges a processing fee for each loan.

Enrolling without a strategy. Don't just enroll and settle for the "default settings." Instead, meet with retirement financial planners and qualified tax professionals to see what advanced retirement income planning options might be in your best interests. They can help you evaluate your TSP choices within a holistic, tailored retirement plan.

Final Thoughts

Planning for retirement takes just that; planning. The TSP plays a vital part in your retirement years. Therefore, it’s essential to do your research and fully understand the rules and regulations regarding your TSP. Doing so will help you avoid most mistakes and maximize your investment.

The truth is that an investment plan should be personalized to match your interests, and it should line up with your financial plan because every penny has a purpose. Taking the time now to determine what kind of life you eventually want to live will help you work through these decisions and plan out how hard your savings have to work. Getting reliable information is vital, and this is where professional help can be invaluable. Financial advisors can help you set and achieve your goals, build and structure your wealth in the right way for your situation, and support you on the path to financial freedom in retirement.

Managing a retirement plan requires constant work. Be confident that your retirement plan is supported by specialists with experience in plan administration and management focused on solutions that meet your needs. Thrift Plan professionals provide experienced and objective guidance to walk you through setting up your TSP through your employer in a way that will work best for your circumstances.