Anonymous
06/05/2015 22:23
Subject: Re:"maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:Anonymous wrote:how do people afford to contribute 18k when at a fed gs12 or 13 salary?
Just do it. There are many ways to do - adjust your other money going out.
Correct...just do it.
I'm 29 and make $52k as a federal benefits & retirement counselor. I max out my TSP contribution yearly (last year $17.5k, now $18k), as well as a traditional IRA with $5,500. I also have a side-gig (~$10k/year) and contribute the maximum deductible amount from my 1099 earnings into an SEP-IRA ($2,400 last year). My effective federal income tax rate for 2014 was 7.3%...not too shabby. Both the traditional IRA and SEP-IRA contributions get transferred into TSP (can't beat the cost anywhere else, including Vanguard). I've done this yearly since 2010 and already have early retirement (45?) on my mind. And since I'm already maxing everything, every raise I get in the future is all mine (instead of bumping up my contribution % trying to play catch up). You have to make saving a goal, then a priority, and then just do it.
To put my expenses in perspective, I rent a shoebox-sized basement apartment in Arlington for $800/mo, have eaten enough oatmeal and rice in my 20s for five lifetimes, and still have my first car from high school that I drive practically everywhere in. I rarely drink (gigantic waste, especially at the bars), but have plenty of fun every weekend. And I still manage to sock away $1,000/mo into a Vanguard taxable account. Having zero debt makes it all possible. I also don't have a bunch of kids, cars, houses, boats, timeshares, etc., etc. that I can't afford.
CONTRIBUTE THE MAX. It hurts, I know personally, but it puts you on an actual track to retirement, not just hopes and dreams. If you're not maxing out your tax-advantaged retirement account space, you're only cheating yourself. Time is your greatest investing friend and compound interest is simply magic. Contributing the max gets you the up-front tax savings now, helps you accumulate a huge nest egg, and then gives you the choice of deciding exactly what your tax bracket and income will be in retirement. The fact that Uncle Sam has put a limit on what you can contribute, is a sure sign that it's a good deal. You can borrow for college, cars, and houses all throughout your lifetime, but you absolutely cannot borrow for your retirement.
At my agency, I get ecstatic when 20 & 30-somethings come into my office to talk about retirement planning and TSP. I have the chance to hopefully steer them onto the right path to earning a very comfortable retirement. With dedication and perseverance, you really do EARN it. When folks 55+ come in, a lot of times it's too late for me to be much help. When I see their $100k (or less!?!) TSP balances I wonder which type of dog food they'll enjoy the most in retirement. On the contrary, when the quiet GS-9 admin assistant in her 40s comes in for retirement planning and shares that she already has $500k+ in TSP, I can only tell her keep up the good work and don't stop whatever she's doing.
If I can make it happen on my pittance of a salary, you can too.
"The best time to plant a tree was 20 years ago. The second best time is today."
PP, this is awesome. Good for you. Could you expand on the traditional IRA/SEP transferred to the TSP? I didn't realize you could transfer your traditional IRA there. Am also curious to know, given that you're so savvy, why traditional IRA instead of Roth IRA for yourself? TIA
Anonymous
06/05/2015 21:43
Subject: Re:"maxing out" TSP, 401, etc.
While it very admirable to see a 20 something maxing out, there is something to be said for having some carefree living in your 20s. I'm 32 now and wouldn't change the experiences I had for anything. I also became a mother during that time in addition to the social fun. I've been contributing to a Roth since age 23 and TSP for 8 years at 10%. With my pension and TSP/Roth and a paid off mortgage (bought at 25), I'll be comfortable in retirement. No need to travel the globe then because I'm doing that in my 20s, 30s, and 40s. It's about balance for me. I'll make substantially more for the next year or so (I make 72K base) so I'll max during that time.
Anonymous
06/05/2015 20:47
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:
When you said front loading contributions is best, you give up that huge free match. You'll NEVER make those kinds of profits on that 18k in a year. So no, spreading it out is best.
NP here. I think y'all are having some miscommunication over the term "front loading." PP is not saying to contribute the full $18,000 during the first six months. I think the idea is to have very high contributions early and then cut back to only contributing 5% once you hit the point where that would bring you to $18,000 for the year. That way you get the full match over the entire year, but you might have started the year contributing 23% or whatever before eventually cutting back to 5%.
Anonymous
06/05/2015 17:37
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:Anonymous wrote:Anonymous wrote:
Your statistics are not including the match.
How so?
Assuming a 100k income, the match would be $5000 at 5%. That is a 27% gain on the $18,000. Your numbers are clearly for a mutual fund
^I'm not sure what those last two sentences have to do with anything. But to clarify...the match does not count towards the $18k contribution limit.
At a $100k salary, yes, the match would be $5,000 at 5%. At that salary, in addition to maxing the $18k in personal contributions, the total amount going into TSP for the year would be $23,000 ($18k from paycheck deductions + the $5k gov match)
When you said front loading contributions is best, you give up that huge free match. You'll NEVER make those kinds of profits on that 18k in a year. So no, spreading it out is best.
Anonymous
06/05/2015 15:39
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:Anonymous wrote:
Your statistics are not including the match.
How so?
Assuming a 100k income, the match would be $5000 at 5%. That is a 27% gain on the $18,000. Your numbers are clearly for a mutual fund
^I'm not sure what those last two sentences have to do with anything. But to clarify...the match does not count towards the $18k contribution limit.
At a $100k salary, yes, the match would be $5,000 at 5%. At that salary, in addition to maxing the $18k in personal contributions, the total amount going into TSP for the year would be $23,000 ($18k from paycheck deductions + the $5k gov match)
Anonymous
06/05/2015 15:00
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:
Your statistics are not including the match.
How so?
Assuming a 100k income, the match would be $5000 at 5%. That is a 27% gain on the $18,000. Your numbers are clearly for a mutual fund
Anonymous
06/05/2015 10:02
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:
Your statistics are not including the match.
How so?
Anonymous
06/05/2015 08:07
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:Anonymous wrote:What is that advantage of maxing out TSP early in the year?
There is none in fact, there is a disadvantage. The match comes with each pay period, so you maxing out early means that the matching stops prematurely. Spread it out evenly over the year to get your full match.
Gotta do the math to make this work. I get a paycheck on the first of each month at my agency, so it makes the math a little easier.
In December, figure up the highest salary you could possibly be at within the next year with step increases, COLAs, or even a promotion. Using $96,000 as an example, the 5% gov match for the year would be $4,800. Divided by 12, that's $400/mo. In January, February, and March your TSP contribution could be $4,800 each month. For April-December, it'd be $400/month to get the max total of $18k in contributions for the year. As long as your salary is always under $96,000 thru the year, you will always catch the full gov match on each paycheck. It will involve some timing with Payroll to change your contribution amounts correctly. And obviously takes a little planning in the prior year because you could end up short on cash.
The advantage?
1) Gets 80% of your yearly contribution done in the first quarter, freeing up a huge chunk of cash each month after March for whatever you'd like
2) It's statistically proven that lump-summing/front-loading contributions outperforms DCA (dollar cost averaging) 2:1. I'll take those odds any day with hopefully 20-ish more years to contribute. http://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf *Remember, it's time in the market that helps boost returns
3) Get a nice bonus if the market happens to take a dip in mid-late winter
Your statistics are not including the match.
Anonymous
06/05/2015 07:08
Subject: Re:"maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:how do people afford to contribute 18k when at a fed gs12 or 13 salary?
Just do it. There are many ways to do - adjust your other money going out.
So 90k HHI or 2 incomes both making 45k and putting 18k each in? I don't believe you.
Anonymous
06/04/2015 23:46
Subject: "maxing out" TSP, 401, etc.
HHI = 190k
max 403b = 18k
max SEP IRA = 15k
max 2 Roth IRAs = 11k
Ugh...that actually seems pretty pathetic for savings for the year compared to income. We do have five rental properties that will be paid off in retirement, so hopefully we will be ok.
max 403b = 18k
max SEP IRA = 15k
max 2 Roth IRAs = 11k
Ugh...that actually seems pretty pathetic for savings for the year compared to income. We do have five rental properties that will be paid off in retirement, so hopefully we will be ok.
Anonymous
06/04/2015 23:44
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:Anonymous wrote:What is that advantage of maxing out TSP early in the year?
There is none in fact, there is a disadvantage. The match comes with each pay period, so you maxing out early means that the matching stops prematurely. Spread it out evenly over the year to get your full match.
Gotta do the math to make this work. I get a paycheck on the first of each month at my agency, so it makes the math a little easier.
In December, figure up the highest salary you could possibly be at within the next year with step increases, COLAs, or even a promotion. Using $96,000 as an example, the 5% gov match for the year would be $4,800. Divided by 12, that's $400/mo. In January, February, and March your TSP contribution could be $4,800 each month. For April-December, it'd be $400/month to get the max total of $18k in contributions for the year. As long as your salary is always under $96,000 thru the year, you will always catch the full gov match on each paycheck. It will involve some timing with Payroll to change your contribution amounts correctly. And obviously takes a little planning in the prior year because you could end up short on cash.
The advantage?
1) Gets 80% of your yearly contribution done in the first quarter, freeing up a huge chunk of cash each month after March for whatever you'd like
2) It's statistically proven that lump-summing/front-loading contributions outperforms DCA (dollar cost averaging) 2:1. I'll take those odds any day with hopefully 20-ish more years to contribute. http://pressroom.vanguard.com/content/nonindexed/7.23.2012_Dollar-cost_Averaging.pdf *Remember, it's time in the market that helps boost returns
3) Get a nice bonus if the market happens to take a dip in mid-late winter
Anonymous
06/04/2015 22:52
Subject: "maxing out" TSP, 401, etc.
Anonymous wrote:What is that advantage of maxing out TSP early in the year?
There is none in fact, there is a disadvantage. The match comes with each pay period, so you maxing out early means that the matching stops prematurely. Spread it out evenly over the year to get your full match.
Anonymous
06/04/2015 22:20
Subject: "maxing out" TSP, 401, etc.
What is that advantage of maxing out TSP early in the year?
Anonymous
06/04/2015 19:20
Subject: "maxing out" TSP, 401, etc.
After lurking and reading posts for years, I think it's pretty clear that your typical DCUMer doesn't have a clue as to how many people really do make and live on less than $70,000 in the DC area.
Anonymous
06/04/2015 19:01
Subject: Re:"maxing out" TSP, 401, etc.
Unfair to say dcum is unrealistic on salary or that dc salaries are out of touch with reality- look at housing costs. Surviving and renting an apt on 50k in dc sounds close to impossible to me