If you are within a few years of retiring from Federal service, you can still reap the benefits of contributing to your TSP account. Also, it's important to keep adding to your account for as long as you can. You will likely spend two, perhaps even three decades in retirement and you'll want your money to continue to grow.
- Catching Up with Contributions
- Your TSP Asset Allocation
- Your Tax Treatment Options
- An Ongoing Process
If you got a late start on retirement savings, or if you haven't accumulated as much as you would like, the IRS gives you a chance to make up for some lost time with catch-up contributions. Be sure to take advantage of them if you can:
- You must be age 50 or older in the year in which you plan to make catch-up contributions.
- You must expect to contribute the maximum amount allowed of regular employee contributions for the year to the TSP or other eligible tax-deferred employer plan.
Visit Contribution Limits for current information on the IRS allowable limits.
The way in which you distribute your money among the TSP funds should reflect your time horizon and your risk tolerance. The closer you are to retirement, the shorter your time horizon. As a result, your primary focus might shift from growth and accumulation to safety and preservation. Even if your risk tolerance is very high, you may not have time to recover from severe drops in the market if a large portion of your account is allocated to stock funds. If you determine that you have not saved enough, this is not the time to take on more risk than you have the ability to sustain — the better alternative would be to increase your savings.
If you are heavily invested in the stock funds, now is the time to consider shifting to a more conservative allocation, especially if you do not have other retirement funds safely invested elsewhere.
However, you will likely spend many years in retirement and, as a result, you could risk outliving your money. Be aware of this as you determine whether some portion of your account should be invested in the TSP stock funds to take advantage of their long-term growth potential.
Visit Investment Funds to learn about all of the TSP funds, their features, and past performance. The information there should help you to determine an asset allocation that best suits your needs at this stage of your career.
You have the option of making traditional (pre-tax) contributions and/or Roth (after-tax) contributions to your TSP account. For more information on these options, visit Tax Treatment of Your Contributions.
As you near retirement, it's important to remember that retirement planning is an ongoing process. On a regular basis, you should:
- Review your investment experience and your TSP balance.
- Reassess your retirement income needs and your investment goals.
- Consider your risk tolerance and make any necessary changes to your asset allocation.
- If necessary, increase your TSP contributions.