Once you’ve decided to save money in a Thrift Savings Plan (TSP), the first question you probably asked yourself was how much to save. While the answer is different for everyone, the following guidelines are a good place to start.
The purpose of saving in a TSP is to put aside money to pay for your retirement. The standard advice for people who have never saved for retirement is to start saving a percentage of your salary that is equal to your age minus ten percent. For example, a person who is 25 should save about 15% of their salary.
There are a lot of exceptions to this rule, however, especially for military personnel. The possibility of getting a pension is the first factor that wreaks havoc with this rule. Because the pension can make up a significant part of your retirement income, many people feel that they can save less on their own. Fortunately, there are a few ways to tell if this is true.
Start by asking yourself if you know you can stay in long enough to get a pension. With many career fields being cut, it is becoming a lot more difficult for people who want to stay in to continue their career with the military. If there is any doubt in your mind that you will not qualify for a pension, start saving the full amount that a civilian would normally save. Next, take a few moments to decide what you want to do with your retirement. Do you want to continue to work? Where do you want to live? How old will your children be when you get out?
Think about how much money you will need in retirement. Over the coming years, this figure will most likely change drastically, but for now, form a picture of what you want and how much it costs per year. Then, multiply this number by twenty. The result is how much you will need to have in savings for retirement.
Odds are, the total amount is an overwhelmingly high number. Therefore, it probably makes sense to lower it a little. Start by subtracting the average amount that you expect to get from Social Security from the amount you need every year in retirement. Also subtract 4% of the total amount that you currently have saved. Multiply this number by 20 and write it down. Also subtract the expected amount that you would get from a pension and multiply the result by twenty.
The most conservative estimate of how much you should save is to take the first number and divide by the number of years you expect to continue working. The result is the amount that you should save every year. Most people, however, will probably find this amount hard to simply pull out of their budget and save in a TSP. Instead, use an online retirement calculator to compute the amount that you need to save using the second number that you computed in the step above. This will be a good place to start.
Over the next several years, you will be able to more closely define your retirement picture. Every year, sit down for a few minutes and rerun the calculations. As you earn more money, work towards the goal of saving the conservative estimate of what you need.