To match, or not to match?

By: Art Miller To be or not to be: Similar to Hamlet’s query, “to match or not to match” is a question many federal employees ponder. Too often, I meet with federal employees who wonder whether or not they should contribute as much as the government will match to their Thrift Savings Plan (TSP) accounts. The answer is yes! Employee contributions are deducted bi-weekly from paychecks and deposited into the TSP along with matching contributions. Employee contributions are matched up to a maximum of five percent by the government. However, it is not unusual for an employee to elect a two or three percent bi-weekly TSP salary contribution when hired and never increase it to five percent. Some employees contend they cannot afford to contribute more than three percent of their earnings. However, the opposite is true. If Hamlet fails to act, then he may “suffer the slings and arrows of outrageous fortune.” If a federal employee never acts to take full advantage of matching, then he or she may “suffer the slings and arrows” of a much smaller retirement account. Almost everyone should endeavor to save more, particularly when increasing one’s TSP contribution to five percent of their salary will generate the maximum government match. Frankly, no can afford to decline what can be a life-changing financial gift from Uncle Sam. A federal employee who contributes less than five percent of their salary to the TSP is giving away money in both the present and future. Consider an employee earning $50,000 per year. According to TSP regulations, he could receive a five percent government match of $2,500. However, he only contributes three percent ($1,500) to his TSP and the government agency matches his contribution by adding $1,500 to the TSP account. This employee could receive an additional $1,000 (the remaining two percent) of potential free money from the government. Because the employee chooses not to contribute an additional two percent ($1,000) of his salary to their TSP, he misses out on a sizeable amount of free principal toward retirement – seed money that will compound over the years. Regardless of how many years you are employed by the federal government, it is imperative to utilize the agency match and reap the reward of the free funds. If an annual $1,000 match earns 5% during 30 working years, it would be worth $69,352. Adding the employee’s own contribution produces a total of $138,704. That’s a significant amount of potential savings that could have been generated. Matching contributions are a windfall. No matter how challenging it may be to save more, the only salary contribution question that federal employees should really ponder is “how much more can I contribute that exceeds the maximum five percent match.” Note: Keep in mind the $18,500 maximum annual TSP contribution limit (“elective deferral limit”). In 2018, once you reach $18,500 in contributions, money is no longer withheld and matching contributions stop. So if your salary and contributions are sufficiently high then you might want to calculate your automatic contributions so as to ensure you don’t leave any government matching funds on the table.

Art Miller (LinkedIn) is a Milwaukee area representative of FFEBA (Federation of Federal Employee Benefit Advocates) and is the President of Capital Preservation Strategies, a retirement and insurance planning company dedicated to helping public and private sector clients preserve and grow their assets and generate sufficient income during their lifetime.

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