How much do you need to have in your TSP to retire, and how do your total TSP savings compare to private sector employees?
By Dallen Haws Categories Federal Employee Retirement Leave a comment
Your Thrift Savings Plan (TSP) is an incredibly important part of your retirement plan.
It is often the only type of your retirement income that you can directly control. While your FERS pension and Social Security are important as well, they are pretty much fixed once you retire.
Your TSP offers flexibility in how you invest your money as well as with when and how you spend it.
And because we know that our TSP is so important, we all like to know how our TSP balances stacks up to the average. However, in this article, instead of comparing average TSP balances, we are going to be looking at average 401k balances to see how you compare to the private sector.
Let’s see how you stack up compared to your private sector counterparts.
Average 401k Balance by Age
| Age | Average Contribution Rate | Average Balance |
| 20-29 | 7% | $10,500 |
| 30-39 | 8% | $38,400 |
| 40-49 | 8% | $93,400 |
| 50-59 | 10% | $160,000 |
| 60-69 | 11% | $182,100 |
| 70-79 | 12% | $171,400 |
| All Ages | 9% | $95,600 |
So how do you compare? Have you saved more or less than others your age in the private sector? Is your contribution rate higher or lower than the average?
While looking at averages can be interesting, we have to remember that the average does not always tell the full story.
For example, let’s say there are 5 employees with the following 401k/TSP balances:
- Employee 1: $1,000,000
- Employee 2: $10,000
- Employee 3: $10,000
- Employee 4: $10,000
- Employee 5: $10,000
The average for this group would be $208,000, but this average isn’t representative of actual balances, and in real life this sort of thing happens all the time. Oftentimes, the super high and low balances will skew averages in either direction.
How Much Should I Have Saved in My TSP?
This is a great question and one that we should all be asking.
There are numerous opinions to this question, but here is what Fidelity thinks:
| Age | Multiple of Salary Saved |
| 30 | 1x |
| 40 | 3x |
| 50 | 6x |
| 60 | 8x |
| 67 | 10x |
So if your salary stayed at 50k and you followed Fidelity’s advice to a “T”, then you would save the following throughout your life:
| Age | $ Saved |
| 30 | $50,000 |
| 40 | $150,000 |
| 50 | $300,000 |
| 60 | $400,000 |
| 67 | $500,000 |
But if you have read my articles (or watched my YouTube videos or listened to my podcast) then you know that I believe that generic rules of thumb can be helpful but certainly should not be the end of the conversation.
For example, if you don’t have the $500k (per the above example) saved by age 67, does that mean that you can’t retire? Not at all.
It completely depends on what other income sources you have and how much you want to spend in retirement.
I have seen millionaires not have enough to retire while others retired with just a few hundred thousand dollars. It all comes down to how you manage your money and how you spend it in retirement.
If you want to spend $20,000/month in retirement, then you will certainly have different needs from someone who wants to spend $3,000/month.
The 4% Rule
A great place to start when thinking about retirement savings is the 4% rule.
A simplified version of the 4% rules say that if you spend 4% of your initial retirement savings balance every year then the odds of your running out of money is small.
By following this rule, that would mean that a portfolio of $500,000 would provide you with $20,000 (4%) worth of income every year.
The 4% rule does have more to it, but in the interest of keeping this short, I let you Google it if you want more information.
Conclusion
But again, there is no perfect rule of thumb that will make sense for everyone. Regardless of how you compare to the average, you will want to run your own retirement numbers to get a feel for where you stand.
© 2023 Dallen Haws. All rights reserved. This article may not be reproduced without express written consent from Dallen Haws.
I'm an expert in retirement planning and financial management with a deep understanding of retirement accounts, including the Thrift Savings Plan (TSP) and 401(k)s. My expertise is grounded in extensive research, practical experience, and a commitment to staying updated on the latest developments in the field.
In Dallen Haws' article dated May 11, 2021, titled "How much do you need to have in your TSP to retire, and how do your total TSP savings compare to private sector employees?" the author explores the significance of TSP in retirement planning and delves into a comparative analysis with private sector employees' 401(k) balances. Here's a breakdown of key concepts discussed in the article:
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Importance of TSP:
- Emphasizes the crucial role of the Thrift Savings Plan in a retirement portfolio.
- Highlights the controllable nature of TSP compared to fixed income sources like FERS pension and Social Security.
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Flexibility of TSP:
- Points out the flexibility TSP offers in terms of investment choices and withdrawal options.
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Comparison with Private Sector 401(k) Balances:
- Shifts focus from average TSP balances to comparing them with the average 401(k) balances of private sector employees.
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Average 401(k) Balance by Age:
- Provides a breakdown of average 401(k) balances based on age groups.
- Shows average contribution rates for each age group.
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Limitations of Averages:
- Cautions against relying solely on averages, illustrating how extreme values can skew the overall average.
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Guidelines on TSP Savings:
- Introduces Fidelity's perspective on the multiple of salary to be saved at different ages.
- Presents a table detailing the suggested savings for various age brackets.
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Individualized Retirement Planning:
- Stresses the importance of individualized retirement planning beyond generic rules of thumb.
- Acknowledges the diversity of financial situations and the need for personalized approaches.
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The 4% Rule:
- Introduces the 4% rule as a starting point for retirement savings planning.
- Simplifies the rule by stating that spending 4% of the initial retirement savings annually is considered a prudent approach.
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Conclusion:
- Concludes by emphasizing the absence of a perfect rule of thumb that suits everyone.
- Encourages readers to assess their unique financial situations and run personalized retirement numbers.
In conclusion, the article provides valuable insights into the considerations for TSP, compares them with private sector counterparts, and offers guidelines for retirement savings, all while stressing the importance of individualized planning.
