Coffee with Mike- FERS Breakdown Series Part 4

How should you invest in TSP? Well, that can be a complicated answer, but we make it simpler by understanding a few things. If we went to the Federal Employee Ballpark Estimator, we would get a pretty good picture of what we could possibly get out of our FERS Basic Annuity, what we could possibly get on Social Security, and what we'll possibly get out of our TSP account if we keep doing what we're currently doing. If we stay in the same investments, and if we can continue to contribute it like we're contributing now. The Federal Employee Ballpark Estimator is really important and I want to make sure that you're using it.

Having said that, how do you invest in TSP is actually a product of understanding your guaranteed income from FERS and Social Security, and what your target really is. One of the things the Federal Employee Ballpark Estimator is going to ask you is what is your target. In other words, what it really says is, what percentage of your current income are you trying to replace? What's your replacement ratio? Well, our replacement ratio is always 100%.

Now, it may be that you're shooting only for 60% the way you're doing it now. That's OK, we'll make it work. We can make some adjustments, but what we need to know is what we have to do in order to get 100%. Is 100% realistic? If it's not realistic, we need to know that now, not 10 years from now, or 15 years now, or even five years from now. We need to know it now. Having that target of understanding how much I'm actually going to need? How much of my current income am I actually able to replace is really important because it impacts how we invest in TSP, and how good we feel about how we're investing in TSP. 

My goal is to give you peace of mind, to assure you that you're doing the right things, and to learn how to feel good about the fluctuations you're going to see in your TSP account. In order to do that, you've got to assess, and in order to assess, that calculator is can help you do it. This is just a reminder to use that calculator in order to give us some good information on how to invest in TSP, what rate of return we need to shoot for. Once we know that, then we can start to turn that conversation: If I need that rate of return, then what funds in TSP do I actually need to use?