I’m divorced three times, retired from the military and plan to retire from civil service in about four years at 64 years old. I have $150,000 in a thrift savings plan. I’m saving $900 monthly in this account and would be happy if it grew to $300,000 to $400,000. I’m also starting to put $600 to $800 into my savings each month. When I retire in four years, I expect to receive $3,900 in pension and disability payments from the military each month, plus another $1,900 per month from civil service and $2,100 from Social Security.
Having spent most of my adulthood and career working in Europe, I do not plan on going back to the States. My plan is to move to a country that offers a retirement visa – Portugal, Panama, Thailand, Costa Rica or a few other choices. I’ve made financial mistakes over the years and I guess one of the good things is, I only have about $8,000 in debt and $5,000 in a savings account. How can I invest more so I can retire with between $300,000 to $400,000 in four years?
– Wes
Thanks for the question, Wes. The “how” becomes pretty straightforward once you put the question into context. Let’s take a look at your financial situation and then break down the math behind getting to where you want to be in terms of your thrift savings plan (TSP) balance. As we do, I’ll highlight what stands out to me as the steps most necessary to reach your investment goals. (And if you need more help mapping out your plan for retirement, consider connecting with a financial advisor.)
Your Retirement Income
Since you’re talking about your retirement savings, let’s start framing your situation by looking at your sources of income in retirement. You have your TSP of course, but you also listed several pension-type sources of income. You’ve got your military retirement, VA disability and estimates for both your civil service (I’m going to assume this is FERS) and Social Security.
These add up to $7,900 per month, not to mention the fact your VA benefits aren’t taxable. This is important to consider as you think about how to increase your savings.
By most retirees’ standards, this is a good foundation or “income floor” of non-investment related income. There are both mathematical and psychological benefits of knowing that you’ll have a certain amount of money coming in each month regardless of what happens with your investments. You’ll need to compare this guaranteed income to your expected living expenses, but I imagine your $7,900 could go a long way toward covering your needs. (And if you need help building a retirement income plan that can support your lifestyle, consider working with a financial advisor.)
Why Does it Matter?
In order to have $300,000 to $400,000 in your TSP within four years, you’re likely going to need to increase the amount you contribute to it each month. That will require you to divert money from somewhere else.
You mentioned putting $600 to $800 into your regular savings each month and there are good reasons to do that. Building an emergency fund, for example, tops the list. However, it’s worth thinking critically about the amount you should be allocating toward your emergency fund vs. your TSP.
You need to consider your total financial liabilities when you determine the amount to keep in emergency savings. You have very little debt, which may speak to a reduced need for emergency savings. And going back to our discussion about your income floor in retirement, this could also be an indication that you don’t need quite as much in emergency savings as the typical retiree.
The takeaway here is that I think you may be in a position to divert some of your monthly savings outlay to your TSP. So, with all of that in mind let’s look at what it would take for you to reach your goal. (However, it may still help to run similar projections with a financial advisor of your own.)
How to Hit Your Savings Target
The table below shows the effects that different contribution amounts could potentially have on your TSP balance in four years.
The percentages you see across the top of this chart represent hypothetical investment returns over the next four years. This is highly dependent on how you invest your money and what markets do during that time, but these numbers provide you an estimate. Meanwhile, the numbers in the first column along the left side are hypothetical monthly contribution amounts.
| Monthly Contribution* | 5% Annual ROI | 6% Annual ROI | 7% Annual ROI | 8% Annual ROI | 9% Annual ROI | 10% Annual ROI |
| $900 | $231,000 | $239,500 | $248,286 | $257,403 | $266,868 | $276,694 |
| $1,100 | $241,694 | $250,379 | $259,393 | $268,748 | $278,458 | $288,536 |
| $1,300 | $252,341 | $261,252 | $270,499 | $280,093 | $290,048 | $300,379 |
| $1,500 | $262,988 | $272,126 | $281,605 | $291,438 | $301,639 | $312,221 |
| $1,700 | $273,635 | $283,000 | $292,711 | $302,783 | $313,229 | $324,063 |
| $1,900 | $284,282 | $293,873 | $303,818 | $314,129 | $324,820 | $335,906 |
| $2,100 | $294,929 | $304,747 | $314,924 | $325,474 | $336,410 | $347,748 |
For example, if you contribute $900 per month and earn 5% per year you’ll have $231,000 in your TSP at the end of four years. However, if you saved $2,100 per month and averaged a 10% annual rate of return, your TSP would have nearly $348,000 within four years. Again, purely hypothetical but this helps you estimate what you need to contribute.
Keep in mind that the contribution numbers are total contributions, so don’t forget about any match you may receive. FERS employees are matched 100% up to 3% of salary, then 50% on the next 2% of salary. Depending on your salary, your agency could be putting in several hundred dollars per month on top of what you’re contributing, so factor that into your calculations. (And if you need help aligning your investing strategy with your financial goals, think about working with a financial advisor.)
Bottom Line
From the starting position you’re in, $400,000 will be a tough climb in four years. Saving another $300,000 is within reach but will still require you to save significantly more than the $900 you’re currently contributing to your TSP each month.
Tips for Retirement Planning
- SmartAsset’s retirement tax friendliness tool can help you assess how amenable the tax laws are to retirees in all 50 states.
- A financial advisor can help you build a holistic plan for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Brandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column. Questions may be edited for clarity or length.
Please note that Brandon is not a participant in SmartAsset AMP, and he has been compensated for this article. Questions may be edited for clarity or length.
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