TSP: Real Talk (Part 1)

This is part of a 3-blog series on TSP. If you want to be notified when the next related blogs post, sign-up here: Deliberate Military Experience Blog sign up

The military’s civilian-equivalent retirement plan, called the Thrift Savings Plan (TSP), is the military’s best wealth-growing program. It’s accessible, easy, transferable, and low cost. It’s remarkable to me just how many people don’t capitalize on this opportunity or know how to leverage the magic of compound interest.

What is compound interest? It is when your money earns interest, and then that interest also starts earning interest. Over time, this creates an exponential growth effect — your money grows faster and faster the longer you leave it invested.

Let’s say you invest $1,000 at 10% annual compound interest:

Year 1: $1,000 → $1,100

Year 2: $1,100 → $1,210

Year 3: $1,210 → $1,331

Year 10: ~$2,594

Year 20: ~$6,727

Notice that after Year 1, you’re earning interest not just on your original $1,000, but also on the interest from previous years. This happens without even adding more of your own money to the pot (called principle). The alternative to this exponential growth is linear growth, which would just be $1,000 x 10% x 20 year = $2,000. Clearly, you can see the financial difference (and benefit).

You can’t get rich by just putting a few hundred dollars a month into a piddly savings account at less than half a percent of monthly interest. Sure, month after month, your money will get slightly bigger (but really negligible) in a very linear fashion on face value, but its buying power will be lost due to inflation. Inflation is the general rise in prices for goods and services over time. In 2000, a gallon of milk cost about $2.28. In 2025, a gallon of the same milk can cost about $4.20, almost double the price in 25 years. If you only keep your money in a savings account, you will not be able to buy what you need by the time you retire. 

The TSP gives military members (and federal employees) a way to considerably outpace inflation. How does this work? When you put your money in a TSP fund, you become part owner of many, many companies. But first, what’s a fund? TSP has many “funds” and each has varying risk and return levels.

The Funds You Can Invest In

• G Fund — Government securities (US Treasury - you give the government money so they can do things with it, like build bridges, low risk, annual return 2-3%)
  
• F Fund — Bonds (corporate & government bonds - it’s where you give an agency money and they loan out that money to another entity and you earn interest from the money you let the agency borrow, low-moderate risk, annual return 3-4%)
  
• C Fund — Large U.S. companies (part owner of the largest public companies like those in the S&P 500, like Apple, moderate-high risk, annual return 9-10%)
  
• S Fund — Small/mid-sized U.S. companies (part owner of small-medium companies, like Etsy, high risk, annual return 10-11%)
• I Fund — International stocks (part owner of major companies/stocks from outside the US, like Toyota, high risk, annual return 6-7%)
  
• L Funds — Target-date funds that adjust risk automatically based on your retirement year (mix of all funds at differing amounts, depending on your retirement date, higher risk earlier on but risk lowers as fund allocation shifts as retirement approaches, annual return 4-8%)

Unless you’re 60 years old, keep your money out of the G fund! It’s a waste of time unless you are an ultra-low-risk person who needs to sleep better at night. The returns waver around 2%. Although that sounds better than a traditional savings account’s return, it pales in comparison to the returns of all other funds. Annual returns certainly do waiver and aren't guaranteed, but the average returns take time to add up and are well-worth the wait.

If you’re new or younger to the game, or you just want to “set it and forget it,” you can put your money in a L Fund. You decide when you think you want to retire (not from the military, but from the workforce…say when you turn 60) and put your money in the L Fund that correlates to that approximate age. The L Fund is made up of, you guessed it, all the other types of TSP funds, but the allocations change over time. For example, if you’re 25 today in 2025 and you want to retire at the age of 60 in 2065, you pick the 2065 L Fund. That’s 40 years away. For the first 20 years, your money will sit squarely in the S and C fund. Once you’re more than halfway to your L Fund date, TSP starts to shift your money from higher risk funds with higher yields to lower risk funds and lower yields (on average). By the time you retire at 60, you’ll find that half of your money is safely stocked away in the G Fund. Give it a try if you don’t know where to start or want damn-near guaranteed returns over time without any fuss.

But wait there’s more! If this is the first time in your life that you’ve ever given retirement any thought or the first you’ve ever had a steady income where your employer offers this sort of benefit, you’ve got to keep reading and get smart on how to leverage this program. 

This is part of a 3-blog series on TSP. If you want to be notified when the next related blogs post, sign-up here: Deliberate Military Experience Blog sign up