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Why TSP calculators don't always work
Tuesday - 8/17/2010, 6:14pm EDT
Have you ever tried to figure out how much money you're going to need when you retire? Turns out, that's not as easy as it sounds.
A recent article from the Federal Times points out some of the pitfalls, and Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board, says no calculator can be completely accurate.
"The result will not just be misleading. The result will be wrong. That's the thing you have to understand, because what [the author] is talking about is your predictions -- what you are putting down in terms of what you will contribute and what the return will be over a 10, 20 or 30 year period."
The problem is, no one can see the future. It is almost impossible to calculate what your investments will be exactly worth in the future because there are so many variables.
But, Trabucco adds, the TSP calculators do exist for a reason.
"What our calculators are designed to do is help you project what you can acquire over a lifetime or a career of saving. Obviously, you're going to be making adjustments along the way. There are unforeseen things. The market's going to go up. The market's going to go down. . . . Some of these things can be foreseen, some of them can't."
He adds that, in order to really successfully save for retirement, you have to keep plugging away and understand that the purpose of the TSP is to build value from your contributions.
"Most of your returns will come from the savings rate and the matching contributions, of course, if you're FERS. Remember also that FERS is not just the TSP. It is a three legged stool. The TSP is the leg of the stool that you have some control over. . . . The other two legs -- Social Security and the FERS-defined benefit -- are just that. Defined."
So, no calculator will give you an exact figure that you can definitely rely on, but Trabucco does say that more involvement in your retirement funds is better.
He also says the TSP annuity could be a good option for those really concerned with running out of money. This can be purchased once you know the amount of money you will have in your account when you retire.
Remembering Senator Ted Stevens
Many articles have been written about the Senator since he was killed in that plane crash last week, but did you know he is known as the father of the TSP?
"[He] was the chairman of the Senate subcommittee that had jurisdiction over federal retirement in the early and mid-1980s. The Greenspan Commission, in 1983, recommended that all new federal employees be brought into Social Security. . . . After that, a new retirement program for federal employees had to be designed, and Ted Stevens did step forward and took on that role in the Senate. As such, he really was the big proponent of what was then called the Capital Accumulation Plan."
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