1. INVESTING/THRIFT SAVINGS PLAN (TSP)
SHOW SLIDE 9-1: INVESTING/THRIFT SAVINGS PLAN (TSP) (1 Hour, 25 Minutes)
Learning Step/Activity 9. : Investing/Thrift Savings Plan
Method of Instruction: Conference/Discussion
Instructor to Student Ratio: 1:25
Time of Instruction: 1 Hour, 25 Minutes
Media: Large Group Instruction
Required Student Materials:
Student Handout (Learning Activity 9: Investing/ Thrift Savings Plan)
TSP-U-1 Form
Calculator
Pencil
Learning Activity 9

2. TODAY'S RETIREMENT CONCEPT
Retired 20, 30, or more years - Usually With Good Health
Independent, Active Lifestyle
Goal: 100% of Pre-Retirement Income
SHOW SLIDE 9-2: TODAY’S RETIREMENT CONCEPT
Retirement has changed significantly from the past. Many people are spending 20, 30, or even more years retired. They retire younger, live longer, and are usually quite healthy. Retirees not only live independently, but also enjoy more of the fruits of their labors. Retirement income may need to equal or, depending on activities, even exceed pre-retirement income.
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3. REGARDING INVESTMENT INFORMATION
Basic Information
Instructors Are Not Financial Planners
Will Not Recommend Any Particular Stocks, Bonds, or Mutual Funds
Investment Decisions Are Yours to Make
SHOW SLIDE 9-3: REGARDING INVESTMENT INFORMATION
Keep in mind as we start discussing investments that we will be providing you with very basic investment information. We are not financial-planners, nor are we qualified to recommend investing in any particular stocks, bonds, or mutual funds. You will need to make these decisions for yourself as you mature and become more knowledgeable about investment strategies.
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4. SOURCES OF RETIREMENT INCOME
SHOW SLIDE 9-4: SOURCES OF RETIREMENT INCOME
Retirement income is often described as a three-legged stool. The three legs are: Social Security benefits; Retirement and/or pension payments; and Investment income.
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5. SOCIAL SECURITY Federal Insurance Contributions Act (FICA)
Block on LES
Eligible for Full Benefits at Age 67
About $1,300 per month
Go to to get a copy of your Social Security Statement online
SHOW SLIDE 9-5: SOCIAL SECURITY
Social Security/FICA. The FICA withholding you see on your Leave and Earnings Statement (LES) is your Social Security contribution. Persons your age will be eligible to draw full Social Security benefits beginning at age 67. It will probably be about $1,300 a month or less in terms of today's dollars. After you have been working for a year or two, you should ensure the Social Security Administration is tracking your employment by requesting an Earnings and Benefits Estimate. Go to to get a copy of your Social Security Statement online.
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6. TYPES OF RETIREMENT PLANS
Defined Benefit Plans
Company Paid (Army Pension)
Defined Contribution Plans
You pay (Thrift Savings Plan)
SHOW SLIDE 9-6: TYPES OF RETIREMENT PLANS
Types of Retirement Plans. The second leg of the retirement income stool is Retirement Benefits and Pensions. Some of you may retire from the military, begin a second career, and retire again. Others may leave the service prior to retirement and become employed in the civilian world. In either case, I strongly suggest you examine an employer's retirement plans and pension benefits when deciding to take, or remain in, any specific job. At this time in your life you are in the military and we will concentrate on military retirement benefits. There are two types of retirement plans, Defined Benefit and Defined Contribution. Today's Army has both.
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7. DEFINED BENEFIT PLANS Traditional Type of Plan Funded By Employer
Requires Long Service
Amount Based on Salary and Longevity
May or May Not Include Periodic COLAs (Military Retirement Has COLAs)
SHOW SLIDE 9-7: DEFINED BENEFIT PLANS
Defined Benefit Plans. Defined Benefit Plans are the more traditional type. The employer funds them, and one must usually work a relatively long time to become eligible for a pension check. The amount of monthly pension is normally based on salary and the number of years worked, and is guaranteed for life. These plans may or may not include cost of living increases (Military retirement does).
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8. DEFINED CONTRIBUTION PLANS
Employees Contribute From Salary Each Month
Employers May Match Some or All Contributions
Most Common are 401(k) Plans
Distribution Choices at Retirement
Amount Depends on Contributions and Investments
SHOW SLIDE 9-8: DEFINED CONTRIBUTION PLANS
Defined Contribution Plans. Defined Contribution Plans have become increasingly popular over the last 20 years or so. These plans allow employees to contribute up to a certain amount of their salary each month, before taxes, to a fund that they have a significant amount of control over. Sometimes, frequently in the civilian world, employers will match a portion of each month's contributions. The most common are 401(k) plans, named after the regulating paragraph in the Federal Income Tax Code. There is no guarantee with this type of plan. Many workers have options on how they want to receive their funds at retirement. The options are a lump sum payout, which they can then invest for future income; deferment of the distribution for a later date; converting their funds to an annuity and then receiving periodic payments from the annuity; or installment payments from their plan. These sums can be quite large, however, the amount depends on how much the worker has invested, and the earning of the specific investment plan.
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9. TWO TYPES OF DEFINED CONTRIBUTION PLANS
TRADITIONAL – PRE-TAX DOLLARS
ROTH – POST TAX DOLLARS, WHAT YOU PUT IN GETS TAXED FIRST
SHOW SLIDE 9-9: TWO TYPES OF DEFINED CONTRIBUTION PLANS
Generally, when money is withdrawn in retirement from a traditional plan, it is taxed. It is paid with tax deferred dollars and continues to grow tax deferred until withdrawn when you are taxed on the money you withdraw.
For a Roth plan, when the money is withdrawn in retirement it is not taxed. A Roth account is paid with after tax dollars and grows tax free, even when withdrawn (some restrictions apply).
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10. MILITARY RETIREMENT PLANS
Defined Benefit Plans:
High 36 Plan (Also known as the High-3)
CSB/REDUX
SHOW SLIDE 9-10: MILITARY RETIREMENT PLANS
Military Retirement Plans. Let's briefly summarize the two retirement options, the "High 36" (also known as High-3) or "CBS/REDUX," that you will have if you retire from the Army. Members who entered service after 31 July 1986 must choose between the "High-3" or the "CBS/REDUX" at the 15th year of service. If you decline to make a choice you will automatically receive the High-3 retirement plan.
Under the High-3 and CSB/REDUX systems a member's pension is based on the average of the highest 36 month's base pay. So if you retire at twenty years under these systems you would get a percentage of the average of 36 months (3 years) of your highest basic pay.
The Multiplier. The multiplier is the percentage of your base pay you receive for each year of service. For the High-3 systems you earn 2.5% per year of service. That means you get 50% for 20 years of service up to a maximum of 100% for 40 years.
The multiplier for the CSB/REDUX system is 2% per year for the first 20 years, but you get an increase to 3.5% for each additional year past 20. That means you get 40% for 20 years, but up to 100% for 40 years. That is a significant difference.
Cost of Living Adjustment (COLA). All three retirement systems have an annual cost of living adjustment. This is a subtle, yet very important detail. Over the lifetime of your retirement the cost of living adjustment could more than double your retirement check.
The COLA for the final pay and high-3 systems is determined each year by the national Consumer Price Index. But the COLA for the CSB/REDUX retirement system is the Consumer Price Index minus 1%.
For Example: A retiree under the High-3 may see a COLA increase in their retirement check of 3.5% in 20XX, while a retiree under the CSB/REDUX plan would get a COLA increase of only 2.5%. Note: There is one more twist to the COLA and multiplier for the CSB/REDUX retiree. At age 62 the COLAs and multiplier are readjusted so that the High-3 and CSB retirees get the same monthly pay. But, CSB/REDUX COLAs for later years will again be set at CPI minus 1%.
The Bonus. When you reach your 15th year of service, you must choose between taking the "CSB/REDUX" with a $30K cash bonus (approximately $21K after taxes) and a 40% pension check, or the High-3 retirement system with no bonus and a 50% pension check. This is a huge decision and cannot be made without some serious consideration and a clear understanding of the details. If you select the CSB/REDUX and you don’t complete the obligation of the twenty-year career, you must repay a pro-rated share of the bonus.
Check My Benefits on the AKO website to learn more on your retirement options and calculators.
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11. USAR / NG RETIREMENT
Retirement is based on Rank, Points, and “Good” Years (based on your Retirement Year Ending (RYE) date)
Need 50 points to have a Good Year to count for retirement
Need 20 “Qualifying Years” to receive a 20 year letter from HRC and receive retirement benefit at age 60
Your RYE is based on when you entered service
Example: entered service on 28 Jan. RYE is 27 Jan. You must earn at least 50 points between 28 Jan-27 Jan each year.
**Once the points are calculated into years, the years are placed in the High-3 formula. NG and USAR retirement is calculated according to the High-3 only. 
SHOW SLIDE 9-11: USAR / NG RETIREMENT
(1) Retirement is based on Rank, Points, and “Good” Years (based on your Retirement Year Ending (RYE) date).
(2) Need 50 points to have a “Qualifying Year” to count for retirement. A qualifying year, under this system, is a year in which the Soldier earns at least 50 retirement points during their retirement year. Inactive point credit is earned for inactive duty training, Reserve membership, equivalent instruction, and correspondence courses. Points are credited on the following basis:
- One point for each day of active service (active duty or active duty for training).
- 15 points for each year of membership in a Reserve Component (Guard and Reserve).
- One point for each unit training assembly.
- One point for each day in which a member is in a funeral honors duty status.
- Satisfactory completion of accredited correspondence courses at one point for each three credit hours earned.
(3) Need 20 Good Years to receive a 20 year letter from HRC and receive retirement benefit at age 60. National Guard and Reserve Soldiers who complete a minimum of 20 "qualifying" years of service (creditable retirement years) become eligible for retired pay at age 60. Note: A law passed in early 2008 allows Reserve and Guard members with 20 or more years to begin drawing retirement benefits before age 60 if they deploy for war or national emergency. For every 90 consecutive days spent mobilized, members of the Guard and reserve will see their start date for annuities reduced by three months. But this law only applies for deployment time served after Jan. 28, 2008.
(4) Your RYE is based on when you entered service. The retirement year ending (RYE) date is the annual date that a Soldier's retirement point record is closed out. It is used when referring to retirement points accounting. The RYE is much like a Reserve Soldier's "Anniversary" date and is a primary date captured in the Retirement Points Accounting System (RPAS). The anniversary year periods listed on the AHRC Form 249-E are calculated from an anniversary date. The date to determine the anniversary year is established by the date the member entered into active service or into active status in a reserve component per DoDI For Example: entered service on 28 Jan. RYE is 27 Jan. You must earn at least 50 points between 28 Jan-27 Jan each year.
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12. USAR / NG RETIREMENT EARNING POINTS
You earn 4 retirement points during drill (IDT). Each drill weekend equals 4 unit training assemblies and 4 retirement points. That’s 48 points.
You earn retirement points during Annual Training. One point per day. That’s points
You get 15 membership points.
= 75 (77 if you do 14 days AT)
77 points makes a Good Year (minimum of 50).
SHOW SLIDE 9-12: USAR / NG RETIREMENT EARNING POINTS
Earning Points:
You earn 4 retirement points during drill (IDT). Each drill weekend equals 4 unit training assemblies and 4 retirement points. That’s 48 points.
You earn retirement points during Annual Training. One point per day. That’s points
You get 15 membership points.
= 75 (77 if you do 14 days AT). 77 points makes a Good Year (minimum of 50).
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13. USAR / NG RETIREMENT EARNING MORE POINTS
Additional Duty Special Work (ADSW), Active Duty for Training (ADT, schools), deployment, mobilization: one per day.
Correspondence Courses: 1 point for every 3 credit hours.
Submitting 1380 for non-paid IDT (weekend phases of WLC, ALC, SLC, ILE): one point per day
Special categories of paid IDT duty: ATA, RMA, ET
SHOW SLIDE 9-13: USAR / NG RETIREMENT EARNING MORE POINTS
Earning More Points:
(1) Additional Duty Special Work (ADSW), Active Duty for Training (ADT, schools), deployment, mobilization: one per day.
(2) Correspondence Courses: 1 point for every 3 credit hours.
(3) Submitting 1380 for non-paid IDT (weekend phases of WLC, ALC, SLC, ILE): one point per day
(4) Special categories of paid IDT duty: ATA, RMA, ET
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14. USAR / NG RETIREMENT ACTIONS
Actions at 20 Good Years:
HRC sends your 20 year letter/eligibility for retirement
Remain in Ready Reserve
Retire into Retired Reserves-GREY AREA Reservist
Resign or ETS
SHOW SLIDE 9-14: USAR / NG RETIREMENT ACTIONS
Actions at 20 Good Years. HRC sends your 20 year letter/eligibility for retirement. The Secretary of the military department concerned (Secretary of Homeland Security for the Coast Guard) notifies, in writing, members of the Reserve Forces who have completed the eligibility requirements for retirement and receipt of retired pay at age 60. Notice is sent to the member within one year of reaching eligibility. Reserve Component members generally have three options upon receiving notice of eligibility:
(1) Remain in Ready Reserve. Remain in the Ready Reserve and continue to perform inactive duty training, annual training and active duty for training depending on their training and pay category, or remain on the active status list of the Standby Reserve and continue to perform unpaid training for the purpose of accumulating retirement points.
(2) Retire into Retired Reserves-GREY AREA Reservist. A member in this category may participate in inactive duty training provided:
(a) Such training is at no expense to the Government.
(b) Members are not entitled to pay or retirement points.
(c) No official record of such participation is maintained.
(3) Resign or ETS. Request discharge from the Reserve Components. A member who elects to resign or ETS is considered a former member. A former member is defined as an individual who elected discharge rather than transfer to the Retired Reserve anytime after receiving notification of eligibility to receive Reserve retired pay at age 60. In the case of a former member, regardless of the system under which the individual will receive Reserve retired pay, longevity credit ceases on the date the former member was discharged.
Note: Regardless of the option chosen, the member is entitled to receive retired pay at age 60, but must apply for it.
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15. CALCULATING MULTIPLIER FOR RETIREMENT
Enlisted 1 Jul 1993
Retired 30 Jun 2015
Good years
Bad years 20 2
x 77
x 35
points per year
1540 70
1610 ÷
360
4.47
x 2.5%
11%
Equivalent Years of Service
Multiplier
Percentage per year
Divisor
Total Points
SHOW SLIDE 9-15: CALCULATING MULTIPLIER FOR RETIREMENT
Here is an example.
You joined on 01 Jul 1990, and had 2 “bad” years. You would be able to retire on 30 Jun 2012.
Assuming that you earned 77 points every good year and 35 points in the bad years, you would have a total of 1610 points (77 x 20 plus 35 x 2 which equals 1610). This would equate to 4.47 years (1610 divided by 360 equals 4.47) for retirement purposes. Your multiplier would equal 2.5 times 4.47 yielding 11 percent. Your average monthly base pay for the last 36 months is calculated by adding the base pay for the last 36 months, then dividing by 36. So, in this example, your monthly retirement pay would be 11 percent times the average of your last 36 months base pay.
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16. RETIRED PAY EXAMPLE Reserve High-3 Redux 50% 40% 11% Multiplier
Jul12
Jan-Jun13
Jul-Dec13
Jan14
Jun15
4,641.60
4,720.50
4,847.70
4,896.30
4,945.20
Base Pay
X 6
X 6
X 6
X 12
X 6
36 months
27,849.60
28,323.00
29,086.20
58,755.60
29,671.20
173,685.60 ÷ 36
High-3
4,824.60
Reserve
High-3
Redux
50%
40%
11%
Multiplier
x 4,824.60
2,412.30
1,929.84
530.71
Monthly Pay
Active Duty
Using Multiplier after 20 Years
SHOW SLIDE 9-16: RETIRED PAY EXAMPLE
To calculate your base pay for the last 36 months, take your LES and look at your base pay for the last 36 months. In this example we will use an E8 pay grade. You’ll notice that each year, you received a pay raise on 01 January. In this example, the total base pay received in the last 36 months was $173, Divide this number by 36 and this will be your average base pay in the last 36 months.
The multiplier that you use will be based on the number of years served and the plan that you’re under (High-3 or Redux).
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17. EFFECTS OF COMPOUND INTEREST
STARTING EARLY = MORE MONEY
SHOW SLIDE 9-17: EFFECTS OF COMPOUND INTEREST
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18. THRIFT SAVINGS PLAN (TSP)
Benefits:
Easy to Enroll
Easy to Maintain
No up-front Cost to the Individual
Management costs < .03% per $1,000
Money can be contributed under the Traditional or the ROTH option
SHOW SLIDE 9-18: THRIFT SAVINGS PLAN (TSP)
In addition to your Defined Benefit Plan (High-3, CSB/REDUX), you and all other service members will have access to a Defined Contributions Plan—the Thrift Savings Plan. We will discuss the basics of TSP. You can go to the TSP website to learn more about the program and the various investment funds. We’ll look at how it works and what it can do for you.
Benefits of TSP.
(1) It's easy to enroll and maintain your investment plan.
(2) Costs for management of the program by the TSP Management Board was .029% per $1,000 invested annually (for 2014).
(3) Money contributed to a Traditional TSP account is Pre-Tax Dollars. It is NOT counted as taxable income. You will eventually have to pay taxes upon withdrawal.
(4) Money contributed to a ROTH TSP account is taxed when earned. When withdrawn in retirement ROTH TSP withdrawals may be tax free.
How to Enroll in TSP. Enroll at the myPay website or by completing and submitting a paper form.
NOTE: Unit should provide TSP-U-1 forms for the students.
Your local Finance Office or PAC will have the forms. Forms are also available at Follow the prompts to download and/or print.
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19. THRIFT SAVINGS PLAN (TSP)
Contribution Sources:
Base Pay (Mandatory before contributions from other sources can be made)
Special Pay(s)
Incentive Pay(s)
Bonus Payment(s)
SHOW SLIDE 9-19: THRIFT SAVINGS PLAN (TSP)
TSP Contribution Sources.
(1) You can begin making regular employee contributions at any time. These are payroll deductions that are made from your basic pay. Each pay period, your agency or service will deduct your contribution to the TSP from your pay in the amount or percentage that you indicated when you submitted your contribution election information.
(2) You can elect to contribute from incentive pay, special pay, or bonus pay, even if you are not currently receiving them. These contributions will be deducted when you do receive any of these types of pay.
(3) You cannot contribute from sources such as housing or subsistence allowances.
(4) If you are receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt. You may also contribute more of your pay to the TSP during the year. Note: Be aware that if you do contribute tax-exempt pay, your total contributions from all types of pay must not exceed the Internal Revenue Code (I.R.C.) section 415(c) annual addition limit for the year. This limit does not include catch-up contributions you may make during the year (see next slide for more information on catch-up contributions).
(5) You cannot make catch-up contributions from incentive pay, special pay, or bonus pay. You are allowed to use tax-exempt pay to make Roth catch-up contributions but not to make traditional catch-up contributions.
(6) Select all the contribution sources boxes on the TSP Enrollment Form even if you are not receiving special, incentive, or bonus pays. If you do not select the special, incentive, or bonus blocks and then start receiving them you cannot contribute those moneys into TSP until you resubmit the form.
(7) Especially important is the bonus selection. If you do not select the contributing from bonus block and you eventually receive one, you cannot put any of the money into TSP. Once you receive the bonus money you cannot put it into your TSP account.
(8) If you stop contributing from base pay all other sources of contributions stop.
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20. THRIFT SAVINGS PLAN (TSP)
How Much Can You Contribute:
Up To 100% Of Base Pay
Up To 100% Of Special and/or Incentive Pays, and Bonuses
IRS Maximum Contribution per Year, $18,000
This is a combined limit for traditional TSP and Roth TSP contributions.
SHOW SLIDE 9-20: THRIFT SAVINGS PLAN (TSP)
TSP Contribution Amounts. You can contribute up to 100% of your base pay and up to 100% of any special pays, incentive pays, or bonuses up to the IRS maximum, currently at $18,000 per year (2015). If you are age 50 or older, you can make an additional $6,000 in catch-up contributions. In a combat zone the limit is higher, up to $53,000 per year (2015). However, contributions to the Roth TSP are still limited to $18,000. These limits change periodically.
If you are a member of the Ready Reserve and you are contributing to both a uniformed services and a civilian TSP account as a FERS employee, the elective deferral and catch-up contribution limits apply to the total amount of employee contributions you make in a calendar year to both accounts. If you are called to active duty and make tax-exempt contributions to the TSP while deployed in a designated combat zone, the sum of the employee and agency contributions to your civilian account as well as the tax-exempt contributions made to your uniformed services account cannot exceed the annual addition limit ($53,000).
Note: Currently there is no employer matching dollars from the Government.
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21. THRIFT SAVINGS PLAN (TSP)
You Control Your Contributions
You Decide Which Of The 6 Investment Funds To Invest In
Invest In One Or All Of Them
The 6 Funds Are Known As The G, F, C, S, I and L Funds.
SHOW SLIDE 9-21: THRIFT SAVINGS PLAN (TSP)
Control of your TSP Funds. Your contributions belong to you and you have control over them. This control is exercised by directing which of six funds your money is invested in. These funds are known as the G, F, C, S, I and L funds.
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22. TSP “G” FUND Invests in Government Securities Guaranteed Against Loss
No Risk - Has Never Lost Money
Lower Rate Of Return - Usually Between 1.5% and 7%
SHOW SLIDE 9-22: TSP “G” FUND
(1) The G Fund will invest in Government securities and is guaranteed against loss.
(2) Invested in non-marketable U.S. Treasury Securities with 1 to 4 day maturities.
(3) No risk of loss (negative returns) in "G" Fund.
(4) The "G" fund has never lost money although the rate of return on your investment is usually between 1.5 and 7%.  It has averaged 5.43% since its inception date of 04/01/87.
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23. TSP “F” FUND Corporate and Government Bonds Some Risk
Slightly Higher Rate of Return Than “G” Fund
Rate Of Return - Between (-1.68%) and 18%
SHOW SLIDE 9-23: TSP “F” FUND
(1) The F Fund will invest in corporate and Government bonds.
(2) Invested in a bond index fund.
(3) U.S. Government: U.S. Treasury and Agencies.
(4) Mortgage-backed securities.
(5) Rate Of Return - Between (-1.68%) and 18%. It has averaged 6.66% since its inception date of 01/29/88.
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24. TSP “C” FUND Invested in the Stock Market
Uses Standard & Poors (S&P) 500 Stock Index Fund
Risk Associated With Stock Market Fluctuations
Historical Returns Between (-37%) and 37%
SHOW SLIDE 9-24: TSP “C” FUND
(1) The C Fund will basically track performance of the stock market.
(2) Invested in a Standard & Poor's (S&P) 500 stock index fund.
(3) S&P 500 index contains common stocks of 500 companies that represent the U.S. stock markets.
(4) Historical Returns Between (-37%) and 37%. It has averaged 10.43% since its inception date of 01/29/88.
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25. TSP “S” FUND Invests in Small/Medium Size U.S. Companies
Risk Associated With Stock Market Fluctuations
Historical Returns Between (-38%) and 43%.
SHOW SLIDE 9-25: TSP “S” FUND
(1) The S Fund invests in small to medium sized U.S. companies.
(2) Invested in a Wilshire 4500 stock index fund.
(3) Wilshire 4500 index contains all common stocks (except those in the S&P 500 index) actively traded in the U.S. stock markets on a daily basis.
(4) Historical Returns Between (-38%) and 43%. It has averaged 9.19% since its inception date of 05/01/01.
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26. TSP “I” FUND Invests Entirely In Foreign Companies
Includes Risk of Foreign Currency Fluctuations
Rate Of Return - Between (-42%) and 38%
SHOW SLIDE 9-26: TSP “I” FUND
(1) The I Fund invests entirely in non-U.S. companies.
(2) Will be invested in a Europe, Australasia, and Far East (EAFE) stock index fund.
(3) EAFE contains stocks that cover approximately 60% of the stock markets of the 20 countries included in the index.
(4) Historical Returns Between (-42%) and 38%. It has averaged 4.51% since its inception date of 05/01/01.
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27. TSP “L” FUND
Provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds.
Use professionally determined investment mixes tailored to different time horizons.
Rate of return varies based on asset mix.
Mix changes based on target date and how close you are to that date.
SHOW SLIDE 9-27: TSP “L” FUND
The L Funds, or "Lifecycle" funds, use professionally determined investment mixes that are tailored to meet investment objectives based on various time horizons. The objective is to strike an optimal balance between the expected risk and return associated with each fund.
The strategy assumes that:
(1) The greater the number of years you have until retirement, the more willing and able you are to tolerate risk (fluctuation) in your TSP account value to pursue higher rates of return.
(2) For a given risk level and time horizon, there is an optimal mix of the G, F, C, S, and I Funds that provides the highest expected return.
(3) Use the L Funds if you are looking for a simple, low maintenance way of investing money in your TSP account. The L Funds make the investing process easy for you because you do not have to figure out how to diversify your account or how and when to rebalance.
(4) The L Funds are designed so that 100% of your TSP account can be invested in the single L Fund that most closely matches your time horizon (or in the two L Funds closest to your time horizon). Any other use of the L Funds may result in a greater amount of risk in your portfolio than is necessary in order to achieve the same expected rate of return.
Choose If your target date is:
L or later
L through 2044
L through 2034
L 2020 Now through 2024
L Income If you are already withdrawing your account in monthly payments.
(5) Historical Returns Between (-32%) and 26%. It has averaged 4.42% (L), 5.98 (L2020), 6.56% (L2030), 6.93% (L2040), and 10.83% (L2050) since their inception date of 08/01/05 (L – L2040) and 01/31/11 (L2050).
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28. TSP CONTRIBUTION ALLOCATION
First Contribution Will Go Into “G” Fund
You Will Then Receive a TSP PIN
Allocate Contributions To Various Funds Using TSP Thrift-Line or TSP Website
Must Acknowledge “Risk” For All Funds Except “G”
Allocate Between Funds In 1% Increments
SHOW SLIDE 9-28: TSP CONTRIBUTION ALLOCATION
(1) After your initial enrollment and election request has been processed, TSP will deposit your first contribution in to the G Fund.
(2) Once the first contribution is received you will then receive a TSP PIN. You can then begin making contribution allocations among the various funds using the TSP Thriftline, Website, or via mail.
(3) Allocations must be made between the funds in increments of 1%. E.g. If you elect to contribute 3%, you may want to put 1% in the "G" Fund and 2% in the "C" Fund.
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29. ADDITIONAL TSP BENEFITS
Loans
Rollovers
Inter-fund Transfers
Emergency/Hardship Withdrawals
Easily Change Contribution Allocations for Each Fund
SHOW SLIDE 9-29: ADDITIONAL TSP BENEFITS
(1) Loans. Two types of loans can be made from your TSP account, a general purpose loan, or a loan for a primary residence. All loan payments, plus interest, is paid back directly into your TSP account. Remember, TSP is an investment for your retirement. It is not recommended to take a loan from your account as it has a negative impact on the compound interest feature of the TSP plan.
(2) Rollovers. On separation or retirement you can roll the funds in TSP to a qualified 401k plan. While on active duty you can rollover a qualified Individual Retirement Account (IRA) into TSP.
(3) Interfund Transfers. You can move your invested money between the various funds, once a month, 12 times a year.
(4) Financial hardship withdrawals. Verifiable financial hardship. e.g. Medical bills. All contributions to TSP will be terminated for six months after a hardship withdrawal.
(5) Contribution allocations. You can increase or decrease the percentage you allocate to each fund as often as you are paid, or twice a month.
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30. TSP OPTIONS UPON RETIREMENT OR SEPARATION
Leave Money In TSP
Single Lump Sum Payment
Monthly Payments
Substantial Penalties for Withdrawing Money Prior to Age 59½. However, if you retire or separate in the year you turn 55, and you withdraw funds, there is no tax penalty
SHOW SLIDE 9-30: TSP OPTIONS UPON RETIREMENT OR SEPARATION
(1) Leave your money in the TSP. You cannot make further contributions but your money continues to accrue.
(2) Take a Single payout. The payment is made directly to you after a deduction for Federal Income Tax as required. Rollover into an IRA or 401k.
(3) Receive Monthly payments starting at age 59 ½. There are substantial penalties for withdrawing the money prior to 59 ½.
(a) You may decide that you want income from your TSP account every month. You have a couple of options:
(aa) If you have a specific monthly dollar amount in mind, you can indicate it when you complete your withdrawal request form. You will receive payments in the amount that you request until your entire account balance has been paid to you. Note: The amount of each monthly payment must be at least $25.
(bb) If you want the TSP to compute a monthly amount for you based on your life expectancy, you can choose that option when you complete your request form. Your initial payment will be based on your age and your account balance at the time of the first payment. Each year thereafter, the TSP will recalculate the amount of your monthly payments based on your age and your account balance at the end of the preceding year.
(b) You may have certain expenses in retirement that you know will continue throughout your lifetime. If you need a guaranteed stream of payments to cover some of those expenses, you could consider purchasing a life annuity. A life annuity is a monthly benefit that is paid to you every month for the rest of your life. The cost of an annuity depends on the type you choose and the options and features you select. You don't have to use your entire TSP account balance to purchase the TSP annuity, but the minimum purchase amount is $3,500.
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31. YOUR RESPONSIBILITIES
Make Contribution Elections
Make Investment Decisions
Make Allocation Decisions
Keep Accurate Personal Info
Designate a Beneficiary
SHOW SLIDE 9-31: YOUR RESPONSIBILITIES
Your responsibilities with TSP. Once enrolled in TSP you have additional responsibilities:
(1) Make contribution elections.
(2) Make investment and allocation decisions.
(3) Keep accurate up-to-date personal information.
(4) Designate a beneficiary.
TSP Website. For more in-depth information on the TSP program go to Then look under Uniformed Services. Frequently Asked Questions is an excellent source.
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32. SAVINGS VS. INVESTMENT Savings: Investments: Savings Accounts
Certificates of Deposit (CD)
Money Market Accounts
U.S. Savings Bonds
Investments:
Equity Assets
Debt Assets
SHOW SLIDE 9-32: SAVINGS VS. INVESTMENT
Saving vs. Investing. Recall that the third leg of our retirement planning stool is investment income. There are several differences between investing money and merely saving it. Recognize that the ultimate purpose of saving money is to eventually spend it. Savings accounts are virtually 100% safe, as most are insured by the Federal Government.
Conversely, the purpose of investing money is to allow it to grow. Investing is generally thought of in terms of a significant time span, five years or more. Even optimum savings instruments have limited ability to overcome the effects of inflation and taxes, both of which decrease the value of our money. Wise investments will mitigate these effects.
Investing involves some degree of risk. However, the greatest risk is not making prudent investments, and therefore not growing your money to meet your retirement needs. Because saving and investing have different purposes, different instruments are used for each.
(1) Instruments of Savings. Savings instruments that are highly safe, and liquid, but provide relatively low yields include:
(a) Regular or share savings accounts.
(b) Certificates of deposit (CD).
(c) Money market accounts.
(d) U.S. savings bonds. Series I bond is tied to rate of inflation.
(2) Investment Assets. Investment instruments fall into one of two categories:
(a) Equity assets, you invest as an owner.
(aa) Growing assets are designed to grow your investment. They include investments such as shares, alternative investments and property.
(bb) Hard assets are investments with intrinsic value such as oil, natural gas, gold, silver, farmland, natural colored diamonds and commercial real estate.
(b) Debt assets, you invest as a lender. Bonds (some can be used by companies and varying levels of government).
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33. INVESTMENT INSTRUMENTS
Individual Retirement Account (IRA)
Roth and Traditional options
Direct Purchase of Stocks – 9.8% Average Return Since 1926
Bonds – 5% to 6% Average Return Since 1926
Mutual Funds Offer Security of Diversity
SHOW SLIDE 9-33: INVESTMENT INSTRUMENTS
Instruments of Investment. As you become more financially capable and knowledgeable about investing you may want to consider other investment instruments in addition to TSP, such as:
(1) Individual Retirement Account (IRA). Similar to TSP funds, but purchase through financial institutions like banks, credit unions, or investment firms. Note: Unlike TSP there will be fees, paid to the financial institution, associated with opening an IRA.
(2) Direct purchase of bonds or stocks through a brokerage house. Note: Unlike TSP there will be fees, paid to the brokerage house, associated with purchasing bonds or stocks.
(3) Mutual Funds. Purchase of stocks and bonds with a pool of investors who have similar goals. Note: Unlike TSP there will be fees associated with purchasing mutual funds.
Note: Historically, since 1926, large stocks returned an average of 9.8%, while long-term government bond returns averaged 5% to 6%. However, you should recognize that there are years, and periods of several years, where bonds significantly out-performed stocks.
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34. RULE OF 72
Divide 72 by the expected annual return to determine the number of years required for the investment to double.
72  3% = 24 years
72  7.2% = 10 years
72  10% = 7.2 years
72  15% = 4.8 years
SHOW SLIDE 9-34: RULE OF 72
One quick and way to determine the effect of any particular return on an investment is to use the Rule of 72. To apply the Rule, divide 72 by the expected annual percent of return on your investment. The answer will be the number of years it will take for your investment to double at the expected rate of return.
For example, if you earn 3% on your investment, it will take 24 years to double your money. If you earn 7.2% on your investment, it will take 10 years to double your money. If you earn 10%, you will double your money in 7.2 years. If you can earn a 15% annual return, your money will double every 4.8 years.
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35. 7 STEPS TO ACCUMULATE WEALTH
Pay Yourself First!
Develop A Spending Plan
Maximize Tax-Deferred Investments
Don’t Lose Money
Persevere
Compound Your Money
Dollar Cost Averaging
SHOW SLIDE 9-35: 7 STEPS TO ACCUMULATE WEALTH
No matter how you choose to invest your money, there are seven proven techniques that will assist you in accumulating the funds necessary for savings and investment:
(1) The first rule is "Pay yourself first." Develop a spending plan that reduces debt and provides a positive cash flow, Set aside a certain amount for savings and investment at the top of your plan. Savings allotments and contributions to the TSP are two excellent ways to "pay yourself first." You never miss the money because you never see it.
(2) The second rule is to establish a realistic spending plan to systematically put money aside.
(3) The third rule is to maximize tax-deferred investment opportunities. The TSP and civilian 401(k) plans are excellent vehicles for this purpose. Individual Retirement Accounts, or IRAs, are another. Make sure you increase your knowledge about investing before looking at the many instruments available to you.
(4) The fourth rule is to don’t lose money. Greed causes people to invest in scams that promise unrealistic returns – Taking prudent risks are OK but speculation is at best a 50/50 deal.
(5) The fifth rule is to persevere. If you see your account has grown, resist the urge to spend it. After all, if it’s spent, its gone for good.
(6) The sixth rule is to compound your money. The royal road to riches is compounding. It’s the safe road, the sure road, and fortunately anybody can do it. But it takes perseverance.
(7) The seventh rule is dollar cost averaging. Invest a set amount every month regardless of market performance. No one can predict the market. Over time, dollar cost averaging will compensate for the market ups and downs.
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36. CREATIVE SAVINGS STRATEGIES
Shift Debt Payment to Savings
Put Unexpected Money Into Savings
Cut Back Spending One Month a Year
Watch Spending on Fast Foods and Snacks
Cut Back on Utilities
SHOW SLIDE 9-36: CREATIVE SAVINGS STRATEGIES
Some of you may be saying this is all well and good, but where do you get the money to save and invest? Let's look at a few things you can do:
(1) One way to quickly pad a savings account is to shift debt payments to savings when the debt is paid off. Just start banking this amount when the loan is paid.
(2) If you unexpectedly receive a sum of money, put it directly into your savings account and watch it grow.
(3) Select one month during the year and really be a miser. Only doing it for a month may help to develop some excellent habits that will carry over into the future.
(4) Be very aware of just how much you spend on fast food and snacks. Keep a list of what you spend for fast food and snacks for one month. That could be $50 a month going into your savings and investment accounts.
(5) When living off-post, see how much you can cut back on utilities for one month. Be energy conscious. You could easily save 10% - 20% on your utility bill. Put the difference in savings!
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37. SAVINGS DEPOSIT PROGRAM
Eligible if serving in an SDP-eligible combat zone
May deposit a total of $10,000
Earns 10% interest annually, compounding quarterly
You can withdraw money for an emergency withdrawal, but must be approved by CO
SHOW SLIDE 9-37: SAVINGS DEPOSIT PROGRAM
(1) Eligible if serving in an SDP-eligible combat zone , once you are deployed for a minimum of 30 consecutive days or at least one day in each of three consecutive months.
(2) A total of $10,000 may be deposited for each deployment
(3) Earns 10% interest annually, compounding quarterly. Interest is taxable. This is guaranteed, so it compares favorably to the stock market.
(4) Cannot close account while deployed. Money will continue to draw interest for 90 days after you have returned.
(5) 120 days after returning, your money will be direct deposited, but you may request it before the 120 days, via myPay.
(6) You can withdraw money for an emergency withdrawal. This must be approved by CO.
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38. SOURCES OF ASSISTANCE American Savings Education Council (ASEC)
“Ballpark Estimate”
Financial Magazines and Newspapers
Commercial Financial Planners
Commercial Web Sites
SHOW SLIDE 9-38: SOURCES OF ASSISTANCE
There is an art to choosing ways to invest your savings. Good investments will make money; bad investments will cost money. Do your homework. Gather as much information as you can. Seek advice from personnel at your bank or other trained financial experts. Read newspapers, magazines and other publications. Identify credible information sources on the Internet. Join an investment club.
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39. Check on Learning SHOW SLIDE 9-39: Check on Learning
NOTE: Conduct a check on learning and summarize the learning activity.
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40. a. Savings is for short term buys and emergencies
What is the difference between savings and investing?
a. Savings is for short term buys and emergencies
b. Savings is for your retirement
c. Investing is for short term buys and emergencies
d. Investing is for impulse buying
a. Savings is for short term buys and emergencies
SHOW SLIDE 9-40: Check on Learning
Q: What is the difference between savings and investing?
a. Savings is for short term buys and emergencies
b. Savings is for your retirement
c. Investing is for short term buys and emergencies
d. Investing is for impulse buying
A: a. Savings is for short term buys and emergencies
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41. Which of the following is an example of an investment instrument?
a. Passbook Savings Account
b. Term Life Insurance
c. Certificate of Deposit
d. TSP/IRA
SHOW SLIDE 9-41: Check on Learning
Q: Which of the following is an example of an investment instrument?
a. Passbook Savings Account
b. Term Life Insurance
c. Certificate of Deposit
d. TSP/IRA
A: d. TSP/IRA
d. TSP/IRA
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42. (Unless contributions are made in a combat zone)
True or False? ROTH TSP contributions are tax free.
False.
(Unless contributions are made in a combat zone)
SHOW SLIDE 9-42: Check on Learning
Q: True or False? ROTH TSP contributions are tax free.
A: False (unless contributions are made in a combat zone)
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43. How many investment funds are available in the Thrift Savings Plan?
c. 5
d. 6
SHOW SLIDE 9-43: Check on Learning
Q: How many investment funds are available in the Thrift Savings Plan?
a. 3
b. 4
c. 5
d. 6
A: d. 6
d. 6
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44. In the Thrift Savings Plan, you must contribute first from what pay source in order to contribute from future bonus pays?
a. Incentive Pay
b. Base Pay
c. Combat Pay
d. Hazardous Duty Pay
SHOW SLIDE 9-44: Check on Learning
Q: In the Thrift Savings Plan, you must contribute first from what pay source in order to contribute from future bonus pays?
a. Incentive Pay
b. Base Pay
c. Combat Pay
d. Hazardous Duty Pay
A: b. Base Pay
b. Base Pay
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45. SUMMARY Retirement Yesterday and Today Sources of Retirement Income
Army Retirement Systems
High Three Plan
CSB/REDUX
Thrift Savings Plan (TSP)
Investing vs. Savings
Investment Types and Opportunities
Techniques for Saving and Investing
Sources of Assistance
SHOW SLIDE 9-45: SUMMARY
Retirement may look a long, long way off to most of you right now, and may not be high on your priority list. Unfortunately, there are many people who reach an age where they would like to retire, but fail to have the resources necessary to do so; people didn't plan to fail, they simply failed to plan!
We’ve covered a lot of very important information during this lesson. We started by looking at how the concept of retirement has changed in just a few short years. We then examined the three-legged stool of retirement income. We talked about Army retirement systems, with particular emphasis on those that will affect you. We discussed the Thrift Savings Plan, a new benefit that can significantly assist you in saving for your retirement years. We examined the differences between saving and investing and talked about why each is important. We examined various vehicles you may use to invest for your future and discussed proven techniques that will assist you in forming sound financial habits.
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46. Terminal Learning Objective
ACTION: Perform Personal Financial Management
CONDITIONS: In a classroom environment using facilitated group discussions, shared personal experiences, applicable Army administrative publications and forms, and access to internet resources.
STANDARD: Demonstrate basic knowledge and comprehension of the following learning activities:
Financial Ethics
Leave and Earning Statement / myPay
Spending Plan
Managing A Checking Account
The Essentials of Credit
Consumer Awareness
Car Buying
Meeting Your Insurance Needs
Investing / Thrift Savings Plan
SHOW SLIDE 9-46: TERMINAL LEARNING OBJECTIVE
Review the Terminal Learning Objective (TLO) and Learning Activities.
Summary: During this lesson we discussed the following areas:
Financial Ethics
Leave and Earning Statement / myPay
Spending Plan
Managing A Checking Account
The Essentials of Credit
Consumer Awareness
Car Buying
Meeting Your Insurance Needs
Investing / Thrift Savings Plan
The proper management of your personal finances can have a long-lasting and far-reaching impact on you as a Soldier or a civilian. The last thing you want to be thinking about while patrolling mountains of Afghanistan is if you are being paid properly or if your Family is financially stable back at home. Whatever your reason for joining the Army there is one unavoidable fact: it is your duty as a Soldier to fulfill your financial obligations and to provide for your family. Hopefully, this training provided you with the ammunition you need to prepare you for your financial readiness.