Planning ahead? You know I am always planning ahead, at least when it comes to finances. (Don’t look in my laundry room.) The 2013 Thrift Savings Plan (TSP) contribution limits have been announced, and it has gotten me thinking about how much money we can really afford to put into TSP. As my husband gets closer to retirement, I’ve realized that we have a limited number of years to continue contributing to TSP, and we’d better start putting in more if I want to reach some magic high number before he retires.
The maximum contribution limits for the calendar year 2013 are $17,500 for regular situations. If you are aged 50 or over, you may make catch-up contributions of an extra $5,500, for a total maximum contribution of $23,000. If you are deployed to a tax-exempt combat zone, you may make total contributions of $51,000 for calendar year 2013, but anything over your regular limit must be made while in a tax-exempt combat zone.
If you are trying to max out your contributions, there is some semi-simple math to figure out how much to contribute each month. First, take the $17,500 and divide by 12 months, which means you would want to contribute $1,458.33 every month. Wow, that’s a lot. You can’t direct specific dollar amounts for TSP contributions, but rather percentages of base pay, special pays, and bonuses. Therefore, you need to calculate what percentage of your pay will equal that dollar amount. The formula is simple:
p = base pay
t = dollar amount of TSP contribution
x= percentage needed to be deducted
the calculation is t/p = x
In this equation, let’s imagine that you want to put $500 per month into your TSP and your base pay is $3539, as an E6 with over 16 years of service, using 2012 pay figures. Into your head or your calculator, input 500/3539, for a result of 14.12%. You have to contribute whole percentages, so you would want to contribute 14% of your base pay in order to get $500 per month.
If you are also contributing special pays or bonuses, you’ll have to do some additional math to make sure you get the contribution that you want. Be sure not to go over the limit for your situation – that opens up a whole different set of problems.
The most important thing about contributing to TSP is to start, and then to continue increasing your contribution whenever you get a yearly increase, a promotion, or an increase due to time in service. I’ve yet to hear anyone complain that they saved too much for retirement.