When it comes to retirement planning, the Thrift Savings Plan (TSP) is one of the most valuable benefits available to federal employees. It’s essentially your version of a 401(k) — with low fees, solid investment options, and the government match.

Yet despite its potential, many federal employees unknowingly leave money on the table, underperform with their savings, or even jeopardize their retirement income simply by making avoidable mistakes.

After years of helping federal employees navigate benefits, I’ve seen the same issues come up again and again. In this article, we’ll walk through five of the most common TSP mistakes I see — and what you can do to avoid them.

Mistake #1: Not Contributing Enough to Get the Full Match

The most common mistake is also the most expensive: not contributing enough to capture the government match.

Here’s how it works:

  • Your agency automatically contributes 1% of your salary into your TSP — whether you contribute or not.
  • Then, they match up to 4% more of what you put in.
  • That means if you contribute 5% of your salary, you’re getting the full 5% match (1% automatic + 4% match).

If you don’t contribute at least 5%, you’re leaving free money on the table.

Example:
Let’s say you earn $70,000 per year.

  • 5% of your salary = $3,500.
  • Your agency match = another $3,500.
  • Total added to TSP = $7,000 per year.

Over 20 years, with modest growth, that could mean over $200,000 in additional savings.

Action Step: If you’re not already at 5%, log into your agency payroll system today and increase your contribution. Start small if you need to — but build up to at least 5% as quickly as possible.

Mistake #2: Leaving Contributions on Auto-Pilot

Another common misstep is “set it and forget it.”

It’s easy to think that once you’ve set your contribution percentage, you’re done. But life changes — and so should your contributions.

Why this matters:

  • Salary increases mean you could afford to put more into TSP.
  • Inflation means the same contribution doesn’t go as far over time.
  • Career goals may shift — if you’re planning to retire early, you may need to boost savings.

I’ve worked with federal employees who contributed the same percentage for 15 years without adjusting — and they fell short of what they could have easily saved.

Action Step: Review your TSP contribution every open season (or at least once a year). Ask: Can I increase by 1%? Even small increases add up dramatically over time.

Mistake #3: Ignoring Investment Options

By default, many employees are invested in the G Fund — the government securities fund. While it’s safe, it often barely outpaces inflation.

The TSP actually offers five individual funds (G, F, C, S, I) plus Lifecycle (L) Funds that automatically adjust as you approach retirement.

  • G Fund: Government securities, low risk, low return.
  • F Fund: Bonds, moderate risk.
  • C Fund: Large U.S. companies (S&P 500).
  • S Fund: Small to mid-sized U.S. companies.
  • I Fund: International stocks.
  • L Funds: Target-date funds that rebalance automatically.

Why this matters:
If all your money sits in the G Fund for 30 years, you may not outpace inflation. On the other hand, taking on too much stock exposure too close to retirement could put your nest egg at risk.

Action Step: Revisit your allocation every 3–5 years (and especially before retirement). Consider whether an L Fund aligned with your retirement date makes sense — or whether you’d benefit from a custom mix.

Mistake #4: Taking Early Withdrawals

Sometimes emergencies happen — but tapping into your TSP early can cost you thousands.

Here’s why:

  • Withdrawals before age 59 ½ may trigger a 10% penalty, plus ordinary income tax.
  • Loans must be repaid — otherwise, they’re treated as taxable distributions.
  • Even “hardship withdrawals” reduce your future retirement balance permanently.

Example:
If you take a $10,000 withdrawal at age 40, you could lose $3,000+ in taxes and penalties. Worse, that money loses decades of compound growth. By retirement, that $10,000 could have grown to $40,000 or more.

Action Step: Treat your TSP as a retirement-only account. If you need cash, explore other options first: emergency funds, personal loans, or even side income.

Mistake #5: Not Having a Withdrawal Strategy

Most federal employees think about saving in their TSP — but not about how they’ll take money out.

Here’s the challenge:

  • At age 73, the IRS requires you to start Required Minimum Distributions (RMDs).
  • Taking too much too soon can deplete your account.
  • Taking too little can result in penalties.

And while TSP offers monthly payments, lump sums, or annuities, each option has different tax implications.

Why this matters:
Without a strategy, you could face unnecessary taxes or even outlive your money.

Action Step: 5–10 years before retirement, work with a federal retirement advisor to build a withdrawal strategy. The earlier you plan, the smoother your transition will be.

Final Thoughts

Your TSP is one of the most powerful tools for building a secure retirement as a federal employee. But like any tool, it only works if you use it correctly.

By avoiding these five common mistakes — not contributing enough, leaving contributions on auto-pilot, ignoring investment options, taking early withdrawals, and failing to plan your withdrawals — you can set yourself up for a much stronger retirement.

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