Q. I’m 23 and recently began my FERS career with the government this past May. I contribute 5 percent of my income and plan on increasing the amount by 1 percent every year and 2 percent every GS level increase. What would be the best spread across the five basic funds for someone willing to work 40+ years in government service with a moderate amount of risk? Additionally, is there a limit where increasing the percentage beyond a certain point (besides the $52,000 yearly max) begins to yield diminishing returns when compared to other investment methods? Finally are there any other avenues of investment you recommend I pursue?
A. I recommend that you maximize your TSP contributions before contributing to any other retirement savings account. After that, if you want to save more for retirement, I suggest contributing to a Roth IRA, if you’re eligible, or to a taxable discount brokerage account, if not. The only point of diminishing returns with TSP investing is the point where your agency matching stops. Otherwise, more is more. I can’t answer your question about asset allocation without a clear understanding of what you mean by “moderate” risk.
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