Over the past several years, the number of federal workers with million-dollar Thrift Savings Plan accounts has jumped dramatically. And the surge is neither scandalous nor illegal. (This statement does not cover Congress).
JOIN THE GOVERNMENT AND BECOME A MILLIONAIRE?
In April, 2010 there were 75 federal workers with $1 million accounts. By August of this year, that number had jumped to 2,675. It is probably higher today because of the surging stock market.
Why the big jump in TSP millionaires? It defnitely wasn’t pay raises! Feds got a 1 percent pay raise in January after three years of federal pay freezes. They are currently in line to get another 1 percent in January 2015. Even with the miracle of compounding, a 1 percent per year pay raise is not the route to millionaire status.
Financial experts say the boomlet in federal millionaires (outside of Congress) is the result of the post-recession rebound in the stock market and rollovers into the TSP from some high-income appointees who have joined the government. That includes people appointed to diplomatic posts and as federal judges.
To become U.S. Ambassador to some prestigious post, you don’t have to be a millionaire who donated to the winner’s political campaign. But it helps! If you doubt it, ask any career Foreign Service Officer. Some of them have seen some real losers, including a few disasters, appointed not for their knowledge of diplomacy and foreign affairs, but rather because of their ability to write big checks.
A growing number of feds became TSP millionaires the hard way. They invested in the C, S and I stock funds, never flinched when the markets plummeted and continued to buy shares at — as it turns out — bargain prices in 2007, 2008 and as the markets made their slow recovery.
In 2010, the Board that runs the TSP processed 2,700 checks of funds being moved into the TSP from outside retirement accounts. They were worth $66.4 million.
On Wednesday’s Your Turn radio show, we talked with financial planner and writer Allan Roth. (The show is archived on our home page, so you can listen anytime). He said the TSP is attractive for rollovers because of its low-fees and the super-safe Treasury securities G-fund option.
Despite the surge in rollovers into the TSP, nearly half the people leaving government (retirement, other jobs, etc.) in 2012 withdrew all their money from the TSP within a year. We’ve been asking people why they did it, and hope to have a report soon. Some of the reasons may surprise you.
Meantime, think seven figures!