A survey conducted by the Federal Retirement Thrift Investment Board (FRTIB), which runs the  Federal Government Thrift Savings Plan (the government's version of the 401k retirement plan), found that 23% of eligible employees believe that that they do not have enough money to contribute to their retirement plan. Only 4.3% did not contribute because the plan lacked good investment options, and 2.2% did not invest because the choices were too complex. The participation rate in the Thrift Savings Plan (TSP) is approximately 83% for civilian employees, but a dismally low level for the military where only 38% of them contribute to TSP.

The point of this is not only to explain the TSP in a little more detail, but more importantly, to stress how imperative it is to invest your money. You don't necessarily have to invest in a TSP (in fact, for military members, a TSP may not be the best option), but you still need to find the investments that suit your needs and financial situation best. If your money isn't being put to work right now, you need to take some time to consider your options.

Thrift Savings Plan Choices Are Easy to Understand
If you do not count TSP Thrift Savings Plan's Lifecycle Funds, which are essentially target date mutual funds, there are only five investment funds to choose from. They are known by their initials and called the G, F, C, S, and I Funds.

  • The G Fund buys nonmarketable United States Treasury securities that are guaranteed by the U.S. Government and are essentially risk free.

The C, I, S, and F Funds are index funds designed to replicate the risk and return characteristics of certain benchmark indexes.

  • The C Fund is invested in a stock index fund that replicates the Standard and Poor's 500 Index (S&P 500).
  • The I Fund is set to match the match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index of 21 developed countries.
  • The S Fund tracks small and medium-size companies and the performance of the Dow Jones U.S. Completion TSM Index.
  • The F Fund matches the performance of the Barclays Capital U.S. Aggregate Bond Index with a mix of government, corporate, and mortgage-backed bonds.

The Thrift Savings Plan offers both Federal Government employees and members of the military easy-to-understand choices that replicate the stock and bond markets. As mentioned earlier, the Thrift Savings Plan also offers target date retirement funds called Lifecycle Funds that are comprised of a mix of each of the five TSP Index Funds.

If you're a Federal employee, you should definitely look to max out your Thrift Savings Plan contributions, especially since you'll earn a matching contribution from the government.

Thrift Savings Plan and Roth IRA Options
Thrift Savings Plan. Not only does the Thrift Savings Plan invest in low-cost index funds, but the retirement plan offers investors the same benefits of index funds such as low expenses. The expense ratio for TSPs in 2009 was only 0.028%. An investor only pays $0.28 for every $1,000 invested in a TSP account. A recent study of fees in defined contribution and 401k plans found that retirement accounts in America have an average fee of 0.93%, and only 10% of the retirement and 401k plans surveyed had fees of 0.35% or less. In fact, 10% of the plans in the survey had fees in excess of 1.72% or more. Expenses are kept low in the Thrift Savings Plan by the forfeitures of automatic contributions from Federal employees who leave the job before the contributions are vested, other fund forfeitures, and loan fees charged to investors.

Roth IRA. The one caveat here is that military members do not gain the benefit of contribution matches from TSPs that federal employees get. This is why I have made the argument in favor of Roth IRAs for military members in the past. While Roth IRAs also do not offer a matching program, they have a unique tax structure that only taxes the investor on the money that goes into the account. Any profit made on Roth IRA investments can be withdrawn at retirement tax-free. As far as the investment options within the Roth IRA, it is extremely flexible in that you have almost as much freedom to invest in the vast array of securities as you would in a  personal brokerage account. So while TSPs are one of the solid options available to military members, they are not necessarily the best option.

Here is a closer comparison between the Roth IRA and the Thrift Savings Plan (TSP) 401k.

You Cannot Afford Not to Invest For Retirement
Whether you choose a TSP or a Roth IRA or some other option, the point is that choosing not to invest for retirement is a travesty. You cannot afford to delay investing for your retirement by even a few years. For example, if you started investing $5,000 a year in a Roth IRA when you graduated from college at the age of 22, you could expect to have approximately $1.6 million saved in your nest egg when you reached the retirement age of 65, assuming an 8% average annual return. If you waited for just four years to begin investing until you are 26 and did not make any investments during those first four years of your career, you would only accumulate a $1.2 million nest egg. Delaying investing for retirement can cost you hundreds of thousands of dollars. Like many things in life, the actions you take early on can have positive long-term benefits.

No matter what your budget looks like or how tight it is, there are many small, simple ways that you can find money to begin investing and planning for retirement. Last month, the Federal Retirement Thrift Investment Board began automatically enrolling new Federal employees in the Thrift Savings Plan. Automatic enrollment is a great program, and employees should not opt-out of it unless it is to move your money into an investment vehicle that better suits your financial situation, like a Roth IRA. 

Also, even if you don't opt out, make sure to take the time to change your allocation from the standard risk-free option with subpar returns to one that matches your retirement goals and risk tolerance. The Thrift Savings Plan is a solid program for Federal workers, while there may be better options for military members.

Regardless, you cannot afford to have your money sitting around. You need to put your money to work, and investment options like the TSP and the Roth IRA are ones you need to utilize in order to set yourself up for a comfortable retirement.

Hank Coleman is a captain in the US Army and writes about financial topics like saving, investing, and retirement for Military Money Might as well as the Money Crashers personal finance blog.