A family recently came to see us with a retirement plan that was failing. We took a look at what happened, and despite them being a TSP millionaire we found some serious mistakes in their retirement plan. These mistakes unfortunately cost them about $1 million dollars collectively in their Thrift Savings Plan (TSP) and other investments. Thiago Glieger discusses exactly what these mistakes were, and how federal employees can avoid making them too. Plus, at the end, he discusses how they may have been able to see it coming all along.

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0:00 Retirement scenario
1:12 Identifying first mistake
2:30 What they should have done instead
3:02 Issues with their distributions
5:17 Even more mistakes
7:39 Prevention
8:07 What-if planning
8:23 Even more information

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How This TSP Millionaire Ran Out of Money – And How Federal Employees Can Avoid It

The Thrift Savings Plan (TSP) has played a crucial role in helping federal employees save for their retirement. However, even with a million-dollar balance in their accounts, sometimes retirees can end up running out of money earlier than expected. This unfortunate reality serves as a cautionary tale for federal workers to ensure they take the necessary steps to avoid running out of money during their retirement years.

One such example is that of John, a retired federal employee who accumulated a sizable TSP balance during his career. John had always been financially responsible, maxing out his TSP contributions and investing wisely. With a million-dollar balance, he felt confident that he had enough savings to last him throughout his retirement.

However, John soon found himself facing unforeseen financial challenges. He misjudged his expenses and failed to properly account for inflation, leading to his savings depleting much faster than he had anticipated. Additionally, he had not adequately planned for healthcare costs, which can quickly accumulate and take a significant toll on retirement savings.

To avoid finding themselves in a similar situation, federal employees should take specific steps to ensure they have enough funds to sustain their retirement lifestyle:

1. Plan Your Retirement Early: It’s crucial to start planning for retirement as early as possible. By setting clear financial goals and seeking professional guidance, federal employees can develop a realistic retirement plan that takes into account their future expenses.

2. Consider Inflation: Inflation erodes the purchasing power of your retirement savings over time. Federal employees should account for inflation when projecting their retirement expenses and make adjustments accordingly. This can be done by investing in assets that provide a hedge against inflation, such as Treasury Inflation-Protected Securities (TIPS).

3. Budget Realistically: Federal employees must have a clear understanding of their expenses during retirement. It is important to differentiate between essential and discretionary expenses and create a budget that aligns with their income and savings. Being realistic about spending habits from the beginning will help prevent financial strain in the long run.

4. Plan for Healthcare Costs: Healthcare expenses tend to rise during retirement, and failing to account for this can significantly impact retirement savings. Federal employees should explore options such as the Federal Employees Health Benefits (FEHB) program and Medicare to mitigate these costs.

5. Diversify Your Investments: Depending solely on TSP savings might not be enough to sustain retirement. Diversifying investments across different asset classes can provide a more reliable and robust retirement portfolio. This diversification can include stocks, bonds, real estate, and other investment vehicles.

6. Consult a Financial Advisor: Seeking professional advice is essential when planning for retirement. A financial advisor can provide guidance on investment strategies, tax planning, and long-term financial goals. They can also help federal employees navigate complex retirement benefit options and maximize their savings potential.

While the tale of John serves as a cautionary example for federal employees, it’s important to remember that proper planning, realistic budgeting, and responsible financial decisions can significantly mitigate the risk of running out of money during retirement. By taking proactive steps and seeking professional advice, federal employees can avoid this situation and ensure a financially secure retirement.