A question that I have received recently is what I would do with TSP if I was retiring this year. This is a great question and one that all FERS retirees will face. Here I offer my thoughts on the question.
Keep in mind that this isn’t advice, but merely my thoughts on what I would do. Everybody’s situation is different and you need to figure out what works best for you.
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What Would I Do With TSP in Retirement?
As retirement approaches, many individuals start pondering on how to make the most of their hard-earned savings and investments. One such investment vehicle that Federal employees and members of the uniformed services have access to is the Thrift Savings Plan (TSP). TSP is a tax-advantaged retirement saving and investment plan, which can provide a significant nest egg for individuals during their retirement years. But the question remains, what should one do with their TSP funds in retirement?
First and foremost, it is important to understand the various withdrawal options available with TSP. While many retirees opt for a full withdrawal of their TSP funds, it is not the only choice. A popular alternative is to keep the funds in the TSP and make periodic withdrawals as needed. This allows retirees to continue benefiting from the potentially favorable tax treatment and low administrative fees offered by TSP.
One approach retirees may consider is creating an income stream from their TSP funds. This can be accomplished by setting up regular monthly, quarterly, or annual payments from the TSP account. These payments can be tailored to meet individual needs and can serve as a steady source of income throughout retirement. It is important to note that unless retirees select a specific withdrawal option, the TSP will default to providing monthly payments based on their life expectancy.
Another option with TSP in retirement is to roll over the funds into an Individual retirement account (IRA). By doing this, retirees can maintain control over their investments and have freedom to choose from a wider range of investment options offered by reputable financial institutions. Rolled over TSP funds can be invested in stocks, bonds, mutual funds, or other assets that suit an individual’s risk tolerance and retirement goals. However, it is crucial to thoroughly research and assess any fees or expenses associated with the IRA provider to ensure that they align with one’s financial plans.
For some retirees, leaving their TSP funds untouched may be a viable choice. This can be particularly advantageous if an individual has other sources of income or wants to pass on a financial legacy to their beneficiaries. Leaving the funds in the TSP allows for continued growth potential in a tax-advantaged environment, which can aid in maximizing the value of the account over time.
Regardless of the chosen option, it is essential for retirees to carefully evaluate and plan their TSP withdrawal strategy. Consulting with a financial advisor or retirement planner can be highly beneficial in understanding all available options, tax implications, and long-term financial goals. These professionals can provide guidance tailored to individual circumstances, ensuring that retirees make informed decisions regarding their TSP funds in retirement.
In conclusion, the Thrift Savings Plan (TSP) can be a valuable asset during retirement. With withdrawal options such as periodic payments, rollovers into an IRA, or keeping the funds untouched, retirees have flexibility to plan their financial future. By carefully considering all factors and seeking expert advice, individuals can make the most of their TSP funds and secure a comfortable and financially stable retirement.
Remember, retirement is a time to enjoy the fruits of one’s labor, and by making thoughtful decisions regarding their TSP funds, retirees can truly make the most of their golden years.
900k? who has that? can you give a more realistic example?
L income fund is an interesting idea for me. I should have 500K at 63 and 20 years of service. Gonna flip from 80/20 C and S soon and rake a 5% distribution and plan on it lasting 23 ish years and if I outlive it, so what. Wife and both have SS plus FERS pensions. L income is a mix of g,c,s,I and f, mostly g.
57? How about a more realistic and common age of 62. When the retiree gets 1.1% of their high three. 57? I don't know any federal employee retiring at 57….with $900k?…no way. And…you need $24k/month at 1:45…unrealistic.
That is me. I have over 950k, and is not retiring any time soon.
I’m 60 and plan to retire at 62. I did exactly this same thing with my TSP when I turned 59-1/2 in my case to Fidelity as they have the best user interface I found. Also one slight difference is that I have the 200k left in TSP split between G and F funds. All the money continuing to be invested while I still work is going into the S fund for both Roth and Traditional money. It works for me so far and I plan to use the G fund as my cash bucket when I go into retirement in 2025.
Great suggestion. Leaving some cash in the G fund is a great idea. I do have one question: Can you do a partial rollover from TSP to an IRA at 57 and continue to use the rule of 55 to access what remains in your TSP? I was under the impression that you cannot roll any money out of the TSP prior to 59.5 if you are using the rule of 55. Perhaps I misunderstood that particular stipulation. Thank you.
Hello I’m divorced and never took the 17k the judge awarded me in my divorce from TSP. Can you help me execute that withdrawal and roll it into an account?
Would you advise this for someone retiring with 20 plus years of military service. Also I don’t plan on working for the government.
Excellent info Brad. Thank you.
It's such a shame to see the TSP decline so much. Since I've been a Fed, they've tripled their fees while the private companies have lowered them. They have limited investment options and withdrawal options. The website debacle was just shameful. I never thought I'd leave the TSP, but they've made the private companies more attractive in retirement.