If you’ve spent more time planning your next vacation than mapping out your retirement income, you’re not alone, but you could be shortchanging your future. Retirement can last 30 years or more, and your money needs to last right along with you. That’s why giving serious thought to your TSP withdrawal strategy isn’t just smart, it’s essential.
Your TSP: The Part of Retirement You Control
Under FERS, both your pension and Social Security benefits are largely locked in once you retire. Yes, you can increase your FERS annuity by working longer or boost Social Security by waiting until age 70, but after that, those payments are fixed. The only portion of your retirement income that remains fully within your control, before and during retirement, is your Thrift Savings Plan. That makes it vital to develop a withdrawal strategy well ahead of your retirement date.
Have You Decided How You’ll Take Distributions?
The TSP gives you flexibility. You can take monthly, quarterly, or annual installment payments at a fixed dollar amount (minimum $25). You can also choose whether those installments come first from your traditional balance or your Roth balance. Payments continue until your account is depleted.
If your priority is making your savings last as long as possible, you can opt for TSP-calculated payments based on IRS Life Expectancy tables. These amounts are determined using your age and your full account balance, regardless of whether the distributions come from Roth or traditional funds.
What’s Your Plan for RMDs?
The SECURE Act 2.0 raised the age for Required Minimum Distributions (RMDs) from traditional TSP funds to 73. For those nearing retirement, this means more time for tax-deferred growth. But remember: every dollar in RMDs will be taxed as ordinary income, and large withdrawals can easily push you into a higher tax bracket. One way to manage that risk is to increase contributions to your Roth TSP, allowing you to build a pool of tax-free retirement income.
Speak with a Federal Retirement Consultant (FRC®) who understands your unique federal benefits and can help you build a retirement plan that fits your needs.
