TSP Withdrawal Strategies: How to Make Your Savings Last

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Understanding Your TSP Withdrawal Options

For many FERS retirees, the Thrift Savings Plan (TSP) is one of their biggest retirement assets. But withdrawing from your TSP without a plan can lead to unnecessary taxes and running out of savings way sooner than you anticipate. The key is choosing the right TSP withdrawal strategy for your long-term financial security.

 

Three Main TSP Withdrawal Options

Monthly Payments: Set up a steady stream of income, adjusting as needed. With this option, your money is least valuable. Aside from inflation weakening the worth of your savings amount each year, the money is also not working for you. You would end up eating away at your savings until you have nothing to show for it. This option is essentialy devoid of growth opportunities.

Annuity: Convert part of your TSP balance into guaranteed lifetime payments. There are plenty of annuty options, you can speak with your financial advisor to determine which best suits you. The beauty of annuity plans is that your principal savings amount can remain untouched while withdrawing only the returns gained on the invested amount. You can find comfort in knowing that your cash is there, and so is lifetime cash-flow income.

One-Time or Lump-Sum Withdrawals: You may withdraw the entire or a large amount of the savings, but be mindful of taxes and longevity. A large withdrawal may be subject to bigger taxing upfront, and if not careful then that large amount of savings just goes – Poof! Gone. On a car (depreciating asset), or your credit card bills, or anything you can think of, really. There may be better options to handle those big expenses that don’t involve leaning soley or mainly on your savings.

How to Avoid Common TSP Withdrawal Mistakes

  • Not planning for taxes: TSP withdrawals are taxed as ordinary income. Spreading out distributions can help lower your tax burden.

  • Taking too much too soon: Withdraw too aggressively, and you risk depleting your savings early.

  • Ignoring rollover options: Rolling over your TSP into an IRA can provide more investment flexibility and control over withdrawals.

What’s the Best TSP Withdrawal Strategy for You?

The right approach depends on your retirement expenses, other income sources like your FERS pension and Social Security, and long-term financial goals. Consulting with a fiduciary financial advisor who specializes in federal retirement planning can help ensure your withdrawals are tax-efficient and sustainable.