If you haven’t taken the time to create a retirement plan, you may be in danger of outliving your nest egg. Your retirement could span 30 years or more, making it a major phase of your life. Doesn’t it deserve your focus? Absolutely.
Your Thrift Savings Plan: The Part You Control
Upon retirement under FERS, both your annuity (pension) and Social Security benefits are fixed based on the amounts calculated at retirement. While working longer can increase your FERS pension, and delaying Social Security until age 70 can increase those benefits, neither is adjustable once you’re retired. That means the Thrift Savings Plan (TSP) is the only retirement income source you directly manage, making it essential to craft a TSP withdrawal strategy well before retirement.
Have You Chosen Your TSP Distribution Plan?
You have several options for TSP distributions, including monthly, quarterly, or annual payments at a fixed amount (minimum $25). You can also choose whether these withdrawals come from your traditional or Roth balance. Your payments will continue until your account balance is depleted. If you’re concerned about outliving your TSP savings, you can opt for TSP-calculated installments based on IRS life expectancy tables, which factor in your age and entire TSP balance when determining initial payments.
Planning for Required Minimum Distributions (RMDs)
The SECURE Act 2.0 has raised the age for Required Minimum Distributions (RMDs) on traditional TSP accounts to 73. This change allows more time for your TSP funds to grow tax-free if you’re approaching retirement. However, 100% of your RMDs will be taxed, potentially moving you into a higher tax bracket. To help manage tax impact, consider making post-tax contributions to your Roth TSP balance for tax-free withdrawals later.
Don’t wait too long to develop a TSP withdrawal strategy, as delaying may risk running out of funds in your later years. For personalized guidance, consider consulting an FRC® trained advisor while you still have time.
