Over the course of a federal employee’s career, contributing to the Thrift Savings Plan is common. FERS employees get the benefit of a 5% government match on contributions to the TSP.
After contributing to TSP during employment, eventually the time comes when federal retirees need to access their TSP funds. The TSP has several withdrawal options in retirement. You can leave your money in TSP, although you must begin taking Required Minimum Distributions no later than April 1st of the year following the year in which you turn 70 ½. You may take partial TSP withdrawals every 30 days, or you can take a full withdrawal.
With several different routes to choose from, which one is the right TSP withdrawal strategy for you?
Like many areas of federal retirement, there is no one-size–fits-all for how you should access your TSP. Your own unique situation requires a plan tailored for your needs.
In order to get a better understanding of what your withdrawal options are, let’s consider the case of Edith.
Edith is a retiree who left federal service after reaching her minimum retirement age of 57 with 32 years of service. Upon retirement, Edith immediately began receiving her FERS pension, as well as, the Special Retirement Supplement (SRS).
These two legs of Edith’s retirement stool were strong enough to cover her regular bills and provided her with enough income to live on. Edith contributed to TSP throughout her working career and now wonders what the best way to access these funds is?
Since Edith’s daily needs were met through her FERS pension and SRS, she decided to use her TSP money for travel and to spend on her children and more specifically, her four-year-old granddaughter. Fortunately for Edith, retiring after age 55 meant she could access her TSP funds without facing the ten percent early withdrawal penalty.
Edith decided to leave her funds in the TSP because she needed to make somewhat regular withdrawals to pay for future trips. By leaving her funds in the TSP, Edith can take up to one partial withdrawal from TSP every 30 days. Edith decided she would use the partial withdrawals to cover the cost of the trips and give her some extra money to spend on her granddaughter.
Edith’s process for deciding what to do with her TSP is a great example for other federal retirees. She first figured out that her FERS pension and the SRS would provide her with the income she needed to live comfortably in retirement.
Having covered her urgent spending needs, Edith realized that she had more flexibility with how to use her TSP. Once she came up with a plan for what she wanted to use her TSP for, travel and spending time with her granddaughter, Edith chose the withdrawal strategy that was compatible with that plan.
If you don’t have a plan for your TSP, I would encourage you to begin thinking in that direction. For instance, if you need the money to meet daily needs, you may need to choose a different withdrawal strategy than the one Edith chose.
The TSP is a vital part of a FERS employee’s federal retirement. After paying into TSP for years, it is paramount that you understand how to best access your money in retirement. For more information on TSP withdrawals and your withdrawal options, don’t hesitate to contact Retirement Benefits Institute at 877-864-1145.
Disclosure: The information contained in these blogs should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals’ specific circumstances or needs and may require consideration of other matters. RBI is not a broker-dealer, investment advisory firm, insurance company, or agency and does not provide investment or insurance-related advice or recommendations. Brandon Christy, President of RBI, is also president of Christy Capital Management, Inc. (CCM), a registered investment advisor.