Avoid These Final Four Mistakes When Planning Your Federal Retirement

These are four mistakes federal employees sometimes make that can negatively impact their retirement.

Hello again readers. Thank you for joining me for the final installment of “Ten More Easy ways to ruin a Federal Retirement.” 

Once again let me remind you that any one entry on this list may not overturn your retirement plans. Taken in sum their cumulative effects can be significant.

So, let’s begin with:

Sleep On Small Cap

Nearly every empirical measurement for market performance shows the US Small Cap Stocks weigh in as the highest performing asset class over time.

But Jen, the S Fund did LOUSY last year.

Thank you! I was waiting for that. One year does not an investment life make.

Yes, small cap stocks are volatile even as an asset class. That does not contradict my earlier statement.

Don’t forget to include S as a part of your Thrift Savings Plan (TSP) allocation. How much will depend upon your age (time horizon) and your ability to tolerate risk.

My main point is this: when it comes to the higher or even highest performing historical asset classes, be mindful not to underweight in them due to short term volatility.

Additionally, be careful with L Funds. In my opinion they consistently underweight US Small Cap stocks.

I’ll say it again. Don’t let short term volatility drive you away from the top asset classes.

Ha, Jen now we’ve got you. The S fund is not ALL US Small cap. 

Again, thank you! You are correct. In TSP, the S fund is technically a market completion fund. But it still has a generous amount in US Small. Don’t believe me? Check the Wilshire 4500 Index (that’s the underlying index that the S fund tracks). See how much of it is US Small. In addition, outside of the mutual fund window (And oh boy is that another article) it is your only option to include this asset class.

No withdrawal strategy for TSP

Alright, time for an exercise. Close your eyes and envision your retirement day. Got the picture? Now, how will you pay the bills?

Your first thought most likely will be your pension. Then you may think social security or perhaps the FERS supplement. Sooner or later, you will get to TSP. So let’s keep this as a rosy picture; let’s assume that you have followed all of the best articles and done your homework well and you have a massive TSP. How will you take it out?

I get a TSP annuity, right Jen? I see those figures on my statement.

Ooh. Be careful! Remember that your pension is an annuity and social security is an annuity. You may find that your TSP is a singularly important lump sum of money for you. If you turn it into a TSP annuity, you give up control of the sum for you and your heirs.

Let me be clear. I am not writing this series with your heirs in mind. I care about your retirement. (Tell your heirs to come see me after they join federal service and I’ll help them.)

The point I wish to make is this: retaining control of that large pool of assets can give you flexibility as you move through life.

OK Jen, so I won’t do an annuity. Can’t I just take money as I need it from TSP?

Yes, you may. But let me ask you this: if you have a well-diversified portfolio of C, S, I, F & G, from which funds should you take the distribution? And can you pick and choose? For example, in a down year like 2022, might it not make sense to take the distribution from the G fund? (Hint the answer is, yes!) But spoiler alert. There is no real way to do that within TSP. Distributions are taken pro rata from all the funds you hold.

Jen, even that lousy S fund you want me to be in?

I’m afraid so. Even the poorest performer in any given year. Withdrawing from TSP requires a strategy of rebalancing following withdrawals. In my experience, very few people are diligent about rebalancing in TSP. Maybe you are the exception, but I would think carefully about this as you decide what to do with your TSP in retirement. 

Roll without ROTH

Without doubt, I believe that ROTH TSP is the most misunderstood and under-utilized benefit in federal service.

But Jen, I don’t get a tax break if I put my money in ROTH!

Really? Call me old school, but I think tax free withdrawals for life fits my definition of a tax break. Also don’t forget that the “tax break” for traditional TSP contributions is “tax deferral”. That means you pay it later PLUS the taxes on any gains.

Let me ask you another question. If you are early in your federal career, are you at your highest earnings yet? Probably not. So, might it be likely that you are in a lower tax bracket now than you might be later in your career? So now might be an ideal time to direct some money into ROTH TSP.

The biggest reason to consider this is the concept of “tax diversification.” This is the conscious effort to build a large sum of retirement dollars in different “pots” by how they will be taxed. Fully Taxable (Traditional TSP or IRAs), Tax free (ROTH TSP or ROTH IRAs), Capital gains (Individual investment accounts). More pots can provide more flexibility. I cannot predict the future about tax rates. My belief is this; they will change over time. Flexibility can be your friend.

And now we come to my “bonus way to ruin a federal retirement”.

Forget to order a COLA

I know! Too much. But I am starkly serious on this one.

I have seen painful outcomes related to retirement dates prior to age 62 for Federal Employees Retirement System (FERS) employees. Why? There are no cost of living adjustments (COLAs) until age 62 in the FERS retirement system. For much of the last 20 years, this feature only produced slow negative impacts, but 2022 taught us that inflation is always a threat to attack with greater strength.

Hear me now, if you plan to retire before age 62, you MUST plan to have a lot more in liquid retirement assets available to offset the lack of COLAs.

How much? Well let’s look at an age 57 Minimum Retirement Age (MRA) retiree. That means no COLAs for FIVE YEARS. Now let’s say that inflation averages 5% per year. That means in 5 years your FERS pension has fallen behind by at least 25% (I know I didn’t compound it but you get the idea). Want worse news? The FERS supplement has no COLAs at all. 

Now I’m not saying you can’t retire at MRA. You may have a great private sector job lined up. (Careful on this, the FERS supplement has an income test). Or, if you’ve taken my advice, you may have built up the other important MRA, Massive Retirement Assets. 

Either way. You will have done it with a plan. 

That is all I ask.

Be intentional. Plan your way to the retirement you deserve. Do your research (or seek a qualified professional, and NO that does not include just buying an annuity from someone).


This has been a long back-to-back series. Thank you for taking the time with me.

And I promise I will not reverse all of these and recycle them as TEN WAYS TO TURBOCHARGE YOUR FEDERAL RETIREMENT. Sorry, that was too easy in the era of “listicles”.

Until next time.

The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.

About the Author

Jennifer Meyer, CFP®, AIF®, ChFEBC℠ has over 20 years of experience, many specifically working with Feds. Growing up in a family of Federal employees, she is extremely proud to serve the Federal community. You can read additional articles for Feds by Jennifer at Serving Those Who Serve.