The Thrift Savings Plan (TSP) offers an outstanding opportunity to lay a strong foundation for financial security in retirement. Structured to offer many of the same advantages as a 401(k) in the private sector, the TSP provides federal workers with retirement income in addition to your FERS annuity (pension) and Social Security. If you’re making one or more of the following mistakes when managing your TSP, you’re not taking full advantage of everything it offers.
Not Saving Enough & Missing Out On The 5% Agency Match
Albert Einstein once described compound interest as the 8th wonder of the world. However, far too many federal workers don’t start to get serious about investing in the TSP until they’re close to retirement. As a result, they miss out on considerable growth especially if they haven’t been contributing enough for the 5% agency match.
Albert Einstein once described compound interest as the 8th wonder of the world. However, far too many federal workers don’t start to get serious about investing in the TSP until they’re close to retirement. As a result, they miss out on considerable growth especially if they haven’t been contributing enough for the 5% agency match.
“And if you carry a TSP loan into retirement you have to pay back the balance within 90 days.”
Taking Out A TSP Loan Close To Retirement
The Thrift Savings plan (TSP) was never intended to be used in the same way as a traditional savings account for things like buying a new car. If you’re considering taking out a TSP loan when you’re close to retirement, it’s important to understand the risks. Using your TSP to fund a loan means you’ll lose compound interest on a lower TSP balance. Meanwhile, the loan payments you make can cut into your TSP contributions. And if you carry a TSP loan into retirement you have to pay back the balance within 90 days. Otherwise the IRS will consider the loan balance as a taxable distribution. This may bump you into a higher tax bracket in your first year of retirement. Click here for more information on TSP loans.
Not Having A TSP Distribution Strategy Before You Retire
Without a distribution strategy, you may mismanage your TSP nest egg in the early years of retirement. That’s why it’s important to understand all of your TSP withdrawal options:
- Withdraw the entire amount as a taxable lump sum.
- Withdraw equal monthly payments based on a dollar amount or life expectancy.
- Use the money to buy a MetLife TSP Annuity.
You can also work with an FRC® trained advisor to learn more about purchasing a Lifetime Annuity from the private sector that may offer a better value than MetLife TSP annuity.
