If you spend more time planning a family vacation than working on a withdrawal strategy for retirement, you’re doing yourself a disservice. Depending on your longevity, your retirement can last 30 or more years. That’s a significant portion of your life. Doesn’t it deserve your time and attention? Absolutely.
Only Your Thrift Savings Plan Is Under Your Control
When you retire under FERS, your annuity (pension) and Social Security benefit are fixed at the amount calculated upon your retirement. Though you can increase the amount of your FERS pension by working longer, and bump up your Social Security check by filing at age 70, once you’re retired neither of these benefits are in your control. When you think about it, the only source of retirement income you’re in charge of is your Thrift Savings Plan (TSP). That’s why it’s important to put time into working on your TSP withdrawal strategy well before you retire.
“One solution is to start making post-tax contributions to your Roth TSP balance for tax-free withdrawals in retirement.”
Have You Made A Decision About TSP Distributions?
You can choose to take monthly, quarterly, or annual installment payments at a fixed dollar amount as long as it’s at least $25. You also have the option to have fixed installments withdrawn from your traditional or Roth balance first.cEither way, your payments will continue until your total account balance equals zero.
If you’re worried about outliving your TSP savings, you can have the TSP calculate your installments based on the IRS Life Expectancy tables. Your initial installment amounts are calculated using your age and your entire TSP account balance, regardless of whether you choose to take your distributions from your Roth or traditional balance first.
What’s Your Strategy For Taking RMDs?
One of the most significant changes to the TSP under the SECURE Act 2.0 is that the age for Required Minimum Distributions (RMDs) on your traditional balance has been raised to 73. If you’re close to retirement, this means your TSP has more time to grow, tax-free. However, you’ll owe income taxes on 100% of your RMDs when it’s time to give Uncle Sam his cut. If you haven’t thought about how RMDs can push you into a higher tax bracket, you may be in for an unpleasant surprise. One solution is to start making post-tax contributions to your Roth TSP balance for tax-free withdrawals in retirement.
Waiting too long to develop your TSP withdrawal strategy may put you at risk of running out of money in your later years. To learn more, connect with an FRC® trained advisor before it’s too late.
