MICHAEL WOOD – The TSP can be one of the best ways for you to save money and get the maximum out of your retirement plans because it allows you to get the highest possible returns by investing as early as possible.
Last November’s TSP Modernization Act of 2017 gives more flexibility to federal employees regarding investing and withdrawing money from their savings. Before the Modernization Act, employees could only withdraw money in two lump sums, once at 59 1/2 and secondly at the end of their service, when they would have to take the whole amount at once. After the Modernization Act, the rules changed so that an employee can make a post-separation withdrawal as early as at 30 days interval. In case of service age based withdrawals, that can be made up to 4 times a year.
The law also provides participants with much greater flexibility when it comes to changing the frequency and amount of monthly installment payments. Before the Act, a federal employee could only receive payments on a monthly basis from their account. An open season between October and December was the only time to make any possible changes to the number of payments. Now, a participant can choose to receive payments on a monthly, quarterly or annual basis. They can now change the amount and frequency of the payments whenever they want with having the power to stop or restart installment payments.
These changes in laws ensure better flexibility and control over your TSP, providing you can get the absolute most out of your plans. Also, these flexibilities offer that you get to use the savings whenever you need and also save based on how much you can spare. With these conveniences in place, designing your TSP and making sure you choose the right plans for yourself makes absolute sense.
With other reports suggesting that there is a chance, federal employees’ retirement plans can be cut to as much as $143.5 billion, which will directly affect current and future retirees. Along with that, there is a proposed pay freeze that can potentially happen next year after the hiring freeze for a while. Trump Administration is looking to make a complete overhaul in the public service sector, but all the details have not been outlined thoroughly. There are discussions on how to make the process of hiring younger workers far more accessible than what it is currently.
These proposed cuts can end up taking a significant toll on your retirement savings as there will be much fewer government subsidies on each sector of retirement plans. This means even for the same investments you’re likely to get a considerably lower return can end up hurting your long-term plans. The proposed pay freeze can harm your expected incomes over the year, and if you are hoping for some increment and thus planning to pay your installments, your plans might get disrupted with the pay freeze in action.
While planning your TSP, it’s better to make sure how much you can put away in installments along with how frequently you can do it. Also, you need to work out exactly how much saving you’d want at the end of your service and plan accordingly. TSP provides you with the best opportunity to secure the best possible future for you and your family. With these laws in place, you will get to reap the benefits even more.
Michael Wood is the principal and owner of Integrity Retirement Planning, LLC with offices located in Cambridge, Maryland. Michael began his career in Insurance and Financial Services with Bankers Life and Casualty in 1999 where he practiced insurance until 2002 at which time he started his own company. If you have questions, contact Michael Wood with questions about how you could save on your TSP.