TSP Withdrawal Tips
The Thrift Savings Plan (or similar retirement savings plan) can be a great vehicle for an inflation-indexed, lifetime source of income, but it’s necessary to have the right TSP withdrawal strategy. Your FERS annuity and Social Security are both considered lifetime, inflation-indexed income, but unlike those, the TSP is not guaranteed to last your whole life, and it does not include a Cost of Living Adjustment (COLA).
There are two withdrawal choices under the TSP’s existing options which, if carefully adhered to, can provide a lifetime source of income that can be altered for inflation on an annual basis.
- Utilizing the substantially equal monthly payouts based on the IRS life expectancy table.
- A life annuity plan with rising payments.
Let’s look at the amount of income each of these withdrawal choices will offer an employee who retires at the age of 57 with $400,000 in their TSP, using the TSP Retirement Calculator.
If we make use of the substantially equal monthly payouts method, the employee will receive a monthly payment of $1,194.74 at the age of 57; they will receive a monthly fee of $1,985.93 at the age of 69. They will get a payment of $1,280.21 each month at the age of 70, and end up with $2,692.04 at the age of 90. The employee is likely to have more than $350,000 in his or her account to pass on to beneficiaries, according to the TSP Calculator.
In another case, the life annuity plan offered by MetLife can provide a monthly payment of $1,022 to the employee at the age of 57. It is also important to remember that there is no RMD in the annuity plan and the number did not reduce at the age of 70, but instead went up to $1501 per month. By the time the employee reaches the age of 90, the monthly payment would have been increased to $2,711. This plan will not leave any money to be inherited by their heirs as the person would have collected the purchase price of the annuity in payouts before his or her death.
Some TSP contributors make the choice to roll over their TSP into an outside annuity with a financial planner. Various forms of annuities with several attributes are available.
No matter which route you choose to go, it’s important to pay careful attention to the way you handle your TSP withdrawals. Before making and decisions, it’s always wise to reach out to a financial professional for help and advice.