What Should I Do With My Thrift Savings Plan When I Retire From The Military?

Retirement is a significant milestone, especially for career military members and federal employees who have dedicated years of service to the nation. Transitioning from active duty or federal service brings financial questions, and one of the most critical is: What should I do with my Thrift Savings Plan (TSP)?

The TSP is a valuable retirement savings tool. However, the decisions you make when retiring can significantly impact your financial future. Whether you’re concerned about taxes, required minimum distributions (RMDs), or maximizing growth, understanding your options is not just essential but also a matter of financial security. This understanding empowers you to take control of your financial future.

Retirement Decisions Made Simple

To help you make an informed decision, we highly recommend downloading our free resource, the TSP Rollover Blueprint, available on our website. This comprehensive guide simplifies the intricate decisions surrounding TSP rollovers, providing a clear solution to your retirement planning dilemma.

It offers actionable advice for military and federal retirees, empowering you with the necessary knowledge. You’ll find a real-life case study illustrating how one retiree maximized retirement savings with the War Chest Strategy.

3 Key Considerations Before Moving Your TSP

1. The 4% Rule Faces New Challenges

For decades, the “4% Rule” guided retirees to withdraw 4% of their savings annually to avoid running out of money. However, in today’s financial landscape, this rule is becoming less reliable due to:

• Inflation: Rising costs of living erode purchasing power.
• Market Volatility: The stock market’s unpredictability disrupts income streams.
• Economic Uncertainty: Global factors and evolving markets create additional risks.

Adopting strategies that account for these modern challenges is a proactive step toward securing your retirement income. It might mean saving more, spending less, or diversifying your portfolio. But most importantly, it means taking control of your financial future, which is crucial for a secure retirement. By working with a insurance consultant, you can create a custom wealth protection plan that addresses the specific risks and opportunities of the modern economy. This may include measures such as investing in alternative assets, purchasing insurance products, or creating a trust to safeguard your assets.

At US VetWealth, our ‘War Chest’ strategy addresses these challenges using fixed index annuities (FIAs). This innovative approach creates an inflation-protected private pension through market participation while ensuring steady income, which is particularly beneficial in today’s volatile financial climate. This steady income can give you the peace of mind you need in retirement.

2. Your TSP Retirement Savings Are Not Guaranteed

While the TSP is an excellent savings vehicle, it does not offer guaranteed returns. Your savings remain exposed to market fluctuations, which can be risky for retirees who depend on this money for living expenses. Without proper planning, there’s a chance of outliving your TSP funds. Building a strategy that balances growth and security is not just important, it’s critical for a well-rounded military or federal retirement plan. Protecting your savings principle should be a priority as you plan for your future financial security. Utilizing the TSP retirement planning tool to calculate different scenarios and potential outcomes can also help you make informed decisions about your investment strategy.

3. What About Federal Employees?

TSP decisions are just as critical for federal employees under the Federal Employees Retirement System (FERS). You may qualify for penalty-free withdrawals if you’re over 55 and retiring. However, your tax liability depends on whether your funds come from a Roth or traditional TSP account.

Understanding these nuances can help you avoid unnecessary taxes and penalties while maximizing your retirement income.

Investment Options for Your TSP After Retirement

When leaving the military or federal service, you have several options for your TSP. Each comes with advantages and trade-offs depending on your financial goals, tax situation, and retirement timeline. Consider leaving your money in the TSP, as it offers low thrift savings plan expenses and a range of investment options. You can also roll your TSP balance into an Individual Retirement Account (IRA) or into your new employer’s retirement plan. Consider speaking with a wealth insurance consultant who specializes in retirement planning for career military families. They can help you weigh the pros and cons of each option and make the best decision based on your individual needs and circumstances.

Maintain Your TSP Account

• Advantages:
  • Low fees compared to many private investment accounts.
  • Continued access to TSP investment funds like the G Fund (a government securities option with no market risk).
• Considerations:
  • Limited investment options compared to an IRA.
  • Required minimum distributions (RMDs) start at age 73, with penalties for failing to take them.

Roll Over to an IRA

Rolling over your TSP to an IRA gives you greater investment control.

• Options:
  • Traditional IRA: Preserve tax-deferred growth; withdrawals are taxed as income.
  • Roth IRA: Offers tax-free withdrawals on qualified distributions if certain conditions are met.
• Benefits:
  • Unlimited investment options.
  • No RMDs for Roth IRAs during your lifetime.

Pro Tip: Download the TSP Rollover Blueprint for a step-by-step guide on executing a smooth rollover while avoiding unnecessary taxes.

Cash Out Your TSP

• Risks:
  • Immediate taxes on the withdrawn amount.
  • Early withdrawal penalties if under age 59½.
• Considerations:
  • Only consider cashing out if you face an urgent financial need.

Transfer Assets to an Annuity

Converting your TSP into an annuity can provide a steady income stream.

• Fixed Index Annuities:
  • Offer guaranteed income for life.
  • Protect your savings from market downturns.

While annuities lack the flexibility of a taxable brokerage account, they can be an excellent option for retirees prioritizing stable income. Unlike older variable annuities with high fees, modern FIAs are offered at zero cost, with the option to add riders for a nominal fee.

Discuss this option with a financial consultant to ensure a fixed income annuity aligns with your goals.

FAQs About Retiring With Your TSP

Why Work With a Military Retirement Financial Professional?

Managing your TSP rollover options after federal or military retirement can be complex. US VetWealth offers a unique approach that combines transparency, military expertise, and tailored financial strategies.

• We Can Help You:
  • Assess whether an IRA rollover or annuity aligns with your goals.
  • Minimize taxes and optimize your income.
  • Simplify your transition from military or federal service to civilian retirement.

Maximize Your TSP Potential

Your TSP is a powerful retirement tool, but making the right decisions requires careful planning. Whether you maintain your TSP, roll it into an IRA, or explore other options, understanding your choices is the first step toward financial security.

Download our free TSP Rollover Blueprint today to take control of your retirement savings. Inside, you’ll find actionable strategies, helpful tools, and a case study showing how one retiree successfully managed their TSP. If you’re ready for personalized advice, schedule a consultation with US VetWealth’s team of experts.