Most Retirees Regret Delaying Their TSP Withdrawals—Here’s Why You Might Too

Missy E
November 14, 2025

Key Takeaways

Delaying Thrift Savings Plan (TSP) withdrawals might seem like a way to grow your retirement savings, but in 2025, it can come with unexpected financial and tax consequences.
By understanding your Required Minimum Distributions (RMDs), tax brackets, and retirement goals, you can make smarter decisions about when to start using your TSP funds.

Why Waiting to Withdraw Might Backfire

Many government retirees assume that the longer they leave their money in the TSP, the better off they’ll be. After all, the account continues to benefit from compound growth. However, deferring withdrawals too long can lead to several negative consequences that outweigh the perceived benefits.

Rising Tax Liability

When you delay withdrawals until Required Minimum Distributions (RMDs) kick in at age 73 (increased from age 72 starting in 2023), you may find yourself in a higher tax bracket. That’s because RMDs are mandatory and could coincide with other income sources like Social Security and pension payments.

Your taxable income may spike, triggering higher federal tax rates.
You might become subject to the Medicare Income-Related Monthly Adjustment Amount (IRMAA), increasing your Part B and Part D premiums.

Missed Opportunities for Tax Planning

Spreading withdrawals over several years prior to RMD age allows you to manage your tax exposure. If you delay, you forfeit years when you might have been in a lower tax bracket, especially between your retirement and RMD age.

Strategic withdrawals in your 60s can minimize taxes.
Roth conversions become harder to manage efficiently once RMDs begin.

The Impact of RMDs in 2025 and Beyond

In 2025, retirees turning 73 must begin their RMDs. These mandatory distributions are calculated based on your account balance and life expectancy, using IRS tables. Ignoring or mismanaging RMDs can result in steep penalties.

Steep IRS Penalties

Failing to take your full RMD can result in a penalty of 25% on the amount not withdrawn. If corrected in a timely manner, the penalty may reduce to 10%, but that’s still a significant and avoidable cost.

Loss of Control Over Withdrawal Timing

With RMDs, you’re no longer in control of how much to take out each year. You’re forced to withdraw, even if the market is down or you don’t need the income.

Forced withdrawals during downturns can lock in losses.
You lose the flexibility to align withdrawals with personal spending needs.

Healthcare Costs and the Hidden Burden of Delay

One often-overlooked effect of delaying TSP withdrawals is the impact on healthcare-related costs. Higher income from lump-sum RMDs can increase Medicare premiums through IRMAA.

Medicare Part B and D Costs

In 2025, Medicare Part B premiums rise for individuals with higher modified adjusted gross incomes (MAGIs). If your TSP withdrawal increases your income, you might move into a higher IRMAA bracket.

Even a modest increase in income can significantly raise annual premiums.
These adjustments are based on your tax return from two years prior, adding another layer of complexity.

Emotional Barriers to Withdrawing Early

For many public sector retirees, the hesitation to start TSP withdrawals stems from emotional or psychological reasons.

Fear of outliving savings.
A deep-seated mindset of saving rather than spending.
Uncertainty about how much is “safe” to withdraw each year.

While these concerns are valid, holding onto funds too long can do more harm than good—especially if it reduces your quality of life in retirement.

The Role of Life Expectancy and Spending Needs

You’ve worked hard to build your TSP. Now the question is: how and when should you use it?

Balancing Longevity with Lifestyle

The average life expectancy in the U.S. is around 76 years, but many retirees live well into their 80s and 90s.
If you delay using your funds, you may not fully enjoy them when you’re healthiest and most active.

Spending in Go-Go, Slow-Go, and No-Go Years

Financial advisors often divide retirement into three phases:

Go-Go Years (60s–early 70s): You’re healthy, active, and spending more on travel, hobbies, and entertainment.
Slow-Go Years (mid-70s to mid-80s): Activity slows, healthcare costs rise.
No-Go Years (mid-80s onward): Spending typically declines, but long-term care may become necessary.

Delaying withdrawals too long can limit your ability to fund the phase where you actually want to spend more.

Missed Investment Growth in Other Accounts

When you delay TSP withdrawals, you also miss the opportunity to shift funds into more tax-efficient accounts like Roth IRAs. With Roth IRAs, qualified withdrawals are tax-free and they aren’t subject to RMDs.

Rolling over funds strategically can reduce long-term tax burdens.
Starting earlier allows for Roth growth and tax diversification.

The 2025 Landscape: What’s Changed

Recent changes in laws and policies have shifted the retirement planning game. In 2025:

The RMD age is now 73.
The standard Medicare Part B premium has increased to $185.
Part D out-of-pocket costs are now capped at $2,000.
Medicare Prescription Payment Plan allows you to spread drug costs monthly.

All these updates make income planning even more crucial, especially as healthcare costs take a bigger slice of retirement budgets.

Making a Plan That Works for You

A well-timed TSP withdrawal strategy aligns your financial goals with tax laws and healthcare realities.

Tips for a Smarter Withdrawal Strategy

Start small in your early 60s. Use strategic partial withdrawals.
Evaluate Roth conversion windows before RMDs begin.
Coordinate with other income streams like FERS annuity, Social Security, and pensions.
Review your plan annually with a licensed professional to stay on track.

You don’t have to spend your TSP hastily, but postponing too long can backfire. The smartest move is usually somewhere in the middle—withdraw thoughtfully and intentionally.

Don’t Let Delay Diminish Your Retirement

In 2025, retirement success isn’t just about how much you save—it’s about how wisely you spend it. Delaying TSP withdrawals might sound cautious, but it can lead to a financial burden when you’re least prepared.

Instead of waiting until you’re forced to act, build a plan now. Think about when you’ll need the money, how it fits into your lifestyle goals, and what it means for your taxes and healthcare.

If you’re unsure where to start, get in touch with a licensed professional listed on this website to build a customized withdrawal strategy that supports your long-term wellbeing.