When to Start Withdrawing TSP Funds If You Want Your Money to Last a Lifetime

aaron steele
May 22, 2025

Key Takeaways

Timing your TSP withdrawals in 2025 is crucial for ensuring your money lasts throughout retirement, with Required Minimum Distributions (RMDs) starting at age 73.
Strategic planning, including phased withdrawals and considering life expectancy, can significantly impact your financial security and tax efficiency.

Understanding the Importance of TSP Withdrawal Timing

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Your Thrift Savings Plan (TSP) is not just a savings account—it’s the foundation of your retirement income. Making withdrawals too early or too late can jeopardize your financial stability. In 2025, careful planning is essential to ensure your TSP lasts your entire lifetime.

The First Milestone: Age 59½

Age 59½ is a critical benchmark. It marks the first time you can access your TSP funds without facing a 10% early withdrawal penalty. While taxes on traditional TSP funds still apply, the elimination of penalties opens up significant planning opportunities.

Early but strategic access: Withdrawing right after 59½ can make sense if you need supplemental income or want to execute a tax strategy, such as filling lower tax brackets before RMDs begin.
Delay for growth: If you don’t need the money, letting it grow tax-deferred longer can strengthen your nest egg.

Age 62: Social Security Coordination

Age 62 introduces another decision point. It is the earliest age you can start receiving Social Security benefits. Coordinating TSP withdrawals around Social Security claiming strategies can make a major difference in your overall retirement income.

Bridging strategy: If you delay Social Security to increase your future monthly benefit, TSP withdrawals can fill the income gap.
Tax implications: Drawing from your TSP to delay Social Security could also reduce your taxable income in later years.

RMDs Now Start at Age 73

The SECURE 2.0 Act has shifted Required Minimum Distributions (RMDs) to age 73 starting in 2025. Missing an RMD deadline triggers a 25% penalty on the amount not withdrawn—a significant financial hit.

Timing withdrawals: Begin planning a few years before 73 to manage income tax brackets and avoid sudden large taxable distributions.
Partial withdrawals: Starting gradual withdrawals in your early 70s can ease tax impacts when RMDs officially begin.

Pros and Cons of Withdrawing Early

Withdrawing from your TSP before RMDs are mandatory has advantages and disadvantages.

Pros:

Tax bracket control: Manage how much taxable income you recognize each year.
Retirement flexibility: Cover unexpected expenses without being forced to rely on higher-risk investments.
Social Security enhancement: Fund living expenses to delay Social Security and lock in higher benefits.

Cons:

Reduced compounding: The more you withdraw, the less remains to grow tax-deferred.
Longevity risk: Starting too early without a clear spending plan can result in running out of money later in retirement.

How to Calculate a Sustainable Withdrawal Rate

A “sustainable withdrawal rate” helps ensure you don’t outlive your savings. A traditional rule of thumb has been 4%, but today’s environment suggests a more conservative approach may be necessary.

3.5% to 4% rule: In 2025, many financial planners recommend beginning with a 3.5% withdrawal rate, adjusting for inflation annually.
Flexible strategies: Consider reducing withdrawals after market downturns and increasing them when returns are strong.

Key Factors That Influence Your Withdrawal Timing

Several factors will influence the optimal timing for your TSP withdrawals:

Life expectancy: Longer lifespans mean your money must stretch further.
Market performance: Significant portfolio losses early in retirement can impact future withdrawals.
Healthcare needs: Unexpected medical expenses can affect your need for income.
Tax policies: Current and future tax law changes could alter your strategy.

Timing Strategies for Different Retirement Scenarios

Your withdrawal strategy should match your retirement scenario.

If you retire early (before 60)

Special separation rules: If you separate from federal service in or after the year you turn 55, you can access your TSP without the 10% penalty.
Cautious tapping: Rely on other assets if possible to allow your TSP to grow longer.

If you retire around 60–65

Phased withdrawals: Begin withdrawing small amounts strategically to manage future RMDs.
Bridge Social Security delay: Use TSP funds to delay Social Security and maximize lifetime benefits.

If you retire after 65

Focus on tax efficiency: Use withdrawals to minimize tax bracket spikes from RMDs.
Health considerations: Evaluate your healthcare costs, which often rise with age.

Mistakes to Avoid When Timing Your TSP Withdrawals

1. Waiting until RMDs force your hand

Delaying all withdrawals until 73 can lead to large RMDs that spike your tax bracket and increase Medicare premiums.

2. Withdrawing too much too soon

Overspending early in retirement can leave you vulnerable to running out of funds later.

3. Ignoring market conditions

Selling investments during a downturn to fund withdrawals can lock in losses and permanently hurt your account balance.

4. Not accounting for inflation

Rising living costs require that your withdrawal plan adjusts upward over time.

5. Forgetting beneficiary planning

Incorrect beneficiary designations or lack of withdrawal planning can cause costly mistakes for heirs.

The Impact of Taxes on Your Withdrawal Timing

TSP withdrawals are generally taxable as ordinary income unless you have Roth TSP contributions. Understanding how taxes affect your distribution plan is essential.

Traditional TSP: Every dollar withdrawn increases your taxable income.
Roth TSP: Qualified withdrawals are tax-free, providing more flexibility.
Mixed strategy: Using a blend of traditional and Roth withdrawals can help keep you in a lower tax bracket.

Planning for the Unexpected

Flexibility is key. Building a withdrawal strategy that can adapt to market downturns, unexpected expenses, or healthcare needs will better protect your financial security.

Maintain a cash reserve: Having 1–2 years of living expenses in cash or conservative investments can help avoid forced withdrawals during market declines.
Review regularly: Revisit your withdrawal strategy at least annually to adjust for changes in market performance, tax law, or personal circumstances.

Why Professional Guidance Matters

Timing TSP withdrawals correctly is a balancing act between income needs, taxes, life expectancy, and market risks. Working with a licensed professional can help you tailor a strategy based on your specific goals and circumstances. A licensed agent listed on this website can offer personalized advice that reflects the latest regulations and your unique financial situation.

Smart Withdrawal Timing Helps You Secure Your Retirement Future

Properly timing your TSP withdrawals is one of the most important decisions you will make in retirement. By starting at the right time, adjusting based on evolving circumstances, and considering both tax impacts and longevity, you can give yourself a stronger chance of making your money last a lifetime. For guidance tailored to your personal situation, connect with a licensed professional listed on this website.

Aaron Steele

After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely with
helping them pursue the most comfortable financial life possible.

Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.

Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.

Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.

Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.

With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.

Aaron can help you and your family to create, preserve and protect your legacy.

That’s making a difference.

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.