The main reason to put aside money in a Thrift Savings Plan is so you can take out of the TSP throughout your retirement years. During your working days, the focus is always on accumulating as much as you can in your TSP to supplement what will come from Social Security and federal annuity.
If you’re a diligent saver, you may have garnered a large nest at retirement. The TSP will continue to earn income even if you aren’t saving to it.Â
And when you start withdrawing from your TSP, you switch from accumulating to preserving the money to make sure it lasts just as long as you expect it to. In the good years, the TSP balance will grow even if you’re making withdrawals. But in the bad years, it may shrink lower than you expect.
Most retirees may freak out when their TSP balance goes down. But that’s always expected since you’re making withdrawals. Your goal should be to have sufficient funds in your TSP to meet your needs until you draw your last breath.
This is why experts recommend having a retirement strategy. Having a retirement strategy is essential to ensure that you don’t run out of cash.Â
Three Bear Mentioning
Here are three withdrawal strategies worth mentioning.
IRS Life Expectancy Table:Â
If you roll over your TSP to an IRA, you can adopt this strategy. It’s an installment withdrawal option based on one’s life expectancy. Each year, the withdrawal amount is based on the individual’s age and account balance.
In good years, when you have a high account balance, you’ll get a higher amount, and in the bad years, when your account is not as robust, you’ll get a lower amount. This strategy extends to the age of 115, so there’s no need to worry about prolonging it.
Purchasing a Life Annuity
A TSP life annuity underwritten by MetLife will pay you as long as you live. However, it will lock you into a fixed payment schedule. When the interest rates are low, you’ll receive lower annuity payouts. You can also purchase annuities outside the TSP.
The 4% Rule
The 4% rule is one of the most popular of all three. It suggests starting your withdrawal at a 4% rate and then adjusts for inflation annually. According to “Monte Carlo Simulations,” there’s a 90% chance for those who follow this strategy to have money after thirty years still.
Typically, people spend more in the early days of retirement chasing goals and living out fantasies, but this tends to tone down later in retirement. Possibly, you will spend less later on in retirement than you did earlier on in retirement.
Conclusively, if you are considering retirement and are ready to start spending your TSP, now will be a good time to outline a post-retirement spending strategy. Don’t wait.
