Why TSP Withdrawals Feel Straightforward at First—But Can Spiral Without a Solid Plan

Key Takeaways

• Even though TSP withdrawals seem simple at first, making strategic errors can quickly deplete your savings.

• Building a thoughtful plan around taxes, Required Minimum Distributions (RMDs), and longevity can help your TSP support your retirement goals.

Why a Solid TSP Withdrawal Strategy Matters in 2025

When you first become eligible to tap into your Thrift Savings Plan (TSP) account, it may seem deceptively easy. You submit a withdrawal request, select an amount, and receive your money. However, retirement is a marathon, not a sprint. Without a well-structured plan, your TSP could run out sooner than you expect, forcing difficult financial decisions later in life.

• Also Read: 4 Reasons Why Medicare Could Be a Smarter Choice Than FEHB for Some Federal Retirees
• Also Read: Leaving Your TSP Alone Can Be Risky—Especially If You’re Already Retired
• Also Read: FERS Pension Gone? Here’s What Really Happens If You Resign Tomorrow

Understanding the Basic TSP Withdrawal Options

Before diving into the pitfalls, it’s important to understand the withdrawal options you can choose from:

• Single Withdrawals: A one-time distribution of a specified amount.

• Installment Payments: Scheduled monthly, quarterly, or annual withdrawals.

• Annuity Purchases: A third-party insurance annuity providing a guaranteed income stream.

You can mix and match these methods, but each choice carries its own consequences for taxes, liquidity, and longevity planning.

The Early Simplicity That Can Mislead You

At the beginning, TSP withdrawals seem incredibly straightforward. After all, you’ve spent decades accumulating retirement savings, and now it feels like “your money” is finally accessible. Here’s why the early simplicity can be misleading:

• Low Initial Withdrawal Needs: At first, you may only need a small amount of income because of other benefits like FERS pensions and Social Security.

• Minimal Tax Impact (Initially): When withdrawing small amounts, you might remain in a lower federal tax bracket.

• RMDs Not Required Until Age 73: If you retire before age 73, you can delay mandatory withdrawals, giving a false sense of unlimited flexibility.

However, this simplicity can spiral if you don’t adapt your strategy over time.

How TSP Withdrawals Can Spiral Over Time

Without careful planning, several risks can slowly compound against your TSP balance.

1. Underestimating Required Minimum Distributions (RMDs)

Starting the year you turn 73, you must begin taking RMDs from your TSP. If you have not structured your withdrawals beforehand, RMDs could suddenly:

• Push you into a higher tax bracket.

• Cause you to lose eligibility for certain credits or benefits.

• Force you to withdraw more than you actually need.

In 2025, the IRS uses updated life expectancy tables, which slightly adjust your RMD amounts but still require strategic action.

2. Failing to Manage Taxes Effectively

Each TSP withdrawal is taxable as ordinary income unless it comes from Roth TSP contributions. Taking large withdrawals without planning can:

• Increase your annual income.

• Trigger Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharges at age 65 or older.

• Cause unexpected tax bills the following April.

Proper tax management across your 60s, 70s, and 80s is essential to make the most of your TSP.

3. Ignoring Inflation’s Impact

Inflation slowly erodes purchasing power. A TSP withdrawal that feels comfortable at age 60 may be insufficient at age 80. Without inflation-adjusted withdrawal strategies, you risk:

• Draining your TSP too quickly.

• Cutting back on lifestyle expenses in later years.

Given that healthcare inflation often outpaces general inflation, the risk becomes even greater.

4. Overspending During the “Go-Go” Years

Public sector retirees often spend more during their first 10-15 years of retirement. This period, sometimes called the “go-go” years, includes travel, hobbies, and home upgrades. Without careful pacing:

• Large early withdrawals can shrink your TSP nest egg.

• Later in retirement, you might lack resources to cover rising medical costs or long-term care.

5. Overlooking Long-Term Care Needs

Statistically, the odds of needing long-term care services increase significantly after age 80. TSP withdrawals may feel sufficient in early retirement but may not leave enough to cover:

• Assisted living facilities.

• In-home caregiving support.

• Nursing home care.

Long-term care costs have risen steadily and show no signs of slowing in 2025.

How to Build a Sustainable TSP Withdrawal Plan

The best defense against TSP withdrawal pitfalls is proactive planning. Here are the key steps you should consider:

Start With a Withdrawal Timeline

• Age 55: If you separate from service during or after the year you turn 55, you can access your TSP without the 10% early withdrawal penalty.

• Age 59½: General early withdrawal penalties no longer apply.

• Age 62: Eligible to start Social Security (early) and your FERS annuity supplement usually ends.

• Age 65: Eligible for Medicare.

• Age 73: RMDs become mandatory.

Mapping your income needs and major events against these milestones helps avoid unexpected surprises.

Coordinate TSP Withdrawals With Other Income Sources

Rather than relying entirely on your TSP immediately, consider:

• Using pension and Social Security benefits first.

• Tapping TSP strategically to fill gaps.

• Allowing a portion of your TSP to remain invested for growth.

Diversifying income streams can help your overall retirement assets last longer.

Consider a Partial Roth Conversion Strategy

If you have traditional (pre-tax) TSP funds, partial Roth IRA conversions in your early 60s could:

• Reduce future RMD amounts.

• Create tax-free income later.

However, Roth conversions increase your taxable income in the year they occur. It’s critical to weigh this carefully with professional guidance.

Plan for Inflation-Proof Withdrawals

When calculating annual TSP withdrawals, build in an annual increase tied to inflation estimates. Even a modest 2%-3% increase each year can help preserve your purchasing power.

Don’t Wait to Address Long-Term Care

In your 60s, it’s wise to:

• Explore long-term care insurance or alternative funding strategies.

• Allocate a specific portion of TSP savings for future healthcare costs.

• Discuss contingency plans with your family.

Acting early provides more options and avoids panic decisions later.

Regularly Review and Adjust Your Withdrawal Strategy

What works at age 60 likely won’t work unchanged at age 80. Set a regular schedule—at least once a year—to review:

• Your current withdrawal rate.

• Your TSP balance.

• Your projected future expenses.

• Potential tax changes or policy updates.

By adjusting along the way, you maintain better control over your financial future.

The Emotional Trap: Feeling “Rich” After TSP Access

One of the most dangerous emotional traps retirees fall into is feeling “flush” after gaining full access to their TSP. A six-figure or even seven-figure balance can feel like endless money—but without careful stewardship, it’s finite.

In 2025, the average retirement length continues to stretch past 20 to 30 years. A $500,000 balance today might only translate to $1,500–$2,000 per month of sustainable income.

This is why long-term vision, not short-term excitement, needs to guide your withdrawal strategy.

Why Working With a Licensed Professional Matters

Although many resources are available, TSP withdrawal planning often benefits from personalized, professional advice. A licensed professional listed on this website can:

• Help you project income needs over a 30-year retirement.

• Optimize your withdrawal strategy for tax efficiency.

• Coordinate your TSP with other assets and benefits.

• Review your plan regularly to adjust for changes in laws, markets, and personal circumstances.

Getting tailored advice today can prevent costly mistakes tomorrow.

Protecting Your TSP: Building Financial Security That Lasts

TSP withdrawals feel simple when you first start. But if you want your money to last a lifetime, it takes more than just good luck. A solid strategy—focused on taxes, longevity, inflation, healthcare, and lifestyle planning—makes all the difference.

If you’re approaching retirement or already retired, get in touch with a licensed professional listed on this website. A customized plan could help you protect your savings, safeguard your lifestyle, and secure your financial legacy.