What Federal Employees Need to Know About Using the TSP in Retirement

Introduction

The Thrift Savings Plan (TSP) has been one of the best retirement accumulation tools for federal employees. But once retirement begins, the big question becomes: “How do I turn my TSP into income that lasts?”

Whether you’re a GS employee, FERS retiree, postal worker, or military retiree, using the TSP wisely in retirement can determine how far your savings go.

Here’s what every federal employee approaching retirement needs to know.

1. Don’t Keep All Your Retirement Money in TSP Forever

The TSP is excellent for growing wealth, but not designed for flexible retirement income. Downsides include:

• Limited withdrawal options

• No guaranteed lifetime income option

• No professional management

• Tight restrictions on required minimum distributions

Most retirees eventually move at least part of their TSP into IRA and annuity strategies for more control.

2. Understand the TSP Funds (and Which to Use in Retirement)

In retirement, the investment objective changes- from growth to protection plus income.

Quick overview:

• G Fund: Principal protection, modest yield

• F Fund: Bonds, interest-rate sensitive

• C Fund: S&P 500

• S Fund: Small/mid-cap

• I Fund: International stocks

• L Funds: Pre-packaged mixes

For most retirees, the G Fund becomes useful- but relying on it too heavily limits long-term protection against inflation.

3. Plan for RMDs

At 73, you must start taking required minimum distributions. If all your money is inside TSP, you’ll have fewer tax-planning options. Rolling a portion to an IRA early can give you:

• Roth conversion opportunities

• More flexible withdrawals

• Lower long-term taxes

4. Consider Using an Annuity for Guaranteed Income

Federal retirees often have:

• A pension

• Social Security

• TSP savings

Adding guaranteed income from an annuity can turn your TSP into a dependable lifetime paycheck and protect against market loss after 55.

5. Create a Retirement Income Strategy That Blends TSP + Outside Accounts

The TSP shouldn’t be your entire retirement income plan. Most effective strategies include:

• 1–2 years of cash

• Guaranteed lifetime income

• A protected growth bucket

• A tax strategy for RMDs

This mix protects against longevity risk, inflation, and market downturns.

Conclusion

Federal employees have unique retirement opportunities- and challenges. By understanding how the TSP fits into a broader income strategy, you can turn decades of savings into decades of confidence.

To schedule a Retirement Income Review to see how to best utilize your TSP, click HERE.

To learn more about Ted Foster, click HERE.