TSP Withdrawal Strategies for Federal Retirees

Your TSP Withdrawal Options

The TSP offers four withdrawal methods: single lump sum, a series of monthly payments (based on life expectancy or a fixed amount), a TSP annuity (purchased through MetLife), or a combination of these. You can also leave your money in the TSP and withdraw later.

TSP Annuity vs. Rolling to a Private Annuity

The TSP's annuity option (through MetLife) provides guaranteed income, but rates are often lower than what's available from top private carriers. Rolling your TSP to an IRA gives you access to dozens of carriers competing for your business — often resulting in higher guaranteed income.

At ACM, we routinely find private annuity rates that exceed the TSP annuity payout by 10-20%. On a $400,000 TSP balance, that can mean $300-$600 more per month in guaranteed income for life.

Tax Considerations

Traditional TSP withdrawals are taxed as ordinary income. Roth TSP withdrawals are tax-free (if qualified). If you have both, the strategy around which to withdraw first can save significant taxes. Generally, withdrawing traditional TSP first while in a low bracket, then switching to Roth later, is optimal.

The 'TSP Bridge' Strategy

If you retire before 62, you may receive the FERS Supplement. But the Supplement ends at 62 when you become eligible for Social Security. Your TSP can serve as a 'bridge' during this transition — providing income to supplement your FERS pension while you delay Social Security to 70 for the maximum benefit.