How to Better Manage Your Retirement Finances

You may have saved a substantial amount for retirement, but now what?

As a federal employee planning for retirement, understanding how to effectively utilize your savings and benefits can be crucial. Upon retirement, federal employees typically rely on three primary sources of income:

1. Federal Employees Retirement System (FERS) basic benefit
2. Social Security retirement or the FERS supplement
3. Thrift Savings Plan (TSP) distributions

These income streams are designed to provide financial stability throughout retirement, with options for survivor benefits to protect loved ones. The TSP, in particular, has become a cornerstone of federal employee retirement planning, as highlighted by impressive statistics. However, managing your assets effectively during retirement presents its own challenges.

In 2023, nearly 300,000 separated federal employees made decisions regarding their TSP funds:

• Approximately 150,000 employees cashed out their entire TSP accounts, potentially facing significant tax consequences.
• Nearly 100,000 employees opted to transfer their TSP balances to an IRA or employer-sponsored savings plan, seeking more flexible withdrawal options.
• A modest number of retirees, around 35,000, chose to receive monthly installment payments to supplement their retirement income.
• Only 750 individuals selected a TSP life annuity through MetLife, providing guaranteed monthly payments for life.

Key Considerations for Federal Employees:

When withdrawing from your TSP, especially in a lump sum, consider potential tax implications. Withdrawals may push you into a higher tax bracket, and state income taxes may apply depending on your residence.

Monthly installment payments offer a convenient way to establish a steady income stream in retirement. However, manage your withdrawals prudently to help ensure longevity of funds and consider future growth opportunities.

Opting for a TSP life annuity provides guaranteed payments but limits flexibility, as payments cannot be adjusted once chosen. Understanding the impact of interest rates on annuity payments is essential for informed decision-making.

Utilizing a “bucket strategy,” as recommended by financial experts, can help structure your withdrawals effectively:

• Maintain a cash bucket for immediate needs, ensuring liquidity and minimal risk.
• Establish an income bucket for short to medium-term expenses, invested in stable assets like bonds or the TSP’s F Fund.
• Allocate the remainder to a growth bucket for long-term growth potential, primarily invested in stocks or the TSP’s C, S, or I Funds.

Lastly, consult qualified financial professionals to optimize your retirement strategy. They can help guide you through complex decisions, such as managing traditional and Roth TSP balances and strategically withdrawing funds to minimize risk and maximize income.

Planning for retirement as a federal employee involves thoughtful consideration of your TSP and other retirement benefits. By making informed decisions and leveraging available resources, you can confidently navigate your retirement journey with financial security and peace of mind.

If you have any questions about the process of retiring as a federal worker, please visit Government Employee Wealth Advisors online. You can also set up a meeting with us by clicking here.