Strategies for Securing Your TSP Account During Present Employee Instability
In the current state of flux within the federal workforce, due to deferred resignation programs, voluntary early retirement authorities, and potential reductions in force across numerous agencies, federal employees are finding themselves with a sudden shortening of their retirement horizon. This change necessitates a reassessment and adjustment of Thrift Savings Plan (TSP) strategies to minimize risk, increase liquidity, and revise withdrawal plans accordingly.
Key adjustments include shifting towards more conservative investments, increasing liquidity and access, reevaluating contribution levels, planning for tax implications, revisiting retirement income needs and timing, and transferring TSP balances to IRAs or Roth IRAs in the private sector.
Moving from aggressive stock funds to more stable bond or government securities funds helps preserve capital while still earning some returns. Adjusting allocations to include funds that can be more readily withdrawn or transferred without penalties is crucial, especially if retirement occurs suddenly and funds are needed sooner than expected. If employees are aware of an imminent early retirement, ramping up contributions—including catch-up contributions if eligible—can help compensate for the lost years of growth.
Considering shifting contributions to Roth TSP if expecting a higher tax bracket post-retirement provides more flexibility in withdrawals when the retirement horizon shrinks. Early retirement affects pension calculations and Social Security claiming strategies, so employees should integrate TSP adjustments into their broader retirement income plans.
Federal employees within the retirement horizon are recommended to transfer their TSP balance to an IRA or Roth IRA in the private sector. This move can help federal employees avoid withdrawing from the G fund or stock index funds that may be down at any given time. Being in the Lifecycle funds could have serious consequences if retirement occurs much sooner than planned.
The TSP Modernization Act allows federal employees to make age-based in-service withdrawals, providing more flexibility in managing their retirement income. The workshop titled "Maximizing Your Federal Retirement Benefits" covers topics such as DRP 2.0 Deadlines & Updates, retirement eligibility rules, TSP basics, 2025 contribution limits, smart withdrawal strategies, demystifying the funds, and an interactive 30-min Q&A session. The workshop, which is scheduled for Tues., Aug. 19 at 6:30 pm and Thurs., Aug 21 at 1 pm ET, is not intended for users located within the European Economic Area.
The G fund, while safe, has a 10-year return to-date of only 2.36%, which may not keep up with inflation. Shifting from an aggressive investment posture to a more conservative one can help minimize risk exposure. As federal employees may be reconsidering their future federal employment prospects due to these factors, it is essential to prioritize a well-planned TSP strategy to ensure adequate retirement income.
- Federal employees, with a sudden shortening of their retirement horizon due to changes in the federal workforce, are advised to reevaluate their Thrift Savings Plan (TSP) strategies to ensure minimized risk, increased liquidity, and adjusted withdrawal plans.
- One key adjustment in TSP strategies is transferring some balances from the TSP to IRAs or Roth IRAs in the private sector to avoid potential market risks and provide greater flexibility.
- In light of the change in the federal workforce, it is essential for federal employees to consider shifting from aggressive investments towards more conservative ones, such as bond or government securities funds.
- In addition to reassessing investments, federal employees should also prioritize career-development and skills-training to enhance personal-finance management, education-and-self-development, and even business opportunities that could contribute to wealth-management and secure retirement plans.
