It’s good for us to consider what-ifs when we are planning our finances (or planning our lives, for that matter):
What if you were withdrawing money from the TSP in 2019 and the stock market were to tank; would you be able to take your TSP withdrawals solely from the G Fund? No, you are not allowed to utilize the so-called “bucket strategy” when withdrawing from the TSP.
The bucket strategy, sometimes referred to as a time-based segmentation approach, has you allocating your money in two, or more, different accounts/funds, or “buckets”. The first bucket would be invested in safe (presumably lower yielding) investments (e.g., the G Fund) from which you will make monthly withdrawals for income during retirement. Ideally this bucket will have enough in it to see you through any down market in stocks.
A second bucket would be invested in riskier (presumably higher yielding) investments which will not be needed for some time. You would periodically replenish bucket one from bucket two. You could even have more than two buckets. For example, you could set up a bucket for “now”, another one for “soon” and a third for “later.”
Unfortunately for those who like the sound of the bucket strategy, the TSP requires that withdrawals be taken proportionately between your TSP investments based on your account allocation. Let’s say that you are withdrawing $1,000 each month and that your account is evenly allocated between the five basic funds. $200 of each withdrawal would come from the G Fund, $200 from the F Fund, $200 from the C Fund, $200 from the S Fund and $200 from the I Fund.
Even when the TSP Modernization Act is implemented on September 15, 2019, there will be no change in the proportionality requirement as it applies to which funds you will withdraw from. If you wanted to follow a bucket strategy, your money would need to be somewhere other than the TSP (e.g., an IRA).
What if you’re planning to separate from federal service in the middle of 2019? Can you “front-load” your TSP? Yes you can. Once you separate you cannot contribute to the TSP, so consider contributing enough so that you can reach the elective deferral amount ($19,000 in 2019) by the date of your separation. If you were leaving government service at the end of the 13th pay period, you would contribute (assuming you could afford to) $1,462 a pay period to the TSP to reach the elective deferral amount by the time you leave.
If you have any what if questions of your own, consider posting one to askFEDweek.com. Questions are answered by subject matter experts in the field of federal human resources and benefits.