John Grobe

When thinking about taking withdrawals from the Thrift Savings Plan (or any other account where you want to spread out your withdrawals over your lifetime), you might be tempted to follow a strategy that manages your withdrawals so that they start out small and grow as time passes to keep up with inflation. But, will your withdrawals actually follow that pattern? Maybe not; here are some other things to consider.

Will you spend significantly more money early in your retirement? Quite possibly. My friend “Duke”, from the old neighborhood has been posting pictures of his recent trip to Alaska on Facebook. He even flew in a small plane to a glacier a ways out of Anchorage. Alaska was Duke’s 50th state, so he’s seen them all. I’m a bit jealous, as I’ve only been to 49, and the one I’m missing is the one Duke made his 50th. What Duke is doing is not cheap, but he’s doing it while he’s still (relatively) young and vigorous. I suspect that many of us will attack “bucket list” items early in our retirement, drawing more money from our TSP and other sources than a gradual withdrawal strategy might suggest.

Read more on TSP Withdrawals and substantially equal monthly payments at ask.FEDweek.com

Will you spend less than you thought in the later years of your retirement? Ultimately we all will slow down and not be pursuing the items on our bucket list that require vim and vigor. My Aunt Dorothy did an around the world trip early in her retirement. Towards the end of her long and fulfilling life she took trips in and around Champaign and Urbana, Illinois where she lived; her spending dropped considerably.

Economist, David Blanchett proposes something he calls the “Spenders’ Slope”. This theory has retirees slowing their spending at a certain age and dropping to 70% or 80% of their pre-retirement spending by their late 80s or early 90s. Now, I’ve seen samples of his “slope”, including one that appeared in Money Magazine, that show spending beginning to decrease at the age of 65 – both Duke and I would dispute that, as we’re five years past 65 and still spending at a rapid rate. But, it can’t be gainsaid that even such folks as me and Duke will curtail our spending at some point.

So, what does this mean in terms of managing our TSP withdrawals? It means that we have to pay attention to the amount we take out each year. If we are choosing “substantially equal monthly payments”, we can change them once a year and can use that opportunity to adjust them to suit our spending needs. It will be even better when the TSP Modernization Act is implemented and we will have more frequent opportunities to adjust out withdrawals.

The TSP is the one part of our retirement income that we control, and we should monitor our withdrawals to get the most use out of our TSP savings.