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Dr. FX Bergmeister CFP, CLU, ChFC, CASL, ChSNC

Unexpected healthcare costs could wind up being the biggest draw on your TSP account retirement. The right health care decisions can provide improved certainty for managing assets within a TSP account.

Federal employees throughout their careers contribute to their TSP accounts to supplement their retirement income. The TSP accounts, together with the defined benefit plans of FERS annuities and Social Security accounts upon retirement provide three separate revenue streams available to retirees.


Health care costs may not be a reason why most Federal employees contribute to TSP accounts. This is because Federal employees, prior to retirement, rely on FEHB policies, many times supplemented by Flexible Spending Accounts (FSAs) for health care expenses.

An FSA, however, is not available to Federal employees in retirement. Another surprise is in store for employees when they discover during their retirement years, the FEHB policies are to be paid with after tax dollars compared to the pretax dollar condition throughout their careers.

Federal employees facing the loss of their FSA accounts and dollar deductibility for FEHB policies appreciate the reality of how much health care changes in retirement. Health care costs in retirement can potentially threaten the money saved in the TSP account.

Retirement health care is a very real concern to all citizens because we are living longer. A 2020 Health Care study conducted by Fidelity disclosed a 65-year-old couple retiring in 2020 will pay an average of $295,000 in health care costs over their lifetime. The Fidelity study did not include the additional annual cost of long-term care. Genworth, a long-term care insurer noted the costs of $105,852 in 2020 for a private room in a nursing home.

Federal employees seeking guidance for planning for retirement health care should consider The Federal Employees Health Benefits Program and Medicare brochure on the Office of Personnel Management website. This document explains why employees consider both Medicare Part B and a FEHB policy as a strategy for health care management during retirement.

The monthly costs for FEHB and Medicare Part B premiums facing Federal retirees may tempt some to reject the OPM guidance. Those retirees who elect only Medicare Part B or FEHB policies, therefore, are exposed to greater risk for medical deductibles, copays, and coinsurance as well as other out-of-pocket expenses. Forsaking the collaborative security of Medicare Part B with an FEHB policy injects significant uncertainty for health care budgeting in retirement.

The Medicare Part B with an FEHB policy approach offers predictable health care premium certainty allowing retirees to budget their retirement dollars with greater certainty. This health care choice also allows a different asset allocation within their TSP portfolios. This is because the dual enrollment of FEHB policies and Medicare Part B strategy mutes the risk of medical contingencies depleting their TSP assets.


How can that be?

The TSP assets can be at considerable risk if enrolling in a stand-alone Medicare Part B or an FEHB policy scenario. The TSP assets in such a scenario therefore should be invested for greater accessibility – not necessarily growth potential.

This more conservative allocation would result in a significant G fund portion to reflect the greater accessibility for the worse case health care incidents. Unfortunately, risk to the TSP portfolio is very possible when adopting such a scenario for this health care choice should an inadequate G fund allocation be accompanied by uncooperative market timing.

In summary, predictable health care premium certainty from adhering to the OPM guidance for Federal employees to consider enrollment in Medicare Part B and an FEHB policy provides retirees with confidence to have annual budgets for health care costs.

This assurance has a secondary effect of constructing the TSP asset allocation with less emphasis on needed liquidity for a health care crisis. An asset allocation for greater emphasis on preservation and growth is therefore possible.

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