Over most of 2020 we’ve been seeing articles about ways to take money out of the TSP. January’s implementation of the SECURE Act changed rules on required minimum distributions (RMDs) and on beneficiaries. On March 27th, the CARES Act temporarily changed rules on loans and withdrawals for those affected by the coronavirus.
With all the press about taking money out of the Thrift Savings Plan, we can’t let ourselves forget the importance of putting money into the TSP. Those of us who were not affected by COVID-19 should continue with our savings plans and sock as much as we can aside for retirement. Those of us who are affected should do our best to regroup and start up our savings program as quickly and as robustly as we can.
If we are covered by the FERS retirement system, as most readers are, the combination of our FERS annuity and Social Security will not get us close to the 75% to 80% of pre-retirement income that financial planners tell us we should be aiming for. A full career (say, 30 years) FERS employee is likely to have between 50% and 60% of their pre-retirement income replaced by these two sources of income.
If you’re shooting for 80% of a pre-retirement income of $100,000, you will need $20,000 per year in income from the TSP and other sources if you’re getting 60% from FERS and Social Security. If you’re getting 50% rather than 60%, you’ll want to shoot for $30,000 a year. How much will you need in your TSP to give you those levels of income?
Many financial planners suggest a withdrawal rate of 4% per year from your TSP and/or other sources of income. In most circumstances the “4% Rule” allows you take annual inflation increases and ensures that you will not run out of money. If we follow this “rule”, we will want to have $500,000 to $750,000 in our TSP to reach our 80% goal.
Some of you who are GS 14s and 15s are saying “I’ve got this”. Others are wondering if they’ll ever reach those amounts in their TSP accounts. Remember, the above example was for someone who wants to get 80% of $100,000 per year. If your salary is less, the amount you have to set aside is less. You will want to do your own math here. Get a retirement estimate to determine what your FERS annuity might be. Take a look at your Social Security Statement. Then you can determine what you need and develop a plan to get you there (or at least close to there).
Max out your TSP contributions if you can. If you can’t, be sure to put in the 5% necessary to get the full government match. Your future is in your hands.