"Two of the hardest things to do is save when you’re young and spend when you’re old." Don't blow through your TSP in retirement, but don't be afraid to spend some of it either. Image: Licvin/Shutterstock.com
By: John GrobeThere is a reason why we have been setting aside money in our TSP (and hopefully, in other savings instruments like IRAs); that reason is so that we can spend it later on when we need to do so.
Our TSP balance can be used to supplement the retirement income we receive from our FERS or CSRS pension and from our Social Security. We might need TSP money to make ends meet, or we might want it for funding retirement activities such as travel.
And we’re never going to get help or enjoyment from those savings unless we actually spend them – although you could be forgiven for checking your balances from time to time for kicks.
“Two of the hardest things to do is save when you’re young and spend when you’re old.” – Anonymous
We can probably all testify to the first part of this adage; and we should be prepared to confront the second part once we become “old” and start spending our nest egg. I’m not suggesting that you spend feverishly and empty out your entire TSP in the early years of retirement. Rather, I’m encouraging you to monitor your spending and use it effectively in retirement.
A major difficulty in managing our TSP (and our retirement in general) is the fact that we:
1) don’t know how long we are going to live; and
2) don’t know how long we will continue to have good health.
It’s safe to assume that we will slow down as we get old. I, for one, am less vigorous and in somewhat poorer health today in my 70s than I was when I left federal service in my 50s. People are likely to spend less money as they age. A theory called the “Spender’s Slope” posits that, beginning at a certain age, our spending will reduce until it becomes 70% to 80% of what it was in the early years of retirement.
“We don’t stop playing because we grow old; we grow old because we stop playing.” George Bernard Shaw
The 4% Rule
Many financial advisors suggest using the “4% Rule” in spending down sources of income like the TSP and IRAs.
This would have you taking 4% of the value of your TSP your first year of retirement and increasing it by the rate of inflation each successive year. Following such a strategy would give a great likelihood of your still having money in the account at the end of your life. If you were to couple the 4% Rule with the Spender’s Slope, you could withdraw more money in the early, active, years of your retirement and withdraw less once you slow down.
Don’t hang on to what you’ve got; spend it judiciously for your support and enjoyment in your retirement years. Don’t let the fear of running out of money keep you from enjoying the results of your years of saving.
Letting go of the Supersaver
I’m a “supersaver”. I’ve been setting money aside for my retirement for pretty much my entire career. Yes, I admit to spending on a 280ZX when I was younger, but after that I got “retirement religion” and began maxxing out my Thrift Savings Plan (TSP) and, once I could afford it, contributing to an Individual Retirement Arrangement (IRA).
Now, I’m well situated for retirement. I have my federal pension (CSRS for me, but likely FERS for you) and a promise of Social Security as givens. My TSP and IRA savings are extra income that I have. It’s most likely that I’ll need something from the TSP and IRAs over and above these guaranteed sources of income.
But I’ve been frugal enough over the years that I hate to spend down the balances that I’ve grown in my TSP and my IRA(s). If I focus on maintaining my pre-retirement balance in my retirement accounts, I might be foregoing retirement experiences that I would greatly enjoy.
Be Not Afraid
Why have I been saving money in the TSP and IRA(s)? So that I can spend it in my retirement – that’s why!
I need to look at how much additional money I have (over and above that I need to live on) and decide what I want to do with it. By the time this article is posted, I will be just a few weeks shy of 79 years old. At 79, I can expect to have several years of good health (knock on wood) and be able to take a few more vacations. I can feel OK about spending down the money that I’ve saved.
Once you’ve retired, don’t focus on keeping your TSP or IRA balance at a certain level. Rather, think about the things that you can do to enjoy your retirement. What was a good thing when you were younger (stashing as much as you could aside for your retirement) may not be as good a thing once you are actually retired (enjoying life to its fullest).
John Grobe is a retired federal employee and retired retirement educator with over 30 years of experience in helping federal employees understand their retirement.
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See also,
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