Some Secrets To A Financially Secure Retirement

By | Benefits, Federal Pay, Retirement, TSP | No Comments

What is the best way to ensure a comfortable and enjoyable retirement? This week, I thought I’d share some observations I’ve made over the years about employees who end up with the same (and sometimes even greater) income during their retirement years than while they were employed.

These folks have been planning for retirement throughout the beginning, middle and pre-retirement stages of the federal careers. I sometimes meet employees who tell me they remember me from a retirement planning class they attended 20 years ago.

For those covered under the Federal Employees Retirement System, the Thrift Savings Plan has played an important role. These people have learned how to invest for the long term and what it means to diversify their investments among the G, C, F, S, and I Funds—or used the L Funds to automatically shift their investments as their careers progress. They have learned to tolerate a certain level of risk in order to obtain maximum results by not reacting emotionally to swings in market conditions.

FERS employees who have successfully leveraged their TSP accounts tend to have several things in common:

  • Those in higher income brackets are saving the maximum in their TSP accounts. The maximum employee contribution for 2019 is $19,000 plus an additional $6,000 in catch-up contributions if you’re turning 50 or are already older than 50.
  • Those in lower income brackets are living with little or no consumer debt and have saved a minimum of 5 percent of their salary in the TSP.
  • In general, they haven’t borrowed from their TSP account—or if they have, they didn’t stop contributing while repaying their loan balance.

The TSP was designed to be an integral part of FERS, but many employees under the Civil Service Retirement System also have taken advantage of participating in the plan and putting away savings on a pre-tax basis. They now have a significant nest egg for retirement.

Successful planners who are married have considered the “what-if” situations about the future. For example:

  • They weigh the value and cost of the spousal survivor benefit election. This causes a reduction in your CSRS or FERS retirement of about 10 percent, but it can mean the difference between financial security and uncertainty for a surviving spouse.
  • They consider that a delay in claiming Social Security may be more important to a future surviving spouse than to a couple’s short-term need for income. You may have other options than taking Social Security as soon as you can: delaying retirement, taking larger TSP distributions while waiting to claim Social Security, or embarking on a second career for a few years after your retirement from government. The difference between claiming at age 62 and waiting until age 70 is a benefit that is about 75 percent larger for the rest of your life and possibly later to the life of your surviving spouse.
  • They’re wary of using life insurance as a substitute for a survivor benefit. Life insurance is very expensive to continue as a substitute for a survivor’s annuity. Life insurance also doesn’t carry a cost of living adjustment or a guaranteed lifetime payment stream. And life insurance is not protected under the spouse equity provisions of the law, so it can be canceled without spousal consent.

Single people who have successfully planned for retirement have considered the amount of income they will need for a retirement that could potentially last longer than their career. This means both adequate retirement savings and thinking about such considerations as the potential need for long-term care.

If you’re a single woman, you may have a longer life expectancy than your male counterparts, and you also may have had lower lifetime earnings. This could translate into a need to save diligently for retirement and become a savvy investor. You need to put yourself first to ensure your financial independence before helping others.

Those who have successfully managed the retirement preparation process have another thing in common: They’re realistic. They, may, for example, limit the financial assistance they provide to their children in retirement to protect their savings. And some of them find that working a little longer than they anticipated eases the future financial strain. Sometimes following the path to a comfortable retirement involves some hard choices.

Which ever category you may fall in, its always best to ask a Federal Benefits Consultant how you are doing and let us help guide you to make sure you are maximizing all of your resources properly. Request your Free Consultation today. 

TSP Finally Unveils Plans for Expanding TSP Withdrawal Options

By | Benefits, Federal Pay, Retirement, TSP | No Comments

The Thrift Savings Plan has until November to implement the 2017 TSP Modernization Act. That law will allow federal employees and retirees to make multiple age-based withdrawals from their TSP accounts and remain eligible for partial withdrawals after they leave government. Additionally, those who have left government would be able to make multiple partial post-separation withdrawals, and retirees will be able to change the amount and frequency of their annuity at any time, instead of only once per year.

Tanner Nohe, a project manager for the TSP, said the agency plans to have the law fully implemented by mid-September 2019. The project has caused officials to go beyond simply adding the functionality needed to implement the new law and instead “make some fundamental changes” to how withdrawals work, he said.

Under the new system, participants will no longer be forced to make a full withdrawal election—a choice between setting up annuity payments, taking a partial lump sum withdrawal, or a full lump sum payment—when they reach 70 and a half years old. That change will be retroactive, officials said.

“People on installment payments now, and [next year] they can come back and say, ‘I want to stop taking installments for a while,’” said Tee Ramos, director of participant services.

Nohe said his team is coming up with three new forms to help participants make use of the new flexibilities, including one that allows participants to change the amount and frequency of their annuity payments at any time. The agency is also doing away with a policy that suspends a participants’ contributions to their TSP accounts for six months if they take a hardship withdrawal.

“You can change your monthly installment payments currently only during [a fall open season period],” Nohe said. “But in the future, you can choose between monthly, quarterly and annual installment payments, and changes can be made to that at any time during the year.”

TSP officials said they plan not only to provide new flexibilities to participants, but make it easier to make use of those flexibilities. Nohe touted the fact that there will be four new “wizards” on the TSP website to help federal employees and retirees go through the various new processes.

“Right now, our wizards are just form fillers, but [next year], they will be more dynamic,” he said. “It can tell what’s in your account, and ask if you want to take [withdrawals] out of your Roth distribution or your traditional account. It’ll understand what you have so it can suggest what distribution you can take . . . It will take you from start to finish in your withdrawal.”

The first phase of implementation, focused on installment payment maintenance and removal of the withdrawal selection deadline, is slated to go into testing within the next two weeks, Nohe said. The public rollout of the new features is slated to occur on Sept. 15, although TSP officials will begin communicating with participants about the coming changes next February.

»To get the best federal retirement assistance and ideas about your benefits, request your free Federal Retirement Review.

TSP Funds Took a Nosedive in October

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Nearly all of the funds in the federal government’s 401(k)-style retirement savings program tumbled last month, mirroring a month of volatility in the financial markets.

The Thrift Savings Plan’s G Fund, which is made up of government securities, was the only portfolio in the black in October, gaining 0.26 percent. That brings its total 2018 earnings to 2.38 percent.

The S Fund, composed of small- and mid-size businesses, lost the most value last month, falling 10.06 percent. That brought the portfolio 0.30 percent into the negative since January. The international stocks of the I Fund fell 7.94 percent in October, bringing its 2018 losses to 8.92 percent.

The common stocks of the C Fund lost 6.84 percent last month, although the fund remains 2.98 percent in the black for 2018. And the fixed income (F) Fund fell 0.78 percent in October, bringing its losses so far this year to 2.26 percent.

All of the lifecycle (L) funds, which shift investments into more stable portfolios as participants get closer to retirement, lost value last month. The L Income Fund, for those who have already started withdrawing money, lost 1.40 percent; L 2020, 2.24 percent; L 2030, 4.60 percent; L 2040, 5.54 percent; and L 2050, 6.35 percent.

Since January, the L Income Fund has grown 1.52 percent; L 2020, 1.21 percent; and L 2030, 0.12 percent. The L 2040 Fund has fallen 0.35 percent this year, and the L 2050 is down 0.74 percent.

Get your Free Federal Retirement and TSP Review Today.  Sign up here.

Not The Best Day in the Markets Today

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Stocks sank today, Wednesday as a steep decline in tech shares and worries of rapidly rising rates sent Wall Street through its worst day in months.

The Dow closed 831 points lower as Intel and Microsoft fell more than 3.5 percent each. The Nasdaq plummeted more than 4 percent.

The S&P 500 dropped 3.3 percent, with the tech sector underperforming. The broad index also posted a five-day losing streak — its longest since November 2016 — and fell below its 50-day and 100-day moving averages, widely followed technical levels.

Both the Dow and S&P 500 posted their biggest one-day drops since early February, while the Nasdaq notched its largest single day sell-off since June 24, 2016.

Stocks have fallen sharply this month. For October, the S&P 500 and the Dow are down more than 4.4 percent and 3.3 percent, respectively. The Nasdaq has lost more than 7.5 percent.

Rising rate fears and a pivot out of technology stocks have made it a rough last few days. The Dow has dropped in four of the past five sessions, losing nearly 900 points over that span.

Why is this important?  Some are saying that the Bull run could be ending.  So should you keep your TSP in the Risky investments, or move it over to the G Fund.  Better yet, let us help explain

alternative to the Thrift Savings Plans.  We know it would put your mind at ease knowing you could still have safety of principal, but still with upside potential.  If that is something you would like

to learn more about, please request your Free Retirement Review today.

Could Your TSP Portfolio Withstand a Bear Market

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According to J.P. Morgan Asset Management, Guide to the Markets and Since March of 2009, the S&P 500 has gained over 300%.  Unfortunately, when long-run bull markets end, the decline can be dramatic.  In fact, the average bear market return is -45%.  Are you one of those that are still in the Risky Funds within your TSP? Can you afford for your $100,000 invested balance to become $55,000?  Better yet your $250,000 invested balance to become $137,500?

Plus, it can take a significant return to recover from the loss.  If today’s bull market turns bear, and you are nearing retirement, do you have time to make up for a large loss?

First, what is a bear market?  A bear market is defined as a 20% or more decline from the previous market high.  The bear return is the from the peak down to where it starts to return gains again.  You can lose thousands in just a short amount of time, but takes months or sometimes years to gain it back.

During your Federal Retirement Review with one of our Consultants, make sure you ask them how you can help Protect your Thrift Savings Plans, while still have a reasonable rate of return, and I’m sure you will be happy with what they tell you.

To Schedule your Personalized Federal Retirement Review – Contact us Today.


When Is The Best Time Of The Year To Take RMD’s

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One of the most common questions federal retirees over age 70.5 ask is: What is the best time of the year to take a required minimum distribution (RMD) from the Thrift Savings Plan (TSP) and, if applicable, from a traditional IRA?

There is in reality no right or wrong answer to this question. The answer depends mainly on one’s financial and personal situation. This column presents some factors that traditional IRA owners and TSP participants over age 70 should consider when making the decision as to what time of the year to take their RMD.

Reason to take the RMD early in the year

RMDs must be taken by the end of the year for which they are being taken in order to be considered timely. For example, an 2018 RMD must be taken by Dec. 31, 2018 to be considered timely for the year 2018. The exception to this rule is for the first year an individual is required to take an RMD, the year in which the individual becomes age 70.5. In that case, the individual has until April 1  following the year the individual becomes age 70.5 to take his or her first RMD. For example, any individual born between July 1, 1947 and June 30, 1948 will become age 70.5 during calendar year 2018. That individual has until April 1, 2019 to take his or her first RMD for 2018. Another exception is for TSP participants who continue to work in federal service after they reach age 70. These TSP participants are not required to take their first TSP RMD until April 1 following the year  they retire from Federal service. But these TSP participants over age 70 are still required to take their traditional IRA RMDs and other qualified retirement plan (like 401(k) plans) they had previously participated in.

Although Dec. 31, 2018 is less than four months away, it is advisable for any individual having to take an RMD during calendar year 2018 to take the RMD now to avoid any potential error. It is not uncommon for people to hold off taking their traditional IRA RMD until later in the year, only to forget, become ill, or otherwise preoccupied, leading to a missed deadline. There are so many issues to worry about in retirement, but by taking the RMD early in the year, a 50 percent IRS penalty resulting from not taking the traditional IRA and qualified retirement plan RMD does not have to be one of them.

A retired TSP participant over age 70.5 need not worry about forgetting to take the TSP RMD by the end of the year. This is because the TSP Service Office will automatically send the TSP participant the TSP RMD in December if the TSP participant has not requested his or her TSP RMD by December.

Traditional IRA owners should not leave beneficiaries with a tight deadline

If a traditional IRA owner is subject to RMDs in 2018 and passes away before Dec. 31, 2018, then the individual’s beneficiaries are required to take the individual’s RMD before Dec. 31, 2018. In order to avoid a 50 percent IRS penalty, the beneficiaries must take the RMD before Dec. 31, 2018. The longer an individual waits to take his or her RMD and the later in the year the individual dies, the more difficult it becomes for the individual’s beneficiaries to take the RMD if the individual died before taking it.

After the RMD is taken, the remainder of the traditional IRA account can be converted or rolled over

RMDs are considered the first money to be distributed out of a traditional IRA owner’s account each year. Furthermore, a traditional IRA RMD is not eligible to be rolled over or converted to a Roth IRA . Putting those two rules together, before any rollover or Roth IRA conversion may be performed, an individual required to take a traditional IRA RMD must first take the RMD for the year. In other words, unless an individual over age 70.5 has already take his or her RMD for the year, the traditional IRA owner cannot make a Roth IRA conversion or complete a 60 day rollover.

Failure to take a traditional IRA RMD before completing a rollover or making a Roth IRA conversion often leads to serious tax issues. The RMD that was erroneously rolled over or converted is considered to be an “excess” contribution and subject to an IRS six percent excess contribution penalty each year until the rollover or conversion is corrected. By taking one’s RMD “sooner than later” before making a rollover or a Roth IRA conversion, one can eliminate this potential error and IRS penalty .

Reasons to wait until later in the year to take one’s RMD

When it comes to traditional IRAs and qualified retirement plans, tax deferral is one major benefit. The longer the money stays in a traditional IRA, the longer any earnings are shielded from taxes. That is why it is important to make contributions to a traditional IRA as early in the year as possible, and why it makes sense to delay taking RMDs until later in the year.

By waiting until the end of the year to take one’s RMD instead of early in the  year, one is earning additional tax deferral on earnings on the RMD. Any interest, dividends, capital gains, etc. that are earned on the RMD between now and the time the RMD is taken will occur inside the IRA. These earnings will not be subject to income tax unless distributed from the IRA in addition to the RMD. This may not seem very significant, but over time delaying one’s RMD until later in the year can have a beneficial impact on the size of one’s remaining traditional IRA and TSP retirement nest eggs.

Thrift Savings Plan

Catching Up With The TSP Thrift Savings Plan

By | Benefits, Federal Pay, Retirement, TSP | One Comment

Are you part of the majority of federal civilian employees in the Federal Employee Retirement System? Or maybe you are a member of the uniformed services. If so, you probably have access to the Thrift Savings Plan, one of the workplace benefits that people receive as United States government employees.

The Thrift Savings Plan (TSP) is a 401(k) like plan for federal workers. It allows you to contribute to your retirement fund and receive a matching contribution from your federal agency.

According to recent statistics, over 5 million people participate in the TSP, which has more than $500 billion in assets under management.

One common issue for many federal employees is they don’t understand their TSP accounts and what it can offer them. If you find it hard to navigate, no sweat. Here’s a quick rundown of some must-know facts about your Thrift Savings Plan account that can be of benefit.

Thrift Savings Plan Basics

Just like with a 401(k), the Thrift Savings Plan is a defined-contribution plan. In this sort of plan, employees contribute money to their accounts. Contributions are from earned income.

Federal employees have six different investment options within the Thrift Savings Plan. In your TSP account, you choose how your money will be invested. Your retirement funds grow tax-deferred inside the account. And when you withdraw money, income tax will be due on the balance.

The future benefits of your TSP account will depend on how much money is put into it, how the money is invested, and how well it performs.

Traditional vs. Roth TSP Options

Like with many 401(k)s, you likely won’t be limited to just a traditional TSP account as your only retirement savings plan. In fact, your TSA likely offers both traditional and Roth options. You may even find some similarities between your options here and those of a traditional versus Roth IRA.

When you choose the traditional TSP, you contribute to your account with pre-tax dollars, paying tax on withdrawals in retirement. With the Roth option, the taxation is in reverse. You contribute post-tax income. In exchange, you won’t pay taxes on money you withdraw when you are retired.

Your annual contribution limit for 2018 is $18,500. Employees age 50 or older can make an additional $6,000 catch-up contribution annually.

FERS or CSRS: How Does It Affect the TSP?

For federal civilian employees, there are two retirement systems. If you were hired by the federal government prior to January 1, 1984, you fall under the Civil Service Retirement System (CSRS).

The TSP doesn’t come ‘automatically’ as part of CSRS employee benefits, but it is an optional supplement. Your primary retirement benefit will be a pension annuity, to which you may contribute up to 8% of pay.

If you so choose, you may also contribute part of your pay toward the TSP as well. Your TSP account won’t come with an agency match. It will be established by your agency after you have made your contribution election.

If your hire date was January 1, 1984 or later, you fall under FERS. Those hired after July 31, 2010, are automatically enrolled in the TSP. Unless you modify or halt your contributions, 3% of your pay is deposited into your TSP.

If you are a FERS employee hired before August 1, 2010, your TSP account receives a 1% contribution from your agency. You may also contribute another 4% for up to a 5% match based on your pay.

It’s important to note that if you are covered by CSRS, or you are a member of the uniformed services, the TSP becomes a supplemental benefit to your CSRS annuity or military retired pay.

What about Those Who Leave for Private-Sector Jobs?

Certain conditions may apply if you were part of CSRS at one point, then took a job in the private sector, and later came back to work for the U.S. government. Depending on your situation, your federal rehire may qualify you for enrollment in FERS and, by extension, the Thrift Savings Plan.

A federal employee benefits consultant can help you determine which system you belong to, if you are unsure based on your employment history.

What About Members of the Military?

Starting in 2018, the Blended Retirement System was implemented to offer more retirement benefit versatility. Beforehand, you had to remain in the military for at least 20 years to receive a pension. Now, you can choose a pension, a TSP account, or both if you want.

The best option for you will depend on your years of service. Consider consulting with a federal benefits-knowledgeable financial professional to explore your options. However, anyone entering the military now is automatically enrolled into the Blended Retirement System. That means their benefits will include a TSP and an annuity (if your period of service is 20 years or longer), albeit a reduced one.

As for the TSP, 1% of your base pay is automatically put toward your account. You may also put away another 4% for up to a 5% total match.

Distribution Options from the Thrift Savings Plan

So, we have covered quite a bit of ground on contributions and savings options with the TSP. What about the backend, when you are retired? What sort of choices do you have with the “distribution” of your TSP assets?

Even if you are a long-time contributor, you may not realize you have choices on how your assets are invested and distributed. In retirement, the balance you have built up in your Thrift Savings Plan will likely be some of your income.

Current Distribution Options Hold, But Changes Coming in 2019

But before you begin to withdraw money from your account, you need to know the TSP rules and regulations. Understanding them will help you avoid actions that can affect your options for accessing your money in the future.

Legislation passed back in November 2017 is slowly changing the flexibility of your distribution options for you and other federal employees. New rules will, among other things, permit more withdrawals in retirement by federal employees. However, these new rules of withdrawal won’t be fully effective until November 2019. In the meantime, current rules hold.

After you leave federal service, or after you turn 59.5 years old, your TSP gives you two withdrawal options for your money: a partial withdrawal or a full withdrawal. Not only that, two age milestones matter for how they apply in the TSP withdrawal rules: age 59.5 and age 70.5. Let’s go over your withdrawal options in more detail.

The Basics of Partial Withdrawals

The TSP permits only one partial withdrawal. Thereafter, you must leave your remaining money in your account for a later date. Reasons for taking a partial withdrawal may include high-cost “one-time” expenses: a roof replacement or a costly appliance purchase, for example.

You must meet these requirements to qualify for making a partial withdrawal:

  • A prior partial withdrawal can’t have been made. Nor can you have one pending.
  • You can’t have made an age-based, in-service withdrawal while in federal civilian or military employment.
  • Your request must be for a minimum of $1,000 or more.

In-service withdrawals are subject to several rules. Among married FERS employees and uniformed services members, a spouse must give their consent to the in-service withdrawal.

By contrast, married CSRS employees’ spouses need only to receive notice of the in-service withdrawal. Learn more about TSP account in-service withdrawals and their particulars by visiting here.

The Basics of Full Withdrawals

When you have chosen to take all money from your account — a lump sum withdrawal — you have a number of income options or “government distribution options.” You can choose to:

  • take a full lump-sum
  • receive monthly payments over time
  • buy an annuity that will give you lifetime payments
  • combine any of these income options

Because the income tax implications can be substantial, it’s prudent to consider alternatives to cashing in your entire balance.

With a “systematic withdrawal,” you receive monthly payments over a period of time. You may receive a specific monthly amount. Or you can base the monthly amount on your life expectancy, which would be determined with actuarial tables from the IRS.

The TSP will adjust how much you receive monthly according to your life expectancy. Both options will begin drawing down your TSP account balance until depletion. Keep in mind that systematic withdrawals may offer only limited flexibility.

Basics of a Life Annuity, the Third Option

As a third option, you can take part or all of your TSP account balance as a life annuity, giving you monthly benefits for the rest of your life. You must purchase an annuity priced at a minimum of $3,500.

You get to choose your annuity amount over $3,500 because, as mentioned above, you have the freedom to combine income options. You may not want to put all your funds into the TSP life annuity, which your plan purchases from MetLife, the plan provider. Depending on the annuitization option you choose, the insurer may keep your balance once you pass away. But beware, this could cost your beneficiaries thousands if chosen incorrectly!!

This reinforces the importance of investigating and evaluating your options.

Consult a Federal-Benefits Consultant

Because the TSP is multi-faceted and offers you many options, you should reach out to one of our Chartered Federal Employee Benefits Consultants who are designated experts in federal employee retirement strategies. To request your free Consultations with one for a Chartered Federal Employee Benefits Consultants of your unique account, retirement goals, and ideal options to help you maximize the potential of your TSP account.

If you are looking for guidance,  request your free consultant with a financial professionals at My Federal Retirement Help today.  

Officials Outline Plans to Loosen TSP Withdrawal Rules

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Officials at the federal government’s 401(k)-style retirement savings plan on Wednesday announced how they plan to provide additional flexibility to participants in light of a law signed by President Trump last fall.

The 2017 TSP Modernization Act, enacted last November, will allow federal employees and retirees to make multiple age-based withdrawals from their Thrift Savings Plan accounts and remain eligible for partial withdrawals after they leave government. Additionally, those who have left government would be able to make multiple partial post-separation withdrawals.

At a meeting of the Federal Retirement Thrift Investment Board, which administers the TSP, project manager supervisor Tanner Nohe said employees of the agency have been working on implementation since the new law was signed. They plan to finish implementation by September 2019.

Under current rules, participants in the TSP are allowed one partial withdrawal in their lifetime—either in-service at age 59 1/2 or one after leaving federal service. After that one withdrawal, if a participant wishes to take money out of their account, they must make a full withdrawal, setting up monthly payments or an annuity or take a lump sum.

But Nohe said once the new rules are in place, a participant will be able to make post-separation withdrawals as frequently as once every 30 days without triggering a full withdrawal. Additionally, in-service age based withdrawals will be possible up to four times per year.

“With the change to one withdrawal every 30 days, that’s just a processing rule,” he said. “It’s to prevent mistakes or duplication.”

The law also lays the groundwork to provide participants greater flexibility in changing the amount and frequency of monthly installment payments. Before the TSP Modernization Act, a former federal employee could only receive payments from their account on a monthly basis, and changes to the sum of those payments could only be made during an open season period between October and December.

Nohe said that under the upcoming changes, a participant could elect to receive TSP payments on a monthly, quarterly or annual basis. On top of that, they can change both the amount and frequency of payments at any time of year, and participants can elect to stop and restart installment payments anytime. Retirees also will be able to make partial post-separation withdrawals while receiving regular payments.

Before the rest of the provisions of the new law go into effect, TSP will cease its practice of “account abandonment” as early as August, Nohe said. Under current TSP and Internal Revenue Service rules, when a participant reaches the age of 70 1/2, they must arrange for a full withdrawal and make a required minimum distribution to take out of their account each year.

If someone does not do that, TSP moves all of their holdings into the G Fund—government securities that accrue at a statutorily mandated interest rate—and contacts the participant to inform them of the change. Agency spokeswoman Kim Weaver said that usually prompts the person to contact the agency, at which point they set up how they wish to receive payments and the money is reinvested in other portfolios as they wish.

Nohe said that under the change that will go into effect this summer, that full withdrawal election is no longer required. Instead of abandoning an account, the agency will send a check for the minimum withdrawal payment required by law. Additionally, participants will be able to select whether the required payments come from their standard or Roth account, or some combination of the two.

To learn more please reach out to us and get your personalized review.

New Managment Company for TSP

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The Thrift Savings Plan announced this week that it had awarded a new contract for management of the TSP’s F Fund, a portfolio designed for people on a fixed income. The fund again will be managed by Blackrock Institutional Trust Company, N.A., the firm that already handles both it and every other TSP portfolio.

In a statement, TSP officials said the contract is initially for one year, and the agency has the option to renew for four subsequent years. As of last month, the F Fund held $27.4 billion in assets, including a variety of public and private sectors of the U.S. bond market.

Is it your turn to look at other alternatives of managing your Thrift Savings Plan? Ask us how you can get the best use of your one time in service withdrawal while still working.

Thrift Savings Plan

How Will You spend Down Your TSP Account

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Have you started to think about how you’re going to use your Thrift Savings Plan investments once you retire from federal service? Are you already retired? If you’re among the many people who have accumulated a small fortune, what are you going to do with it?

Many federal employees have used some of their retirement savings during their career by borrowing from their accounts using the TSP loan program. According to recent statistics, more than 250,000 TSP loan transactions are processed every year. In addition, more than 120,000 in-service withdrawals are processed for financial hardship as well as age-based withdrawals for employees age 59 ½ and older. Over the past few years, only about 35,000 separated participants per year have initiated monthly payments from their TSP accounts. Meanwhile, the Office of Personnel Management processes about 100,000 federal retirement claims every year.

Over the years, you’ve had to decide how much of your salary to save in the TSP and in which funds to invest those savings. Considering the TSP had a balance at the end of January of $559 billion, the 5.2 million TSP participants have done an amazing job of accumulating retirement assets. More than 90 percent of all FERS employees are actively participating in the TSP. The Life Cycle funds represent more than 20 percent of total TSP assets, and allow simple diversification across the C, G, F, S, and I funds by allocating assets according to a time horizon based on when you intend to start using the funds. The size of the C Fund now matches the G Fund, with each fund holding a balance as of the end of January of approximately $205 billion.

If you’re nearing retirement, you face some decisions about how to use this important piece of your retirement benefit. Will you choose a monthly payment to supplement your federal retirement benefit and Social Security? Are you going to purchase a life annuity from MetLife, will you take payments directly from your account balance, or will you do a qualified rollover to another IRA Annuity that will offer more income, more features than the typical MetLife Annuity?  Will you continue to allow the account to grow and decide later on how to draw on your funds? Are you planning to “peck” at it as needed for major expenses that come up along the way? Have you considered how you will continue to manage your wealth of savings once you begin to spend this valuable asset? Are you worried about running out of money at some point? These are important questions to consider as you plan your transition to full retirement. That’s one area we believe we can help guide you in making the right decision.  Request your Retirement Review and TSP Analysis (see link below) to see what’s best for you.  For example, we have Joe, retired with about $223,000  and since the rollover, seven years ago, H-E-B has taken out over $98,000 but still has an account balance today of $199,840.  How’s that’s for a return and still at no risk at all of ever losing principal.

Here are three questions you need to ask yourself.

1.  Do you like the idea of never losing your principal due to a down market?

2.  Do you like the idea of having a Guaranteed income you can never outlive, or that will pay for the rest of your life or your spouse life?

3.  Would you like to have the option to leave more of your principal for your children or grand-children, or the flexibility to pull more of your account balance as the years go by as you choose too without ANY penalty?

if you answered yes to any or all of these questions, we have a solution for you.

A few weeks ago I provided an update on the TSP Modernization Act changes that are slated to go into effect by November 2019. They will provide more withdrawal flexibilities for TSP participants, allowing them to take partial withdrawals, change the amount of monthly payments, and choose whether withdrawals should come from a traditional TSP account or a Roth account.

The Employee Benefits Research Institute released an issue brief on how people spend their retirement savings. The study was limited to retirees from private companies with 10 or more employees. Among its findings:

  • Within the first 18 years of retirement, those with $500,000 or more saved spent down 11.8 percent of their accumulated assets. Those with less than $500,000 saved spent about a quarter of their savings.
  • While some retirees do spend down most of their assets in the first 18 years following retirement, about one-third of all sampled retirees had increased their assets over that period.
  • Individuals with a pension were much less likely to have spent down their assets than those without pensions. In the first 18 years of retirement, the assets of retirees with pensions only went down 4 percent. For those without pensions, the figure was 34 percent.

According to the report, retirees face several factors—including uncertainties about life span, medical expenses, and market returns—that cause many of them to spend their retirement assets slowly.

Those covered by the Federal Employees Retirement System have the traditional “three-legged stool” of a retirement benefit (a form of pension), Social Security and retirement savings in the TSP. Some FERS retirees are currently living on only one or two of those legs, while others have left federal employment, but are not fully retired. In the Civil Service Retirement System, by contrast, many people retired and lived on their federal retirement benefit alone long before the TSP was available.

The TSP has been around for more than 30 years. Until recently, the focus of its participants has been on accumulating retirement assets. Now many of them are thinking about how and when to spend them. They’ll soon have more options for doing that, but that will mean they may need additional education and resources to be confident that their life after retirement will be financially comfortable for as long as they live.

Here are some tools from the TSP to help you as you assess your withdrawal options:

You can also  Request your free personalized review a TSP Analysis,