How The TSP Fits into Your Retirement
They say good things come in threes. When it comes to your federal retirement, they definitely do! When combined with a pension and Social Security, your Thrift Savings Plan (TSP) can complete a retirement package trifecta. However, because it does have the most variables and can be set up in a plethora of ways, it’s important to understand how it fits into your retirement. Federal Educators takes a look at how you can make the most of your three-part retirement package.
A Thrift Savings Plan (TSP) is generally used as a third source of income after Social Security and a pension. Similar to a 401k, a TSP is the only part of your retirement that you have complete control over. The FERS, CSRS, and Social Security are all created as defined benefit plans through a predetermined formula. The TSP is not; it’s a defined contribution plan that’s only requirement is how money is added to the account. Depending on how you have set it up, income from your TSP should either be traditional and taxable or a nontaxable Roth. Which option is best comes down to the individual. Review factors like your age, how many years until withdrawals begin and the current tax rate to determine the best choice for your family.
If you are covered under the Federal Employees’ Retirement System (FERS), a TSP is one part of a three-part retirement package that also includes a FERS basic annuity and Social Security. For FERS employees hired on or after October 1, 2020, you were automatically enrolled into your agency’s matching program with 5% of your salary deducted each pay period. If hired between August 1, 2020, and September 30, 2020, you were automatically enrolled at 3%. However, if you are covered by the Civil Service Retirement System (CSRS) or a member of the uniformed services, a TSP is a supplement to your CSRS annuity or military retired pay. Your TSP account is established only by the agency after your contribution election is decided using the agency’s electronic payroll system.
Understanding the full scope of your Thrift Savings Plan can be complicated. There are elements like the return on different investment funds that are out of your control but conversely, you have the final say on contribution amounts, compound interest, and time. Your TSP can be one of the most flexible pieces of a federal retirement puzzle. Nevertheless, it is important to understand the many options available to you before making any binding decisions. Working with a trusted financial team like Federal Educators can ensure you don’t miss out on your hard-earned benefits. Schedule a complimentary benefit analysis or call our Tampa office at (813) 755-7037 today.
