What Should You Do with Your TSP After Leaving Federal Service?
If you’ve recently separated from federal service, you may be feeling a mix of relief, optimism, and uncertainty. After years—maybe even decades—of public service, you're now facing one of the most important financial decisions of your retirement journey:
What should you do with your Thrift Savings Plan (TSP)?
Your TSP represents years of dedication and disciplined saving. But turning that balance into a stable, long-term retirement income strategy takes more than just selecting a withdrawal option. It requires thoughtful planning, informed decision-making, and a coordinated strategy that reflects your personal goals, lifestyle, and the complexities of retirement taxation.
Below, we’ll walk you through five key principles to help you make the most of your TSP—and turn what you’ve saved into lasting financial confidence.
⚖️ Use Your TSP Flexibility with Purpose
After separating from federal service, your TSP becomes one of the more flexible components of your retirement portfolio. But flexibility only matters when it’s paired with strategy.
Key options to evaluate:
- Leave your funds in the TSP and manage distributions directly
- Roll over to an IRA to access expanded investment choices and withdrawal strategies
- Take penalty-free withdrawals at age 55 if you separated in or after the year you turned 55
Ask yourself:
- Do I need immediate income, or can I delay withdrawals for potential growth?
- Would additional investment options improve diversification or risk management?
- How will taxes affect my withdrawal strategy under each scenario?
Delaying these decisions—or making them reactively—can lead to missed opportunities and unnecessary tax exposure. A proactive, written plan helps you stay in control.
📉 Shift from Growth to Income Thinking
While working, your TSP was optimized for long-term growth. Now, it needs to transition into a source of sustainable income. That means reevaluating your investment mix to reduce risk while still preserving purchasing power over time.
A time-segmented approach may help:
- Short-term (0–5 years): Emphasize capital preservation—consider options like the G Fund or short-duration bonds
- Mid-term (6–15 years): Blend growth and income—diversify with a mix of F, C, and S Funds
- Long-term (15+ years): Pursue continued growth through equities such as the C, S, and I Funds
This strategy assigns each portion of your portfolio a purpose—helping you avoid emotion-driven decisions during market volatility.
💡 Maximize After-Tax Income with Coordinated Withdrawals
Tax planning is one of the most overlooked—and most impactful—areas of retirement planning. How and when you withdraw from your TSP can significantly influence your long-term tax liability.
Consider these strategies:
- Withdraw during low-income years: Delay Social Security and draw from your TSP to stay in a lower tax bracket
- Use Roth conversions: Convert traditional TSP assets to Roth in lower-tax years to potentially generate future tax-free income
- Plan for Required Minimum Distributions (RMDs): RMDs begin at age 73—integrate them into your income timeline
- Coordinate with Social Security: Strategically time withdrawals to manage income thresholds and avoid unexpected taxation of benefits
Even small adjustments to your withdrawal strategy can lead to long-term tax efficiencies. However, tax results vary based on individual circumstances. Please consult a qualified tax professional before implementing any strategy.
🔎 Match Investments to Your Retirement Purpose
Each TSP core fund serves a specific role. Aligning those roles to your timeline and goals can help you maintain the right balance between income, growth, and risk mitigation.
| Fund | Primary Role |
|---|---|
| G Fund | Principal protection and liquidity |
| F Fund | Bond exposure for conservative growth |
| C Fund | U.S. large-cap equity exposure |
| S Fund | Small- to mid-cap domestic equities |
| I Fund | International developed market exposure |
Some retirees choose to roll their TSP into an IRA for access to additional investment classes, such as dividend-paying funds, real estate investment trusts (REITs), or structured income products. The key is to align your portfolio with your income needs—not to chase returns.
🧭 Collaborate with a Fiduciary Advisor
Managing your TSP after retirement isn’t just about choosing investments—it’s about creating a cohesive financial strategy that considers taxes, income needs, and legacy planning.
This is where working with a fiduciary advisor can make a difference. Fiduciary advisors are legally obligated to act in your best interest, providing advice tailored to your specific needs—not tied to product sales.
To support you in this transition, we created the Retirement Money Prism Webinar—a free, strategy-focused session that explores:
- How to generate a retirement income stream from your TSP
- How to avoid common tax and withdrawal pitfalls
- What to evaluate before rolling over your TSP or keeping it in place
Note: Participation is for educational purposes only and does not establish a client relationship.
🎯 Take the Next Step: Your TSP, Your Future
Your Thrift Savings Plan reflects your years of public service. Now, it’s time to ensure that your retirement reflects the same level of intentionality.
With the right plan and trusted guidance, you can turn your federal service into a confident, purpose-driven retirement.
Ready to explore your options? Join our free Retirement Money Prism Webinar and gain the clarity you need to make informed choices.
Click the blue button below to register. It’s free, easy to access, and designed to give you a structured path forward.
Disclosures:
This content is for informational and educational purposes only and does not constitute investment, legal, or tax advice. All investments involve risk, including the potential loss of principal. Past performance does not guarantee future results.
TSP withdrawal strategies, Roth conversions, and Social Security coordination tactics discussed are general in nature and may not apply to all investors. Please consult with a qualified financial, tax, or legal professional before making any financial decisions.
Participation in the Retirement Money Prism Webinar does not establish a client relationship and is for general informational purposes only.
Whalen Financial is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.
