Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Should You Use Your Retirement Savings to Buy a House?

Last week we talked about ways to assess whether or not to leave your money in your Thrift Savings Plan account in retirement.

One specific question along these lines that comes up often at retirement seminars is “Does it make sense to withdraw a large lump sum from my TSP account after retirement to buy a house or pay off my existing mortgage and limit my tax liability?”

To answer to this question, I turned to Mark Keen, a certified financial planner at the firm Keen and Pocock in northern Virginia. Mark writes a monthly column called “Managing Money” for the National Active and Retired Employees Association’s magazine.

Here’s what he had to say:

The problem with taking large lump-sum distributions from tax-deferred retirement plans, such as the money in the traditional TSP balance, is the withdrawal is taxable income, and depending on the size of the withdrawal, it may be taxed at least one higher bracket than it would if the money were distributed over a series of payments.

For example, let's assume a couple has taxable income of $50,000 and decides to withdraw $200,000 from their TSP. The first $25,900 will be...

TSP Withdrawal Tips

Did you know that almost as many people transfer their money out of the Thrift Savings Plan when they leave federal service as leave it in?

The Federal Retirement Thrift Investment Board has reported that in 2016, close to $2.5 billion was taken out of the TSP in the form of cash payouts, and $5 billion left the plan as single payments that were transferred to individual retirement accounts or other retirement arrangements. Every month the TSP sends out about 178,000 ongoing monthly payments and more than 150,000 post-separation withdrawals and transfers of single cash payments. Even though many retirees opt to get monthly payments from their TSP funds after they leave, more than 30,000 partial withdrawal lump-sum payments also were processed last year.

In 2016, the TSP started a campaign called “Stay,” directed at getting federal employees to think through all the options before deciding to move their funds out of the TSP upon leaving government. The campaign included two short YouTube videos: “Don’t Move” and “Once You’re Gone, You’re Gone.” It also featured a scorecard to help TSP participants through the process of deciding what to do with their funds.


Delayed Retirement: Benefits and TSP Considerations

In last week’s column, we began to explore some of the issues to consider for employees who continue to work past age 65 and delay their retirement. A recent MetLife Mature Market Institute research study, Engaging the 21st Century Multigenerational Workforce, reported that older workers are more likely to have higher levels of engagement with their work than younger employees. This could explain why some of people continue to work even if they have a generous retirement benefit and might be eligible and able to retire.

Last week, we looked at the considerations and options for such employees regarding Social Security and Medicare. This week, we’ll explore some of the issues surrounding basic government pension benefits and the Thrift Savings Plan.

Civil Service Retirement System

The basic annuity of any employee covered by CSRS may not exceed 80 percent of the employee's high-three average salary (not including credit for unused sick leave, which can cause the benefit to exceed 80 percent). Ordinarily, total service of 41 years 11 months results in the maximum annuity.

The 7 percent CSRS retirement deductions (some CSRS employees pay a little more and CSRS Offset employees have this deduction reduced by the...

Planning for a Delayed Retirement

According to the 17th Annual Transamerica Retirement Survey, workers’ expectations regarding when they will retire have shifted dramatically from an earlier era, when most people expected to retire at age 65, the original full retirement age for Social Security. According to the Office of Personnel Management, the average retirement age for a federal employee between 2005 and 2014 was 60.2 years and average length of service was 27.8 years; 54 percent of those were age 60 or older; and half of retirees had 30 or more years of service. According to the Transamerica study, the majority of American workers (54 percent) plan to work past age 65, including 13 percent who do not plan to retire at all.

While most federal employees probably do plan to retire at some point, the top three largest federal agencies all have experienced a slight increase in the average retirement age, OPM reports. Of the 1,860,702 full-time permanent federal employees in 2015, 75,891 of them already were age 65 or older—a little over 4 percent of the workforce.  

Ace, a regular reader of this column recently wrote: Something I have never seen discussed in your Government Executive column...

Don't Make These Common Mistakes

I don’t take lightly the trust that I’ve earned from federal employees and retirees when providing information about federal retirement benefits. I received a well-deserved storm of criticism for careless errors initially included in my column last week (they’ve been corrected). It reminded me of the old adage “measure twice and cut once” before sending off a draft that will be read by employees trying to find the key to meeting their retirement planning goals.     

Since we’re on the topic of mistakes, this seems like a good time to share three common errors that can cost you more than just your pride after retirement:

Mistake No. 1: Misunderstanding the value and the cost of the spousal survivor benefit election.

When completing the CSRS and FERS retirement application, you must elect the type of retirement that you want. Your choices include the election of a:

  • reduced retirement benefit to provide the maximum survivor annuity for your current spouse equal to 50 percent of your unreduced FERS retirement or 55 percent of your unreduced CSRS retirement;
  • partial survivor annuity for your current spouse of 25 percent of your unreduced FERS retirement or 55 percent of something less than...