What’s To Like About the TSP
The case for leaving your money in the Thrift Savings Plan after retirement.
The Thrift Savings Plan, without question, has become a very popular and trusted place for federal employees to save for their retirement. The numbers speak for themselves:
- Plan assets climbed to $710 billion in December 2020 and the total number of participants reached 6.2 million.
- There are 3.6 million Federal Employees Retirement System participants, with an average account balance at the end of 2020 of $164,000.
- There are 287,000 Civil Service Retirement System participants, with an average account balance at the end of 2020 of $175,000.
- The participation rate for FERS employees is 93%.
- Only 1.7% of new hires opt out of automatic enrollment in the TSP
- A little over 80% of all FERS employees contribute at least 5% of their base pay to their accounts.
But what about after retirement? The purpose of the TSP, for those under FERS, is to provide retirement income to supplement a government pension and Social Security retirement benefits. There is a lot to like about leaving your money in the TSP to provide the additional income you will need in retirement. It’s simple—your money is already there and the My Account section of the TSP website makes it easy to begin withdrawals. The TSP continues to provide low expenses to separated participants, the same as it does when you’re actively employed.
The TSP offers a variety of withdrawal options, including partial distribution payments, recurring monthly payments of a specific dollar amount or distributed over your life expectancy, and recurring quarterly or annual distributions. There is also a life annuity option in which your money is transferred to the TSP annuity provider in exchange for a series of lifetime payments—with additional features like survivor benefits, increasing payments to offset inflation, and a cash refund or 10-year certain feature to protect your investment principal.
The 2019 TSP Modernization Act allowed more frequent changes to accounts and multiple partial withdrawals. You can learn more about TSP withdrawals at the Living in Retirement section of the TSP website.
Since the TSP began providing additional withdrawal flexibility, the number of post-separation withdrawals has gone down. According to statistics published by the TSP, in 2016, post-separation single payments numbered around 150,000. By the end of 2020, the number had dropped to a little over 100,000. (It should be noted that this might also be due to the fact that 2020 was a year of economic uncertainty due to the pandemic.)
Translated into dollars, more than $7 billion was withdrawn from separated participants last year. In 2018, an all-time high of more than $10.5 billion was withdrawn from the TSP through cash payments and transfers by separated participants.
Is the TSP the best place to leave your retirement savings to create retirement income once you have transitioned to your life after federal service? The TSP has an entertaining short video titled, Once You're Gone, You’re Gone, featuring “Lola,” a retired federal employee who makes a post-retirement mistake with her TSP, but luckily gets a do-over. She wasn’t aware of fees, commissions and other charges that she would incur after transferring her money out of the TSP.
Clearly, there are advantages to leaving your money in the TSP during your retirement years. Next week, we’ll look at some of the perceived disadvantages.