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Government Building Columns

Strategic TSP Withdrawals

A drawback of the Thrift Savings Plan (TSP) is the fact that TSP withdrawals come from principal or your own money versus any potential earnings, such as dividends or interest.  The TSP doesn’t have a stated dividend or income component as part of the traditional funds options in the traditional TSP (C, F, G, I, S, and L (LifeCycle)) Funds.  Without a stated dividend or income component, a federal employee or retiree runs the risk of depleting one’s retirement savings by having TSP withdrawals that are greater than what they earn.


According to, the last time the G Fund in the Thrift Savings Plan had a return greater than 3% was 2008 - coming close in 2022 with a 2.98% annual return.  Hypothetically, if a federal employee/retiree had $100,000 invested in the G Fund and elected to have TSP withdrawals of $400 per month, or $4,800 annually, from their TSP account, they’d be withdrawing $1,820 ($4,800 - $2,980) more than they earned.  That $1,820 difference would come from principal or their own money.


Ideally, a federal employee/retiree would want TSP withdrawals coming from earnings and not principal.


A primary residence increases in value over time and this increase in value is also known as equity or growth and typically, it doesn’t generate income.  Think of the TSP as similar to a primary residence – it has the potential to increase in value over time as its primary benefit.  


If a federal employee/retiree also owned the house next door to their primary residence and the one next door was purchased at the same time, it too has had a similar increase in value (equity/growth).  However, that federal employee wouldn’t let that house sit empty and solely benefit from an increase in equity – they’d find a tenant that would pay them rent.  From the home next door, they’d still have the equity/growth potential, but they’d also gain the income potential.


When the TSP is rolled over to an IRA, there isn’t a loss of growth potential; instead, one gains the potential for their retirement savings to be an income producer.  Federal employees/retirees that do this now have the potential of having TSP withdrawals that do not come from their principal, but instead from its earnings – much like the concept of rent.


TSP withdrawals that come from earnings and used as income can be used to supplement other income sources and cover any needed expenses, while still having the potential for growth.  For federal employees/retirees not taking TSP withdrawals they can have any monthly earnings reinvested and have the benefit of monthly compounding of earnings.  These reinvested earnings also provide the potential to add to a retirement saving balance because additional contributions cannot be made once federal employment ends.


At the Jones Wealth Management Group, we help federal employees turn a good retirement into a better retirement by helping them turn on the income potential of the Thrift Savings Plan.


To schedule a no-cost consultation to learn more, click this link or call 901-312-9166.

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