The Best TSP Withdrawal Options (and The One to Avoid)

hello hello good morning federal employees my name is dallin and welcome back to another incredible episode here and i am excited about today's topic but today we're going to do it a little different i'm going to start off with a little inspirational quote because i think we all i think this world needs a little more optimism a little more inspiration so before we dig deep into our technical topic about the tsp and the withdrawal options how you get money out of the tsp in the best way before we dig into that let's hear from our friend oprah winfrey okay she says hey be thankful for what you have and you'll end up having more but if you concentrate on what you don't have you'll never ever have enough who can say better than oprah winfrey she does an incredible job has some incredible quotes out there so i just wanted to share that i came across that i can't remember exactly when but i thought that was a great thing to share because i think we all are very good at comparing ourselves to our neighbors about to our family members to our friends whoever it is say hey wow you know if i just had what they had if i just had this if i just had that then things would be better right and i think pushing and working for better things like we talked about on this channel is a great thing but always being grateful and looking back and being grateful for all that we have is an incredible thing to do that can make what we have enough right and obviously we want to be prepared and we want to do everything we can to set ourselves up for success but at the same time have gratitude i think that's super super powerful so now that we are inspired and ready to go let's talk about how to get money out of your tsp so i've talked about this metaphor before but retirement and prepping for retirement especially during your career you're working okay you're saving in your tsp you're getting in years you're doing all these things to prepare for retirement okay and that is like climbing a mountain right if there's any hikers adventurers out there you know that as you climb up the mountain it can be hard right it's hard on the muscles there's strain there you're pushing yourself up the incline to the top and then you get there you make it to the top which is in this metaphor retirement you finally are prepared you finally have enough saved up you finally have enough years of service to be able to retire you made it to the peak right that's an incredible accomplishment what are you gonna do now that you're at the top well the people that have retired they realize hey i gotta get down the mountain right i mean getting to the top is a wonderful thing right we should be grateful for that like open ramp oh like oprah winfrey says we need to be grateful but that's not the end of the journey retirement is just a stepping stone and we have many many years in retirement and getting down the mountain safely or in reference to today's topic getting money out of your tsp safely is a huge part of that so we're going to dig into the three main types of ways withdrawal options that you have from your tsp some of the pros and cons and things to think about and then actually one of my i don't think it would be the next episode but the episode after that i'm going to dig into even some more strategies building off the base that we are going to talk about today so without further ado let's jump right in so like i said there's three different options when it comes to taking money out of your tsp there is the first one is taking installment payments and basically what that means is telling the tsp that says hey i want a certain amount of money on a regular basis continually right so for example you can do monthly quarterly or annual distributions or withdrawals from your tsp and you can get that on a schedule so you can say hey tsp i want 20 grand every january out of my tsp boom and you can get that set up so that they do it constantly without you doing anything right you can do that you could also do a monthly amount you could do like i said a quarterly amount and the good news is with these withdrawals is that you can adjust it at any point you could stop the payment let's say hey i actually don't need that much money i need to stop it for a few months as i use what i have or you can adjust it you can say hey let's actually just tone it down or let's tone it up you can continually adjust that at any point you can adjust those payments however you see fit right and obviously if your money's in the traditional tsp you probably don't want to take out more than you need unless you have a tax strategy or something to think about you probably don't want to take out more than you need just because right so you want to plan that out so it matches up with your needs what you're trying to do your travel whatever it is in retirement so that you have the right amount without overpaying in taxes every year so that is the first type of taking money out of your tsp just an installment payment is what it is called so there's that the second type is just a individual withdrawal a single withdrawal basically it's not a recurring withdrawal it's not something that is going to continue on it's just a one time thing you could go to the tsp and say hey i want a one-time payment of 10 grand send it over right and they'll do that now the one catch with these is you can only do these with these one-time withdrawals every 30 days right so let's say you take out let's say a thousand dollars today well if you wanted more money let's say in 10 days you do have to wait of course until the next 30 calendar days to be able to make that happen so use that sparingly obviously if you can come up with some sort of installment payment that covers your lifestyle that may be less stressful than having to maybe potentially worry about this 30-day calendar limit when it comes to taking money out of your tsp and when and how and all those good good stuff but of course it can be very helpful as short-term needs come up right you can take money out as needed so that is the second way that you can take money out of your tsp in my opinion that's a great way as well it just depends on your needs how you want to structure it to make it the the simple the simplest and the easiest for you in retirement so now on to the third the third way that you can take money out of your tsp and that is by doing an annuity right that tsp has contracted with the metlife is a big large insurance company and they provide annuities for the tsb participants that would like one and basically what that looks like is you take a piece of your tsp or all of your tsp and you go to metlife and say hey i want to do what they call an immediate annuity where basically you give them x amount of dollars and then they promise you a monthly payment an annual payment however you structure it for potentially a set of years or for the rest of your life right there's different ways to structure an annuity um and depending on what you pick then they will determine how much they're going to pay to you every single month and there's different options that you could pick you can pick where when you pass away it goes away or you can pick where um of course if you pass away but your spouse is still living that they will get a piece of that there's lots of different options that you can pick depending on the options the amounts will be different right if you want it to last both your life and your spouse's life then of course it's going to cost a little more and you the payment that you're going to get every month is going to be lower right and so i get questions about the annuity all the time and i think i've touched on this before but this is definitely the option the withdrawal option that i recommend the lease and i don't think i've ever actually had a client that it's made sense for right and some people might be confused like i thought an annuity would be a great option it's a guaranteed income what's not to love about a guaranteed income that's a great point but i think as federal employees we have to remember that retirement there's there's generally two main groups of retirement income that people have right there's fixed income and for this you can think about let's say your pension right social security or maybe a military retirement income that's going to come in every month consistently that you don't have to worry about it's just going to hit the bank account every single time that's fixed income right that's a great great foundation that we can have as we know your pension your social security is a huge part of your retirement as feds but we also know that things come up in retirement right we want flexibility as maybe an emergency comes up or maybe we want to change our plan maybe things aren't as good as we thought or aren't as bad as we thought we want to adjust and adapt in retirement well the problem with fixed income it's hard to change it once it gets once you get it going for example your pension what can you do to change it once you're retired well not much right what about social security once you get it going you've already applied you've already started it what can you do to change it well not much right and the same thing applies if you get a metlife annuity with your tsp if you wanted to could you change it sometimes sometimes you can but you lose a ton of flexibility and the growth rate is fixed and right now with interest rates so low that growth rate is extremely low the last time i checked i think it was 1.6 something percent that may not be perfect but just kind of based on my memory that that's what i'm remembering so the growth rate that they guarantee in the sudui is low right it's low and you may be just better off with the g fund or something else if you want to be so conservative um but often for federal employees because you have so much fixed income already then often the annuity just simply doesn't make sense because you want of course fixed income but you want the flexibility and let's say inflation goes crazy or things change in life you want something that's going to grow over time with inflation right that's where investments come in you want a piece of your retirement income to be tied to something that will grow over time so that you can be flexible and as inflation changes as the standard of living changes you can adjust as well so that you can maintain the standard of living and do the things that you love and want to do in retirement so again i'm not totally bashing an annuity sometimes annuities can be a great tool um i just say be hesitant before you pull the trigger on them there's a there's um i think very few cases where it does make a ton of sense and i would i would just be careful i'd be careful before you jump in and tie your money up into something that you can't adjust down the road i love helping people build financial plans that are flexible right so you know maybe we make a decision today but if the facts change which they will they will change if the facts change maybe in 10 years maybe the laws change maybe taxes change maybe inflation changes that there's enough wiggle room there's enough flexibility in your retirement plan in your financial plan so that you're still going to be okay right if you lock in all your choices and all your options to a few things and then things change what happens then right you have to have some flexibility in your plan so that is why most of the time i don't recommend the annuity right i i never like to say never use something but um in this case i'm gonna say almost never right almost never does the annuity make sense so those are the three main withdrawal options when it comes to getting money out of your tsp and the first two options are great the annuity not so much now when it comes to strategies on how to take money out and let's say from the traditional tsp or the roth tsp and when that works and some strategies to really get the most tax benefits out of your withdrawal options well that is actually going to be the topic of my next regular episode there's going to be a question the answer is next week where's my next episode but after that i'm going to dig into some withdrawal strategies on okay when should you take money out of where and what are things that you can do to of course lower your taxes now but also throughout your entire retirement so stay tuned that's going to be a great one i hope this is helpful i hope it reminds all of us that there's so much things that we can do to improve our circumstances get the most out of your federal benefits now and of course in retirement so i hope you guys have an incredible day and i'll see you next time

Channel: Haws Federal Advisors

Views: 75,799

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Id: jjkVFuAm75M

Length: 13min 5sec (785 seconds)

Published: Thu Apr 15 2021