What Should Federal Employees Do With Their TSP At Retirement?

hello I'm Jose Roberta and this is your federal employee benefits where we discuss topics in the helping federal employees make smart financial decisions after retiring federal employees are faced with an important decision what should they do with their tsp So today we're going to discuss the two most common questions that that federal employees ask when they retire [Music] so the first question that federal employees need to answer when it comes to the tsp is whether or not they should roll over their tsp to an IRA now rolling over most of your tsp to an IRA will make sense for most federal employees okay now I'm going to outline the two major reasons why it makes sense to roll over your t-speed to an IRA for most rental employees now notice that I did not say roll over your entire tsp okay for most rolling over your entire balance to an IRA will not make sense for one simple reason if you take all your money out of the tsp your tsp account will close and you'll lose access to the G fund okay now I know uh most of your money has not been in this G fund or hopefully was not in the G fund okay you should be invested in growing but the G fund is unique to federal employees you're not going to find it anywhere else it's risk free and has a very competitive rate of return for that risk-free status okay there is no risk attached to that account it's a good account to keep your annual income in retirement and that account so it can grow and it typically keeps up with inflation okay so I have an entire video on the pros and cons of rolling over your t-speed to an IRA uh so I'm not going to go into every prone Con in this video but I do want to outline two major reasons why rolling over most of your tsp to an IRA will make sense the number one reason it makes sense for most feds to roll over most of their tsp to an IRA is for withdrawal flexibility okay because the major shortfall of the tsp are its limitations on withdrawals in fact if you meet basic criteria mainly being 59 and a half or older you can take money out of your IRA whenever you would like okay whether that's on a weekly basis a monthly basis what have you there's a lot of flexibility when it comes to withdrawals that's not the case with the tsp in fact with the tsp you have to wait 30 days before you can make a a withdrawal request another withdrawal request so for example let's say you decide when you're in retirement that you want to take money out of your tsp on a quarterly basis so and you made your quarterly withdrawal last week but something came up you need extra money whether that's to repair your car or uh repair a leaking roof okay you're gonna have to wait 30 days from your last withdrawal before you can make another withdrawal request so if that was the case it'd be a huge burden okay and that's why it makes sense for most feds to roll the roll over most of their tsp to an IRA so that they have the flexibility to access their money when they need it now the second major reason why most feds roll over their tsp to an IRA it's for more robust investment options okay now while the tsp does have the new mutual fund window the Investments through that window are far more expensive far more expensive than what you would find available in an IRA so I would never advise anyone to use that new mutual fund window okay so if you're looking for more a more robust investment option uh investment options really moving your money from the TCP to an IRA is the only option now the second question that you have to answer when you're approaching retirement is how should you invest your tsp because the way you invest in retirement should be completely different than how you invest in during your career now when I'm creating a retirement income strategy for my clients I utilize a system called the bucket strategy which is basically when you divide your retirement assets okay your tsp into three buckets short term your midterm bucket and your long-term bucket at the short term bucket is meant to provide income this bucket will hold three years or so of cash to provide income steady income for the next three years or so so this account needs to be or this bucket needs to be in an account in an account that is risk free and readily available so think uh checking account CD ladder or the G fund okay the G fund is a perfect uh perfect account for this bucket now remember that this bucket is not meant to generate a lot of growth okay it's not going to provide it's not the growth engine of your retirement income strategy is meant to provide stable safe income for the next three years or so now when I say three years or so I don't mean the the entire three years of income that you need remember your tsp is only providing a a portion of your annual income so for example let's say you need sixty thousand dollars worth of income a year in retirement your first pension May provide twenty thousand of that your Social Security benefits May provide another twenty thousand and then that remaining twenty thousand is what the tsp would provide so if you need twenty thousand from the tsp every year that bucket the short-term bucket is going to hold three years worth of that or sixty thousand now the midterm bucket will hold the money that you don't need for about four to seven years okay now unlike the short-term bucket or the cash bucket this bucket will be invested in assets that are not risk-free okay it will be invested in usually high quality bond funds think the F fund okay now unlike the short-term bucket and a downturn this bucket will have some losses but generally this bucket is going to be much more stable and safer than your long-term bucket and really the purpose of this bucket is to replenish the short-term bucket okay so your your income bucket to replenish that bucket when the long-term bucket has sustained losses in a market downturn okay we've reached bucket three the growth engine of the bucket strategy now bucket three is meant to provide the growth okay whereas bucket one is meant to provide income and protect you against stock market risk and bucket uh two or the midterm bucket is meant to provide increment stability and help protect you against inflation risks keeping up with inflation pocket three is really meant to grow as much as possible and help you avoid outliving your assets okay it's going to provide the growth needed so that you don't deplete your account and you can have uh a 30-year retirement without running out of money okay so this bucket is meant to grow and it's meant to be invested in growth stocks okay so it's really meant to have a growth oriented uh strategy okay now the bucket this bucket here the money in here you're not meant to need for between seven to ten years and that's why it can be invested in such a risky way okay because if there's a downturn in the market and this bucket drops 40 that's okay because you have the short-term bucket which has remember three years worth of your income then you have the midterm bucket which has about four years worth of income so together they provide seven years worth of income one is risk-free one is relatively stable then that seven years worth of income outside of the stock market allows your long-term bucket which has this dropped it gives it seven years to recover from those losses which historically is uh more than enough time so that's really what allows this bucket system to work is having that growth engine okay and during a period of strong stock market performance you can take some of the some of the gain trim some of the game off and replenish the other buckets deciding what to do with your tsp at retirement will be one of the most important decisions you make and by taking the time to plan early you'll be more likely to have the retirement that you want and less likely to make mistakes if you found this video useful sure like And subscribe and if you would like to do a deep free dive I put a link to an article in the description below at your federal employeebenefits.com where you can do that deeper dive there are any topics you'd like me to cover in the future let me know in the comments below and until next time I'm Jose armenta take care foreign

Channel: Your Federal Employee Benefits

Views: 6,195

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Length: 10min 21sec (621 seconds)

Published: Sat May 06 2023