Thrift Savings Plan: Federal Employee Retirement

Sep 28, 2015

thrift savings plan

As with most lines of work, a career in public service has its pros and cons. Among the more enviable aspects is an attractive retirement package. For federal employees, the Thrift Savings Plan (TSP) is a significant component of retirement, which needs to be carefully considered when planning for life after work. It is the largest 401(k)- type plan in the world, and allows members to participate in simple, long-term savings and investment options with low administrative expenses in relation to similar plans in the private sector.


After leaving the Federal service, employees are allowed to wait until the year they turn 70 ½ before they begin withdrawing from their Thrift Savings Plan account. Since the median life expectancy for a retirement-aged American now extends into the late eighties, it’s important to start saving money for retirement early, to ensure there is a sufficient nest egg to cover necessary expenses and support a comfortable lifestyle.

At the Harris Federal Law Firm, we like to help our clients be as informed as possible when it comes to preparing for retirement. When you choose to leave the federal service, the TSP offers a variety of withdrawal options. You should consider your personal retirement goals and carefully contemplate how much money you need to budget for when considering the following options that the TSP offers:

Partial Withdrawal

You can take out $1,000 or more as a partial withdrawal, and leave the remaining money in your account until you decide to withdraw on a later date. It’s important to note that you can only make one partial withdrawal from your account, and you are only eligible to do so if you have not made an age-based in-service withdrawal ( at age 59 ½ or over).

Full Withdrawal

If you choose to withdraw from your entire account balance, there are a number of ways you can choose to have your funds distributed:

Single/ Lump Sum Payment

When deciding how to distribute your money when withdrawing from your entire account, you can choose to receive a single or “lump sum” payment, which allows you to withdraw your entire TSP account at one time and in one payment.

Monthly Payment

You can also opt to receive a series of monthly payments until your TSP account is completely paid out. One way to do this is to have the TSP compute your monthly payments based on IRS life-expectancy tables. If you choose this option, then your initial payment will be based on your age and your account balance at the time you begin withdrawing money. Every year after that, the TSP will recalculate your payments based on your age and the payment amount you received during the preceding year. The benefit of this option is that your payments are calculated based on the amount of time you are expected to live; however you need to be sure this is enough income to meet your needs. Upon your death, if there is a remaining balance in your Thrift Savings Plan account, then it will be paid to your beneficiary(ies).

You can also choose to receive a specific dollar amount each month, which will last until your account has been paid out in full. This option allows you to have more control over how your funds are distributed; however, the payments will end when the funds have depleted, so you run the risk of your money running out before you die.

Life Annuity

Another option for withdrawing from your Thrift Savings Plan account is using the funds to purchase a life annuity, which will provide consistent monthly payments for the remainder of your life.You can also purchase a life annuity with survivor benefits, which will continue to provide the payments in the case that you pass before your spouse or beneficiary. There are two options when choosing joint life annuity:

  1. 100% survivor annuity — in this case, the amount of the monthly annuity payment made to the survivor is the same as it is when both you and your joint annuitant are alive. These initial payments are, however, less than what they would be if the 50% survivor annuity option was chosen.
  2. 50% survivor annuity — the amount of annuity awarded to the survivor — whether it be you or your joint annuitant — is half of the payment allocated when you are both alive, though this initial payment is higher than what it would be with the 100% survivor annuity option.  If you choose a joint annuitant other than your spouse who is more than 10 years younger than you, then you are required to choose the 50% survivor annuity option.

The amount of the monthly annuity payments you receive will be based off of the type of annuity plan you choose, the age of both you and your joint annuitant (if applicable) when the annuity is purchased, how much money is used to purchase the annuity, and the “interest-rate index” at the time of purchase. More information about life annuity options can be found here.

You deserve to enjoy your retirement without the burden of worrying about financial security. Understanding the Thrift Savings Plan portion of retirement is critical to making informed decisions about how to prepare for your future.  More information about TSP can be found here, and to learn more about federal retirement, check out this blog we wrote about retirement planning.

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