What is the 4% Rule for a TSP?

Shawn Plummer

CEO, The Annuity Expert

What is the 4% Rule for a TSP?

The 4% rule is a guideline used in retirement planning, particularly with the Thrift Savings Plan (TSP), which is a retirement savings and investment plan for federal employees and members of the uniformed services. The rule suggests that retirees can withdraw 4% of their retirement savings in the first year of retirement and then adjust that amount for inflation each year thereafter. This strategy is designed to ensure that the retiree’s savings last for a 30-year retirement period.

An Alternative: Fixed Index Annuities with Guaranteed Lifetime Withdrawal Benefits

  • Definition: A fixed index annuity (FIA) is an insurance product that provides a guaranteed income for life. The returns on FIAs are tied to a stock market index but offer a guaranteed minimum return.
  • Withdrawal Rates: FIAs often offer higher initial withdrawal rates compared to the 4% rule, typically between 5-7%.
  • Inflation Adjustment: Like the 4% rule, many FIAs can adjust for inflation. This feature helps maintain the purchasing power of the withdrawals over time.

Comparing the 4% Rule with Fixed Index Annuities (FIAs)

  1. Initial Withdrawal Rate:
    • 4% Rule: Starts at 4%.
    • FIA: Typically starts between 5-7%, which can be higher initially compared to the 4% rule.
  2. Potential to Keep Up with Inflation:
    • 4% Rule: Adjusts annually for inflation.
    • FIA: Also has options for inflation adjustment, potentially offering a stronger ability to keep pace with inflation due to higher initial withdrawal rates.
  3. Income Guarantee:
    • 4% Rule: No guaranteed income; dependent on investment performance.
    • FIA: Provides guaranteed lifetime income, offering more stability but potentially less flexibility.
  4. Market Dependence:
    • 4% Rule: More dependent on market performance as it directly affects the retirement portfolio.
    • FIA: Less market risk due to guaranteed returns, but linked to a market index for potential growth.


Choosing between the 4% rule for a TSP and rolling over into an FIA with a guaranteed lifetime withdrawal benefit depends on individual risk tolerance, retirement goals, and the need for guaranteed income. While FIAs may offer higher initial withdrawal rates and a guarantee, they might lack the flexibility and potential growth of a TSP managed with the 4% rule. Each option has its merits and should be considered carefully based on personal circumstances.

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Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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