What is the Best Way to Withdraw from a TSP?

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Understanding TSP Withdrawal Options

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the uniformed services. When considering withdrawal options, it’s crucial to balance the need for income security and the desire to maximize returns.

Related Reading: Cons of Withdrawing from a TSP

Rolling Over TSP into a Fixed Indexed Annuity with GLWB

One option is to roll over the TSP into a fixed indexed annuity with a Guaranteed Lifetime Withdrawal Benefit (GLWB). This strategy offers several advantages:

  1. Stable Income Stream: GLWB provides a steady income for life, reducing the risk of outliving your savings.
  2. Protection from Market Volatility: The annuity shields you from direct stock market losses.
  3. Interest Earnings: Your account can earn interest, adding to the annuity’s value over time.
  4. Death Benefit: The remaining balance can be left as a lump-sum death benefit.

Advantages and Disadvantages of Fixed Indexed Annuities with GLWB

  • Advantages:
    • Predictable income.
    • Protection against market downturns.
    • Potential for growth via interest earnings.
    • Estate planning benefits through death benefits.
  • Disadvantages:
    • Fees and charges may apply.
    • Limited liquidity compared to other investments.
    • Potential for lower returns compared to direct stock market investments.

Alternatives to Fixed Indexed Annuities

  • Systematic Withdrawal Plans: Regular, calculated withdrawals while remaining invested in the TSP.
  • Lump-Sum Withdrawal: Taking out a significant amount at once, though risky in terms of tax implications and longevity risk.
  • Partial Withdrawals: Withdraw specific amounts while leaving the rest invested.

Comparison of TSP Withdrawal Options

Withdrawal OptionIncome StabilityMarket RiskPotential GrowthLiquidity
Fixed Indexed Annuity with GLWBHighLowMediumLow
Systematic Withdrawal PlansMediumMediumHighHigh
Lump-Sum WithdrawalLowHighHighHigh
Partial WithdrawalsMediumMediumMediumMedium

Conclusion

Choosing the best withdrawal method from a TSP depends on your financial goals, risk tolerance, and retirement plans. Rolling over into a fixed indexed annuity with GLWB can offer a balanced approach with guaranteed income and protection against market volatility. However, it’s important to consider all options and possibly consult a financial advisor for personalized advice. Your choice should align with your long-term retirement strategy and financial security needs.

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Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, 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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