How Much Retirement Income Will Your TSP Really Provide?

Having a sizable Thrift Savings Plan (TSP) by retirement is fantastic.

But there’s a catch.

We’re not used to living on a large amount of money. We are accustomed to receiving a wage check every two weeks.

So, how can we convert your TSP into a paycheck without running out of money?

This article will dive further into this question.

The Most Common TSP Pay Check Error

The 4% rule is a fantastic approach to predict how large a paycheck your TSP can offer without running out.

Most individuals, however, don’t grasp how the 4% rule works and end up implementing it wrong, leaving a lot of money on the table!

The Actual 4% Rule

Many assume that the 4% rule states that you can withdraw only 4% of your TSP balance yearly. But that’s not the case.

The 4% rule states that you should withdraw 4% of your TSP balance at the start of retirement and then raise that initial withdrawal every year, depending on inflation.

Assume you have $500,000 to retire with. 4% of it is $20,000; therefore, you may withdraw $20,000 in your first year of retirement.

Most people believe that in year 2, you must multiply 4% by your new TSP balance, but that’s not what the 4% indicates.

According to the actual 4% rule, in year two, you take the first year’s withdrawal amount and multiply it by the year’s inflation rate.

So, assuming 5% inflation, your year two withdrawal would be $21,000 ($20,000 x 1.05).

The table below depicts how a withdrawal might alter over time with different inflation rates, assuming a $10,000 initial withdrawal.

But You’re Not Done Yet

So, if you have $500,000 in your TSP and intend to withdraw $20,000 in the first year, will you get to keep the entire $20,000?

Most likely not.

Don’t forget about Uncle Sam and taxes!

Assuming a 20% effective tax rate, a $20,000 first-year withdrawal would result in $4,000 in taxes, and you’ll be left to spend $16,000.

Of course, your tax rate in retirement will be determined by your other income and the sort of retirement account from which you are taking funds.

For example, if you withdraw $20,000 from your Roth TSP, you will pay no taxes.

That’s correct, zero dollars!

That’s one of the many benefits of the Roth TSP.

Making TSP Paychecks

Once you’ve determined how much you may withdraw from your TSP each year, you’ll need to select how frequently you want to receive payments (monthly, quarterly, etc.) and divide the yearly amount appropriately.

The TSP (and other banks if you have IRAs) offers several flexible alternatives for receiving your money.

Most individuals prefer monthly payments since most expenses (such as utilities, credit cards, and so on) must be paid monthly.

So a $20,000 yearly withdrawal would be around $1,666 each month, or approximately $1,333 after tax.

However, you may modify your payment plan to meet your specific requirements.

Contact Information:
Email: [email protected]
Phone: 8043014291

Bio:
Stuart Hunsicker is a managing partner, retirement specialist and federal employee benefits specialist here at Purpose Driven Financial Services. As firm co-owner with Zar Razack, the two have a natural chemistry that allows them to work together effortlessly. “Once we decided to really commit to pushing the firm forward, we knew that we could be effective,†Stuart says. “We work very well together and complement each other’s strengths and weaknesses.â€

Stuart considers himself more of the “analytical and numbers†half of the duo. With more than 20 years of experience in the financial services industry, he has become an expert at assessing each individual person’s situation and deducing how much they might need in retirement. Once he arrives at the target number, Zar steps in as a specialist to design a plan that includes specific elements that will help clients reach that number.

A VCU-Richmond graduate with a degree in finance specializing in business, Stuart has seen nearly every side of the financial industry. Early in his career, he worked for smaller firms and was in charge of trading and investment portfolios. He also held a Series 24 license and signed off on variable business within the firm. “I wore a lot of hats,†he says. “I focused on the investment side, but when the markets crashed, I just took too many phone calls with crying voices on the other end.â€

Those tough phone calls led him into the insurance side of the business. He now considers “retirement surety†his focal point and believes in making sure that each client is prepared for retirement before they move to the next step. Once the retirement plan is put into place, the rest is icing on the cake, helping give the client financial freedom.

PDFS certainly isn’t exclusive, but Stuart is extremely passionate about working with teachers and federal workers. His beautiful wife of nearly 20 years, Andrea, is a teacher, so he’s very familiar with the issues they face and tends to gravitate toward clients who serve and assist. He has also experienced many of the hypothetical scenarios he raises to clients. What if a spouse passes away suddenly, or what if you’re forced into retirement early? Stuart has been there, and he knows how to navigate those rocky waters.

He and Andrea have one son, one daughter and eight cats. “We’re the crazy cat house,†he says. His oldest cat is almost 20 years old and was the first to join the Hunsicker family, even before Stuart and Andrea married. The first cat needed a friend, of course, so they adopted one more. Andrea always loved tabby cats, so when her colleague told her that a stray tabby gave birth to a litter of kittens in the backyard, the family loaded into the car to have a look. “When we arrived, there were three kittens. My wife fell in love with the tabby, and my daughter took to a different one, then we couldn’t just leave the third one behind,†Stuart says. “At that point we were known for being the cat people, and it was at that point that three more found their way into our family.â€

Stuart is a massive college basketball fan, even making a trip to the 2022 Final Four. Though he doesn’t have much free time, he and Andrea love to attend sporting events. Stuart also enjoys spending time with family, and they often go shopping, to the beach or to try new local restaurants. He says, “We’re just a normal family that loves being around each other.â€